<PAGE> 1
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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<TABLE>
<C> <S>
(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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER: 0-15829
FIRST CHARTER CORPORATION
(Exact name of registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 56-1355866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22 UNION STREET NORTH, CONCORD, NC 28026-0228
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (704) 786-3300
Securities registered pursuant to Section 12(b) of Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C> <C>
NA NA
</TABLE>
Securities registered pursuant to Section 12(g) of Act:
Common stock, no 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. [X] Yes [ ] 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 29, 2000 was $187,462,317.
As of March 29, 2000 the Registrant had outstanding 17,704,811 shares of
Common Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE:
PARTS I and II: Annual Report to Shareholders for the fiscal year ended
December 31, 1998 (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 14A promulgated pursuant to the
Securities Exchange Act of 1934 in connection with the 1999 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).
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<PAGE> 2
FIRST CHARTER CORPORATION
AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1: Business.................................................... 1
Item 2: Properties.................................................. 19
Item 3: Legal Proceedings........................................... 19
Item 4: Submission of Matters to a Vote of Security Holders......... 21
Item 4A: Executive Officers of the Registrant........................ 22
PART II
Item 5: Market for the Registrant's Common Stock and Related
Shareholder Matters....................................... 23
Item 6: Selected Financial Data..................................... 23
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Item 7A: Quantitative and Qualitative Disclosures about Market
Risk...................................................... 23
Item 8: Financial Statements and Supplementary Data................. 23
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 23
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 24
Item 11: Executive Compensation...................................... 24
Item 12: Security Ownership of Certain Beneficial Owners and
Management................................................ 24
Item 13: Certain Relationships and Related Transactions.............. 24
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 24
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
First Charter Corporation (hereinafter referred to as either the
"Registrant" or the "Corporation") is a 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 asset is the stock
of its subsidiary, First Charter National Bank ("FCNB" or the "Bank"). The Bank
accounts for over 95% of the Registrant's consolidated assets and consolidated
revenues. The principal executive offices of the Corporation are located at 22
Union Street North, Concord, North Carolina 28025. Its telephone number is (800)
422-4650.
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. On December 21, 1995, the Corporation purchased Bank of
Union ("Union"), a state-chartered commercial bank organized under the laws of
North Carolina in 1985. Union, a full-service bank with five offices located in
Union and southern Mecklenburg Counties, North Carolina, was merged into FCNB
effective September 10, 1998. On December 22, 1997, the Corporation acquired
Carolina State Bank ("CSB") which was also merged into FCNB. CSB was a state-
chartered commercial bank with four banking offices in Cleveland and Rutherford
Counties, North Carolina. On September 30, 1998, the Corporation acquired HFNC
Financial Corp. ("HFNC"), which merged into the Corporation. The merger was
accounted for as a pooling of interests, and accordingly all financial
information presented herein has been restated for all periods presented to
reflect this merger. HFNC was the unitary holding company of Home Federal
Savings and Loan Association ("Home Federal"). Home Federal, which dates back to
1883, was based in Charlotte, North Carolina, and operated nine full service
branch offices and a loan origination office, all located in Mecklenburg County,
North Carolina. These offices operated under the Home Federal name until its
merger into FCNB in March 1999. FCNB is a full service bank and trust company
which now operates thirty-three branch offices and two limited service
facilities in addition to its main office, one loan production office located in
Guilford county, as well as 71 ATMs (automated teller machines) located in
Mecklenburg, Cabarrus, Cleveland, Rutherford, Rowan, Stanley and Union Counties
in North Carolina.
Through its branch locations, the Bank provides a wide range of banking
products, including interest bearing and non-interest bearing checking 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 First
Charter Brokerage Services, a subsidiary of FCNB, the Registrant offers discount
brokerage services, annuity sales and financial planning services pursuant to a
third party arrangement with UVEST Investment Services. FCNB also operates three
other subsidiaries. First Charter Insurance Services, Inc. is a North Carolina
corporation formed to meet the insurance needs of businesses and individuals
throughout the Charlotte metropolitan area. First Charter Realty Investment,
Inc. is a Delaware corporation organized as a holding company for FCNB Real
Estate, Inc., a real estate investment trust organized in North Carolina.
At December 31, 1999, the Registrant and its subsidiary had 504 full-time
employees and 113 part-time employees. The Registrant had no employees who were
not also employees of FCNB. The Registrant considers its relations with its
employees to be good.
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.
As part of its operations, the Registrant regularly holds discussions and
evaluates the potential acquisition of, or merger with, various financial
institutions. The Registrant currently has an agreement in effect with respect
to such a merger. The Registrant and Carolina First BancShares, Inc., ("CFBI")
entered into a definitive agreement and plan of merger (the "Merger Agreement")
dated as of November 7, 1999. Shareholder approval of this merger was obtained
on March 21, 2000. As of December 31, 1999, the
1
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Corporation held 157,215 shares of CFBI representing 2.62% of CFBI outstanding
stock. This investment has a market value of $4.9 million which represents a
$2.5 million increase over cost. 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, out-of-state institutions may open de novo
branches in North Carolina as well as acquire or merge with institutions located
in North Carolina. As a result of such laws, banking activities in North
Carolina are highly competitive.
FCNB's service delivery facilities are located in Mecklenburg, Cabarrus,
Union, Rowan, Cleveland, and Rutherford counties. These locations also have
numerous branches of money-center, super-regional, regional, and statewide
institutions, many of them based in Charlotte. 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 Bank.
The Bank's primary method of competition is to provide quality service and
fairly priced products.
GOVERNMENT SUPERVISION AND 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"). The Federal Deposit
Insurance Corporation ("FDIC") insures FCNB's deposits through the Bank
Insurance Fund ("BIF") to the maximum extent permitted by law.
In addition to banking laws, regulations and regulatory agencies, the
Corporation and FCNB are subject to various other laws and regulations and
supervision and examination by other regulatory agencies, all of which directly
or indirectly affect the Corporation's operations, management and ability to
make distributions. The following discussion summarizes certain aspects of those
laws and regulations that affect the Corporation.
Restrictions on Bank Holding Companies. The Federal Reserve is authorized
to adopt regulations affecting various aspects of bank holding companies. Under
the BHCA, the Corporation'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 Corporation is also subject to the North Carolina Bank Holding Company
Act of 1984. As required by this state legislation, the Corporation, by virtue
of its ownership of FCNB, 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 Corporation from acquiring or controlling
certain non-bank banking institutions which have offices in North Carolina.
2
<PAGE> 5
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 that
state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorized banks to merge
across state lines, thereby creating interstate branches beginning June 1, 1997.
Under such legislation, each state had 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 elected to "opt 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.
Gramm-Leach Bliley Financial Modernization Act of 1999. In 1999, the
President of the United States signed into law the Gramm-Leach-Bliley Financial
Modernization Act of 1999 ("Modernization Act"). The Modernization Act allows
bank holding companies meeting management, capital and Community Reinvestment
Act standards to engage in substantially broader range of traditionally
nonbanking activities than was permissable before enactment, including insurance
underwriting and making merchant banking investments in commercial and financial
companies. It also allows insurers and other financial services companies to
acquire banks; removes various restrictions that currently apply to bank holding
company ownership of securities firms and mutual fund advisory companies; and
establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations. This part of
the Modernization Act will become effective 120 days after enactment. The
Corporation currently believes it meets the requirements for the broader range
of activities that will be permitted by the Modernization Act.
In addition, the Modernization Act also modifies current law related to
financial privacy and community reinvestment. The new privacy provisions
generally will prohibit financial institutions from disclosing nonpublic
personal financial information to nonaffiliated third parties unless the
customer has the opportunity to decline disclosure.
Regulation of FCNB. 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 FDIC. 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. The Bank is also subject to
certain reserve requirements established by the Federal Reserve Board and is a
member of the Federal Home Loan Bank ("FHLB") of Atlanta, which is one of the 12
regional banks comprising the FHLB System.
CAPITAL AND OPERATIONAL REQUIREMENTS
The Federal Reserve, the OCC and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to federally chartered
banking organizations. The risk-based guidelines define a two-tier capital
framework, under which the Corporation and the Bank are 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 Corporation, Tier 1 Capital generally consists of
total shareholders' equity calculated in accordance with generally accepted
accounting principles less certain intangibles, and Total Capital generally
consists of Tier 1 Capital plus certain adjustments, the largest of which for
the Corporation 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-
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<PAGE> 6
and off-balance sheet exposures of the Corporation, as adjusted for one of four
categories of risk-weights established in Federal Reserve, OCC and FDIC
regulations, based primarily on relative credit risk. At December 31, 1999, the
Corporation and the Bank were in compliance with the risk-based capital
requirements.
The leverage ratio is determined by dividing Tier 1 Capital by adjusted
total assets. Although the stated minimum ratio is 3.00%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3.00%. Management believes that the Corporation and the Bank meet
their leverage ratio requirement.
The Corporation's compliance with existing capital requirements is
summarized in the table below.
<TABLE>
<CAPTION>
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.................... $228,449 12.40% $228,449 16.95% $245,306 18.20%
Required.................. 73,707 4.00 53,922 4.00 107,844 8.00
Excess.................... 154,742 8.40 174,527 12.95 137,462 10.20
</TABLE>
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(1) Percentage of total adjusted average assets. The Federal Reserve minimum
leverage ratio requirement is 3.00% to 5.00%, depending on the institution's
composite rating as determined by its regulators. The Federal Reserve Board
has not advised the Corporation of any specific requirement applicable to
it.
(2) Percentage of risk-weighted assets.
In addition to the above described capital requirements, the federal
regulatory agencies may from time to time require that a banking organization
maintain capital above the minimum 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 undercapitalized 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
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 Capital ratio of at least 6.00%, a Total Capital ratio of at least
10.00% and a leverage ratio of at least 5.00% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
Capital ratio of at least 4.00%, a Total Capital ratio of at least 8.00% and a
leverage ratio of at least 4.00%, or 3.00% in some cases. Under these
guidelines, FCNB is considered well capitalized.
Banking agencies have also adopted final regulations which mandate that
regulators take into consideration (i) concentrations of credit risk, (ii)
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) and (iii) 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 is made as a part of the institution's
regular safety and soundness examination. In addition, the banking agencies have
amended their regulatory capital guidelines to incorporate a measure for market
risk. In accordance with amended guidelines, a Corporation or Bank with
significant
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<PAGE> 7
trading activity (as defined) must incorporate a measure for market risk in its
regulatory capital calculations effective for reporting periods after January 1,
1998. The revised guidelines do not materially impact the Corporation's or
FCNB's regulatory capital ratios or their well-capitalized status.
Distributions. The primary source of funds for distributions paid by the
Corporation to its shareholders is dividends received from FCNB. Certain
regulatory and other requirements restrict the amount of dividends that FCNB can
pay to the Corporation. The OCC regulates the amount of FCNB dividends payable
to the Corporation based on undivided profits for the last two years, less
dividends already paid. As of December 31, 1999, FCNB had paid the full
allowable amount of dividends to the Corporation. FCNB obtains regulatory
approval prior to payment of dividends to the Corporation.
In addition to the foregoing, the ability of the Corporation and FCNB 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 a federal regulatory agency, 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 agency may require, after notice and
hearing, that such bank cease and desist from such practice. The right of the
Corporation, its shareholders and its creditors to participate in any
distribution of assets or earnings of FCNB is further subject to the prior
claims of creditors against the Bank.
Deposit Insurance. The deposits of FCNB are insured up to applicable
limits by the FDIC, and are backed by the full faith and credit of the U.S.
government. As insurer, the FDIC is authorized to conduct examinations of, and
to require reporting by, FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious threat to the FDIC. The FDIC also has the
authority to initiate enforcement actions against banking institutions, after
giving the institution's primary regulator an opportunity to take such action.
In addition, the Bank is subject to deposit premium assessments by the FDIC. As
mandated by FDICIA, the FDIC has adopted regulations for a risk-based insurance
assessment system. Under this system, the assessment rates for an insured
depository institution vary according to the level of risk incurred in its
activities. To arrive at a risk assessment for a banking institution, 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, statistical analyses of financial
statements and other relevant information.
The deposits of FCNB are insured by the BIF, administered by the FDIC.
Under the FDIC's risk-based insurance system, assessments currently can range
from no assessment to 0.27% of a participating bank's average deposits base,
with the exact assessment determined by the bank's capital and the applicable
regulatory agency's opinion of the bank's operations. The range of deposit
insurance assessment rates can change from time to time, in the discretion of
the FDIC, subject to certain limits.
The former Home Federal deposits are insured by the SAIF, also administered
by the FDIC. Unlike the BIF, which met its target reserve level in September
1995, the Savings Association Insurance Fund ("SAIF") was not expected to meet
its target reserve level until at least 2002. Consequently, while insurance
premiums for BIF insured deposits were reduced beginning in 1996, premiums for
SAIF members were maintained at their existing levels, creating a significant
premium disparity. On September 30, 1996, legislation was passed to eventually
eliminate this premium differential between SAIF-insured institutions and
BIF-insured institutions by recapitalizing the SAIF's reserves by way of a
one-time special assessment equal to 65.7 basis points for all SAIF-assessable
deposits as of March 31, 1995. This special assessment was accrued by Home
Federal at September 30, 1996 and paid on November 27, 1996. As a result of this
recapitalization, during the period from 1997 through 1999, FDIC-insured
institutions in the lowest risk category will pay approximately 1.2 basis points
of their BIF-assessable deposits and 6.1 basis points of their SAIF-assessable
deposits to fund the insurance fund. FCNB continued to pay the SAIF assessment
rate on former Home Federal deposits through the end of 1999.
Source of Strength. According to Federal Reserve policy, bank holding
companies are expected to act as a source of financial strength to subsidiary
banks 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.
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<PAGE> 8
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 Corporation 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. The likelihood and
timing of any such proposals or bills being enacted and the impact they might
have on the Corporation and FCNB cannot be determined at this time.
OTHER CONSIDERATIONS
There are particular risks and uncertainties that are applicable to an
investment in our common stock. Specifically, there are risks and uncertainties
that bear on our future financial results that may cause our future earnings and
financial condition to be less than our expectations. Some of the risks and
uncertainties relate to economic conditions generally, and would affect other
financial institutions in similar ways. These aspects are discussed under the
heading "Factors that May Affect Future Results" in the accompanying
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the First Charter Corporation 1999 Annual Report to
Shareholders, incorporated herein by reference. This section addresses
particular risks and uncertainties that are specific to our business.
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STATISTICAL INFORMATION
The following tables present certain statistical information relating to
the Corporation. The tables should be read in conjunction with the
Corporations's Consolidated Financial Statements and Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, both of which are incorporated by reference herein.
The following table includes for the years ended December 31, 1999,
1998,and 1997 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 1
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------- ---------------------------------- ----------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/RATE AVERAGE INCOME/ YIELD/RATE AVERAGE INCOME/ YIELD/RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
(DOLLARS IN THOUSANDS) ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning
assets:
Loans (1) (2) (3)..... $1,381,753 $117,403 8.50% $1,358,949 $116,777 8.59% $1,143,448 $100,921 8.83%
Securities available
for
sale -- taxable..... 238,399 15,003 6.29 221,860 14,591 6.58 246,937 15,717 6.36
Securities available
for
sale -- nontaxable
(4)................. 92,980 6,949 7.47 84,673 6,640 7.84 72,468 5,754 7.94
Investment securities
held to maturity --
taxable............. -- -- -- -- -- -- 13,375 766 5.73
Investment securities
held to maturity --
nontaxable(4)....... -- -- -- -- -- -- 1,251 83 6.63
Federal funds sold.... 2,024 129 6.37 18,450 1,026 5.56 18,238 1,012 5.55
Interest-bearing bank
deposits............ 4,694 274 5.84 3,902 201 5.15 13,835 795 5.75
---------- -------- ---------- -------- ---------- --------
Total......... $1,719,850 $139,758 8.13% $1,687,834 $139,235 8.25% $1,509,552 $125,048 8.28%
========== ======== ========== ======== ========== ========
Interest bearing
liabilities:
Demand deposits..... $ 146,343 $ 1,195 0.82% $ 135,492 $ 3,794 2.80% $ 128,703 $ 2,054 1.60%
Money market
accounts.......... 152,785 7,351 4.81 75,558 3,439 4.55 70,496 3,290 4.67
Savings deposits.... 125,418 4,556 3.63 135,309 5,387 3.98 132,615 5,520 4.16
Other time
deposits.......... 580,714 31,269 5.38 587,261 33,521 5.71 611,038 35,468 5.80
Other borrowings.... 422,644 22,898 5.42 434,260 24,482 5.64 283,167 16,495 5.83
---------- -------- ---------- -------- ---------- --------
Total......... $1,427,904 $ 67,269 4.71% $1,367,880 $ 70,623 5.16% $1,226,019 $ 62,827 5.12%
========== ======== ========== ======== ========== ========
Net interest income
and spread.......... $ 72,489 3.42% $ 68,612 3.09% $ 62,221 3.16%
======== ======== ========
Net yield on interest
earning assets
(5)................. 4.21% 4.07% 4.12%
</TABLE>
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(1) Includes amortization of deferred loan fees of approximately $2,471,000 in
1999, $3,482,000 in 1998 and $2,375,000 in 1997.
(2) The preceding analysis takes into consideration the principal amount of
nonaccruing loans and only income actually collected.
(3) Average loan balances 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 35%, applicable state taxes and TEFRA
disallowances for 1999, 1998 and 1997. The adjustments made to convert to a
fully taxable equivalent basis were $3,041,000 for 1999, $2,726,000 for
1998, and $1,918,000 for 1997.
(5) Represents net interest income as a percentage of total average interest
earning assets.
7
<PAGE> 10
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, 1999 and 1998. 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. Interest
income related to tax exempt securities is stated on a tax equivalent basis
using a Federal income tax rate of 35%, applicable state taxes and TEFRA
disallowances in 1999, 1998 and 1997.
TABLE 2
VOLUME AND RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
FROM DEC. 31, 1998 TO DEC. 31, 1999 FROM DEC. 31, 1997 TO DEC. 31, 1998
----------------------------------- ------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
----------------------------------- ------------------------------------
RATE/ TOTAL RATE/ TOTAL
VOLUME RATE VOLUME CHANGE VOLUME RATE VOLUME CHANGE
(DOLLARS IN THOUSANDS) ------ ------- ------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans................................... $ (22) $(1,323) $1,949 $ 626 $(502) $(2,913) $18,769 $15,856
Securities available for
sale -- taxable....................... (47) (652) 1,064 412 (53) 497 (1,623) (1,126)
Securities available for
sale -- non-taxable................... (31) (327) 636 309 (12) (77) 963 886
Investment securities held to
maturity -- taxable................... -- -- -- -- 766 (383) (383) (766)
Investment securities held to
maturity -- nontaxable................ -- -- -- -- 83 (41) (42) (83)
----- ------- ------ ------- ----- ------- ------- -------
Total securities........................ (78) (979) 1,700 721 784 (4) (1,085) (1,089)
Federal funds sold...................... (133) 83 (980) (897) -- 2 12 14
Interest bearing bank deposits.......... 5 30 43 73 59 (53) (541) (594)
----- ------- ------ ------- ----- ------- ------- -------
Total interest income................... (228) (2,189) 2,712 523 341 (2,968) 17,155 14,187
----- ------- ------ ------- ----- ------- ------- -------
Interest expense:
Demand deposits......................... (215) (2,795) 196 (2,599) 82 1,591 149 1,740
Money market accounts................... 201 297 3,615 3,912 (6) (84) 233 149
Savings deposits........................ 34 (454) (377) (831) (5) (243) 110 (133)
Other time deposits..................... 21 (1,889) (363) (2,252) 23 (578) (1,369) (1,947)
Other borrowings........................ 26 (942) (642) (1,584) (265) (673) 8,660 7,987
----- ------- ------ ------- ----- ------- ------- -------
Total interest expense.................. 67 (5,783) 2,429 (3,354) (171) (13) 7,783 7,796
----- ------- ------ ------- ----- ------- ------- -------
Net interest income..................... $(295) $ 3,594 $ 283 $ 3,877 $ 512 $(2,981) $ 9,372 $ 6,391
===== ======= ====== ======= ===== ======= ======= =======
</TABLE>
8
<PAGE> 11
INTEREST RATE SENSITIVITY
The following table presents the Corporation's interest sensitivity
analysis for December 31, 1999 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, 1999. Demand deposits, money market
accounts and certain savings deposits are presented in the earliest repricing
window because the rates are subject to immediate repricing.
TABLE 3
INTEREST RATE SENSITIVITY
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
NON-
SENSITIVE
AND
INTEREST SENSITIVITY IN DAYS SENSITIVE
---------------------------------------------- OVER 5
1-90 91-180 181-365 TOTAL 1-2 YEARS 2-5 YEARS YEARS TOTAL
(DOLLARS IN THOUSANDS) --------- --------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Interest-bearing due from
banks................... $ 1,995 $ -- $ -- $ 1,995 $ -- $ -- $ -- $ 1,995
Fed funds sold............ 665 -- -- 665 -- -- -- 665
Securities available for
sale, at amortized cost:
Taxable............... 32,026 862 28,714 61,602 7,560 106,231 83,861 259,254
Nontaxable............ 3,809 2,424 -- 6,233 5,898 20,582 57,157 89,870
Loans..................... 429,984 35,041 55,244 520,269 121,043 378,730 403,715 1,423,757
--------- --------- --------- ---------- --------- --------- -------- ----------
Total earning
assets.............. 468,479 38,327 83,958 590,764 134,501 505,543 544,733 1,775,541
--------- --------- --------- ---------- --------- --------- -------- ----------
Interest-Bearing Liabilities:
Interest-bearing deposits:
Demand deposits........... 124,481 -- -- 124,481 -- -- -- 124,481
Money market accounts..... 199,344 -- -- 199,344 -- -- -- 199,344
Savings deposits.......... 53,596 8,403 17,245 79,244 25,794 602 -- 105,640
Other time deposits....... 178,653 75,939 266,942 521,534 54,148 13,156 596 589,434
Other borrowings.......... 316,107 10 57,163 373,280 55,326 63,120 250 491,976
--------- --------- --------- ---------- --------- --------- -------- ----------
Total interest-bearing
liabilities......... 872,181 84,352 341,350 1,297,883 135,268 76,878 846 1,510,875
--------- --------- --------- ---------- --------- --------- -------- ----------
Interest sensitivity
gap..................... $(403,702) $ (46,025) $(257,392) $ (707,119) $ (767) $ 428,665 $543,887 $ 264,666
========= ========= ========= ========== ========= ========= ======== ==========
Cumulative gap........ $(403,702) $(449,727) $(707,119) $ (707,119) $(707,886) $(279,221) $264,666 $ 264,666
========= ========= ========= ========== ========= ========= ======== ==========
Ratio of earning assets to
interest-bearing
liabilities................. 53.71% 45.44% 24.60% 45.52% 99.43% 657.60%
</TABLE>
9
<PAGE> 12
DISTRIBUTION OF ASSETS AND LIABILITIES
The following table shows the distribution of the Corporation's assets,
liabilities and shareholders' equity at December 31, 1999, 1998, and 1997.
Average balances were calculated based on daily averages.
TABLE 4
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
AVERAGE PERCENTAGE AVERAGE PERCENTAGE AVERAGE PERCENTAGE
BALANCE DISTRIBUTION BALANCE DISTRIBUTION BALANCE DISTRIBUTION
(DOLLARS IN THOUSANDS) ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks..... $ 36,739 2.0% $ 34,609 1.9% $ 28,373 1.8%
Interest bearing bank
deposits.................. 4,694 0.3 3,902 0.2 13,835 0.9
Investment securities --
taxable................... -- -- -- -- 13,375 0.8
Investment securities --
nontaxable................ -- -- -- -- 1,251 0.1
Securities available for
sale -- taxable........... 238,399 13.0 221,860 12.5 246,937 15.6
Securities available for
sale -- nontaxable........ 92,980 5.1 84,673 4.8 72,468 4.6
Loans, net (1).............. 1,381,753 75.7 1,358,949 76.3 1,143,448 72.1
Federal funds sold.......... 2,024 0.1 18,450 1.0 18,238 1.1
Other assets................ 69,832 3.8 58,102 3.3 47,506 3.0
---------- ----- ---------- ----- ---------- -----
Total............. $1,826,421 100.0% $1,780,545 100.0% $1,585,431 100.0%
========== ===== ========== ===== ========== =====
Liabilities and
Shareholders' Equity:
Deposits:
Demand (2)................ $ 271,115 14.9% $ 260,670 14.6% $ 189,807 12.0%
Savings................... 125,418 6.9 135,309 7.6 132,615 8.4
Money market accounts..... 152,785 8.4 75,558 4.2 70,496 4.4
Time...................... 580,714 32.0 587,261 33.0 611,038 38.5
Other borrowings............ 422,644 23.4 434,260 24.4 283,167 17.9
Other liabilities........... 31,379 1.7 36,592 2.1 41,593 2.6
Shareholders' equity........ 230,149 12.7 250,895 14.1 256,715 16.2
---------- ----- ---------- ----- ---------- -----
Total............. $1,814,204 100.0% $1,780,545 100.0% $1,585,431 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
- ---------------
(1) Loans, net is net of unearned income and the allowance for loan losses.
(2) Demand includes non-interest bearing and interest bearing demand deposits.
10
<PAGE> 13
SECURITIES AVAILABLE FOR SALE
The following table shows, as of December 31, 1999, 1998 and 1997, 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
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS) -------- ------------ --------
<S> <C> <C> <C>
U.S. government obligations................................. $ 6,016 $ 10,205 $ 22,333
U.S. government agency obligations.......................... 168,757 154,653 120,739
Mortgage-backed securities.................................. 38,817 36,200 59,548
State and municipal obligations............................. 88,450 97,435 85,532
Equity securities........................................... 40,096 33,306 27,413
-------- -------- --------
$342,136 $331,799 $315,565
======== ======== ========
</TABLE>
SECURITIES AVAILABLE FOR SALE -- MATURITIES
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, 1999. 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 tax rate of 35%, applicable state taxes
and TEFRA disallowances in 1999.
TABLE 6
SECURITIES AVAILABLE FOR SALE
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
DUE WITHIN BUT WITHIN BUT WITHIN
ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
----------------- ------------------ ---------------------- -----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
(DOLLARS IN THOUSANDS) ------- ----- -------- ----- ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government obligations....... $ 6,016 6.98% $ -- --% $ -- --% $ -- --%
U.S. government agency
obligations..................... 20,664 6.05 104,920 6.13 12,458 6.43 30,715 6.88
Mortgage-backed securities........ -- -- 23,409 6.69 15,408 7.14 -- --
State and municipal obligations... 5,396 9.62 28,523 6.97 39,276 6.83 15,255 6.81
Equity securities................. -- -- -- -- -- -- 40,096 5.64
------- -------- ------- -------
Total..................... $32,076 6.83% $156,852 6.37% $67,142 6.83% $86,066 6.29%
======= ======== ======= =======
</TABLE>
As of December 31, 1999, 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 Corporation.
As of December 31, 1999, there were no investment securities classified as
held to maturity.
11
<PAGE> 14
LOAN PORTFOLIO
The table below summarizes loans in the classifications indicated as of
December 31, 1999, 1998, 1997, 1996, and 1995.
TABLE 7
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS) ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural........................ $ 136,276 $ 94,425 $ 80,675 $ 63,686 $ 66,944
Real estate -- construction........... 253,272 180,475 132,758 102,460 84,591
Real estate -- residential............ 992,780 1,077,044 959,785 863,931 696,317
Installment........................... 44,167 70,732 88,546 92,567 79,888
---------- ---------- ---------- ---------- --------
Total loans................. 1,426,495 1,422,676 1,261,764 1,122,644 927,740
---------- ---------- ---------- ---------- --------
Less -- allowance for loan losses..... (17,339) (15,554) (15,263) (14,140) (13,552)
Unearned income....................... (203) (155) (273) (193) (296)
---------- ---------- ---------- ---------- --------
Loans, net.................. $1,408,953 $1,406,967 $1,246,228 $1,108,311 $913,892
========== ========== ========== ========== ========
</TABLE>
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, 1999. This table
excludes non-accrual loans.
TABLE 8
MATURITIES AND SENSITIVITY TO
CHANGE IN INTEREST RATES
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------
AFTER ONE
ONE YEAR YEAR THROUGH AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
(DOLLARS IN THOUSANDS) -------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.............. $ 72,802 $ 50,907 $ 9,662 $133,371
Real estate -- construction......................... 173,185 66,447 11,276 250,908
-------- -------- ------- --------
Total..................................... $245,987 $117,354 $20,938 $384,279
======== ======== ======= ========
</TABLE>
Commercial, financial and agricultural and real estate - construction loans
that have maturity over one year which have a predetermined interest rate or a
floating or adjustable interest rate:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS) -----------------
<S> <C>
Predetermined interest rate................................. $ 81,766
Floating or adjustable interest rate........................ 56,526
--------
$138,292
========
</TABLE>
NON-PERFORMING LOANS
Non-performing loans include non-accrual loans, restructured loans and
accruing loans that are contractually 90 days or more past due.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Balance Sheet Analysis -- Asset Quality" in the
Corporation's 1999 Annual Report to Shareholders, incorporated herein by
reference, for additional information.
12
<PAGE> 15
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 that are 90 days
or more past due as of December 31, 1999, 1998, 1997, 1996, and 1995.
TABLE 9
ACCRUING LOANS 90 DAYS OR MORE PAST DUE
<TABLE>
<CAPTION>
PERCENTAGE OF
SUCH LOANS TO
ACCRUING LOANS GROSS GROSS LOANS
90 DAYS OR LOANS OUTSTANDING
MORE PAST DUE OUTSTANDING BY CATEGORY
(DOLLARS IN THOUSANDS) -------------- ----------- -------------
<S> <C> <C> <C>
December 31, 1999
Commercial, financial and agricultural............. $ 242 $ 136,276 .18%
Real estate -- construction........................ 82 253,272 .03
Real estate -- residential......................... 2,943 992,780 .30
Installment........................................ 193 44,167 .44
------ ----------
Total......................................... $3,460 $1,426,495 .24%
====== ==========
December 31, 1998
Commercial, financial and agricultural............. $ 10 $ 94,425 .01%
Real estate -- construction........................ 215 180,475 .12
Real estate -- residential......................... 1,916 1,077,044 .18
Installment........................................ 129 70,732 .18
------ ----------
Total......................................... $2,270 $1,422,676 .16%
====== ==========
December 31, 1997
Commercial, financial and agricultural............. $ 999 $ 80,675 1.24%
Real estate -- construction........................ 33 132,758 .02
Real estate -- residential......................... 858 959,785 .09
Installment........................................ 219 88,546 .25
------ ----------
Total......................................... $2,109 $1,261,764 .17%
====== ==========
December 31, 1996
Commercial, financial and agricultural............. $ 34 $ 63,686 .05%
Real estate -- construction........................ 49 102,460 .05
Real Estate -- residential......................... 469 863,931 .05
Installment........................................ 133 92,567 .14
------ ----------
Total......................................... $ 685 $1,122,644 .06%
====== ==========
December 31, 1995
Commercial, financial and agricultural............. $ 27 $ 66,944 .04%
Real estate -- construction........................ 47 84,591 .06
Real estate -- residential......................... 163 696,317 .02
Installment........................................ 164 79,888 .21
------ ----------
Total......................................... $ 401 $ 927,740 .04%
====== ==========
</TABLE>
13
<PAGE> 16
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 Corporation's non-accrual loans and restructured loans as of the
dates indicated.
TABLE 10
NON-ACCRUAL AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS) ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS
Principal balance outstanding........................ $7,738 $5,758 $6,119 $7,949 $10,497
====== ====== ====== ====== =======
Interest income recorded during the year............. $ 381 $ 103 $ 317 $ 94 $ 267
Interest income that would have been recorded if the
loans had been current and accruing................ $ 703 $ 436 $ 701 $1,057 $ 1,120
RESTRUCTURED LOANS
Principal balance outstanding........................ $ 37 $ 577 $ 587 $ 643 $ 825
====== ====== ====== ====== =======
Interest income recorded during the year............. $ 3 $ 21 $ 66 $ 61 $ 95
Interest income that would have been recorded if the
loans had been current and accruing................ $ 3 $ 21 $ 66 $ 61 $ 77
</TABLE>
SUMMARY OF LOAN LOSS AND RECOVERY EXPERIENCE
The table below presents certain data for the years ended December 31,
1999, 1998, 1997, 1996, and 1995, 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 (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.
14
<PAGE> 17
TABLE 11
SUMMARY OF LOAN LOSS AND RECOVERY EXPERIENCE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
(DOLLARS IN THOUSANDS) ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Average loans, net of unearned
income...................... $1,381,753 $1,358,949 $1,143,448 $1,022,119 $841,560
========== ========== ========== ========== ========
Allowance for loan losses:
Beginning balance........... $ 15,554 $ 15,263 $ 14,140 $ 13,552 $ 13,144
Add provision for loan
losses................. 3,350 2,376 2,684 1,481 2,328
---------- ---------- ---------- ---------- --------
Loan charge-offs:
Commercial, financial and
agricultural........... 561 751 712 600 1,599
Real
estate -- construction
and development........ 36 390 -- -- 349
Real
estate -- residential... 69 101 251 111 212
Installment.............. 1,249 1,495 1,298 1,099 539
---------- ---------- ---------- ---------- --------
1,915 2,737 2,261 1,810 2,699
---------- ---------- ---------- ---------- --------
Recoveries of loans
previously Charged-off:
Commercial, financial and
agricultural........... 260 285 135 654 58
Real estate -
construction and
development............ -- 76 -- 3 25
Real
estate -- residential... 36 -- 44 27 3
Installment.............. 423 291 252 233 693
---------- ---------- ---------- ---------- --------
719 652 431 917 779
---------- ---------- ---------- ---------- --------
Loan charge-offs, net....... 1,196 2,085 1,830 893 1,920
---------- ---------- ---------- ---------- --------
Adjustment for merged
banks.................... -- -- 269 -- --
---------- ---------- ---------- ---------- --------
Adjustment for loan sale.... (369) -- -- -- --
---------- ---------- ---------- ---------- --------
Ending balance.............. $ 17,339 $ 15,554 $ 15,263 $ 14,140 $ 13,552
========== ========== ========== ========== ========
Net charge-offs to average
loans....................... .09% .15% .16% .09% .23%
Allowance for loan losses to
gross loans at year-end..... 1.22 1.09 1.21 1.26 1.46
</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 -- Provision for Loan Losses" and "-- Balance
Sheet Analysis -- Asset Quality" in the First Charter Corporation 1999 Annual
Report to Shareholders, incorporated herein by reference.
15
<PAGE> 18
ALLOWANCE FOR LOAN LOSSES
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, 1999, 1998, 1997, 1996, and
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Earnings Performance -- Provision for Loan Losses" and
"- Balance Sheet Analysis -- Asset Quality" in the First Charter Corporation
1999 Annual Report to Shareholders, incorporated herein by reference.
TABLE 12
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE GROSS LOANS IN
ALLOWANCE OF TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS
(DOLLARS IN THOUSANDS) --------- ---------- --------------
<S> <C> <C> <C>
December 31, 1999
Type of Loan:
Commercial, financial and agricultural.................... $ 2,618 21 10%
Real estate -- construction............................... 1,213 19 18
Real estate -- residential................................ 12,747 57 70
Installment............................................... 761 3 2
------- --- ---
Total............................................. $17,339 100% 100%
======= === ===
December 31, 1998
Type of Loan:
Commercial, financial and agricultural.................... $ 2,085 13% 7%
Real estate -- construction............................... 2,567 17 13
Real estate -- residential................................ 10,122 65 75
Installment............................................... 780 5 5
------- --- ---
Total............................................. $15,554 100% 100%
======= === ===
December 31, 1997
Type of Loan:
Commercial, financial and agricultural.................... $ 1,664 11% 6%
Real estate -- construction............................... 2,421 16 11
Real estate -- residential................................ 10,023 66 76
Installment............................................... 1,155 7 7
------- --- ---
Total............................................. $15,263 100% 100%
======= === ===
December 31, 1996
Type of Loan:
Commercial, financial and agricultural.................... $ 1,329 9% 6%
Real estate -- construction............................... 3,117 22 9
Real estate -- residential................................ 8,869 63 77
Installment............................................... 825 6 8
------- --- ---
Total............................................. $14,140 100% 100%
======= === ===
December 31, 1995
Type of Loan:
Commercial, financial and agricultural.................... $ 936 7% 7%
Real estate -- construction............................... 3,839 28 9
Real estate -- residential................................ 7,851 58 75
Installment............................................... 926 7 9
------- --- ---
Total............................................. $13,552 100% 100%
======= === ===
</TABLE>
16
<PAGE> 19
DEPOSITS
The Bank primarily serves 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, 1999, 1998, and 1997. Average balances were calculated based on
daily averages.
TABLE 13
DEPOSITS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
AVG. AVG. AVG.
AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
(DOLLARS IN THOUSANDS) ---------- -------- ---- ---------- -------- ---- ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand
deposits........................... $ 124,772 $ -- -- $ 125,178 $ -- -- $ 116,990 $ -- --
Interest bearing deposits:
Demand deposits.................... 146,343 1,195 0.82% 135,492 3,794 2.80% 128,703 2,054 1.60%
Money markets accounts............. 152,785 7,351 4.81 75,558 3,439 4.55 70,496 3,290 4.67
Savings deposits................... 125,418 4,556 3.63 135,309 5,387 3.98 132,615 5,520 4.16
Time deposits...................... 580,714 31,269 5.38 587,261 33,521 5.71 611,038 35,468 5.80
---------- ------- ---------- ------- ---------- -------
Total........................ 1,005,260 44,371 933,620 46,141 942,852 $46,332
---------- ------- ---------- ------- ---------- -------
Total deposits............... $1,130,032 $44,371 $1,058,798 $46,141 $1,059,842 $46,332
========== ======= ========== ======= ========== =======
</TABLE>
As of December 31, 1999, domestic time deposits of $100,000 or more totaled
$239,839,000, with the following maturities: $88,049,000, three months or less;
$130,223,000, over three months through twelve months; $20,393,000, over one
year through three years and $1,174,000 over three years.
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, 1999, 1998 and 1997.
TABLE 14
OTHER BORROWINGS
<TABLE>
<CAPTION>
MAXIMUM
BALANCE INTEREST RATE AVG. OUTSTANDING
AS OF AS OF AVERAGE INT. AT ANY
DEC. 31 DEC. 31 BALANCE RATE MONTH-END
(DOLLARS IN THOUSANDS) -------- ------------- -------- ---- -----------
<S> <C> <C> <C> <C> <C>
1999
Federal funds purchased, securities sold under
agreements to purchase and FHLB borrowings... $491,976 5.14% $422,644 5.42% $553,202
======== ======== ========
1998
Federal funds purchased, securities sold under
agreements to purchase and FHLB borrowings... $469,944 5.51% $434,260 5.64% $484,927
======== ======== ========
1997
Federal funds purchased, securities sold under
agreements to repurchase and FHLB
borrowings................................... $350,079 5.59% $283,167 5.83% $413,789
======== ======== ========
</TABLE>
At December 31, 1999, FCNB had one available line of credit with the FHLB
totaling $468,750,000 with approximately $434,826,000 outstanding. The
outstanding amounts consisted of $156,805,000 maturing in 2000, $571,000
maturing in 2001, $76,000,000 maturing in 2002, $13,000,000 maturing in 2003,
$86,000,000 in 2004, $26,000,000 maturing in 2008, $76,000,000 in 2009, and
$450,000 maturing in 2011. At December 31, 1999, such amounts were outstanding
at market interest rates for the specific advance program and maturity. In
addition, the FHLB requires bank to pledge collateral to secure the advances as
described in the line of credit agreement. The collateral consists of FHLB stock
and qualifying 1-4 family residential mortgage loans.
See also note 9 to Consolidated Financial Statements.
17
<PAGE> 20
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 per share divided by basic net
income per share), 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, 1999, 1998, and 1997. Averages are based on daily balances.
TABLE 15
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
(DOLLARS IN THOUSANDS 1999 1998 1997
EXCEPT PER SHARE AMOUNTS) ---------- ------------ ----------
<S> <C> <C> <C>
Net income................................................ $ 26,092 $ 9,236 $ 19,171
Average shareholders' equity.............................. 230,149 250,895 256,715
Average total assets...................................... 1,826,421 1,780,545 1,585,431
Dividends per share (1)................................... 0.68 0.61 0.53
Basic net income per share................................ 1.45 0.51 1.06
Diluted net income per share.............................. 1.45 0.50 1.03
Return on average assets.................................. 1.43% 0.52% 1.21%
Return on average equity.................................. 11.34 3.68 7.47
Dividend payout ratio (1)................................. 46.90 119.61* 50.00*
Average equity to average assets ratio.................... 12.60 14.09 16.19
</TABLE>
- ---------------
* Excludes HFNC Financial information for comparison purposes.
(1) Computed using the Corporation's historical dividends declared per share.
Dividends declared per share were $0.68, $0.61, and $0.53 per share for the
years ended December 31, 1999, 1998 and 1997, respectively. Dividends
declared per share by HFNC were $0.24 and $5.28 per share for the years
ended December 31, 1998 and 1997, as adjusted to conform to the
Corporation's December 31 fiscal year. Dividends declared per share by HFNC
in the year ended December 31, 1997 includes a special distribution of $5.00
per share to HFNC shareholders, substantially all of which was deemed to be
a return of capital to shareholders.
18
<PAGE> 21
ITEM 2. PROPERTIES
The corporate and accounting offices of the Corporation are located in
various leased facilities in Concord, North Carolina.
The main office of FCNB is located in a facility the bank owns in Concord,
North Carolina, while the operations and data processing departments of FCNB are
currently located in another fully-owned facility in Concord, North Carolina.
In addition to its main office, FCNB has thirty-one full service branches
and two limited service facilities in the following North Carolina locations:
<TABLE>
<S> <C>
Boiling Springs Concord -- Wilmar(1)
Cornelius(1) Concord -- Hwy. 29(1)
Forest City(1) Concord -- Branchview(1)(2)(3)
Huntersville(1)(2) Concord -- Southbranch(1)(3)
Harrisburg(1) Kannapolis(1)
Midland(1) Landis(1)
Indian Trail(1)(2) Mt. Pleasant
Waxhaw(1) Monroe -- Skyway Drive(2)
Monroe -- Downtown(1) Matthews(1)
Shelby(1) Mint Hill(1)
Kings Mountain(1) Davidson
Charlotte -- Uptown(1) The Pines(2)
Charlotte -- Cotswold(1) Cornelius(1)
Charlotte -- Park Road(1)(2) Charlotte -- Carmel(1)
Charlotte -- University(1) Charlotte -- Eastland(1)
Charlotte -- Oakdale(1) Charlotte -- Southpark(1)(2)
Charlotte -- Fairview(1)
</TABLE>
- -----------------------
(1) Branch maintains an ATM on site
(2) Facility is leased.
(3) Limited service facility
In addition to the above-noted ATMs, FCNB owns fourteen remote ATMs in
various convenience-style locations in Cabarrus, northeast Mecklenburg and
Cleveland counties of North Carolina.
FCNB also operates a loan production office located in Greensboro, North
Carolina.
FCNB is in the process of constructing a new Corporate Center located in
University Research Park that should be complete and operational in the first
quarter of 2001.
The Corporation's mortgage loan department is located in a fully-owned
building in the SouthPark area of Charlotte, North Carolina.
ITEM 3. LEGAL PROCEEDINGS
In June 1995, a lawsuit was initiated against Home Federal 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
19
<PAGE> 22
favor of Home Federal. The plaintiff has 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 in prior
litigation. In April 1997, 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
corporations, claiming that officers of Home Federal promised to resume making
loans to her husband's corporation after the payment. Home Federal and its
officers vigorously denied all of her allegations. Home Federal filed a motion
for summary judgment and dismissal of the counterclaim. The motion for summary
judgment was heard in the Superior Court division of the Mecklenburg County
General Court of Justice in April 1998. 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. In April 1999, Home Federal moved for summary
judgement to dismiss the counterclaims. At a hearing in May 1999, the Bankruptcy
Judge granted part and denied part of Home Federal's Motion for Summary
Judgement. The Judge dismissed the wife's counterclaim for breach of fiduciary
duty, but allowed her claim for fraud to continue. The borrower, his wife and
daughter filed a motion for jury trial. The request was not filed within the
time allowed; however, the Judge may, in his discretion, order a jury trial. We
have filed an objection to the request and a hearing on the motion is scheduled
for April 4, 2000. A trial date has not been set; however, we anticipate a trial
within 90 days. Home Federal believes it has strong defenses to the defendant's
counterclaim.
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. The action pending in the
bankruptcy court has been stayed. All defendants filed motions for summary
judgment in the state court action which were 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. In early June 1999, the United States Bankruptcy court
entered its Memorandum Decision and Order adopting the State Court dismissal of
the lawsuit. In late June 1999, the plaintiff gave notice of appeal which Home
Federal is opposing. The appeal is pending. On February 12, 2000, the borrower
filed a motion to close his bankruptcy case and remand the action to State
Court. We filed an objection to the motion. At a hearing on March 7, 2000, the
Judge denied the borrower's request to close the case and denied the borrower's
motion to remand to State Court. The Corporation is bound by Home Federal's
agreement 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
20
<PAGE> 23
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 are seeking 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. In February 1999, the United States District Court entered an Order
sanctioning the attorneys for the plaintiffs and ordering that the plaintiff be
prohibited from filing any further action or proceeding in the United States
District Court for the Western District of North Carolina arising from facts
involved in this matter. The Plaintiff appealed the entry of that order. On
March 6, 2000, the United States Court of Appeals for the 4th Circuit ruled
against the borrower on both appeals and affirmed the District Court's opinion.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the shareholders of the Registrant was held on March
21, 2000. The purpose of the meeting was to consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated as of November 7, 1999, by and
between the Corporation and Carolina First BancShares, Inc. ("Carolina First"),
pursuant to which Carolina First would merge with and into the Corporation. This
motion was adopted by a vote of the majority of the Corporation's issued and
outstanding common stock entitled to vote at the meeting, as follows:
<TABLE>
<S> <C>
For: 11,561,666
Against: 1,288,371
Abstained: 87,639
</TABLE>
21
<PAGE> 24
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> <C>
Lawrence M. Kimbrough.......... 59 President and Chief Executive Officer of the 1986 - Present
Registrant and FCNB
Robert O. Bratton.............. 51 Executive Vice President, Chief Operating 1983 - Present
Officer and Chief Financial Officer of the
Registrant and FCNB
Vice President of Union 1996 - 1998
Robert E. James, Jr. .......... 49 Group Executive Vice President -- Sales of FCNB 1999 - Present
Executive Vice President of the Registrant 1999 - Present
Group Executive: Market Planning & Customer 1996 - 1998
Development, Centura Bank
Executive Vice President for Metro Markets, 1994 - 1998
Centura Bank
Carl T. McFarland.............. 42 Executive Vice President of the Registrant and 1999 - Present
FCNB
Executive Vice President and Alternative 1996 - 1999
Delivery Systems Manager, BB&T
Senior Vice President and Loan Services Manager 1988 - 1996
Robert G. Fox, Jr. ............ 50 Executive Vice President of the Registrant and 1993 - Present
FCNB and Chief Lending Officer of FCNB
Vice President of Union 1996 - 1998
Senior Vice President and Senior Credit Officer 1989 - 1993
Barclays Bank of NC
Stephen M. Rownd............... 41 Executive Vice President of the Registrant and 2000 - Present
FCNB and Chief Credit Officer of FCNB
Director of Risk Management, SunTrust Banks, 1999 - 2000
Inc.
Executive Vice President and Chief Credit 1996 - 1999
Officer, SunTrust Bank of Gulf Coast
Senior Vice President, Regions Bank 1991 - 1996
</TABLE>
22
<PAGE> 25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information called for by Item 5 with respect to the market price of
and dividends on the Registrant's Common Stock is set forth on the inside back
cover of the Corporation's 1999 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
Corporation's 1999 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 45 through 61 of
the Corporation's 1999 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by Item 7A is set forth on pages 48 and 49 of
the Corporation's 1999 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 -- Results of Operations and
Financial Condition" and is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 are set forth on pages 17 through 44
of the Corporation's 1999 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
23
<PAGE> 26
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 2000 Annual
Meeting of Shareholders under the captions "Election of Directors", 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 2000 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 2000 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 2000 Annual Meeting of Shareholders under the caption
"Certain Relationships and Related Transactions" and is hereby incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements, together with a report thereon of
independent certified public accountants, are included in this report by
incorporation by reference to the Corporation's 1999 Annual Report to
Shareholders (included herein as Exhibit 13.1) as set forth in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
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.
24
<PAGE> 27
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO.
(PER EXHIBIT
TABLE IN
ITEM 601 OF
REGULATION S-K) DESCRIPTION OF EXHIBITS
- --------------- -----------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of the
Registrant, incorporated herein by reference to Exhibit 3.1
of the Registrant's 10Q for the quarter ended September 30,
1998 (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. 333-60641, dated August 8, 1998.
*10.3 Executive Incentive Bonus Plan, incorporated herein by
reference to Exhibit 10.7 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998
(Commission File No. 0-15829.)
*10.4 Employment Agreement dated July 21, 1999 for Lawrence M.
Kimbrough
*10.5 Employment Agreement dated July 21, 1999 for Robert O.
Bratton
*10.6 Employment Agreement dated July 21, 1999 for Robert E. James
*10.7 Employment Agreement dated December 15, 1999 for Carl T.
McFarland
*10.8 Supplemental Agreement dated July 21, 1999 for Lawrence M.
Kimbrough
*10.9 Supplemental Agreement dated July 21, 1999 for Robert O.
Bratton
*10.10 Supplemental Agreement dated July 21, 1999 for Robert E.
James
*10.11 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.)
*10.12 Amended and Restated Employment Agreement between First
Charter National Bank and John J. Godbold, Jr. dated as of
December 22, 1997, incorporated herein by reference to
Exhibit 10.8 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File No.
0-15829.)
*10.13 Restricted Stock Award Program, incorporated herein by
reference to Exhibit 99.1 of the Registrant's Registration
Statement No. 333-60949, dated July 10, 1995.
10.14 The 1999 Employee Stock Purchase Plan, incorporated herein
by reference to the Registrant's Registration Statement No.
333-54019, dated May 29, 1998.
*10.15 The First Charter Corporation Comprehensive Stock Option
Plan, incorporated herein by reference to the Registrant's
Registration Statement No. 333-54021, dated May 29, 1998.
*10.16 The Stock Option Plan for Non-employee Directors,
incorporated herein by reference to the Registrant's
Registration Statement No. 333-54023, dated May 29, 1998.
*10.17 The Home Federal Savings and Loan Employee Stock Ownership
Plan, incorporated herein by reference to the Registrant's
Registration Statement No. 333-71495, dated January 29,
1999.
*10.18 The HFNC Financial Corp. Stock Option Plan, incorporated
herein by reference to the Registrant's Registration
Statement No. 333-71497, dated February 1, 1999.
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO.
(PER EXHIBIT
TABLE IN
ITEM 601 OF
REGULATION S-K) DESCRIPTION OF EXHIBITS
- --------------- -----------------------
<C> <S>
10.19 Agreement and Plan of Merger by and between the Registrant
and Carolina First Bancshares, Inc. dated as of November 7,
1999, incorporated herein by reference to Appendix A of the
Registrant's Registration Statement No. 333-95003 filed
January 20, 1999.
10.20 Stock Option Agreement between the Registrant and Carolina
State Bank dated June 30, 1997, incorporated herein by
reference to Exhibit 99.2 of the Registrant's Current Report
on Form 8-K filed July 2, 1997 (Commission File No. 0-15829)
*10.21 Employment Agreement dated as of January 20, 1993, as
amended as of August 31, 1995, between Bank of Union and H.
Clark Goodwin, 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)
*10.22 Change in Control Agreement dated October 16, 1996 for
Edward B. McConnell, incorporated herein by reference to
Exhibit 10.13 of the Registrant's Annual Report on Form 10-K
for the year-ended December 31, 1996 (Commission File No.
0-15829)
10.23 1998 Employee Stock Purchase Plan, incorporated herein by
reference to Exhibit 99.1 of the Registrant's Registration
Statement No. 333-43617 filed December 31, 1997.
*10.24 Amended and Restated Salary Continuation Agreement between
First Charter National Bank and John J. Godbold, Jr. dated
as of December 22, 1997, incorporated herein by reference to
Exhibit 10.16 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File No.
0-15829.)
11.1 Statement regarding computation of per share earnings,
incorporated herein by reference to Footnote 1 of the
Consolidated Financial Statements included in the First
Charter Corporation Annual Report to its shareholders for
the year ended December 31, 1999.
13.1 First Charter Corporation Annual Report to its shareholders
for the year ended December 31, 1999. 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 LLP
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Indicates a management contract or compensatory plan required to be filed
herein.
(b) Reports on Form 8-K
On October 13, 1999, the Corporation filed a Current Report on Form 8-K,
reporting pursuant to Item 5 thereof its earnings for the fiscal quarter ended
September 30, 1999.
On November 8, 1999, the Corporation filed a Current Report on Form 8-K,
reporting pursuant to Item 5 thereof its Agreement and Plan of Merger by and
between First Charter Corporation and Carolina First BancShares, Inc. entered
into on November 7, 1999. Included in this filing were exhibits filed under Item
7 consisting of the news release disseminated on November 8, 1999 and
information provided to analysts.
26
<PAGE> 29
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 30, 2000
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
--------- ----- ----
<C> <S> <C>
/s/ LAWRENCE M. KIMBROUGH President and Director March 30, 2000
- ----------------------------------------------------- (Principal Executive Officer)
(Lawrence M. Kimbrough)
/s/ J. ROY DAVIS, JR. Chairman of the Board and March 30, 2000
- ----------------------------------------------------- Director
(J. Roy Davis, Jr.)
/s/ MICHAEL R. COLTRANE Vice Chairman of the Board and March 30, 2000
- ----------------------------------------------------- Director
(Michael R. Coltrane)
/s/ ROBERT O. BRATTON Executive Vice President March 30, 2000
- ----------------------------------------------------- (Principal Financial and
(Robert O. Bratton) Principal Accounting Officer)
/s/ WILLIAM R. BLACK Director March 30, 2000
- -----------------------------------------------------
(William R. Black)
/s/ JOHN J. GODBOLD, JR. Director March 30, 2000
- -----------------------------------------------------
(John J. Godbold, Jr.)
/s/ CHARLES F. HARRY, III Director March 30, 2000
- -----------------------------------------------------
(Charles F. Harry, III)
/s/ FRANK H. HAWFIELD Director March 30, 2000
- -----------------------------------------------------
(Frank H. Hawfield)
Director
- -----------------------------------------------------
(Jerry E. McGee)
/s/ HUGH H. MORRISON Director March 30, 2000
- -----------------------------------------------------
(Hugh H. Morrison)
/s/ THOMAS R. REVELS Director March 30, 2000
- -----------------------------------------------------
(Thomas R. Revels)
</TABLE>
27
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
(PER EXHIBIT
TABLE IN
ITEM 601 OF
REGULATION S-K) DESCRIPTION OF EXHIBITS
- --------------- -----------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of the
Registrant, incorporated herein by reference to Exhibit 3.1
of the Registrant's 10Q for the quarter ended September 30,
1998 (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. 333-60641, dated August 8, 1998.
*10.3 Executive Incentive Bonus Plan, incorporated herein by
reference to Exhibit 10.7 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998
(Commission File No. 0-15829.)
*10.4 Employment Agreement dated July 21, 1999 for Lawrence M.
Kimbrough
*10.5 Employment Agreement dated July 21, 1999 for Robert O.
Bratton
*10.6 Employment Agreement dated July 21, 1999 for Robert E. James
*10.7 Employment Agreement dated December 15, 1999 for Carl T.
McFarland
*10.8 Supplemental Agreement dated July 21, 1999 for Lawrence M.
Kimbrough
*10.9 Supplemental Agreement dated July 21, 1999 for Robert O.
Bratton
*10.10 Supplemental Agreement dated July 21, 1999 for Robert E.
James
*10.11 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.)
*10.12 Amended and Restated Employment Agreement between First
Charter National Bank and John J. Godbold, Jr. dated as of
December 22, 1997, incorporated herein by reference to
Exhibit 10.8 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File No.
0-15829.)
*10.13 Restricted Stock Award Program, incorporated herein by
reference to Exhibit 99.1 of the Registrant's Registration
Statement No. 333-60949, dated July 10, 1995.
10.14 The 1999 Employee Stock Purchase Plan, incorporated herein
by reference to the Registrant's Registration Statement No.
333-54019, dated May 29, 1998.
*10.15 The First Charter Corporation Comprehensive Stock Option
Plan, incorporated herein by reference to the Registrant's
Registration Statement No. 333-54021, dated May 29, 1998.
*10.16 The Stock Option Plan for Non-employee Directors,
incorporated herein by reference to the Registrant's
Registration Statement No. 333-54023, dated May 29, 1998.
*10.17 The Home Federal Savings and Loan Employee Stock Ownership
Plan, incorporated herein by reference to the Registrant's
Registration Statement No. 333-71495, dated January 29,
1999.
*10.18 The HFNC Financial Corp. Stock Option Plan, incorporated
herein by reference to the Registrant's Registration
Statement No. 333-71497, dated February 1, 1999.
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO.
(PER EXHIBIT
TABLE IN
ITEM 601 OF
REGULATION S-K) DESCRIPTION OF EXHIBITS
- --------------- -----------------------
<C> <S>
10.19 Agreement and Plan of Merger by and between the Registrant
and Carolina First Bancshares, Inc. dated as of November 7,
1999, incorporated herein by reference to Appendix A of the
Registrant's Registration Statement No. 333-95003 filed
January 20, 1999.
10.20 Stock Option Agreement between the Registrant and Carolina
State Bank dated June 30, 1997, incorporated herein by
reference to Exhibit 99.2 of the Registrant's Current Report
on Form 8-K filed July 2, 1997 (Commission File No. 0-15829)
*10.21 Employment Agreement dated as of January 20, 1993, as
amended as of August 31, 1995, between Bank of Union and H.
Clark Goodwin, 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)
*10.22 Change in Control Agreement dated October 16, 1996 for
Edward B. McConnell, incorporated herein by reference to
Exhibit 10.13 of the Registrant's Annual Report on Form 10-K
for the year-ended December 31, 1996 (Commission File No.
0-15829)
10.23 1998 Employee Stock Purchase Plan, incorporated herein by
reference to Exhibit 99.1 of the Registrant's Registration
Statement No. 333-43617 filed December 31, 1997.
*10.24 Amended and Restated Salary Continuation Agreement between
First Charter National Bank and John J. Godbold, Jr. dated
as of December 22, 1997, incorporated herein by reference to
Exhibit 10.16 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File No.
0-15829.)
11.1 Statement regarding computation of per share earnings,
incorporated herein by reference to Footnote 1 of the
Consolidated Financial Statements included in the First
Charter Corporation Annual Report to its shareholders for
the year ended December 31, 1999.
13.1 First Charter Corporation Annual Report to its shareholders
for the year ended December 31, 1999. 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 LLP
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Indicates a management contract or compensatory plan required to be filed
herein.
29
<PAGE> 1
EXHIBIT 10.4
<PAGE> 2
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of the 21st day of July, 1999 by and between First Charter Corporation ("First
Charter") a North Carolina corporation, and Lawrence M. Kimbrough ("Executive"),
an individual residing in Mecklenburg County, North Carolina;
WHEREAS, Executive is a valued Executive of First Charter and its
wholly owned subsidiary, First Charter National Bank (the "Bank"), and in order
to induce Executive to continue employment with First Charter and to enhance
Executive's job security, First Charter desires to enter into this employment
agreement that will provide compensation to Executive in certain events,
including but not limited to Executive's termination of employment following a
change in control of First Charter, as hereinafter provided; and
WHEREAS, because Executive has or will become familiar with First
Charter's and the Bank's products, relationships, trade secrets and confidential
information relating to First Charter's, the Bank's and their respective
customers' business, products, processes and developments and may generate or
have generated confidential information, First Charter wishes to protect its
long-term interests by having Executive enter into certain non-disclosure and
non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained herein,
including the compensation First Charter agrees to pay to Executive upon certain
events, Executive's continued employment with First Charter, Executive's
covenants and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, First Charter and Executive agree as follows:
1. EMPLOYMENT AND DUTIES.
a. During the Employment Term (as defined in Section 3 below),
First Charter hereby employs Executive, and Executive hereby agrees to serve, as
President and Chief Executive Officer of First Charter. As such, Executive shall
have responsibilities, duties and authority reasonably accorded to, expected of,
and consistent with Executive's position as President and Chief Executive
Officer of First Charter and will report directly to the Board of Directors of
First Charter (the "Board"). Executive shall also perform the duties and
exercise the powers and functions that from time to time may be assigned or
vested in him by the Board and/or the Board of Directors of First Charter's
subsidiaries in relation to: (i) First Charter; and/or (ii) any subsidiary or
affiliated company of First Charter, including general responsibility for the
management and operations of the Bank. Executive hereby accepts this employment
upon the terms and conditions herein contained and, subject to Section 1.c.,
agrees to devote substantially all of his business time, attention and efforts
to promote and further the business of First Charter and the Bank.
b. Executive shall faithfully adhere to, execute and fulfill
all lawful requests, instructions and policies made by the Board or its
authorized agent(s).
c. Except as specifically authorized in advance by the Board,
Executive shall not, during the Employment Term (as defined in Section 3 below),
be engaged as an employee or otherwise in any other business or commercial
activity pursued for gain, profit or other pecuniary advantage, except that this
Section 1.c. shall not prohibit Executive from managing Executive's family
partnership business, including the orderly liquidation of family-owned real
estate. The foregoing limitations also shall not be construed as prohibiting
Executive from making personal investments in such form or manner as will
neither require his services in the operation or affairs of the companies or
enterprises in which such investments are made nor violate the terms of Section
3 hereof, provided, however, that during the Employment Term (as defined in
Section 3 below), Executive may not beneficially own the stock or options to
acquire stock totaling more than 5% of the outstanding shares of any corporation
or entity, or otherwise acquire or agree to acquire a significant present or
future equity or other proprietorship interests, whether as a stockholder,
partner, proprietor, or otherwise, with any enterprise, business or division
thereof, that is engaged in Competitive Activity (as defined in Section 8 below)
with First Charter and/or the Bank.
<PAGE> 3
2. COMPENSATION. For all services rendered by Executive during the
Employment Term (as defined in Section 3 below), First Charter shall compensate
Executive as follows:
a. BASE SALARY. Effective January 1, 1999, during the
Employment Term (as defined in Section 3 below), First Charter will pay
Executive a bi-monthly base salary as compensation for Executive's services
hereunder of $10,416.67, equivalent to $250,000.00 per year (the "Base Salary"),
payable on a regular basis in accordance with First Charter's standard payroll
procedures but not less than monthly, less applicable deductions required by
law. On at least an annual basis thereafter during the Employment Term (as
defined in Section 3 below), the Board will review Executive's performance and,
based upon the recommendations of the Compensation Committee, may make
adjustments to such Base Salary if, in its discretion, such adjustments are
warranted, with any such adjustments to be effective beginning January 1 of the
next following year.
b. BONUS. In addition to the Base Salary set forth above,
during the Employment Term (as set forth in Section 3 below) and as long as
Executive remains actively employed by First Charter, Executive may receive an
annual bonus from one or more arrangements including but not limited to the
First Charter Corporation 1999 Executive Incentive Plan (collectively, the
"Bonus"), the amount of which shall be determined in the sole discretion of the
Board. In making its determination of the amount of the Bonus, if any, to be
paid, the Board may take into account, among other things: (i) Executive's
qualifications and experience; (ii) the duties and responsibilities of
Executive; (iii) the services performed and the contributions of Executive to
the success of First Charter and/or the Bank; (iv) compensation patterns in
similar businesses for similar executives; (v) First Charter's financial
resources to pay the bonus; and (vi) such other factors as the Board shall deem
to be relevant.
c. EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION.
During the Employment Term (as defined in Section 3 below), Executive shall be
entitled to receive additional benefits and compensation from First Charter in
such form and to such extent as specified below:
i. Payment of all or a portion of premiums for
coverage for Executive and his dependent family members under
health, hospitalization, disability, dental, life and other
insurance plans that First Charter may have in effect from
time to time. Benefits provided to Executive under this
Section 2.c.i. will require Executive to pay the same
proportion of premiums for, and shall provide benefits at
least equal to, the benefits then provided to First Charter's
other executive employees.
ii. Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Executive in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request
for reimbursement, and in a format and manner consistent with
First Charter's expense reporting policy.
iii. First Charter shall provide Executive with other
employee perquisites as may be available to or deemed
appropriate for Executive by the Board and participation in
all other company-wide employee benefits, including but not
limited to, any qualified and/or nonqualified retirements
plans sponsored by First Charter, as such are available from
time to time. Such current additional perquisites are listed
on Schedule A, which is attached hereto and incorporated
herein, and may be amended from time to time in the discretion
of the Board.
iv. Schedule B, which is attached hereto and
incorporated herein, lists those other supplemental benefits
in which Executive is currently entitled to participate, and
may be amended from time to time with the consent of the
parties.
3. TERM OF AGREEMENT. The term of this Agreement shall begin on the
date hereof and continue for three (3) years (the "Employment Term"), and,
unless terminated sooner as hereafter provided in Section 4 below, and, until
Executive attains age sixty-two (62), shall be renewed thereafter for successive
twelve (12) month periods on the same terms and conditions contained herein in
effect as of the
<PAGE> 4
time of renewal, unless either party gives notice of intent to terminate the
Agreement at least ninety (90) days prior to the expiration of said term.
Notwithstanding the forgoing, however, this Agreement shall terminate when
Executive attains age sixty-five (65).
4. TERMINATION. In addition to the provisions set forth in Section 3
above, the Employment Term shall terminate immediately upon the occurrence of
any of the following events: (a) immediately upon the retirement or death of
Executive; (b) upon the end of the time period specified in the First Charter
Corporation Comprehensive Stock Option Plan following the Disability of
Executive (as defined below); (c) upon the effective date of Resignation by
Executive Without Good Reason (as defined below); (d) upon the effective date of
Resignation by Executive For Good Reason; (e) upon the 60th day following the
date the Board gives Executive notice of Termination Without Cause (as defined
below); or (f) upon the close of business on the date the Board gives Executive
notice of Termination for Cause (as defined below).
a. RETIREMENT. "Retirement by Executive" shall mean any
voluntary retirement by Executive with the consent of the Board.
b. DISABILITY. "Disability" shall mean Executive is
"disabled", as that term is defined in the First Charter Corporation
Comprehensive Stock Option Plan, such that he is unable, with or
without a reasonable accommodation, to perform the essential functions
of his position with First Charter. Executive agrees to submit such
medical evidence to First Charter regarding his disability as is
reasonably requested by the Board.
c. RESIGNATION WITHOUT GOOD REASON. "Resignation Without Good
Reason" shall mean any voluntary termination or resignation by
Executive for any reason other than retirement or "Resignation for Good
Reason". Executive is required to give at least 60 days advance written
notice of Resignation Without Good Reason to the Board, and First
Charter is entitled upon receiving such notice, in its discretion, to
accept such resignation as effective on: (i) the resignation date
proposed by Executive, or (ii) such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
d. RESIGNATION FOR GOOD REASON. "Resignation For Good Reason"
shall mean any voluntary termination or resignation by Executive for:
(i) a material reduction in Executive's position, duties,
responsibilities or status, or a change in Executive's title resulting
in a material reduction in his responsibilities or position with First
Charter, in either case without Executive's consent, but excluding for
this purpose any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by First Charter
after receiving notice from Executive and further excluding any such
reductions or changes made in good faith to conform with generally
accepted industry standards for Executive's position; (ii) a reduction
in the rate of Executive's Base Salary or a decrease in any Bonus to
which Executive was entitled pursuant to the First Charter Corporation
1999 Executive Incentive Plan or incentive plans at the end of the most
recently concluded fiscal year, in either case without Executive's
consent; provided, however, that a decrease in Executive's Bonus amount
shall not constitute "Good Reason" and nothing herein shall be
construed to guarantee such bonus awards if performance, either by
First Charter or Executive, is below such targets as may reasonably and
in good faith be set forth in the First Charter Corporation 1999
Executive Incentive Plan or other incentive arrangements; or (iii) the
relocation of Executive, without his consent, to a location outside a
fifty (50) mile radius of Concord, North Carolina. Executive is
required to give written notice of Resignation For Good Reason to the
Board, and First Charter is entitled upon receiving such notice, in its
discretion, to accept such resignation as effective on the resignation
date proposed by Executive, or such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
<PAGE> 5
e. TERMINATION WITHOUT CAUSE. "Termination Without Cause"
shall mean any termination of the employment of Executive by First
Charter for any reason other than termination due to the retirement or
death of Executive, "Disability" or "Termination for Cause".
f. TERMINATION FOR CAUSE. "Termination for Cause" shall mean
termination of the employment of Executive by First Charter as the
result of Executive's: (i) willful misconduct of a material nature in
connection with the performance of his duties as an employee; (ii) use
of alcohol or drugs that affects his ability to perform his assigned
duties as an employee or Executive's violation of First Charter's drug
and/or alcohol policies; (iii) conviction, guilty plea or plea of nolo
contendere for any crime involving moral turpitude or for any felony;
(iv) embezzlement or theft from First Charter, the Bank or any of their
respective customers and employees; (v) gross inattention to or
dereliction of duty; (vi) commission or omission of any act of fraud or
dishonesty in connection with Executive's employment with First Charter
or the Bank; (vii) breach of any fiduciary duty to First Charter or the
Bank, including the duty of loyalty; or (viii) breach of any provision
of this Agreement; or (ix) performance of any other willful act(s)
which Executive knew or reasonably should have known would be
materially detrimental to First Charter or the Bank.
5. RIGHTS UPON TERMINATION. Following the termination of the Employment
Term for any reason, except for the payment of any earned but unpaid Base
Salary, if any, due at the time of termination of the Employment Term and
Executive's general right to elect certain coverage continuation under COBRA,
and except for any payments which may be due as set forth in this Section 5 and
Section 6 below, Executive shall not be entitled to receive any additional
compensation, wages, bonuses, incentive pay, commissions, severance pay,
consideration and/or benefits of any kind from First Charter and/or the Bank
hereunder upon the termination of the Employment Term, except that Executive
will not forfeit any vested stock options or vested 401(k) or pension benefits
with First Charter and the Bank, if any:
a. DEATH. If termination of the Employment Term occurs at any
time due to the death of Executive, then Executive's personal
representative shall be paid all earned but unpaid Base Salary and
accrued Bonus (as those terms are described in Section 2) and an
additional amount representing one (1) year's Base Salary, such amounts
to be paid in the same manner as provided in Section 2. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
b. DISABILITY. If termination of the Employment Term occurs at
any time due to the Disability of Executive, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2, less any amounts which Executive
receives from First Charter's long-term disability plan. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
c. TERMINATION "FOR CAUSE" OR RESIGNATION "WITHOUT GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "For Cause" or due to resignation by
Executive "Without Good Reason", then Executive shall be entitled only
to receive all earned but unpaid Base Salary, unreimbursed expenses
and/or accrued, vested stock options and vested 401(k) or pension
benefits through the effective date of the Termination "For Cause" or
Resignation "Without Good Reason".
d. TERMINATION "WITHOUT CAUSE" OR RESIGNATION "FOR GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "Without Cause" or due to resignation
by Executive "For Good Reason", then Executive shall be entitled to (i)
all accrued, unpaid Base Salary and unreimbursed expenses through the
date of such termination; (ii) any prior year annual incentive bonus
earned but not yet paid; (iii) continued payment of Executive's Base
Salary for the greater of the remainder of the Employment Term or two
(2) years; (iii) an annual bonus amount (calculated as the average of
the three most recent Bonuses) for the greater of the remainder of the
Employment Term or two (2) years; (iv) continuation of health and
welfare benefit coverage (including coverage for Executive's
<PAGE> 6
dependents to the extent such coverage is provided by First Charter for
its employees generally) under such plans and programs to which an
Executive was entitled to participate immediately prior to the date of
the end of his employment for the greater of the remainder of the
Employment Term or two (2) years, provided such continued participation
is possible under the terms and provisions of such plans and programs;
and (v) acceleration of vesting of all awards, grants, and options
under any First Charter or Bank stock option plan or grant
notwithstanding any other provision in such plan or grant.
e. RETIREMENT WITH THE CONSENT OF FIRST CHARTER. If Executive
retires with the consent of First Charter, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2. In addition, all awards, grants
and options under any First Charter or Bank stock option or grant will
be fully vested notwithstanding any other provision in such plan or
grant.
f. DEDUCTIONS. All payments set forth in this Section 5 to
Executive and/or his personal representative, if any, shall be made
subject to applicable withholdings as required by law.
6. TERMINATION FOLLOWING A CHANGE IN CONTROL.
a. The Parties agree that if, during the Employment Term, a
Change in Control (as defined in Section 6.a.ii. hereof) occurs and if, within
one (1) year following the Change in Control, the employment of Executive is
terminated by First Charter Without Cause (as defined in Section 4.e. hereof),
or by Executive for Good Reason (as defined in Section 4.d. hereof), Executive's
Compensation (as defined in Section 6.a.iii. below) shall continue to be paid in
monthly installments, subject to applicable withholdings, by First Charter for a
period of thirty-five (35) months following such termination of employment. In
lieu of receiving payment of Compensation (as defined in Section 6.a.iii below)
for such 35-month period in installments, Executive may elect, at any time prior
to the earlier to occur of (i) a Change in Control or (ii) an action by the
Board with respect to an event which would, upon consummation, result in a
Change in Control (which election shall be evidenced by notice filed with First
Charter), to be paid the present value of any such Compensation in a lump sum
within thirty (30) days of termination of Executive's employment under
circumstances entitling such Executive to Compensation hereunder. The
calculation of the amount due shall be made by the independent accounting firm
then performing First Charter's independent audit, and such calculation,
including but not limited to any discount factor used to determine present
value, shall be conclusive.
(i) GOOD REASON. For purposes of this Section 6,
termination by Executive for "Good Reason" shall mean those
reasons set forth as "Good Reason" in Section 4.d. of this
Agreement, except that the change in Executive's position,
duties, responsibilities, status, title, Base Salary or bonus
shall be measured for such matters as they were in effect
immediately preceding the Change in Control.
(ii) CHANGE IN CONTROL. For purposes of this Section
6, Change in Control" shall mean (A) the consummation of a
merger, consolidation, share exchange or similar transaction
of First Charter with any other corporation as a result of
which the holders of the voting capital stock of First Charter
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 First
Charter) of substantially all the assets of First Charter; (C)
in the absence of a prior expression of approval by the Board,
the acquisition of more than 20% of First Charter'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 First Charter's securities; (D)
<PAGE> 7
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof unless
the election, or the nomination for election by First
Charter's shareholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period; or
(E) any other change in control of First Charter 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 First Charter by any person, company or other entity.
(iii) COMPENSATION. For purposes of this Section 6,
Executive's Compensation shall consist of the following: (A)
Executive's Base Salary in effect immediately preceding the
Change in Control, plus (B) an annual bonus equal to the
average bonus (calculated as a percentage of Base Salary,
without regard to vesting schedules or restrictions on the
bonus compensation and converting all post-employment payments
in stock and stock options to a cash present value) paid by
First Charter for each one-year performance period (often
referred to as the "annual incentive program") to Executive
for the three (3) most recent fiscal years ending prior to
such Change in Control pursuant to First Charter's incentive
and bonus plans or, if the relevant bonus program has not
existed for three (3) years preceding the Change of Control,
an amount equal to the estimated average bonus as calculated
by the independent accounting firm then performing First
Charter's independent audit, which calculation shall be
conclusive.
b. Upon termination of Executive's employment entitling
Executive to Compensation set forth in Section 6.a. above, First Charter shall
maintain in full force and effect for the continued benefit of Executive for
such thirty-five-month period health insurance (including coverage for
Executive's dependents to the extent dependent coverage is provided by First
Charter for its employees generally) under such plans and programs in which
Executive was entitled to participate immediately prior to the date of such
termination of employment, provided that Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that participation in any such plan or program is barred, First
Charter shall arrange to provide Executive with health insurance benefits for
such thirty-five month period substantially similar to those which Executive
would otherwise have been entitled to receive under such plans and programs from
which his continued participation is barred. However, in no event will Executive
receive from First Charter the health insurance contemplated by this Section
6.b. if Executive receives comparable insurance from any other source.
c. Upon termination of Executive's employment entitling
Executive to Compensation as set forth in Section 6.a. above, Executive will
become immediately vested in any and all stock options and shares of restricted
stock previously granted to him by First Charter notwithstanding any provision
to the contrary of any plan under which the options or restricted stock are
granted. Any accrued but ungranted stock options or restricted stock shall also
be fully vested upon grant to Executive. Executive may exercise such options
only at the times and in the method described in such options. All restrictions
on shares of First Charter's stock granted under any plan shall lapse upon a
Change of Control. First Charter will amend such options or plans in any manner
necessary to facilitate the provisions of this Section 6.c.
d. It is the intention of First Charter and Executive that no
portion of the payment made under this Agreement, or payments to or for
Executive under any other agreement or plan, be deemed to be an excess parachute
payment as defined in the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. First Charter and Executive agree that
the present value of any payment hereunder and any other payment to or for the
benefit of Executive in the nature of compensation, receipt of which is
contingent on a Change in Control of First Charter, and to which Code section
280G or any successor provision thereto applies, shall not exceed an amount
equal to one dollar less than the maximum amount that Executive may receive
without becoming subject to the tax imposed by Code section 4999 or any
successor provision or which First Charter may pay without loss of deduction
under Code section 280G or any successor provisions. Present value for purposes
of this Agreement shall be calculated in accordance with Code section 1274(b)(2)
or any successor provision. In the event that the
<PAGE> 8
provisions of Code sections 280G and 4999 or any successor provisions are
repealed without succession, this Section 6.d. shall be of no further force or
effect.
e. Except as elected by Executive with the prior consent of
First Charter, all payments provided for under this Section 6 shall be paid in
cash (including the cash values of stock options or restricted stock, if any)
from the general funds of First Charter, 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. Executive
shall have no right, title or interest whatsoever in or to any investments that
First Charter may make to aid First Charter in meeting its obligations under
this Section 6. 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 First Charter and Executive or any other
person. To the extent that any person acquires a right to receive payments from
First Charter hereunder, such right shall be no greater than the right of an
unsecured creditor of First Charter.
f. All payments set forth in this Section 6 to Executive, if
any, shall be made subject to applicable withholdings as required by law.
7. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION.
a. Executive understands that his position with First Charter
is one of trust and confidence because of Executive's access to trade secrets
and confidential and proprietary business information. Executive pledges his
best efforts and utmost diligence to protect and keep confidential the trade
secrets and confidential or proprietary business information of First Charter.
b. Unless required by First Charter in connection with his
employment or with First Charter's express written consent, Executive agrees
that he will not, either during his employment or afterwards, directly or
indirectly, use, misappropriate, disclose or aid anyone else in disclosing to
any third party for Executive's own benefit or the benefit of another all or any
part of any of First Charter's or its subsidiaries' trade secrets or
confidential or proprietary information, whether or not the information is
acquired, learned, or developed by Executive alone or in conjunction with
others. Executive makes the same pledge with regard to the confidential
information of First Charter's and its subsidiaries' customers, contractors, or
others with whom First Charter or its subsidiaries have a business relationship.
c. Executive understands that trade secrets and confidential
or proprietary information, for purposes of this Agreement, shall include, but
not be limited to, any and all versions of First Charter's or its subsidiaries'
computer software, hardware, and documentation; all methods, processes,
techniques, practices, product designs, pricing information, billing histories,
customer requirements, customer lists, account data, loan records, employee
lists and salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and projections for
business opportunities for new or developing business of First Charter or its
subsidiaries; and all other confidential or proprietary information, patents,
ideas, know-how and trade secrets which are in the possession of First Charter
or its subsidiaries, no matter what the source, including any such information
that First Charter or its subsidiaries obtain from a customer, contractor or
another party or entity and that First Charter treats or designates as
confidential or proprietary information, whether or not such information is
owned or was developed by First Charter.
d. Executive also agrees that all notes, records (including
all computer and electronic records), software, drawings, handbooks, manuals,
policies, contracts, memoranda, sales files, customer lists, employee lists or
other documents that are made or compiled by Executive, or which were available
to Executive while he was employed at First Charter, in whatever form, including
but not limited to all such documents and data concerning any processes,
inventions, services or products used or developed by Executive during his
employment, shall be the property of First Charter. Executive further agrees to
deliver and make available all such documents and data to First Charter,
regardless of how stored or maintained and including all originals, copies and
compilations thereof, upon the separation of his employment, for any reason, or
at any other time at First Charter's request.
<PAGE> 9
e. Executive understands that First Charter expects him to
respect any trade secrets of confidential information of any of Executive's
former employers, business associates, or other business relationships.
Executive also agrees to respect First Charter's express direction to Executive
not to disclose to First Charter, its officers, or any of its employees any such
information so long as it remains confidential.
8. COVENANT NOT TO COMPETE. For and in consideration of this Agreement,
the change in control protection contained herein and Executive's continued
employment with First Charter, Executive agrees that, unless specifically
authorized by First Charter in writing, Executive will not for a period of two
(2) years after his employment with First Charter has terminated or ended
(whatever the reason for the end of the employment relationship):
a. Engage in any "Competitive Activity" (as defined below)
within the "Restricted Territory" (as defined below);
b. Serve as an employee, director, owner, partner, contractor,
consultant or agent of, or own any interest in (except for beneficially owning
the stock or options to acquire stock totaling less than 5% of the outstanding
shares in a "public" competitor), any person, firm or corporation that engages
in "Competitive Activity" within the "Restricted Territory"; or
c. Engage in any "Competitive Activity" with, for or towards
or divert, attempt to divert or direct others to divert any business of First
Charter from an existing First Charter customer, a joint venture or other
business partner of First Charter (hereinafter referred to as an "affiliate"),
or from a potential customer identified through leads or relationships developed
during the last two (2) years of Executive's employment with First Charter,
within the "Restricted Territory".
Furthermore, Executive will not during his employment with First Charter
and for a period of three (3) years after his employment with First Charter has
terminated or ended (whatever the reason for the end of the employment
relationship) solicit or hire for employment or as an independent contractor any
employee of First Charter, the Bank or any of First Charter's affiliates, or
solicit, assist, induce, recruit, or assist or induce anyone else to recruit, or
cause another person in the employ of First Charter, the Bank or any of First
Charter's affiliates to leave his employment with First Charter, the Bank or
First Charter's affiliate for the purpose of joining, associating, or becoming
employed with any business or activity with which Executive is or expects to be
directly or indirectly associated or employed.
"Competitive Activity" means: (1) the business activities engaged in by
First Charter during Executive's employment with First Charter, including the
sales, marketing, distribution and provision of banking, financial and insurance
services or other products or services of the type of which Executive was
involved during his employment with First Charter; and/or (2) the performance of
any other business activities competitive with First Charter and/or the Bank for
or on behalf of any financial or insurance services entity.
"Restricted Territory" means: (1) the geographic area encompassing a
fifty (50) mile radius of any financial center operated by First Charter or the
Bank upon the end of Executive's employment with First Charter; (2) the
geographic area encompassing a fifty (50) mile radius of Concord, North
Carolina; and/or (2) any Metropolitan Statistical Area (as defined by the United
States Department of Commerce) from which First Charter generated at least two
percent (2%) of its gross annual revenue during the last two calendar years
before the end of Executive's employment with First Charter.
Executive further agrees that except with the express written
consent of the Board, Executive will not engage in any Competitive Activity
individually or with any entity or individual other than First Charter, the
Board or its subsidiaries during the Employment Term.
9. ACKNOWLEDGMENTS BY EXECUTIVE.
a. Executive acknowledges that the restrictions placed upon
him by Sections 7 and 8 of this Agreement are reasonable given the nature of
Executive's position with First Charter, the area in which First Charter markets
its products and services, and the consideration provided by First Charter to
<PAGE> 10
Executive pursuant to this Agreement. Specifically, Executive acknowledges that
the length of the Covenant Not to Compete in Section 8 is reasonable and that
the definitions of "Competitive Activity" and "Restricted Territory" are
reasonable.
b. Executive acknowledges that all of the provisions of the
Agreement are fair and necessary to protect the interests of First
Charter. Accordingly, Executive agrees not to contest the validity or
enforceability of Sections 7 or 8 hereof.
c. Executive understands that every provision of this
Agreement is severable from each other provision of this Agreement. Therefore,
if any provision of this Agreement, including but not limited to all provisions
of Sections 7 and 8, is held invalid or unenforceable, every other provision of
this Agreement will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of competent
jurisdiction to be void or unenforceable, Executive and First Charter agree that
such provision shall be enforced to the extent reasonable under the
circumstances and that all other provisions shall be enforceable to the fullest
extent permissible by law. Executive and First Charter further agree that, if
any court makes such a determination, such court shall have the power to reduce
the duration, scope and/or area of such provisions and/or delete specific words
and phrases by "blue penciling" and, in its reduced or blue penciled form, such
provisions shall then be enforceable as allowed by law.
d. Executive understands that his obligations under Sections 7
and 8 of this Agreement will continue whether or not his employment
with First Charter is terminated voluntarily or involuntarily, or with
or without Cause or Good Reason.
10. BREACH BY EXECUTIVE. Executive agrees that in the event of any
breach or threatened breach of the provisions of Sections 7 and 8 hereof by
Executive, First Charter's remedies at law would be inadequate, and First
Charter shall be entitled to an injunction (without any bond or other security
being required), restraining such breach, and costs and attorneys' fees relating
to any such proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude First Charter
from pursuing any other remedies at law or in equity available to it for any
such breach or threatened breach. Moreover, Executive also agrees that if
Executive breaches any of Sections 7 or 8 above, Executive shall be required to
refund to First Charter and First Charter shall be entitled to recover of
Executive 90% of the amount already paid under Sections 5.b., 5.d., 5.e. or 6.a.
above to Executive by First Charter at the time of the breach, and Executive
shall forfeit at the time of the breach the right to any additional payments or
benefits under this Agreement, except that if the breach occurs before the
payments set forth in Section Sections 5.b., 5.d., 5.e. or 6.a. above are made,
Executive shall be entitled to receive the first monthly payment and nothing
more. In such case, Executive and First Charter agree that the confidential
information and non-compete obligations contained in this Agreement shall remain
valid and enforceable based upon the consideration actually paid.
11. ASSIGNMENT AND BINDING EFFECT. This Agreement shall be binding
upon, and inure to the benefit of, Executive and First Charter and the Bank and
their respective permitted successors and assigns. Neither this Agreement nor
any right or interest hereunder shall be assignable by Executive, his
beneficiaries, or legal representatives without the First Charter's prior
written consent. First Charter 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 First Charter, by
agreement in form and substance satisfactory to Executive, to expressly assume
and agree to perform all of First Charter's obligations under this Agreement in
the same manner and to the same extent that First Charter would be required to
perform it if no such succession had taken place, and to perform all obligations
to Executive as provided in Section 6. Failure of First Charter to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle Executive to compensation from First Charter 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 Executive's employment was terminated. As
used in this Agreement, "Company" shall mean First Charter 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 11 or that otherwise becomes
bound by the all terms and provisions of this Agreement by operation of law.
<PAGE> 11
12. COMPLETE AGREEMENT. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Executive and First
Charter may have entered into with respect to Executive's employment by First
Charter, including specifically the Change in Control agreement entered into
between Executive and First Charter dated November 16, 1994. Executive has no
oral representations, understandings or agreements with First Charter or any of
its officers, directors or representatives covering the same subject matter as
this Agreement. This written Agreement is the final, complete and exclusive
statement and expression of the agreement between First Charter and Executive
and of all the terms of this Agreement, and it cannot be varied, contradicted or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of First Charter and Executive, and
no term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To First Charter: First Charter National Bank
Executive Offices
845 Church Street Commons, Suite 307
Concord, North Carolina 28206
To Executive: Lawrence M. Kimbrough \
Post Office Box 1658
Davidson, North Carolina 28036
Notice shall be deemed given and effective on the earlier of three (3)
days after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this Section 13.
14. HEADINGS. The section headings herein are for reference purposes only
and are not intended in any way to describe, interpret, define or limit
the extent or intent of the Agreement or of any part hereof.
15. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FIRST CHARTER CORPORATION
By: /s/ Lawrence M. Kimbrough
-------------------------------------
Name: Lawrence M. Kimbrough
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
<PAGE> 1
EXHIBIT 10.5
<PAGE> 2
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of the 21st day of July, 1999 by and between First Charter Corporation ("First
Charter") a North Carolina corporation, and Robert O. Bratton ("Executive"), an
individual residing in Cabarrus County, North Carolina;
WHEREAS, Executive is a valued Executive of First Charter and its
wholly owned subsidiary, First Charter National Bank (the "Bank"), and in order
to induce Executive to continue employment with First Charter and to enhance
Executive's job security, First Charter desires to enter into this employment
agreement that will provide compensation to Executive in certain events,
including but not limited to Executive's termination of employment following a
change in control of First Charter, as hereinafter provided; and
WHEREAS, because Executive has or will become familiar with First
Charter's and the Bank's products, relationships, trade secrets and confidential
information relating to First Charter's, the Bank's and their respective
customers' business, products, processes and developments and may generate or
have generated confidential information, First Charter wishes to protect its
long-term interests by having Executive enter into certain non-disclosure and
non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained herein,
including the compensation First Charter agrees to pay to Executive upon certain
events, Executive's continued employment with First Charter, Executive's
covenants and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, First Charter and Executive agree as follows:
1. EMPLOYMENT AND DUTIES.
a. During the Employment Term (as defined in Section 3 below),
First Charter hereby employs Executive, and Executive hereby agrees to serve, as
Group Executive Vice President of First Charter. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of, and
consistent with Executive's position as Group Executive Vice President of First
Charter and will report directly to Lawrence M. Kimbrough of First Charter.
Executive shall also perform the duties and exercise the powers and functions
that from time to time may be assigned or vested in him by the Board and/or the
Board of Directors of First Charter's subsidiaries in relation to: (i) First
Charter; and/or (ii) any subsidiary or affiliated company of First Charter,
including general responsibility for the management and operations of the Bank.
Executive hereby accepts this employment upon the terms and conditions herein
contained and, subject to Section 1.c., agrees to devote substantially all of
his business time, attention and efforts to promote and further the business of
First Charter and the Bank.
b. Executive shall faithfully adhere to, execute and fulfill
all lawful requests, instructions and policies made by the Board or its
authorized agent(s).
c. Except as specifically authorized in advance by the Board,
Executive shall not, during the Employment Term (as defined in Section 3 below),
be engaged as an employee or otherwise in any other business or commercial
activity pursued for gain, profit or other pecuniary advantage. The foregoing
limitations also shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will neither require his services
in the operation or affairs of the companies or enterprises in which such
investments are made nor violate the terms of Section 3 hereof, provided,
however, that during the Employment Term (as defined in Section 3 below),
Executive may not beneficially own the stock or options to acquire stock
totaling more than 5% of the outstanding shares of any corporation or entity, or
otherwise acquire or agree to acquire a significant present or future equity or
other proprietorship interests, whether as a stockholder, partner, proprietor,
or otherwise, with any enterprise, business or division thereof, that is engaged
in Competitive Activity (as defined in Section 8 below) with First Charter
and/or the Bank.
<PAGE> 3
2. COMPENSATION. For all services rendered by Executive during the
Employment Term (as defined in Section 3 below), First Charter shall compensate
Executive as follows:
a. BASE SALARY. Effective January 1, 1999, during the
Employment Term (as defined in Section 3 below), First Charter will pay
Executive a bi-monthly base salary as compensation for Executive's services
hereunder of $7,291.66, equivalent to $175,000.00 per year (the "Base Salary"),
payable on a regular basis in accordance with First Charter's standard payroll
procedures but not less than monthly, less applicable deductions required by
law. On at least an annual basis thereafter during the Employment Term (as
defined in Section 3 below), the Board will review Executive's performance and,
based upon the recommendations of the Compensation Committee, may make
adjustments to such Base Salary if, in its discretion, such adjustments are
warranted, with any such adjustments to be effective beginning January 1 of the
next following year.
b. BONUS. In addition to the Base Salary set forth above,
during the Employment Term (as set forth in Section 3 below) and as long as
Executive remains actively employed by First Charter, Executive may receive an
annual bonus from one or more arrangements including but not limited to the
First Charter Corporation 1999 Executive Incentive Plan (collectively, the
"Bonus"), the amount of which shall be determined in the sole discretion of the
Board. In making its determination of the amount of the Bonus, if any, to be
paid, the Board may take into account, among other things: (i) Executive's
qualifications and experience; (ii) the duties and responsibilities of
Executive; (iii) the services performed and the contributions of Executive to
the success of First Charter and/or the Bank; (iv) compensation patterns in
similar businesses for similar executives; (v) First Charter's financial
resources to pay the bonus; and (vi) such other factors as the Board shall deem
to be relevant.
c. EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION.
During the Employment Term (as defined in Section 3 below), Executive shall be
entitled to receive additional benefits and compensation from First Charter in
such form and to such extent as specified below:
i. Payment of all or a portion of premiums for
coverage for Executive and his dependent family members under
health, hospitalization, disability, dental, life and other
insurance plans that First Charter may have in effect from
time to time. Benefits provided to Executive under this
Section 2.c.i. will require Executive to pay the same
proportion of premiums for, and shall provide benefits at
least equal to, the benefits then provided to First Charter's
other executive employees.
ii. Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Executive in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request
for reimbursement, and in a format and manner consistent with
First Charter's expense reporting policy.
iii. First Charter shall provide Executive with other
employee perquisites as may be available to or deemed
appropriate for Executive by the Board and participation in
all other company-wide employee benefits, including but not
limited to, any qualified and/or nonqualified retirements
plans sponsored by First Charter, as such are available from
time to time. Such current additional perquisites are listed
on Schedule A, which is attached hereto and incorporated
herein, and may be amended from time to time in the discretion
of the Board.
iv. Schedule B, which is attached hereto and
incorporated herein, lists those other supplemental benefits
in which Executive is currently entitled to participate, and
may be amended from time to time with the consent of the
parties.
3. TERM OF AGREEMENT. The term of this Agreement shall begin on the
date hereof and continue for three (3) years (the "Employment Term"), and,
unless terminated sooner as hereafter provided in Section 4 below, and, until
Executive attains age sixty-two (62), shall be renewed thereafter for
<PAGE> 4
successive twelve (12) month periods on the same terms and conditions contained
herein in effect as of the time of renewal, unless either party gives notice of
intent to terminate the Agreement at least ninety (90) days prior to the
expiration of said term. Notwithstanding the forgoing, however, this Agreement
shall terminate when Executive attains age sixty-five (65).
4. TERMINATION. In addition to the provisions set forth in Section 3
above, the Employment Term shall terminate immediately upon the occurrence of
any of the following events: (a) immediately upon the retirement or death of
Executive; (b) upon the end of the time period specified in the First Charter
Corporation Comprehensive Stock Option Plan following the Disability of
Executive (as defined below); (c) upon the effective date of Resignation by
Executive Without Good Reason (as defined below); (d) upon the effective date of
Resignation by Executive For Good Reason; (e) upon the 60th day following the
date the Board gives Executive notice of Termination Without Cause (as defined
below); or (f) upon the close of business on the date the Board gives Executive
notice of Termination for Cause (as defined below).
a. RETIREMENT. "Retirement by Executive" shall mean any
voluntary retirement by Executive with the consent of the Board.
b. DISABILITY. "Disability" shall mean Executive is
"disabled", as that term is defined in the First Charter Corporation
Comprehensive Stock Option Plan, such that he is unable, with or
without a reasonable accommodation, to perform the essential functions
of his position with First Charter. Executive agrees to submit such
medical evidence to First Charter regarding his disability as is
reasonably requested by the Board.
c. RESIGNATION WITHOUT GOOD REASON. "Resignation Without Good
Reason" shall mean any voluntary termination or resignation by
Executive for any reason other than retirement or "Resignation for Good
Reason". Executive is required to give at least 60 days advance written
notice of Resignation Without Good Reason to the Board, and First
Charter is entitled upon receiving such notice, in its discretion, to
accept such resignation as effective on: (i) the resignation date
proposed by Executive, or (ii) such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
d. RESIGNATION FOR GOOD REASON. "Resignation For Good Reason"
shall mean any voluntary termination or resignation by Executive for:
(i) a material reduction in Executive's position, duties,
responsibilities or status, or a change in Executive's title resulting
in a material reduction in his responsibilities or position with First
Charter, in either case without Executive's consent, but excluding for
this purpose any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by First Charter
after receiving notice from Executive and further excluding any such
reductions or changes made in good faith to conform with generally
accepted industry standards for Executive's position; (ii) a reduction
in the rate of Executive's Base Salary or a decrease in any Bonus to
which Executive was entitled pursuant to the First Charter Corporation
1999 Executive Incentive Plan or incentive plans at the end of the most
recently concluded fiscal year, in either case without Executive's
consent; provided, however, that a decrease in Executive's Bonus amount
shall not constitute "Good Reason" and nothing herein shall be
construed to guarantee such bonus awards if performance, either by
First Charter or Executive, is below such targets as may reasonably and
in good faith be set forth in the First Charter Corporation 1999
Executive Incentive Plan or other incentive arrangements; or (iii) the
relocation of Executive, without his consent, to a location outside a
fifty (50) mile radius of Concord, North Carolina. Executive is
required to give written notice of Resignation For Good Reason to the
Board, and First Charter is entitled upon receiving such notice, in its
discretion, to accept such resignation as effective on the resignation
date proposed by Executive, or such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
<PAGE> 5
e. TERMINATION WITHOUT CAUSE. "Termination Without Cause"
shall mean any termination of the employment of Executive by First
Charter for any reason other than termination due to the retirement or
death of Executive, "Disability" or "Termination for Cause".
f. TERMINATION FOR CAUSE. "Termination for Cause" shall mean
termination of the employment of Executive by First Charter as the
result of Executive's: (i) willful misconduct of a material nature in
connection with the performance of his duties as an employee; (ii) use
of alcohol or drugs that affects his ability to perform his assigned
duties as an employee or Executive's violation of First Charter's drug
and/or alcohol policies; (iii) conviction, guilty plea or plea of nolo
contendere for any crime involving moral turpitude or for any felony;
(iv) embezzlement or theft from First Charter, the Bank or any of their
respective customers and employees; (v) gross inattention to or
dereliction of duty; (vi) commission or omission of any act of fraud or
dishonesty in connection with Executive's employment with First Charter
or the Bank; (vii) breach of any fiduciary duty to First Charter or the
Bank, including the duty of loyalty; or (viii) breach of any provision
of this Agreement; or (ix) performance of any other willful act(s)
which Executive knew or reasonably should have known would be
materially detrimental to First Charter or the Bank.
5. RIGHTS UPON TERMINATION. Following the termination of the Employment
Term for any reason, except for the payment of any earned but unpaid Base
Salary, if any, due at the time of termination of the Employment Term and
Executive's general right to elect certain coverage continuation under COBRA,
and except for any payments which may be due as set forth in this Section 5 and
Section 6 below, Executive shall not be entitled to receive any additional
compensation, wages, bonuses, incentive pay, commissions, severance pay,
consideration and/or benefits of any kind from First Charter and/or the Bank
hereunder upon the termination of the Employment Term, except that Executive
will not forfeit any vested stock options or vested 401(k) or pension benefits
with First Charter and the Bank, if any:
a. DEATH. If termination of the Employment Term occurs at any
time due to the death of Executive, then Executive's personal
representative shall be paid all earned but unpaid Base Salary and
accrued Bonus (as those terms are described in Section 2) and an
additional amount representing one (1) year's Base Salary, such amounts
to be paid in the same manner as provided in Section 2. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
b. DISABILITY. If termination of the Employment Term occurs at
any time due to the Disability of Executive, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2, less any amounts which Executive
receives from First Charter's long-term disability plan. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
c. TERMINATION "FOR CAUSE" OR RESIGNATION "WITHOUT GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "For Cause" or due to resignation by
Executive "Without Good Reason", then Executive shall be entitled only
to receive all earned but unpaid Base Salary, unreimbursed expenses
and/or accrued, vested stock options and vested 401(k) or pension
benefits through the effective date of the Termination "For Cause" or
Resignation "Without Good Reason".
d. TERMINATION "WITHOUT CAUSE" OR RESIGNATION "FOR GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "Without Cause" or due to resignation
by Executive "For Good Reason", then Executive shall be entitled to (i)
all accrued, unpaid Base Salary and unreimbursed expenses through the
date of such termination; (ii) any prior year annual incentive bonus
earned but not yet paid; (iii) continued payment of Executive's Base
Salary for the greater of the remainder of the Employment Term or two
(2) years; (iii) an annual bonus amount (calculated as the average of
the three most recent Bonuses) for the greater of the remainder of the
Employment Term or two (2) years; (iv) continuation of health and
welfare benefit coverage (including coverage for Executive's
<PAGE> 6
dependents to the extent such coverage is provided by First Charter for
its employees generally) under such plans and programs to which an
Executive was entitled to participate immediately prior to the date of
the end of his employment for the greater of the remainder of the
Employment Term or two (2) years, provided such continued participation
is possible under the terms and provisions of such plans and programs;
and (v) acceleration of vesting of all awards, grants, and options
under any First Charter or Bank stock option plan or grant
notwithstanding any other provision in such plan or grant.
e. RETIREMENT WITH THE CONSENT OF FIRST CHARTER. If Executive
retires with the consent of First Charter, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2. In addition, all awards, grants
and options under any First Charter or Bank stock option or grant will
be fully vested notwithstanding any other provision in such plan or
grant.
g. DEDUCTIONS. All payments set forth in this Section 5
to Executive and/or his personal representative, if
any, shall be made subject to applicable withholdings
as required by law.
6. TERMINATION FOLLOWING A CHANGE IN CONTROL.
a. The Parties agree that if, during the Employment Term, a
Change in Control (as defined in Section 6.a.ii. hereof) occurs and if, within
one (1) year following the Change in Control, the employment of Executive is
terminated by First Charter Without Cause (as defined in Section 4.e. hereof),
or by Executive for Good Reason (as defined in Section 4.d. hereof), Executive's
Compensation (as defined in Section 6.a.iii. below) shall continue to be paid in
monthly installments, subject to applicable withholdings, by First Charter for a
period of thirty-five (35) months following such termination of employment. In
lieu of receiving payment of Compensation (as defined in Section 6.a.iii below)
for such 35-month period in installments, Executive may elect, at any time prior
to the earlier to occur of (i) a Change in Control or (ii) an action by the
Board with respect to an event which would, upon consummation, result in a
Change in Control (which election shall be evidenced by notice filed with First
Charter), to be paid the present value of any such Compensation in a lump sum
within thirty (30) days of termination of Executive's employment under
circumstances entitling such Executive to Compensation hereunder. The
calculation of the amount due shall be made by the independent accounting firm
then performing First Charter's independent audit, and such calculation,
including but not limited to any discount factor used to determine present
value, shall be conclusive.
(i) GOOD REASON. For purposes of this Section 6,
termination by Executive for "Good Reason" shall mean those
reasons set forth as "Good Reason" in Section 4.d. of this
Agreement, except that the change in Executive's position,
duties, responsibilities, status, title, Base Salary or bonus
shall be measured for such matters as they were in effect
immediately preceding the Change in Control.
(ii) CHANGE IN CONTROL. For purposes of this Section
6, Change in Control" shall mean (A) the consummation of a
merger, consolidation, share exchange or similar transaction
of First Charter with any other corporation as a result of
which the holders of the voting capital stock of First Charter
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 First
Charter) of substantially all the assets of First Charter; (C)
in the absence of a prior expression of approval by the Board,
the acquisition of more than 20% of First Charter'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 First Charter's securities; (D)
<PAGE> 7
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof unless
the election, or the nomination for election by First
Charter's shareholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period; or
(E) any other change in control of First Charter 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 First Charter by any person, company or other entity.
(iii) COMPENSATION. For purposes of this Section 6,
Executive's Compensation shall consist of the following: (A)
Executive's Base Salary in effect immediately preceding the
Change in Control, plus (B) an annual bonus equal to the
average bonus (calculated as a percentage of Base Salary,
without regard to vesting schedules or restrictions on the
bonus compensation and converting all post-employment payments
in stock and stock options to a cash present value) paid by
First Charter for each one-year performance period (often
referred to as the "annual incentive program") to Executive
for the three (3) most recent fiscal years ending prior to
such Change in Control pursuant to First Charter's incentive
and bonus plans or, if the relevant bonus program has not
existed for three (3) years preceding the Change of Control,
an amount equal to the estimated average bonus as calculated
by the independent accounting firm then performing First
Charter's independent audit, which calculation shall be
conclusive.
b. Upon termination of Executive's employment entitling
Executive to Compensation set forth in Section 6.a. above, First Charter shall
maintain in full force and effect for the continued benefit of Executive for
such thirty-five-month period health insurance (including coverage for
Executive's dependents to the extent dependent coverage is provided by First
Charter for its employees generally) under such plans and programs in which
Executive was entitled to participate immediately prior to the date of such
termination of employment, provided that Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that participation in any such plan or program is barred, First
Charter shall arrange to provide Executive with health insurance benefits for
such thirty-five month period substantially similar to those which Executive
would otherwise have been entitled to receive under such plans and programs from
which his continued participation is barred. However, in no event will Executive
receive from First Charter the health insurance contemplated by this Section
6.b. if Executive receives comparable insurance from any other source.
c. Upon termination of Executive's employment entitling
Executive to Compensation as set forth in Section 6.a. above, Executive will
become immediately vested in any and all stock options and shares of restricted
stock previously granted to him by First Charter notwithstanding any provision
to the contrary of any plan under which the options or restricted stock are
granted. Any accrued but ungranted stock options or restricted stock shall also
be fully vested upon grant to Executive. Executive may exercise such options
only at the times and in the method described in such options. All restrictions
on shares of First Charter's stock granted under any plan shall lapse upon a
Change of Control. First Charter will amend such options or plans in any manner
necessary to facilitate the provisions of this Section 6.c.
d. It is the intention of First Charter and Executive that no
portion of the payment made under this Agreement, or payments to or for
Executive under any other agreement or plan, be deemed to be an excess parachute
payment as defined in the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. First Charter and Executive agree that
the present value of any payment hereunder and any other payment to or for the
benefit of Executive in the nature of compensation, receipt of which is
contingent on a Change in Control of First Charter, and to which Code section
280G or any successor provision thereto applies, shall not exceed an amount
equal to one dollar less than the maximum amount that Executive may receive
without becoming subject to the tax imposed by Code section 4999 or any
successor provision or which First Charter may pay without loss of deduction
under Code section 280G or any successor provisions. Present value for purposes
of this Agreement shall be calculated in accordance with Code section 1274(b)(2)
or any successor provision. In the event that the
<PAGE> 8
provisions of Code sections 280G and 4999 or any successor provisions are
repealed without succession, this Section 6.d. shall be of no further force or
effect.
e. Except as elected by Executive with the prior consent of
First Charter, all payments provided for under this Section 6 shall be paid in
cash (including the cash values of stock options or restricted stock, if any)
from the general funds of First Charter, 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. Executive
shall have no right, title or interest whatsoever in or to any investments that
First Charter may make to aid First Charter in meeting its obligations under
this Section 6. 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 First Charter and Executive or any other
person. To the extent that any person acquires a right to receive payments from
First Charter hereunder, such right shall be no greater than the right of an
unsecured creditor of First Charter.
f. All payments set forth in this Section 6 to Executive, if
any, shall be made subject to applicable withholdings as required by law.
7. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION.
a. Executive understands that his position with First Charter
is one of trust and confidence because of Executive's access to trade secrets
and confidential and proprietary business information. Executive pledges his
best efforts and utmost diligence to protect and keep confidential the trade
secrets and confidential or proprietary business information of First Charter.
b. Unless required by First Charter in connection with his
employment or with First Charter's express written consent, Executive agrees
that he will not, either during his employment or afterwards, directly or
indirectly, use, misappropriate, disclose or aid anyone else in disclosing to
any third party for Executive's own benefit or the benefit of another all or any
part of any of First Charter's or its subsidiaries' trade secrets or
confidential or proprietary information, whether or not the information is
acquired, learned, or developed by Executive alone or in conjunction with
others. Executive makes the same pledge with regard to the confidential
information of First Charter's and its subsidiaries' customers, contractors, or
others with whom First Charter or its subsidiaries have a business relationship.
c. Executive understands that trade secrets and confidential
or proprietary information, for purposes of this Agreement, shall include, but
not be limited to, any and all versions of First Charter's or its subsidiaries'
computer software, hardware, and documentation; all methods, processes,
techniques, practices, product designs, pricing information, billing histories,
customer requirements, customer lists, account data, loan records, employee
lists and salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and projections for
business opportunities for new or developing business of First Charter or its
subsidiaries; and all other confidential or proprietary information, patents,
ideas, know-how and trade secrets which are in the possession of First Charter
or its subsidiaries, no matter what the source, including any such information
that First Charter or its subsidiaries obtain from a customer, contractor or
another party or entity and that First Charter treats or designates as
confidential or proprietary information, whether or not such information is
owned or was developed by First Charter.
d. Executive also agrees that all notes, records (including
all computer and electronic records), software, drawings, handbooks, manuals,
policies, contracts, memoranda, sales files, customer lists, employee lists or
other documents that are made or compiled by Executive, or which were available
to Executive while he was employed at First Charter, in whatever form, including
but not limited to all such documents and data concerning any processes,
inventions, services or products used or developed by Executive during his
employment, shall be the property of First Charter. Executive further agrees to
deliver and make available all such documents and data to First Charter,
regardless of how stored or maintained and including all originals, copies and
compilations thereof, upon the separation of his employment, for any reason, or
at any other time at First Charter's request.
<PAGE> 9
e. Executive understands that First Charter expects him to
respect any trade secrets of confidential information of any of Executive's
former employers, business associates, or other business relationships.
Executive also agrees to respect First Charter's express direction to Executive
not to disclose to First Charter, its officers, or any of its employees any such
information so long as it remains confidential.
8. COVENANT NOT TO COMPETE. For and in consideration of this Agreement,
the change in control protection contained herein and Executive's continued
employment with First Charter, Executive agrees that, unless specifically
authorized by First Charter in writing, Executive will not for a period of two
(2) years after his employment with First Charter has terminated or ended
(whatever the reason for the end of the employment relationship):
a. Engage in any "Competitive Activity" (as defined below)
within the "Restricted Territory" (as defined below);
b. Serve as an employee, director, owner, partner, contractor,
consultant or agent of, or own any interest in (except for beneficially owning
the stock or options to acquire stock totaling less than 5% of the outstanding
shares in a "public" competitor), any person, firm or corporation that engages
in "Competitive Activity" within the "Restricted Territory"; or
c. Engage in any "Competitive Activity" with, for or towards
or divert, attempt to divert or direct others to divert any business of First
Charter from an existing First Charter customer, a joint venture or other
business partner of First Charter (hereinafter referred to as an "affiliate"),
or from a potential customer identified through leads or relationships developed
during the last two (2) years of Executive's employment with First Charter,
within the "Restricted Territory".
Furthermore, Executive will not during his employment with First Charter
and for a period of three (3) years after his employment with First Charter has
terminated or ended (whatever the reason for the end of the employment
relationship) solicit or hire for employment or as an independent contractor any
employee of First Charter, the Bank or any of First Charter's affiliates, or
solicit, assist, induce, recruit, or assist or induce anyone else to recruit, or
cause another person in the employ of First Charter, the Bank or any of First
Charter's affiliates to leave his employment with First Charter, the Bank or
First Charter's affiliate for the purpose of joining, associating, or becoming
employed with any business or activity with which Executive is or expects to be
directly or indirectly associated or employed.
"Competitive Activity" means: (1) the business activities engaged in by
First Charter during Executive's employment with First Charter, including the
sales, marketing, distribution and provision of banking, financial and insurance
services or other products or services of the type of which Executive was
involved during his employment with First Charter; and/or (2) the performance of
any other business activities competitive with First Charter and/or the Bank for
or on behalf of any financial or insurance services entity.
"Restricted Territory" means: (1) the geographic area encompassing a
fifty (50) mile radius of any financial center operated by First Charter or the
Bank upon the end of Executive's employment with First Charter; (2) the
geographic area encompassing a fifty (50) mile radius of Concord, North
Carolina; and/or (2) any Metropolitan Statistical Area (as defined by the United
States Department of Commerce) from which First Charter generated at least two
percent (2%) of its gross annual revenue during the last two calendar years
before the end of Executive's employment with First Charter.
Executive further agrees that except with the express written
consent of the Board, Executive will not engage in any Competitive Activity
individually or with any entity or individual other than First Charter, the
Board or its subsidiaries during the Employment Term.
9. ACKNOWLEDGMENTS BY EXECUTIVE.
a. Executive acknowledges that the restrictions placed upon
him by Sections 7 and 8 of this Agreement are reasonable given the nature of
Executive's position with First Charter, the area in which First Charter markets
its products and services, and the consideration provided by First Charter to
<PAGE> 10
Executive pursuant to this Agreement. Specifically, Executive acknowledges that
the length of the Covenant Not to Compete in Section 8 is reasonable and that
the definitions of "Competitive Activity" and "Restricted Territory" are
reasonable.
b. Executive acknowledges that all of the provisions of the
Agreement are fair and necessary to protect the interests of First
Charter. Accordingly, Executive agrees not to contest the validity or
enforceability of Sections 7 or 8 hereof.
c. Executive understands that every provision of this
Agreement is severable from each other provision of this Agreement. Therefore,
if any provision of this Agreement, including but not limited to all provisions
of Sections 7 and 8, is held invalid or unenforceable, every other provision of
this Agreement will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of competent
jurisdiction to be void or unenforceable, Executive and First Charter agree that
such provision shall be enforced to the extent reasonable under the
circumstances and that all other provisions shall be enforceable to the fullest
extent permissible by law. Executive and First Charter further agree that, if
any court makes such a determination, such court shall have the power to reduce
the duration, scope and/or area of such provisions and/or delete specific words
and phrases by "blue penciling" and, in its reduced or blue penciled form, such
provisions shall then be enforceable as allowed by law.
d. Executive understands that his obligations under Sections 7
and 8 of this Agreement will continue whether or not his employment
with First Charter is terminated voluntarily or involuntarily, or with
or without Cause or Good Reason.
10. BREACH BY EXECUTIVE. Executive agrees that in the event of any
breach or threatened breach of the provisions of Sections 7 and 8 hereof by
Executive, First Charter's remedies at law would be inadequate, and First
Charter shall be entitled to an injunction (without any bond or other security
being required), restraining such breach, and costs and attorneys' fees relating
to any such proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude First Charter
from pursuing any other remedies at law or in equity available to it for any
such breach or threatened breach. Moreover, Executive also agrees that if
Executive breaches any of Sections 7 or 8 above, Executive shall be required to
refund to First Charter and First Charter shall be entitled to recover of
Executive 90% of the amount already paid under Sections 5.b., 5.d., 5.e. or 6.a.
above to Executive by First Charter at the time of the breach, and Executive
shall forfeit at the time of the breach the right to any additional payments or
benefits under this Agreement, except that if the breach occurs before the
payments set forth in Section Sections 5.b., 5.d., 5.e. or 6.a. above are made,
Executive shall be entitled to receive the first monthly payment and nothing
more. In such case, Executive and First Charter agree that the confidential
information and non-compete obligations contained in this Agreement shall remain
valid and enforceable based upon the consideration actually paid.
11. ASSIGNMENT AND BINDING EFFECT. This Agreement shall be binding
upon, and inure to the benefit of, Executive and First Charter and the Bank and
their respective permitted successors and assigns. Neither this Agreement nor
any right or interest hereunder shall be assignable by Executive, his
beneficiaries, or legal representatives without the First Charter's prior
written consent. First Charter 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 First Charter, by
agreement in form and substance satisfactory to Executive, to expressly assume
and agree to perform all of First Charter's obligations under this Agreement in
the same manner and to the same extent that First Charter would be required to
perform it if no such succession had taken place, and to perform all obligations
to Executive as provided in Section 6. Failure of First Charter to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle Executive to compensation from First Charter 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 Executive's employment was terminated. As
used in this Agreement, "Company" shall mean First Charter 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 11 or that otherwise becomes
bound by the all terms and provisions of this Agreement by operation of law.
<PAGE> 11
12. COMPLETE AGREEMENT. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Executive and First
Charter may have entered into with respect to Executive's employment by First
Charter, including specifically the Change in Control agreement entered into
between Executive and First Charter dated March 17, 1999. Executive has no oral
representations, understandings or agreements with First Charter or any of its
officers, directors or representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete and exclusive statement
and expression of the agreement between First Charter and Executive and of all
the terms of this Agreement, and it cannot be varied, contradicted or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of First Charter and Executive, and
no term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To First Charter: First Charter National Bank
Executive Offices
845 Church Street Commons, Suite 307
Concord, North Carolina 28206
To Executive: Robert O. Bratton
725 Sherwin Lane
Concord, North Carolina 28025
Notice shall be deemed given and effective on the earlier of three (3)
days after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this Section 13.
14. HEADINGS. The section headings herein are for reference purposes only
and are not intended in any way to describe, interpret, define or limit
the extent or intent of the Agreement or of any part hereof.
15. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FIRST CHARTER CORPORATION
By: /s/ Robert O. Bratton
---------------------------------------------------
Name: Robert O. Bratton
---------------------------------------------------
Title: Chief Financial Officer and Chief Operating Officer
---------------------------------------------------
<PAGE> 1
EXHIBIT 10.6
<PAGE> 2
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of the 21st day of July, 1999 by and between First Charter Corporation ("First
Charter") a North Carolina corporation, and Robert E. James ("Executive"), an
individual residing in Mecklenburg County, North Carolina;
WHEREAS, Executive is a valued Executive of First Charter and its
wholly owned subsidiary, First Charter National Bank (the "Bank"), and in order
to induce Executive to continue employment with First Charter and to enhance
Executive's job security, First Charter desires to enter into this employment
agreement that will provide compensation to Executive in certain events,
including but not limited to Executive's termination of employment following a
change in control of First Charter, as hereinafter provided; and
WHEREAS, because Executive has or will become familiar with First
Charter's and the Bank's products, relationships, trade secrets and confidential
information relating to First Charter's, the Bank's and their respective
customers' business, products, processes and developments and may generate or
have generated confidential information, First Charter wishes to protect its
long-term interests by having Executive enter into certain non-disclosure and
non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained herein,
including the compensation First Charter agrees to pay to Executive upon certain
events, Executive's continued employment with First Charter, Executive's
covenants and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, First Charter and Executive agree as follows:
1. EMPLOYMENT AND DUTIES.
a. During the Employment Term (as defined in Section 3 below),
First Charter hereby employs Executive, and Executive hereby agrees to serve, as
Group Executive Vice President of First Charter. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of, and
consistent with Executive's position as Group Executive Vice President of First
Charter and will report directly to Lawrence M. Kimbrough of First Charter.
Executive shall also perform the duties and exercise the powers and functions
that from time to time may be assigned or vested in him by the Board and/or the
Board of Directors of First Charter's subsidiaries in relation to: (i) First
Charter; and/or (ii) any subsidiary or affiliated company of First Charter,
including general responsibility for the management and operations of the Bank.
Executive hereby accepts this employment upon the terms and conditions herein
contained and, subject to Section 1.c., agrees to devote substantially all of
his business time, attention and efforts to promote and further the business of
First Charter and the Bank.
b. Executive shall faithfully adhere to, execute and fulfill
all lawful requests, instructions and policies made by the Board or its
authorized agent(s).
c. Except as specifically authorized in advance by the Board,
Executive shall not, during the Employment Term (as defined in Section 3 below),
be engaged as an employee or otherwise in any other business or commercial
activity pursued for gain, profit or other pecuniary advantage. The foregoing
limitations also shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will neither require his services
in the operation or affairs of the companies or enterprises in which such
investments are made nor violate the terms of Section 3 hereof, provided,
however, that during the Employment Term (as defined in Section 3 below),
Executive may not beneficially own the stock or options to acquire stock
totaling more than 5% of the outstanding shares of any corporation or entity, or
otherwise acquire or agree to acquire a significant present or future equity or
other proprietorship interests, whether as a stockholder, partner, proprietor,
or otherwise, with any enterprise, business or division thereof, that is engaged
in Competitive Activity (as defined in Section 8 below) with First Charter
and/or the Bank.
<PAGE> 3
2. COMPENSATION. For all services rendered by Executive during the
Employment Term (as defined in Section 3 below), First Charter shall compensate
Executive as follows:
a. BASE SALARY. Effective January 29, 1999, during the
Employment Term (as defined in Section 3 below), First Charter will pay
Executive a bi-monthly base salary as compensation for Executive's services
hereunder of $7,291.66, equivalent to $175,000.00 per year (the "Base Salary"),
payable on a regular basis in accordance with First Charter's standard payroll
procedures but not less than monthly, less applicable deductions required by
law. On at least an annual basis thereafter during the Employment Term (as
defined in Section 3 below), the Board will review Executive's performance and,
based upon the recommendations of the Compensation Committee, may make
adjustments to such Base Salary if, in its discretion, such adjustments are
warranted, with any such adjustments to be effective beginning January 1 of the
next following year.
b. BONUS. In addition to the Base Salary set forth above,
during the Employment Term (as set forth in Section 3 below) and as long as
Executive remains actively employed by First Charter, Executive may receive an
annual bonus from one or more arrangements including but not limited to the
First Charter Corporation 1999 Executive Incentive Plan (collectively, the
"Bonus"), the amount of which shall be determined in the sole discretion of the
Board. In making its determination of the amount of the Bonus, if any, to be
paid, the Board may take into account, among other things: (i) Executive's
qualifications and experience; (ii) the duties and responsibilities of
Executive; (iii) the services performed and the contributions of Executive to
the success of First Charter and/or the Bank; (iv) compensation patterns in
similar businesses for similar executives; (v) First Charter's financial
resources to pay the bonus; and (vi) such other factors as the Board shall deem
to be relevant.
c. EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION.
During the Employment Term (as defined in Section 3 below), Executive shall be
entitled to receive additional benefits and compensation from First Charter in
such form and to such extent as specified below:
i. Payment of all or a portion of premiums for
coverage for Executive and his dependent family members under
health, hospitalization, disability, dental, life and other
insurance plans that First Charter may have in effect from
time to time. Benefits provided to Executive under this
Section 2.c.i. will require Executive to pay the same
proportion of premiums for, and shall provide benefits at
least equal to, the benefits then provided to First Charter's
other executive employees.
ii. Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Executive in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request
for reimbursement, and in a format and manner consistent with
First Charter's expense reporting policy.
iii. First Charter shall provide Executive with other
employee perquisites as may be available to or deemed
appropriate for Executive by the Board and participation in
all other company-wide employee benefits, including but not
limited to, any qualified and/or nonqualified retirements
plans sponsored by First Charter, as such are available from
time to time. Such current additional perquisites are listed
on Schedule A, which is attached hereto and incorporated
herein, and may be amended from time to time in the discretion
of the Board.
iv. Schedule B, which is attached hereto and
incorporated herein, lists those other supplemental benefits
in which Executive is currently entitled to participate, and
may be amended from time to time with the consent of the
parties.
3. TERM OF AGREEMENT. The term of this Agreement shall begin on the
date hereof and continue for three (3) years (the "Employment Term"), and,
unless terminated sooner as hereafter provided in Section 4 below, and, until
Executive attains age sixty-two (62), shall be renewed thereafter for
<PAGE> 4
successive twelve (12) month periods on the same terms and conditions contained
herein in effect as of the time of renewal, unless either party gives notice of
intent to terminate the Agreement at least ninety (90) days prior to the
expiration of said term. Notwithstanding the forgoing, however, this Agreement
shall terminate when Executive attains age sixty-five (65).
4. TERMINATION. In addition to the provisions set forth in Section 3
above, the Employment Term shall terminate immediately upon the occurrence of
any of the following events: (a) immediately upon the retirement or death of
Executive; (b) upon the end of the time period specified in the First Charter
Corporation Comprehensive Stock Option Plan following the Disability of
Executive (as defined below); (c) upon the effective date of Resignation by
Executive Without Good Reason (as defined below); (d) upon the effective date of
Resignation by Executive For Good Reason; (e) upon the 60th day following the
date the Board gives Executive notice of Termination Without Cause (as defined
below); or (f) upon the close of business on the date the Board gives Executive
notice of Termination for Cause (as defined below).
a. RETIREMENT. "Retirement by Executive" shall mean any
voluntary retirement by Executive with the consent of the Board.
b. DISABILITY. "Disability" shall mean Executive is
"disabled", as that term is defined in the First Charter Corporation
Comprehensive Stock Option Plan, such that he is unable, with or
without a reasonable accommodation, to perform the essential functions
of his position with First Charter. Executive agrees to submit such
medical evidence to First Charter regarding his disability as is
reasonably requested by the Board.
c. RESIGNATION WITHOUT GOOD REASON. "Resignation Without Good
Reason" shall mean any voluntary termination or resignation by
Executive for any reason other than retirement or "Resignation for Good
Reason". Executive is required to give at least 60 days advance written
notice of Resignation Without Good Reason to the Board, and First
Charter is entitled upon receiving such notice, in its discretion, to
accept such resignation as effective on: (i) the resignation date
proposed by Executive, or (ii) such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
d. RESIGNATION FOR GOOD REASON. "Resignation For Good Reason"
shall mean any voluntary termination or resignation by Executive for:
(i) a material reduction in Executive's position, duties,
responsibilities or status, or a change in Executive's title resulting
in a material reduction in his responsibilities or position with First
Charter, in either case without Executive's consent, but excluding for
this purpose any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by First Charter
after receiving notice from Executive and further excluding any such
reductions or changes made in good faith to conform with generally
accepted industry standards for Executive's position; (ii) a reduction
in the rate of Executive's Base Salary or a decrease in any Bonus to
which Executive was entitled pursuant to the First Charter Corporation
1999 Executive Incentive Plan or incentive plans at the end of the most
recently concluded fiscal year, in either case without Executive's
consent; provided, however, that a decrease in Executive's Bonus amount
shall not constitute "Good Reason" and nothing herein shall be
construed to guarantee such bonus awards if performance, either by
First Charter or Executive, is below such targets as may reasonably and
in good faith be set forth in the First Charter Corporation 1999
Executive Incentive Plan or other incentive arrangements; or (iii) the
relocation of Executive, without his consent, to a location outside a
fifty (50) mile radius of Concord, North Carolina. Executive is
required to give written notice of Resignation For Good Reason to the
Board, and First Charter is entitled upon receiving such notice, in its
discretion, to accept such resignation as effective on the resignation
date proposed by Executive, or such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
<PAGE> 5
e. TERMINATION WITHOUT CAUSE. "Termination Without Cause"
shall mean any termination of the employment of Executive by First
Charter for any reason other than termination due to the retirement or
death of Executive, "Disability" or "Termination for Cause".
f. TERMINATION FOR CAUSE. "Termination for Cause" shall mean
termination of the employment of Executive by First Charter as the
result of Executive's: (i) willful misconduct of a material nature in
connection with the performance of his duties as an employee; (ii) use
of alcohol or drugs that affects his ability to perform his assigned
duties as an employee or Executive's violation of First Charter's drug
and/or alcohol policies; (iii) conviction, guilty plea or plea of nolo
contendere for any crime involving moral turpitude or for any felony;
(iv) embezzlement or theft from First Charter, the Bank or any of their
respective customers and employees; (v) gross inattention to or
dereliction of duty; (vi) commission or omission of any act of fraud or
dishonesty in connection with Executive's employment with First Charter
or the Bank; (vii) breach of any fiduciary duty to First Charter or the
Bank, including the duty of loyalty; or (viii) breach of any provision
of this Agreement; or (ix) performance of any other willful act(s)
which Executive knew or reasonably should have known would be
materially detrimental to First Charter or the Bank.
5. RIGHTS UPON TERMINATION. Following the termination of the Employment
Term for any reason, except for the payment of any earned but unpaid Base
Salary, if any, due at the time of termination of the Employment Term and
Executive's general right to elect certain coverage continuation under COBRA,
and except for any payments which may be due as set forth in this Section 5 and
Section 6 below, Executive shall not be entitled to receive any additional
compensation, wages, bonuses, incentive pay, commissions, severance pay,
consideration and/or benefits of any kind from First Charter and/or the Bank
hereunder upon the termination of the Employment Term, except that Executive
will not forfeit any vested stock options or vested 401(k) or pension benefits
with First Charter and the Bank, if any:
a. DEATH. If termination of the Employment Term occurs at any
time due to the death of Executive, then Executive's personal
representative shall be paid all earned but unpaid Base Salary and
accrued Bonus (as those terms are described in Section 2) and an
additional amount representing one (1) year's Base Salary, such amounts
to be paid in the same manner as provided in Section 2. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
b. DISABILITY. If termination of the Employment Term occurs at
any time due to the Disability of Executive, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2, less any amounts which Executive
receives from First Charter's long-term disability plan. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
c. TERMINATION "FOR CAUSE" OR RESIGNATION "WITHOUT GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "For Cause" or due to resignation by
Executive "Without Good Reason", then Executive shall be entitled only
to receive all earned but unpaid Base Salary, unreimbursed expenses
and/or accrued, vested stock options and vested 401(k) or pension
benefits through the effective date of the Termination "For Cause" or
Resignation "Without Good Reason".
d. TERMINATION "WITHOUT CAUSE" OR RESIGNATION "FOR GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "Without Cause" or due to resignation
by Executive "For Good Reason", then Executive shall be entitled to (i)
all accrued, unpaid Base Salary and unreimbursed expenses through the
date of such termination; (ii) any prior year annual incentive bonus
earned but not yet paid; (iii) continued payment of Executive's Base
Salary for the greater of the remainder of the Employment Term or two
(2) years; (iii) an annual bonus amount (calculated as the average of
the three most recent Bonuses) for the greater of the remainder of the
Employment Term or two (2) years; (iv) continuation of health and
welfare benefit coverage (including coverage for Executive's
<PAGE> 6
dependents to the extent such coverage is provided by First Charter for
its employees generally) under such plans and programs to which an
Executive was entitled to participate immediately prior to the date of
the end of his employment for the greater of the remainder of the
Employment Term or two (2) years, provided such continued participation
is possible under the terms and provisions of such plans and programs;
and (v) acceleration of vesting of all awards, grants, and options
under any First Charter or Bank stock option plan or grant
notwithstanding any other provision in such plan or grant.
e. RETIREMENT WITH THE CONSENT OF FIRST CHARTER. If Executive
retires with the consent of First Charter, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2. In addition, all awards, grants
and options under any First Charter or Bank stock option or grant will
be fully vested notwithstanding any other provision in such plan or
grant.
h. DEDUCTIONS. All payments set forth in this Section 5
to Executive and/or his personal representative, if
any, shall be made subject to applicable withholdings
as required by law.
6. TERMINATION FOLLOWING A CHANGE IN CONTROL.
a. The Parties agree that if, during the Employment Term, a
Change in Control (as defined in Section 6.a.ii. hereof) occurs and if, within
one (1) year following the Change in Control, the employment of Executive is
terminated by First Charter Without Cause (as defined in Section 4.e. hereof),
or by Executive for Good Reason (as defined in Section 4.d. hereof), Executive's
Compensation (as defined in Section 6.a.iii. below) shall continue to be paid in
monthly installments, subject to applicable withholdings, by First Charter for a
period of thirty-five (35) months following such termination of employment. In
lieu of receiving payment of Compensation (as defined in Section 6.a.iii below)
for such 35-month period in installments, Executive may elect, at any time prior
to the earlier to occur of (i) a Change in Control or (ii) an action by the
Board with respect to an event which would, upon consummation, result in a
Change in Control (which election shall be evidenced by notice filed with First
Charter), to be paid the present value of any such Compensation in a lump sum
within thirty (30) days of termination of Executive's employment under
circumstances entitling such Executive to Compensation hereunder. The
calculation of the amount due shall be made by the independent accounting firm
then performing First Charter's independent audit, and such calculation,
including but not limited to any discount factor used to determine present
value, shall be conclusive.
(i) GOOD REASON. For purposes of this Section 6,
termination by Executive for "Good Reason" shall mean those
reasons set forth as "Good Reason" in Section 4.d. of this
Agreement, except that the change in Executive's position,
duties, responsibilities, status, title, Base Salary or bonus
shall be measured for such matters as they were in effect
immediately preceding the Change in Control.
(ii) CHANGE IN CONTROL. For purposes of this Section
6, Change in Control" shall mean (A) the consummation of a
merger, consolidation, share exchange or similar transaction
of First Charter with any other corporation as a result of
which the holders of the voting capital stock of First Charter
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 First
Charter) of substantially all the assets of First Charter; (C)
in the absence of a prior expression of approval by the Board,
the acquisition of more than 20% of First Charter'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 First Charter's securities; (D)
<PAGE> 7
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof unless
the election, or the nomination for election by First
Charter's shareholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period; or
(E) any other change in control of First Charter 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 First Charter by any person, company or other entity.
(iii) COMPENSATION. For purposes of this Section 6,
Executive's Compensation shall consist of the following: (A)
Executive's Base Salary in effect immediately preceding the
Change in Control, plus (B) an annual bonus equal to the
average bonus (calculated as a percentage of Base Salary,
without regard to vesting schedules or restrictions on the
bonus compensation and converting all post-employment payments
in stock and stock options to a cash present value) paid by
First Charter for each one-year performance period (often
referred to as the "annual incentive program") to Executive
for the three (3) most recent fiscal years ending prior to
such Change in Control pursuant to First Charter's incentive
and bonus plans or, if the relevant bonus program has not
existed for three (3) years preceding the Change of Control,
an amount equal to the estimated average bonus as calculated
by the independent accounting firm then performing First
Charter's independent audit, which calculation shall be
conclusive.
b. Upon termination of Executive's employment entitling
Executive to Compensation set forth in Section 6.a. above, First Charter shall
maintain in full force and effect for the continued benefit of Executive for
such thirty-five-month period health insurance (including coverage for
Executive's dependents to the extent dependent coverage is provided by First
Charter for its employees generally) under such plans and programs in which
Executive was entitled to participate immediately prior to the date of such
termination of employment, provided that Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that participation in any such plan or program is barred, First
Charter shall arrange to provide Executive with health insurance benefits for
such thirty-five month period substantially similar to those which Executive
would otherwise have been entitled to receive under such plans and programs from
which his continued participation is barred. However, in no event will Executive
receive from First Charter the health insurance contemplated by this Section
6.b. if Executive receives comparable insurance from any other source.
c. Upon termination of Executive's employment entitling
Executive to Compensation as set forth in Section 6.a. above, Executive will
become immediately vested in any and all stock options and shares of restricted
stock previously granted to him by First Charter notwithstanding any provision
to the contrary of any plan under which the options or restricted stock are
granted. Any accrued but ungranted stock options or restricted stock shall also
be fully vested upon grant to Executive. Executive may exercise such options
only at the times and in the method described in such options. All restrictions
on shares of First Charter's stock granted under any plan shall lapse upon a
Change of Control. First Charter will amend such options or plans in any manner
necessary to facilitate the provisions of this Section 6.c.
d. It is the intention of First Charter and Executive that no
portion of the payment made under this Agreement, or payments to or for
Executive under any other agreement or plan, be deemed to be an excess parachute
payment as defined in the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. First Charter and Executive agree that
the present value of any payment hereunder and any other payment to or for the
benefit of Executive in the nature of compensation, receipt of which is
contingent on a Change in Control of First Charter, and to which Code section
280G or any successor provision thereto applies, shall not exceed an amount
equal to one dollar less than the maximum amount that Executive may receive
without becoming subject to the tax imposed by Code section 4999 or any
successor provision or which First Charter may pay without loss of deduction
under Code section 280G or any successor provisions. Present value for purposes
of this Agreement shall be calculated in accordance with Code section 1274(b)(2)
or any successor provision. In the event that the
<PAGE> 8
provisions of Code sections 280G and 4999 or any successor provisions are
repealed without succession, this Section 6.d. shall be of no further force or
effect.
e. Except as elected by Executive with the prior consent of
First Charter, all payments provided for under this Section 6 shall be paid in
cash (including the cash values of stock options or restricted stock, if any)
from the general funds of First Charter, 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. Executive
shall have no right, title or interest whatsoever in or to any investments that
First Charter may make to aid First Charter in meeting its obligations under
this Section 6. 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 First Charter and Executive or any other
person. To the extent that any person acquires a right to receive payments from
First Charter hereunder, such right shall be no greater than the right of an
unsecured creditor of First Charter.
f. All payments set forth in this Section 6 to Executive, if
any, shall be made subject to applicable withholdings as required by law.
7. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION.
a. Executive understands that his position with First Charter
is one of trust and confidence because of Executive's access to trade secrets
and confidential and proprietary business information. Executive pledges his
best efforts and utmost diligence to protect and keep confidential the trade
secrets and confidential or proprietary business information of First Charter.
b. Unless required by First Charter in connection with his
employment or with First Charter's express written consent, Executive agrees
that he will not, either during his employment or afterwards, directly or
indirectly, use, misappropriate, disclose or aid anyone else in disclosing to
any third party for Executive's own benefit or the benefit of another all or any
part of any of First Charter's or its subsidiaries' trade secrets or
confidential or proprietary information, whether or not the information is
acquired, learned, or developed by Executive alone or in conjunction with
others. Executive makes the same pledge with regard to the confidential
information of First Charter's and its subsidiaries' customers, contractors, or
others with whom First Charter or its subsidiaries have a business relationship.
c. Executive understands that trade secrets and confidential
or proprietary information, for purposes of this Agreement, shall include, but
not be limited to, any and all versions of First Charter's or its subsidiaries'
computer software, hardware, and documentation; all methods, processes,
techniques, practices, product designs, pricing information, billing histories,
customer requirements, customer lists, account data, loan records, employee
lists and salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and projections for
business opportunities for new or developing business of First Charter or its
subsidiaries; and all other confidential or proprietary information, patents,
ideas, know-how and trade secrets which are in the possession of First Charter
or its subsidiaries, no matter what the source, including any such information
that First Charter or its subsidiaries obtain from a customer, contractor or
another party or entity and that First Charter treats or designates as
confidential or proprietary information, whether or not such information is
owned or was developed by First Charter.
d. Executive also agrees that all notes, records (including
all computer and electronic records), software, drawings, handbooks, manuals,
policies, contracts, memoranda, sales files, customer lists, employee lists or
other documents that are made or compiled by Executive, or which were available
to Executive while he was employed at First Charter, in whatever form, including
but not limited to all such documents and data concerning any processes,
inventions, services or products used or developed by Executive during his
employment, shall be the property of First Charter. Executive further agrees to
deliver and make available all such documents and data to First Charter,
regardless of how stored or maintained and including all originals, copies and
compilations thereof, upon the separation of his employment, for any reason, or
at any other time at First Charter's request.
<PAGE> 9
e. Executive understands that First Charter expects him to
respect any trade secrets of confidential information of any of Executive's
former employers, business associates, or other business relationships.
Executive also agrees to respect First Charter's express direction to Executive
not to disclose to First Charter, its officers, or any of its employees any such
information so long as it remains confidential.
8. COVENANT NOT TO COMPETE. For and in consideration of this Agreement,
the change in control protection contained herein and Executive's continued
employment with First Charter, Executive agrees that, unless specifically
authorized by First Charter in writing, Executive will not for a period of two
(2) years after his employment with First Charter has terminated or ended
(whatever the reason for the end of the employment relationship):
a. Engage in any "Competitive Activity" (as defined below)
within the "Restricted Territory" (as defined below);
b. Serve as an employee, director, owner, partner, contractor,
consultant or agent of, or own any interest in (except for beneficially owning
the stock or options to acquire stock totaling less than 5% of the outstanding
shares in a "public" competitor), any person, firm or corporation that engages
in "Competitive Activity" within the "Restricted Territory"; or
c. Engage in any "Competitive Activity" with, for or towards
or divert, attempt to divert or direct others to divert any business of First
Charter from an existing First Charter customer, a joint venture or other
business partner of First Charter (hereinafter referred to as an "affiliate"),
or from a potential customer identified through leads or relationships developed
during the last two (2) years of Executive's employment with First Charter,
within the "Restricted Territory".
Furthermore, Executive will not during his employment with First Charter
and for a period of three (3) years after his employment with First Charter has
terminated or ended (whatever the reason for the end of the employment
relationship) solicit or hire for employment or as an independent contractor any
employee of First Charter, the Bank or any of First Charter's affiliates, or
solicit, assist, induce, recruit, or assist or induce anyone else to recruit, or
cause another person in the employ of First Charter, the Bank or any of First
Charter's affiliates to leave his employment with First Charter, the Bank or
First Charter's affiliate for the purpose of joining, associating, or becoming
employed with any business or activity with which Executive is or expects to be
directly or indirectly associated or employed.
"Competitive Activity" means: (1) the business activities engaged in by
First Charter during Executive's employment with First Charter, including the
sales, marketing, distribution and provision of banking, financial and insurance
services or other products or services of the type of which Executive was
involved during his employment with First Charter; and/or (2) the performance of
any other business activities competitive with First Charter and/or the Bank for
or on behalf of any financial or insurance services entity.
"Restricted Territory" means: (1) the geographic area encompassing a
fifty (50) mile radius of any financial center operated by First Charter or the
Bank upon the end of Executive's employment with First Charter; (2) the
geographic area encompassing a fifty (50) mile radius of Concord, North
Carolina; and/or (2) any Metropolitan Statistical Area (as defined by the United
States Department of Commerce) from which First Charter generated at least two
percent (2%) of its gross annual revenue during the last two calendar years
before the end of Executive's employment with First Charter.
Executive further agrees that except with the express written
consent of the Board, Executive will not engage in any Competitive Activity
individually or with any entity or individual other than First Charter, the
Board or its subsidiaries during the Employment Term.
9. ACKNOWLEDGMENTS BY EXECUTIVE.
a. Executive acknowledges that the restrictions placed upon
him by Sections 7 and 8 of this Agreement are reasonable given the nature of
Executive's position with First Charter, the area in which First Charter markets
its products and services, and the consideration provided by First Charter to
<PAGE> 10
Executive pursuant to this Agreement. Specifically, Executive acknowledges that
the length of the Covenant Not to Compete in Section 8 is reasonable and that
the definitions of "Competitive Activity" and "Restricted Territory" are
reasonable.
b. Executive acknowledges that all of the provisions of the
Agreement are fair and necessary to protect the interests of First
Charter. Accordingly, Executive agrees not to contest the validity or
enforceability of Sections 7 or 8 hereof.
c. Executive understands that every provision of this
Agreement is severable from each other provision of this Agreement. Therefore,
if any provision of this Agreement, including but not limited to all provisions
of Sections 7 and 8, is held invalid or unenforceable, every other provision of
this Agreement will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of competent
jurisdiction to be void or unenforceable, Executive and First Charter agree that
such provision shall be enforced to the extent reasonable under the
circumstances and that all other provisions shall be enforceable to the fullest
extent permissible by law. Executive and First Charter further agree that, if
any court makes such a determination, such court shall have the power to reduce
the duration, scope and/or area of such provisions and/or delete specific words
and phrases by "blue penciling" and, in its reduced or blue penciled form, such
provisions shall then be enforceable as allowed by law.
d. Executive understands that his obligations under Sections 7
and 8 of this Agreement will continue whether or not his employment
with First Charter is terminated voluntarily or involuntarily, or with
or without Cause or Good Reason.
10. BREACH BY EXECUTIVE. Executive agrees that in the event of any
breach or threatened breach of the provisions of Sections 7 and 8 hereof by
Executive, First Charter's remedies at law would be inadequate, and First
Charter shall be entitled to an injunction (without any bond or other security
being required), restraining such breach, and costs and attorneys' fees relating
to any such proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude First Charter
from pursuing any other remedies at law or in equity available to it for any
such breach or threatened breach. Moreover, Executive also agrees that if
Executive breaches any of Sections 7 or 8 above, Executive shall be required to
refund to First Charter and First Charter shall be entitled to recover of
Executive 90% of the amount already paid under Sections 5.b., 5.d., 5.e. or 6.a.
above to Executive by First Charter at the time of the breach, and Executive
shall forfeit at the time of the breach the right to any additional payments or
benefits under this Agreement, except that if the breach occurs before the
payments set forth in Section Sections 5.b., 5.d., 5.e. or 6.a. above are made,
Executive shall be entitled to receive the first monthly payment and nothing
more. In such case, Executive and First Charter agree that the confidential
information and non-compete obligations contained in this Agreement shall remain
valid and enforceable based upon the consideration actually paid.
11. ASSIGNMENT AND BINDING EFFECT. This Agreement shall be binding
upon, and inure to the benefit of, Executive and First Charter and the Bank and
their respective permitted successors and assigns. Neither this Agreement nor
any right or interest hereunder shall be assignable by Executive, his
beneficiaries, or legal representatives without the First Charter's prior
written consent. First Charter 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 First Charter, by
agreement in form and substance satisfactory to Executive, to expressly assume
and agree to perform all of First Charter's obligations under this Agreement in
the same manner and to the same extent that First Charter would be required to
perform it if no such succession had taken place, and to perform all obligations
to Executive as provided in Section 6. Failure of First Charter to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle Executive to compensation from First Charter 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 Executive's employment was terminated. As
used in this Agreement, "Company" shall mean First Charter 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 11 or that otherwise becomes
bound by the all terms and provisions of this Agreement by operation of law.
<PAGE> 11
12. COMPLETE AGREEMENT. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Executive and First
Charter may have entered into with respect to Executive's employment by First
Charter, including specifically the Change in Control agreement entered into
between Executive and First Charter dated March 17, 1999. Executive has no oral
representations, understandings or agreements with First Charter or any of its
officers, directors or representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete and exclusive statement
and expression of the agreement between First Charter and Executive and of all
the terms of this Agreement, and it cannot be varied, contradicted or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a further
writing signed by a duly authorized officer of First Charter and Executive, and
no term of this Agreement may be waived except by writing signed by the party
waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To First Charter: First Charter National Bank
Executive Offices
845 Church Street Commons, Suite 307
Concord, North Carolina 28206
To Executive: Robert E. James
2523 Monet Terrace
Charlotte, North Carolina 28226
Notice shall be deemed given and effective on the earlier of three (3)
days after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this Section 13.
14. HEADINGS. The section headings herein are for reference purposes only
and are not intended in any way to describe, interpret, define or limit
the extent or intent of the Agreement or of any part hereof.
15. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FIRST CHARTER CORPORATION
By: /s/ Robert E. James
---------------------------------------
Name: Robert E. James
---------------------------------------
Title: Group Executive Vice President - Sales
---------------------------------------
<PAGE> 1
EXHIBIT 10.7
<PAGE> 2
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of the 15th day of December, 1999 by and between First Charter Corporation
("First Charter") a North Carolina corporation, and C. Thomas McFarland
("Executive"), an individual residing in Wake County, North Carolina;
WHEREAS, Executive is a valued Executive of First Charter and its
wholly owned subsidiary, First Charter National Bank (the "Bank"), and in order
to induce Executive to continue employment with First Charter and to enhance
Executive's job security, First Charter desires to enter into this employment
agreement that will provide compensation to Executive in certain events,
including but not limited to Executive's termination of employment following a
change in control of First Charter, as hereinafter provided; and
WHEREAS, because Executive has or will become familiar with First
Charter's and the Bank's products, relationships, trade secrets and confidential
information relating to First Charter's, the Bank's and their respective
customers' business, products, processes and developments and may generate or
have generated confidential information, First Charter wishes to protect its
long-term interests by having Executive enter into certain non-disclosure and
non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained herein,
including the compensation First Charter agrees to pay to Executive upon certain
events, Executive's continued employment with First Charter, Executive's
covenants and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, First Charter and Executive agree as follows:
1. EMPLOYMENT AND DUTIES.
a. During the Employment Term (as defined in Section 3 below),
First Charter hereby employs Executive, and Executive hereby agrees to serve, as
Group Executive Vice President of First Charter. As such, Executive shall have
responsibilities, duties and authority reasonably accorded to, expected of, and
consistent with Executive's position as Group Executive Vice President of First
Charter and will report directly to Lawrence M. Kimbrough of First Charter.
Executive shall also perform the duties and exercise the powers and functions
that from time to time may be assigned or vested in him by the Board and/or the
Board of Directors of First Charter's subsidiaries in relation to: (i) First
Charter; and/or (ii) any subsidiary or affiliated company of First Charter,
including general responsibility for the management and operations of the Bank.
Executive hereby accepts this employment upon the terms and conditions herein
contained and, subject to Section 1.c., agrees to devote substantially all of
his business time, attention and efforts to promote and further the business of
First Charter and the Bank.
b. Executive shall faithfully adhere to, execute and fulfill
all lawful requests, instructions and policies made by the Board or its
authorized agent(s).
c. Except as specifically authorized in advance by the Board,
Executive shall not, during the Employment Term (as defined in Section 3 below),
be engaged as an employee or otherwise in any other business or commercial
activity pursued for gain, profit or other pecuniary advantage. The foregoing
limitations also shall not be construed as prohibiting Executive from making
personal investments in such form or manner as will neither require his services
in the operation or affairs of the companies or enterprises in which such
investments are made nor violate the terms of Section 3 hereof, provided,
however, that during the Employment Term (as defined in Section 3 below),
Executive may not beneficially own the stock or options to acquire stock
totaling more than 5% of the outstanding shares of any corporation or entity, or
otherwise acquire or agree to acquire a significant present or future equity or
other proprietorship interests, whether as a stockholder, partner, proprietor,
or otherwise, with any enterprise, business or division thereof, that is engaged
in Competitive Activity (as defined in Section 8 below) with First Charter
and/or the Bank.
2. COMPENSATION. For all services rendered by Executive during the
Employment Term (as defined in Section 3 below), First Charter shall compensate
Executive as follows:
<PAGE> 3
a. BASE SALARY. Effective November 1, 1999, during the
Employment Term (as defined in Section 3 below), First Charter will pay
Executive a bi-monthly base salary as compensation for Executive's services
hereunder of $7,083.33, equivalent to $170,000.00 per year (the "Base Salary"),
payable on a regular basis in accordance with First Charter's standard payroll
procedures but not less than monthly, less applicable deductions required by
law. On at least an annual basis thereafter during the Employment Term (as
defined in Section 3 below), the Board will review Executive's performance and,
based upon the recommendations of the Compensation Committee, may make
adjustments to such Base Salary if, in its discretion, such adjustments are
warranted, with any such adjustments to be effective beginning January 1 of the
next following year.
b. BONUS. In addition to the Base Salary set forth above,
during the Employment Term (as set forth in Section 3 below) and as long as
Executive remains actively employed by First Charter, Executive may receive an
annual bonus from one or more arrangements including but not limited to the
First Charter Corporation 1999 Executive Incentive Plan (collectively, the
"Bonus"), the amount of which shall be determined in the sole discretion of the
Board. In making its determination of the amount of the Bonus, if any, to be
paid, the Board may take into account, among other things: (i) Executive's
qualifications and experience; (ii) the duties and responsibilities of
Executive; (iii) the services performed and the contributions of Executive to
the success of First Charter and/or the Bank; (iv) compensation patterns in
similar businesses for similar executives; (v) First Charter's financial
resources to pay the bonus; and (vi) such other factors as the Board shall deem
to be relevant.
c. EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION.
During the Employment Term (as defined in Section 3 below), Executive shall be
entitled to receive additional benefits and compensation from First Charter in
such form and to such extent as specified below:
i. Payment of all or a portion of premiums for
coverage for Executive and his dependent family members under
health, hospitalization, disability, dental, life and other
insurance plans that First Charter may have in effect from
time to time. Benefits provided to Executive under this
Section 2.c.i. will require Executive to pay the same
proportion of premiums for, and shall provide benefits at
least equal to, the benefits then provided to First Charter's
other executive employees.
ii. Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Executive in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in
reasonable detail by Executive upon submission of any request
for reimbursement, and in a format and manner consistent with
First Charter's expense reporting policy.
iii. First Charter shall provide Executive with other
employee perquisites as may be available to or deemed
appropriate for Executive by the Board and participation in
all other company-wide employee benefits, including but not
limited to, any qualified and/or nonqualified retirements
plans sponsored by First Charter, as such are available from
time to time. Such current additional perquisites are listed
on Schedule A, which is attached hereto and incorporated
herein, and may be amended from time to time in the discretion
of the Board.
iv. Schedule B, which is attached hereto and
incorporated herein, lists those other supplemental benefits
in which Executive is currently entitled to participate, and
may be amended from time to time with the consent of the
parties.
3. TERM OF AGREEMENT. The term of this Agreement shall begin on the
date hereof and continue for three (3) years (the "Employment Term"), and,
unless terminated sooner as hereafter provided in Section 4 below, and, until
Executive attains age sixty-two (62), shall be renewed thereafter for successive
twelve (12) month periods on the same terms and conditions contained herein in
effect as of the time of renewal, unless either party gives notice of intent to
terminate the Agreement at least ninety (90)
<PAGE> 4
days prior to the expiration of said term. Notwithstanding the forgoing,
however, this Agreement shall terminate when Executive attains age sixty-five
(65).
4. TERMINATION. In addition to the provisions set forth in Section 3
above, the Employment Term shall terminate immediately upon the occurrence of
any of the following events: (a) immediately upon the retirement or death of
Executive; (b) upon the end of the time period specified in the First Charter
Corporation Comprehensive Stock Option Plan following the Disability of
Executive (as defined below); (c) upon the effective date of Resignation by
Executive Without Good Reason (as defined below); (d) upon the effective date of
Resignation by Executive For Good Reason; (e) upon the 60th day following the
date the Board gives Executive notice of Termination Without Cause (as defined
below); or (f) upon the close of business on the date the Board gives Executive
notice of Termination for Cause (as defined below).
a. RETIREMENT. "Retirement by Executive" shall mean any
voluntary retirement by Executive with the consent of the Board.
b. DISABILITY. "Disability" shall mean Executive is
"disabled", as that term is defined in the First Charter Corporation
Comprehensive Stock Option Plan, such that he is unable, with or
without a reasonable accommodation, to perform the essential functions
of his position with First Charter. Executive agrees to submit such
medical evidence to First Charter regarding his disability as is
reasonably requested by the Board.
c. RESIGNATION WITHOUT GOOD REASON. "Resignation Without Good
Reason" shall mean any voluntary termination or resignation by
Executive for any reason other than retirement or "Resignation for Good
Reason". Executive is required to give at least 60 days advance written
notice of Resignation Without Good Reason to the Board, and First
Charter is entitled upon receiving such notice, in its discretion, to
accept such resignation as effective on: (i) the resignation date
proposed by Executive, or (ii) such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
d. RESIGNATION FOR GOOD REASON. "Resignation For Good Reason"
shall mean any voluntary termination or resignation by Executive for:
(i) a material reduction in Executive's position, duties,
responsibilities or status, or a change in Executive's title resulting
in a material reduction in his responsibilities or position with First
Charter, in either case without Executive's consent, but excluding for
this purpose any isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied promptly by First Charter
after receiving notice from Executive and further excluding any such
reductions or changes made in good faith to conform with generally
accepted industry standards for Executive's position; (ii) a reduction
in the rate of Executive's Base Salary or a decrease in any Bonus to
which Executive was entitled pursuant to the First Charter Corporation
1999 Executive Incentive Plan or incentive plans at the end of the most
recently concluded fiscal year, in either case without Executive's
consent; provided, however, that a decrease in Executive's Bonus amount
shall not constitute "Good Reason" and nothing herein shall be
construed to guarantee such bonus awards if performance, either by
First Charter or Executive, is below such targets as may reasonably and
in good faith be set forth in the First Charter Corporation 1999
Executive Incentive Plan or other incentive arrangements; or (iii) the
relocation of Executive, without his consent, to a location outside a
fifty (50) mile radius of Concord, North Carolina. Executive is
required to give written notice of Resignation For Good Reason to the
Board, and First Charter is entitled upon receiving such notice, in its
discretion, to accept such resignation as effective on the resignation
date proposed by Executive, or such other earlier date designated by
First Charter. In addition, First Charter will be required to pay
Executive his regular salary and benefits only through Executive's
final resignation date as agreed to or revised by the Company,
regardless of whether Executive is actually permitted to perform any
services for the Company during that period.
<PAGE> 5
e. TERMINATION WITHOUT CAUSE. "Termination Without Cause"
shall mean any termination of the employment of Executive by First
Charter for any reason other than termination due to the retirement or
death of Executive, "Disability" or "Termination for Cause".
f. TERMINATION FOR CAUSE. "Termination for Cause" shall mean
termination of the employment of Executive by First Charter as the
result of Executive's: (i) willful misconduct of a material nature in
connection with the performance of his duties as an employee; (ii) use
of alcohol or drugs that affects his ability to perform his assigned
duties as an employee or Executive's violation of First Charter's drug
and/or alcohol policies; (iii) conviction, guilty plea or plea of nolo
contendere for any crime involving moral turpitude or for any felony;
(iv) embezzlement or theft from First Charter, the Bank or any of their
respective customers and employees; (v) gross inattention to or
dereliction of duty; (vi) commission or omission of any act of fraud or
dishonesty in connection with Executive's employment with First Charter
or the Bank; (vii) breach of any fiduciary duty to First Charter or the
Bank, including the duty of loyalty; or (viii) breach of any provision
of this Agreement; or (ix) performance of any other willful act(s)
which Executive knew or reasonably should have known would be
materially detrimental to First Charter or the Bank.
5. RIGHTS UPON TERMINATION. Following the termination of the Employment
Term for any reason, except for the payment of any earned but unpaid Base
Salary, if any, due at the time of termination of the Employment Term and
Executive's general right to elect certain coverage continuation under COBRA,
and except for any payments which may be due as set forth in this Section 5 and
Section 6 below, Executive shall not be entitled to receive any additional
compensation, wages, bonuses, incentive pay, commissions, severance pay,
consideration and/or benefits of any kind from First Charter and/or the Bank
hereunder upon the termination of the Employment Term, except that Executive
will not forfeit any vested stock options or vested 401(k) or pension benefits
with First Charter and the Bank, if any:
a. DEATH. If termination of the Employment Term occurs at any
time due to the death of Executive, then Executive's personal
representative shall be paid all earned but unpaid Base Salary and
accrued Bonus (as those terms are described in Section 2) and an
additional amount representing one (1) year's Base Salary, such amounts
to be paid in the same manner as provided in Section 2. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
b. DISABILITY. If termination of the Employment Term occurs at
any time due to the Disability of Executive, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2, less any amounts which Executive
receives from First Charter's long-term disability plan. In addition,
all awards, grants and options under any First Charter or Bank stock
option or grant will be fully vested notwithstanding any other
provision in such plan or grant.
c. TERMINATION "FOR CAUSE" OR RESIGNATION "WITHOUT GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "For Cause" or due to resignation by
Executive "Without Good Reason", then Executive shall be entitled only
to receive all earned but unpaid Base Salary, unreimbursed expenses
and/or accrued, vested stock options and vested 401(k) or pension
benefits through the effective date of the Termination "For Cause" or
Resignation "Without Good Reason".
d. TERMINATION "WITHOUT CAUSE" OR RESIGNATION "FOR GOOD
REASON". If termination of the Employment Term occurs at any time due
to termination by First Charter "Without Cause" or due to resignation
by Executive "For Good Reason", then Executive shall be entitled to (i)
all accrued, unpaid Base Salary and unreimbursed expenses through the
date of such termination; (ii) any prior year annual incentive bonus
earned but not yet paid; (iii) continued payment of Executive's Base
Salary for the greater of the remainder of the Employment Term or two
(2) years; (iii) an annual bonus amount (calculated as the average of
the three most recent Bonuses) for the greater of the remainder of the
Employment Term or two (2) years; (iv) continuation of health and
welfare benefit coverage (including coverage for Executive's
<PAGE> 6
dependents to the extent such coverage is provided by First Charter for
its employees generally) under such plans and programs to which an
Executive was entitled to participate immediately prior to the date of
the end of his employment for the greater of the remainder of the
Employment Term or two (2) years, provided such continued participation
is possible under the terms and provisions of such plans and programs;
and (v) acceleration of vesting of all awards, grants, and options
under any First Charter or Bank stock option plan or grant
notwithstanding any other provision in such plan or grant.
e. RETIREMENT WITH THE CONSENT OF FIRST CHARTER. If Executive
retires with the consent of First Charter, then Executive shall be
entitled to receive all earned but unpaid Base Salary and accrued Bonus
(as those terms are described in Section 2) and an additional amount
representing one (1) year's Base Salary, such amounts to be paid in the
same manner as provided in Section 2. In addition, all awards, grants
and options under any First Charter or Bank stock option or grant will
be fully vested notwithstanding any other provision in such plan or
grant.
f. DEDUCTIONS. All payments set forth in this Section 5
to Executive and/or his personal representative, if
any, shall be made subject to applicable withholdings
as required by law.
6. TERMINATION FOLLOWING A CHANGE IN CONTROL.
a. The Parties agree that if, during the Employment Term, a
Change in Control (as defined in Section 6.a.ii. hereof) occurs and if, within
one (1) year following the Change in Control, the employment of Executive is
terminated by First Charter Without Cause (as defined in Section 4.e. hereof),
or by Executive for Good Reason (as defined in Section 4.d. hereof), Executive's
Compensation (as defined in Section 6.a.iii. below) shall continue to be paid in
monthly installments, subject to applicable withholdings, by First Charter for a
period of thirty-five (35) months following such termination of employment. In
lieu of receiving payment of Compensation (as defined in Section 6.a.iii below)
for such 35-month period in installments, Executive may elect, at any time prior
to the earlier to occur of (i) a Change in Control or (ii) an action by the
Board with respect to an event which would, upon consummation, result in a
Change in Control (which election shall be evidenced by notice filed with First
Charter), to be paid the present value of any such Compensation in a lump sum
within thirty (30) days of termination of Executive's employment under
circumstances entitling such Executive to Compensation hereunder. The
calculation of the amount due shall be made by the independent accounting firm
then performing First Charter's independent audit, and such calculation,
including but not limited to any discount factor used to determine present
value, shall be conclusive.
(i) GOOD REASON. For purposes of this Section 6,
termination by Executive for "Good Reason" shall mean those
reasons set forth as "Good Reason" in Section 4.d. of this
Agreement, except that the change in Executive's position,
duties, responsibilities, status, title, Base Salary or bonus
shall be measured for such matters as they were in effect
immediately preceding the Change in Control.
(ii) CHANGE IN CONTROL. For purposes of this Section
6, Change in Control" shall mean (A) the consummation of a
merger, consolidation, share exchange or similar transaction
of First Charter with any other corporation as a result of
which the holders of the voting capital stock of First Charter
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 First
Charter) of substantially all the assets of First Charter; (C)
in the absence of a prior expression of approval by the Board,
the acquisition of more than 20% of First Charter'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 First Charter's securities; (D)
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof
<PAGE> 7
unless the election, or the nomination for election by First
Charter's shareholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period; or
(E) any other change in control of First Charter 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 First Charter by any person, company or other entity.
(iii) COMPENSATION. For purposes of this Section 6,
Executive's Compensation shall consist of the following: (A)
Executive's Base Salary in effect immediately preceding the
Change in Control, plus (B) an annual bonus equal to the
average bonus (calculated as a percentage of Base Salary,
without regard to vesting schedules or restrictions on the
bonus compensation and converting all post-employment payments
in stock and stock options to a cash present value) paid by
First Charter for each one-year performance period (often
referred to as the "annual incentive program") to Executive
for the three (3) most recent fiscal years ending prior to
such Change in Control pursuant to First Charter's incentive
and bonus plans or, if the relevant bonus program has not
existed for three (3) years preceding the Change of Control,
an amount equal to the estimated average bonus as calculated
by the independent accounting firm then performing First
Charter's independent audit, which calculation shall be
conclusive.
b. Upon termination of Executive's employment entitling
Executive to Compensation set forth in Section 6.a. above, First Charter shall
maintain in full force and effect for the continued benefit of Executive for
such thirty-five-month period health insurance (including coverage for
Executive's dependents to the extent dependent coverage is provided by First
Charter for its employees generally) under such plans and programs in which
Executive was entitled to participate immediately prior to the date of such
termination of employment, provided that Executive's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that participation in any such plan or program is barred, First
Charter shall arrange to provide Executive with health insurance benefits for
such thirty-five month period substantially similar to those which Executive
would otherwise have been entitled to receive under such plans and programs from
which his continued participation is barred. However, in no event will Executive
receive from First Charter the health insurance contemplated by this Section
6.b. if Executive receives comparable insurance from any other source.
c. Upon termination of Executive's employment entitling
Executive to Compensation as set forth in Section 6.a. above, Executive will
become immediately vested in any and all stock options and shares of restricted
stock previously granted to him by First Charter notwithstanding any provision
to the contrary of any plan under which the options or restricted stock are
granted. Any accrued but ungranted stock options or restricted stock shall also
be fully vested upon grant to Executive. Executive may exercise such options
only at the times and in the method described in such options. All restrictions
on shares of First Charter's stock granted under any plan shall lapse upon a
Change of Control. First Charter will amend such options or plans in any manner
necessary to facilitate the provisions of this Section 6.c.
d. It is the intention of First Charter and Executive that no
portion of the payment made under this Agreement, or payments to or for
Executive under any other agreement or plan, be deemed to be an excess parachute
payment as defined in the Internal Revenue Code of 1986, as amended (the "Code")
section 280G or any successor provision. First Charter and Executive agree that
the present value of any payment hereunder and any other payment to or for the
benefit of Executive in the nature of compensation, receipt of which is
contingent on a Change in Control of First Charter, and to which Code section
280G or any successor provision thereto applies, shall not exceed an amount
equal to one dollar less than the maximum amount that Executive may receive
without becoming subject to the tax imposed by Code section 4999 or any
successor provision or which First Charter may pay without loss of deduction
under Code section 280G or any successor provisions. Present value for purposes
of this Agreement shall be calculated in accordance with Code section 1274(b)(2)
or any successor provision. In the event that the provisions of Code sections
280G and 4999 or any successor provisions are repealed without succession, this
Section 6.d. shall be of no further force or effect.
<PAGE> 8
e. Except as elected by Executive with the prior consent of
First Charter, all payments provided for under this Section 6 shall be paid in
cash (including the cash values of stock options or restricted stock, if any)
from the general funds of First Charter, 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. Executive
shall have no right, title or interest whatsoever in or to any investments that
First Charter may make to aid First Charter in meeting its obligations under
this Section 6. 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 First Charter and Executive or any other
person. To the extent that any person acquires a right to receive payments from
First Charter hereunder, such right shall be no greater than the right of an
unsecured creditor of First Charter.
f. All payments set forth in this Section 6 to Executive, if
any, shall be made subject to applicable withholdings as required by law.
7. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION.
a. Executive understands that his position with First Charter
is one of trust and confidence because of Executive's access to trade secrets
and confidential and proprietary business information. Executive pledges his
best efforts and utmost diligence to protect and keep confidential the trade
secrets and confidential or proprietary business information of First Charter.
b. Unless required by First Charter in connection with his
employment or with First Charter's express written consent, Executive agrees
that he will not, either during his employment or afterwards, directly or
indirectly, use, misappropriate, disclose or aid anyone else in disclosing to
any third party for Executive's own benefit or the benefit of another all or any
part of any of First Charter's or its subsidiaries' trade secrets or
confidential or proprietary information, whether or not the information is
acquired, learned, or developed by Executive alone or in conjunction with
others. Executive makes the same pledge with regard to the confidential
information of First Charter's and its subsidiaries' customers, contractors, or
others with whom First Charter or its subsidiaries have a business relationship.
c. Executive understands that trade secrets and confidential
or proprietary information, for purposes of this Agreement, shall include, but
not be limited to, any and all versions of First Charter's or its subsidiaries'
computer software, hardware, and documentation; all methods, processes,
techniques, practices, product designs, pricing information, billing histories,
customer requirements, customer lists, account data, loan records, employee
lists and salary/commission information, personnel matters, financial data,
operating results, plans, contractual relationships, and projections for
business opportunities for new or developing business of First Charter or its
subsidiaries; and all other confidential or proprietary information, patents,
ideas, know-how and trade secrets which are in the possession of First Charter
or its subsidiaries, no matter what the source, including any such information
that First Charter or its subsidiaries obtain from a customer, contractor or
another party or entity and that First Charter treats or designates as
confidential or proprietary information, whether or not such information is
owned or was developed by First Charter.
d. Executive also agrees that all notes, records (including
all computer and electronic records), software, drawings, handbooks, manuals,
policies, contracts, memoranda, sales files, customer lists, employee lists or
other documents that are made or compiled by Executive, or which were available
to Executive while he was employed at First Charter, in whatever form, including
but not limited to all such documents and data concerning any processes,
inventions, services or products used or developed by Executive during his
employment, shall be the property of First Charter. Executive further agrees to
deliver and make available all such documents and data to First Charter,
regardless of how stored or maintained and including all originals, copies and
compilations thereof, upon the separation of his employment, for any reason, or
at any other time at First Charter's request.
e. Executive understands that First Charter expects him to
respect any trade secrets of confidential information of any of Executive's
former employers, business associates, or other business
<PAGE> 9
relationships. Executive also agrees to respect First Charter's express
direction to Executive not to disclose to First Charter, its officers, or any of
its employees any such information so long as it remains confidential.
8. COVENANT NOT TO COMPETE. For and in consideration of this Agreement,
the change in control protection contained herein and Executive's continued
employment with First Charter, Executive agrees that, unless specifically
authorized by First Charter in writing, Executive will not for a period of two
(2) years after his employment with First Charter has terminated or ended
(whatever the reason for the end of the employment relationship):
a. Engage in any "Competitive Activity" (as defined below)
within the "Restricted Territory" (as defined below);
b. Serve as an employee, director, owner, partner, contractor,
consultant or agent of, or own any interest in (except for beneficially owning
the stock or options to acquire stock totaling less than 5% of the outstanding
shares in a "public" competitor), any person, firm or corporation that engages
in "Competitive Activity" within the "Restricted Territory"; or
c. Engage in any "Competitive Activity" with, for or towards
or divert, attempt to divert or direct others to divert any business of First
Charter from an existing First Charter customer, a joint venture or other
business partner of First Charter (hereinafter referred to as an "affiliate"),
or from a potential customer identified through leads or relationships developed
during the last two (2) years of Executive's employment with First Charter,
within the "Restricted Territory".
Furthermore, Executive will not during his employment with First Charter
and for a period of three (3) years after his employment with First Charter has
terminated or ended (whatever the reason for the end of the employment
relationship) solicit or hire for employment or as an independent contractor any
employee of First Charter, the Bank or any of First Charter's affiliates, or
solicit, assist, induce, recruit, or assist or induce anyone else to recruit, or
cause another person in the employ of First Charter, the Bank or any of First
Charter's affiliates to leave his employment with First Charter, the Bank or
First Charter's affiliate for the purpose of joining, associating, or becoming
employed with any business or activity with which Executive is or expects to be
directly or indirectly associated or employed.
"Competitive Activity" means: (1) the business activities engaged in by
First Charter during Executive's employment with First Charter, including the
sales, marketing, distribution and provision of banking, financial and insurance
services or other products or services of the type of which Executive was
involved during his employment with First Charter; and/or (2) the performance of
any other business activities competitive with First Charter and/or the Bank for
or on behalf of any financial or insurance services entity.
"Restricted Territory" means: (1) the geographic area encompassing a
fifty (50) mile radius of any financial center operated by First Charter or the
Bank upon the end of Executive's employment with First Charter; (2) the
geographic area encompassing a fifty (50) mile radius of Concord, North
Carolina; and/or (2) any Metropolitan Statistical Area (as defined by the United
States Department of Commerce) from which First Charter generated at least two
percent (2%) of its gross annual revenue during the last two calendar years
before the end of Executive's employment with First Charter.
Executive further agrees that except with the express written consent
of the Board, Executive will not engage in any Competitive Activity individually
or with any entity or individual other than First Charter, the Board or its
subsidiaries during the Employment Term.
9. ACKNOWLEDGMENTS BY EXECUTIVE.
a. Executive acknowledges that the restrictions placed upon
him by Sections 7 and 8 of this Agreement are reasonable given the nature of
Executive's position with First Charter, the area in which First Charter markets
its products and services, and the consideration provided by First Charter to
Executive pursuant to this Agreement. Specifically, Executive acknowledges that
the length of the
<PAGE> 10
Covenant Not to Compete in Section 8 is reasonable and that the definitions of
"Competitive Activity" and "Restricted Territory" are reasonable.
b. Executive acknowledges that all of the provisions of the
Agreement are fair and necessary to protect the interests of First
Charter. Accordingly, Executive agrees not to contest the validity or
enforceability of Sections 7 or 8 hereof.
c. Executive understands that every provision of this
Agreement is severable from each other provision of this Agreement. Therefore,
if any provision of this Agreement, including but not limited to all provisions
of Sections 7 and 8, is held invalid or unenforceable, every other provision of
this Agreement will continue to be fully valid and enforceable. In the event
that any provision of this Agreement is determined by a court of competent
jurisdiction to be void or unenforceable, Executive and First Charter agree that
such provision shall be enforced to the extent reasonable under the
circumstances and that all other provisions shall be enforceable to the fullest
extent permissible by law. Executive and First Charter further agree that, if
any court makes such a determination, such court shall have the power to reduce
the duration, scope and/or area of such provisions and/or delete specific words
and phrases by "blue penciling" and, in its reduced or blue penciled form, such
provisions shall then be enforceable as allowed by law.
d. Executive understands that his obligations under Sections 7
and 8 of this Agreement will continue whether or not his employment
with First Charter is terminated voluntarily or involuntarily, or with
or without Cause or Good Reason.
10. BREACH BY EXECUTIVE. Executive agrees that in the event of any
breach or threatened breach of the provisions of Sections 7 and 8 hereof by
Executive, First Charter's remedies at law would be inadequate, and First
Charter shall be entitled to an injunction (without any bond or other security
being required), restraining such breach, and costs and attorneys' fees relating
to any such proceeding or any other legal action to enforce the provisions of
this Agreement, but nothing herein shall be construed to preclude First Charter
from pursuing any other remedies at law or in equity available to it for any
such breach or threatened breach. Moreover, Executive also agrees that if
Executive breaches any of Sections 7 or 8 above, Executive shall be required to
refund to First Charter and First Charter shall be entitled to recover of
Executive 90% of the amount already paid under Sections 5.b., 5.d., 5.e. or 6.a.
above to Executive by First Charter at the time of the breach, and Executive
shall forfeit at the time of the breach the right to any additional payments or
benefits under this Agreement, except that if the breach occurs before the
payments set forth in Section Sections 5.b., 5.d., 5.e. or 6.a. above are made,
Executive shall be entitled to receive the first monthly payment and nothing
more. In such case, Executive and First Charter agree that the confidential
information and non-compete obligations contained in this Agreement shall remain
valid and enforceable based upon the consideration actually paid.
11. ASSIGNMENT AND BINDING EFFECT. This Agreement shall be binding
upon, and inure to the benefit of, Executive and First Charter and the Bank and
their respective permitted successors and assigns. Neither this Agreement nor
any right or interest hereunder shall be assignable by Executive, his
beneficiaries, or legal representatives without the First Charter's prior
written consent. First Charter 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 First Charter, by
agreement in form and substance satisfactory to Executive, to expressly assume
and agree to perform all of First Charter's obligations under this Agreement in
the same manner and to the same extent that First Charter would be required to
perform it if no such succession had taken place, and to perform all obligations
to Executive as provided in Section 6. Failure of First Charter to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle Executive to compensation from First Charter 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 Executive's employment was terminated. As
used in this Agreement, "Company" shall mean First Charter 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 11 or that otherwise becomes
bound by the all terms and provisions of this Agreement by operation of law.
<PAGE> 11
12. COMPLETE AGREEMENT. This Agreement replaces any previous agreement
relating to the same or similar subject matter which the Executive and First
Charter may have entered into with respect to Executive's employment by First
Charter. Executive has no oral representations, understandings or agreements
with First Charter or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between First
Charter and Executive and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of First Charter
and Executive, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To First Charter: First Charter National Bank
Executive Offices
845 Church Street Commons, Suite 307
Concord, North Carolina 28206
To Executive: C. Thomas McFarland
7009 North Ridge Drive
Raleigh, North Carolina 27615
Notice shall be deemed given and effective on the earlier of three (3)
days after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually
received. Either party may change the address for notice by notifying the other
party of such change in accordance with this Section 13.
14. HEADINGS. The section headings herein are for reference purposes only
and are not intended in any way to describe, interpret, define or limit
the extent or intent of the Agreement or of any part hereof.
15. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FIRST CHARTER CORPORATION
By: /s/ C. Thomas McFarland
------------------------------------
Name: C. Thomas McFarland
------------------------------------
Title: Executive Vice President
------------------------------------
<PAGE> 1
EXHIBIT 10.8
<PAGE> 2
SUPPLEMENTAL AGREEMENT
FOR LAWRENCE KIMBROUGH
THIS AGREEMENT MADE THIS 30th day of June, 1999, by and between FIRST
CHARTER CORPORATION., a corporation organized under the State of North
Carolina (hereinafter referred to as First Charter"), and LAWRENCE
KIMBROUGH, an individual whose address is 434 Pine Road, and who resides in
the City of Davidson, County of Mecklenburg, and State of North Carolina
(hereinafter referred to as "the Executive").
WITNESSETH
WHEREAS, First Charter currently employs the Executive, and the Executive
serves First Charter in such capacity as the Board of Directors of First
Charter may designate from time to time; and
WHEREAS, the Executive currently devotes all of his time, attention, skill
and efforts to the performance of duties on behalf of First Charter; and
WHEREAS, in consideration of services rendered on behalf of First Charter
and as an inducement for ongoing valuable services until retirement, First
Charter has agreed to provide a deferred compensation benefit to the
Executive; and
WHEREAS, the intent of this deferred compensation agreement (hereinafter
referred to as "Agreement") is to provide, in the form of a special payment
to the Executive in the amount of One Million Nine Hundred Eighty Thousand
Dollars ($1,980,000) when he reaches his Target Distribution Date.
NOW THEREFORE, in consideration of the Agreement and mutual promises
hereinafter contained, the parties hereto agree to the following:
Article I
DEFINITIONS. The following definitions shall govern this Agreement:
. BENEFIT means the benefit that will be available to the Executive as
described in Article III.
. BENEFICIARY means the person designated in writing by the Executive to
receive any benefits due the Executive upon his death. If no such
designation is made or if the designated person is not living at the
death of the Executive, the Beneficiary shall be the Executive's
spouse, if living; otherwise, the Beneficiary shall be his estate.
. BOARD OF DIRECTORS means the board of directors of First Charter.
. DISABLED means the inability of the Executive to engage in his
profession by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which is to
last or can be expected to last for a continuous period of not less
than twelve months, as determined by the Board of Directors in its
sole discretion upon certification thereof by a qualified physician
selected by the Board of directors after such physician examines the
Executive.
. DISTRIBUTABLE EVENT means an event upon which the Executive may become
entitled to receive his Benefit as described in Article VI.
. EFFECTIVE DATE means June 30, 1999.
<PAGE> 3
. FIRST CHARTER means First Charter Corporation In the case of a group
of employers that constitute a controlled group of corporations (as
defined in Section 414(b) of the Internal Revenue Code of 1986, as
amended) or that constitutes trades or businesses that are under
common control (as defined in Section 414(c) of the Internal Revenue
Code of 1986, as amended), all such employers shall be considered a
single employer.
. TARGET DISTRIBUTION DATE means the first day of the first month
beginning on or after the date the Executive both has attained age 65
and terminated employment with First Charter, or any earlier date
mutually agreed to by the Executive and the Board of Directors.
Article II
VESTING. The Executive shall be 40% vested in his Benefit, as determined
under Article III, on the Effective Date of this Agreement, and shall
become fully vested in his Benefit on June 30, 2004 if he remains an
employee of First Charter, subject at all times to the forfeiture
provisions of Article VI and VII.
Notwithstanding the forgoing, the Executive shall become fully vested in
his Benefit if he dies or becomes Disabled before January 1, 2004.
Article III
AMOUNT OF THE BENEFIT. The Executive shall be entitled on his Target
Distribution Date to payment of his vested Benefit in an amount equal to
One Million Nine Hundred Eighty Thousand Dollars ($1,980,000), payable at
the times and in the form described in Article VI.
Article IV
ACCRUAL OF BENEFIT. First Charter may use any reasonable accounting policy
in accruing the Benefit. The amount accrued shall be segregated from other
accounts on the books and records of First Charter as a contingent
liability of First Charter to the Executive.
Article V
GENERAL CREDITOR. The Executive shall be regarded as a general creditor of
First Charter with respect to any rights derived by the Executive from the
existence of this Agreement or the existence or amount of the liability.
ASSETS. Title to and beneficial ownership of any assets, whether cash,
investments, life insurance policies, or other assets that First Charter
may intend to use to pay the contingent deferred compensation hereunder,
shall at all times remain with First Charter. The Executive and his
Beneficiary shall not have any property interest whatsoever in any specific
assets of First Charter.
Article VI
DISTRIBUTABLE EVENTS. The Benefit shall be paid to the Executive or the
Executive's estate (unless forfeited by the occurrence of any of the events
of forfeiture specified in Article VII) upon the following events:
o Upon termination of the Executive's employment on or after the
Executive's Target Distribution Date, First Charter shall begin
payments of the Executive's Benefit to the Executive in equivalent
monthly installments over a period of ten (10) years, unless another
form of distribution is selected by the Board of Directors in its sole
discretion. Payment will be begin as soon as practicable following the
Executive's termination of employment.
o In the event that the Executive's employment with First Charter is
terminated by reason of his death [with a vested benefit] or if the
Executive's death occurs after a Distributable Event
<PAGE> 4
but before full payment of the Benefit has been made to the Executive,
First Charter shall pay (or continue to pay) the Executive's Benefit
to the Executive's Beneficiary in equivalent monthly installments such
that the Executive's Benefit is paid to the Executive and/or his
Beneficiary over a period of ten (10) years unless another form of
distribution is selected by the Board of Directors in its sole
discretion. Payment to the Beneficiary will be begin as soon as
practicable following the Executive's death.
o In the event that the Executive becomes Disabled before reaching his
Target Distribution Date and while in the employ of First Charter,
First Charter shall pay the Executive's Benefit to the Executive in
equivalent monthly installments over a period of ten (10) years unless
another form of distribution is selected by the Board of Directors in
its sole discretion. Payment will be begin as soon as practicable
following the date the Executive attains his Target Distribution Date.
o In the event that the Executive's employment with First Charter is
terminated before the Executive attains his Target Distribution date
for any reason other than the Executive's termination of employment
following a Change of Control, his death or if the Executive becomes
Disabled, First Charter shall begin payments to the Executive of the
Executive's vested Benefit as soon as practicable following the date
the Executive attains his Target Distribution Date.
FORM OF PAYMENT. Payment of the Benefit will be made in the form of
equivalent monthly installments over a period of ten (10) years, or in such
other form as the Board of Directors, in its sole discretion, may
determine.
FACILITY OF PAYMENTS. If any person entitled to payment under this
Agreement shall, in the sole opinion of First Charter, be too physically or
mentally incapacitated to properly receive such payments, First Charter may
make such payments to any member of the family of such person then entitled
to payment, or for the use and benefit of such person, or to any person or
institution providing care for such person then entitled to such payments.
All payments so made by First Charter shall fully discharge and acquit
First Charter to the amounts thereof.
INCOME TAX OR OTHER WITHHOLDING. First Charter may withhold from any
benefits payable under this Agreement all federal, state, city, or other
taxes, or qualified domestic relations order or divorce decree as shall be
required pursuant to any law, government regulation or ruling, or court
order.
Article VII
FORFEITURE PROVISIONS. All rights to any vested and unvested deferred
compensation payments, pursuant to this Agreement, shall be immediately
forfeited if the Executive engages in any act that, in the opinion of the
Board of Directors, is inimical to the best interests of First Charter,
including, but not limited to fraud, embezzlement, non-productivity,
disloyalty or similar acts. The judgment of the Board of Directors, as
expressed by a majority vote, shall be final as to the determination of the
nature of any acts performed by the Executive that are subject to this
Article. The Board of Directors, in its sole discretion, may interpret and
decide upon the nature of such acts.
Article VIII
LIABILITY OF FIRST CHARTER. Nothing in this Agreement shall constitute the
creation of a trust or other fiduciary relationship between First Charter
and the Executive or between First Charter and the Beneficiary or any other
person. First Charter shall not be considered a trustee by reason of this
Agreement.
Article IX
<PAGE> 5
ASSIGNMENT. No rights under this Agreement may be assigned, transferred,
pledged or encumbered by the Executive or the Beneficiary except by will or
by North Carolina intestate laws or other laws of descent and distribution.
This Agreement may be assigned by First Charter only upon the following
events:
. First Charter or its assets are purchased by another entity or are
merged into the assets of another entity.
. Prior written consent of the Executive.
Article X
AGREEMENT BINDING. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective next of kin, successors,
assigns, heirs, personal representatives, executors, administrators, and
legatees. First Charter shall not merge or consolidate with any other
entity or reorganize unless and until such succeeding and continuing entity
agrees to assume and discharge the obligations of First Charter under this
Agreement. Upon such assumption, the term First Charter as used in this
Agreement shall be deemed to refer to such successor to First Charter. The
Board of Directors, at its sole discretion, reserves the right to amend,
revise, or terminate this Agreement with respect to future benefits.
Article XI
ENTIRE AGREEMENT. This document constitutes the entire Agreement between
the parties as to the provision of supplemental retirement benefits by
First Charter to the Executive. This Agreement may only be modified,
altered, or amended by prior written approval and consent of the parties
with respect to Benefits, except those provisions that may be amended
solely by a Board of Directors resolution as described in this Agreement.
Article XII
NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall be construed as
guaranteeing future employment to the Executive. The Executive continues to
be an employee of First Charter either subject to an employment agreement
or, if there is no such employment agreement, solely at the will of First
Charter, notwithstanding this Agreement.
Article XIII
NOT "COMPENSATION" FOR OTHER PURPOSES. Any deferred compensation payable
under this Agreement (or actuarial or the net present value of any such
payments) shall not be deemed salary or other compensation to the Executive
for purposes of any qualified retirement plans maintained by First Charter,
any incentive bonus plans, or for purposes of any other fringe benefit
obligations of First Charter.
Article XIV
CLAIMS SUBMISSION AND REVIEW PROCEDURE. In the event that any claim for
benefits, that must initially be submitted in writing to the Board of
Directors, is denied (in whole or in part) hereunder, the claimant shall
receive from First Charter notice in writing, written in a manner
calculated to be understood by the claimant, setting forth the specific
reasons for denial, with specific reference to pertinent provisions of this
Agreement. The interpretations and construction hereof by the Board of
Directors shall be binding and conclusive on all persons and for all
purposes. Any disagreements about such interpretations and construction
shall be submitted to an arbitrator subject to the rules and procedures
established by the American Arbitration Association. The arbitrator shall
be acceptable to both First Charter and the Executive; if the parties
cannot agree the disagreement shall be heard by a panel of three
arbitrators, with each party to appoint one arbitrator and the third to be
chosen by the other two. No member of the Board of Directors shall
<PAGE> 6
be liable to any person for any action taken hereunder except those actions
undertaken with lack of good faith.
GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of North Carolina, except to the extent
such laws are preempted by federal laws and regulations.
CONSTRUCTION. The masculine gender shall include the feminine, and the
singular the plural, unless the context clearly requires otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
Attest: FIRST CHARTER CORPORATION
/s/ Anne C. Forrest /s/ J. Roy Davis Jr.
---------------------------------- -------------------------------
Anne C. Forrest J. Roy Davis, Jr.
Assistant Corporate Secretary Chairman of the Board
Witnesses: ACKNOWLEDGED:
/s/ Judy E. Montague /s/ Lawrence M. Kimbrough
---------------------------------- -------------------------------
Judy E. Montague Lawrence M. Kimbrough
<PAGE> 1
EXHIBIT 10.9
<PAGE> 2
SUPPLEMENTAL AGREEMENT
FOR ROBERT O. BRATTON
THIS AGREEMENT MADE THIS 30th day of June, 1999, by and between FIRST
CHARTER CORPORATION., a corporation organized under the State of North
Carolina (hereinafter referred to as First Charter"), and ROBERT O.
BRATTON, an individual whose address is 725 Sherwin Lane, and who resides
in the City of Concord, County of Cabarrus, and State of North Carolina
(hereinafter referred to as "the Executive").
WITNESSETH
WHEREAS, First Charter currently employs the Executive, and the Executive
serves First Charter in such capacity as the Board of Directors of First
Charter may designate from time to time; and
WHEREAS, the Executive currently devotes all of his time, attention, skill
and efforts to the performance of duties on behalf of First Charter; and
WHEREAS, in consideration of services rendered on behalf of First Charter
and as an inducement for ongoing valuable services until retirement, First
Charter has agreed to provide a deferred compensation benefit to the
Executive; and
WHEREAS, the intent of this deferred compensation agreement (hereinafter
referred to as "Agreement") is to provide, in the form of a special payment
to the Executive in the amount of Five Hundred Sixty Thousand Dollars
($560,000) when he reaches his Target Distribution Date.
NOW THEREFORE, in consideration of the Agreement and mutual promises
hereinafter contained, the parties hereto agree to the following:
Article I
DEFINITIONS. The following definitions shall govern this Agreement:
. BENEFIT means the benefit that will be available to the Executive as
described in Article III.
. BENEFICIARY means the person designated in writing by the Executive to
receive any benefits due the Executive upon his death. If no such
designation is made or if the designated person is not living at the
death of the Executive, the Beneficiary shall be the Executive's
spouse, if living; otherwise, the Beneficiary shall be his estate.
. BOARD OF DIRECTORS means the board of directors of First Charter.
. DISABLED means the inability of the Executive to engage in his
profession by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which is to
last or can be expected to last for a continuous period of not less
than twelve months, as determined by the Board of Directors in its
sole discretion upon certification thereof by a qualified physician
selected by the Board of directors after such physician examines the
Executive.
. DISTRIBUTABLE EVENT means an event upon which the Executive may become
entitled to receive his Benefit as described in Article VI.
. EFFECTIVE DATE means June 30, 1999.
<PAGE> 3
. FIRST CHARTER means First Charter Corporation. In the case of a group
of employers that constitute a controlled group of corporations (as
defined in Section 414(b) of the Internal Revenue Code of 1986, as
amended) or that constitutes trades or businesses that are under
common control (as defined in Section 414(c) of the Internal Revenue
Code of 1986, as amended), all such employers shall be considered a
single employer.
. TARGET DISTRIBUTION DATE means the first day of the first month
beginning on or after the date the Executive both has attained age 65
and terminated employment with First Charter, or any earlier date
mutually agreed to by the Executive and the Board of Directors.
Article II
VESTING. The Executive shall be 50% vested in his Benefit, as determined
under Article III, on the Effective Date of this Agreement, and shall
become fully vested in his Benefit on June 30, 2004 if he remains an
employee of First Charter, subject at all times to the forfeiture
provisions of Article VI and VII.
Notwithstanding the forgoing, the Executive shall become fully vested in
his Benefit if he dies or becomes Disabled before June 30, 2004.
Article III
AMOUNT OF THE BENEFIT. The Executive shall be entitled on his Target
Distribution Date to payment of his vested Benefit in an amount equal to
Five Hundred Sixty Thousand Dollars ($560,000), payable at the times and in
the form described in Article VI.
Article IV
ACCRUAL OF BENEFIT. First Charter may use any reasonable accounting policy
in accruing the Benefit. The amount accrued shall be segregated from other
accounts on the books and records of First Charter as a contingent
liability of First Charter to the Executive.
Article V
GENERAL CREDITOR. The Executive shall be regarded as a general creditor of
First Charter with respect to any rights derived by the Executive from the
existence of this Agreement or the existence or amount of the liability.
ASSETS. Title to and beneficial ownership of any assets, whether cash,
investments, life insurance policies, or other assets that First Charter
may intend to use as a source of payment, shall at all times remain with
First Charter. The Executive and his Beneficiary shall not have any
property interest whatsoever in any specific assets of First Charter.
Article VI
DISTRIBUTABLE EVENTS. The Benefit shall be paid to the Executive or the
Executive's estate (unless forfeited by the occurrence of any of the events
of forfeiture specified in Article VII) upon the following events:
o Upon termination of the Executive's employment on or after the
Executive's Target Distribution Date, First Charter shall begin
payments of the Executive's Benefit to the Executive in equivalent
monthly installments over a period of ten (10) years, unless another
form of distribution is selected by the Board of Directors in its sole
discretion. Payment will be begin as soon as practicable following the
Executive's termination of employment.
o In the event that the Executive's employment with First Charter is
terminated by reason of his death [with a vested benefit] or if the
Executive's death occurs after a Distributable Event but before full
payment of the Benefit has been made to the Executive, First Charter
shall pay
<PAGE> 4
(or continue to pay) the Executive's Benefit to the Executive's
Beneficiary in equivalent monthly installments such that the
Executive's Benefit is paid to the Executive's Beneficiary over a
period of ten (10) years unless another form of distribution is
selected by the Board of Directors in its sole discretion. Payment to
the Beneficiary will be begin as soon as practicable following the
Executive's death.
o In the event that the Executive becomes Disabled before reaching his
Target Distribution Date and while in the employ of First Charter,
First Charter shall pay the Executive's Benefit to the Executive in
equivalent monthly installments over a period of ten (10) years unless
another form of distribution is selected by the Board of Directors in
its sole discretion. Payment will be begin as soon as practicable
following the date the Executive attains his Target Distribution Date.
o In the event that the Executive's employment with First Charter is
terminated before the Executive attains his Target Distribution date
for any reason other than the Executive's death or if the Executive
becomes Disabled, First Charter shall begin payments to the Executive
of the Executive's vested Benefit as soon as practicable following the
date the Executive attains his Target Distribution Date.
FORM OF PAYMENT. Payment of the Benefit will be made in the form of
equivalent monthly installments over a period of ten (10) years, or in such
other form as the Board of Directors, in its sole discretion, may
determine.
FACILITY OF PAYMENTS. If any person entitled to payment under this
Agreement shall, in the sole opinion of First Charter, be too physically or
mentally incapacitated to properly receive such payments, First Charter may
make such payments to any member of the family of such person then entitled
to payment, or for the use and benefit of such person, or to any person or
institution providing care for such person then entitled to such payments.
All payments so made by First Charter shall fully discharge and acquit
First Charter to the amounts thereof.
INCOME TAX OR OTHER WITHHOLDING. First Charter may withhold from any
benefits payable under this Agreement all federal, state, city, or other
taxes, or qualified domestic relations order or divorce decree as shall be
required pursuant to any law, government regulation or ruling, or court
order.
Article VII
FORFEITURE PROVISIONS. All rights to any vested and unvested deferred
compensation payments, pursuant to this Agreement, shall be immediately
forfeited if the Executive engages in any act that, in the opinion of the
Board of Directors, is inimical to the best interests of First Charter,
including, but not limited to fraud, embezzlement, non-productivity,
disloyalty or similar acts. The judgment of the Board of Directors, as
expressed by a majority vote, shall be final as to the determination of the
nature of any acts performed by the Executive that are subject to this
Article. The Board of Directors, in its sole discretion, may interpret and
decide upon the nature of such acts.
Article VIII
LIABILITY OF FIRST CHARTER. Nothing in this Agreement shall constitute the
creation of a trust or other fiduciary relationship between First Charter
and the Executive or between First Charter and the Beneficiary or any other
person. First Charter shall not be considered a trustee by reason of this
Agreement.
Article IX
<PAGE> 5
ASSIGNMENT. No rights under this Agreement may be assigned, transferred,
pledged or encumbered by the Executive or the Beneficiary except by will or
by North Carolina intestate laws or other laws of descent and distribution.
This Agreement may be assigned by First Charter only upon the following
events:
. First Charter or its assets are purchased by another entity or are
merged into the assets of another entity.
. Prior written consent of the Executive.
Article X
AGREEMENT BINDING. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective next of kin, successors,
assigns, heirs, personal representatives, executors, administrators, and
legatees. First Charter shall not merge or consolidate with any other
entity or reorganize unless and until such succeeding and continuing entity
agrees to assume and discharge the obligations of First Charter under this
Agreement. Upon such assumption, the term First Charter as used in this
Agreement shall be deemed to refer to such successor to First Charter. The
Board of Directors, at its sole discretion, reserves the right to amend,
revise, or terminate this Agreement with respect to future benefits.
Article XI
ENTIRE AGREEMENT. This document constitutes the entire Agreement between
the parties as to the provision of supplemental retirement benefits by
First Charter to the Executive. This Agreement may only be modified,
altered, or amended by prior written approval and consent of the parties
with respect to Benefits, except those provisions that may be amended
solely by a Board of Directors resolution as described in this Agreement.
Article XII
NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall be construed as
guaranteeing future employment to the Executive. The Executive continues to
be an employee of First Charter either subject to an employment agreement
or, if there is no such employment agreement, solely at the will of First
Charter, notwithstanding this Agreement.
Article XIII
NOT "COMPENSATION" FOR OTHER PURPOSES. Any deferred compensation payable
under this Agreement (or actuarial or the net present value of any such
payments) shall not be deemed salary or other compensation to the Executive
for purposes of any qualified retirement plans maintained by First Charter,
any incentive bonus plans, or for purposes of any other fringe benefit
obligations of First Charter.
Article XIV
CLAIMS SUBMISSION AND REVIEW PROCEDURE. In the event that any claim for
benefits, that must initially be submitted in writing to the Board of
Directors, is denied (in whole or in part) hereunder, the claimant shall
receive from First Charter notice in writing, written in a manner
calculated to be understood by the claimant, setting forth the specific
reasons for denial, with specific reference to pertinent provisions of this
Agreement. The interpretations and construction hereof by the Board of
Directors shall be binding and conclusive on all persons and for all
purposes. Any disagreements about such interpretations and construction
shall be submitted to an arbitrator subject to the rules and procedures
established by the American Arbitration Association. The arbitrator shall
be acceptable to both First Charter and the Executive; if the parties
cannot agree the disagreement shall be heard by a panel of three
arbitrators, with each party to appoint one arbitrator and the third to be
chosen by the other two. No member of the Board of Directors shall
<PAGE> 6
be liable to any person for any action taken hereunder except those actions
undertaken with lack of good faith.
GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of North Carolina, except to the extent
such laws are preempted by federal laws and regulations.
CONSTRUCTION. The masculine gender shall include the feminine, and the
singular the plural, unless the context clearly requires otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
Attest: FIRST CHARTER CORPORATION
/s/ Anne C. Forrest /s/ J. Roy Davis Jr.
---------------------------------- -------------------------------
Anne C. Forrest J. Roy Davis, Jr.
Assistant Corporate Secretary Chairman of the Board
Witnesses: ACKNOWLEDGED:
/s/ Judy E. Montague /s/ Robert O. Bratton
---------------------------------- -------------------------------
Judy E. Montague Robert O. Bratton
<PAGE> 1
EXHIBIT 10.10
<PAGE> 2
SUPPLEMENTAL AGREEMENT
FOR ROBERT E. JAMES
THIS AGREEMENT MADE THIS 21st day of June, 1999, by and between FIRST
CHARTER CORPORATION, a corporation organized under the State of North
Carolina (hereinafter referred to as First Charter"), and ROBERT E. JAMES,
an individual who resides at 4007 Sharon Parkway, Charlotte, North Carolina
28211 (hereinafter referred to as "the Executive").
WITNESSETH
WHEREAS, First Charter currently employs the Executive, and the Executive
serves First Charter in such capacity as the Board of Directors of First
Charter may designate from time to time; and
WHEREAS, the Executive currently devotes all of his time, attention, skill
and efforts to the performance of duties on behalf of First Charter; and
WHEREAS, in consideration of services rendered on behalf of First Charter
and as an inducement for ongoing valuable services until retirement, First
Charter has agreed to provide a deferred compensation benefit to the
Executive; and
WHEREAS, the intent of this deferred compensation agreement (hereinafter
referred to as "Agreement") is to provide, in the form of a special payment
to the Executive in the maximum amount of Seven Hundred Eighty Five
Thousand Dollars ($785,000) when he reaches his Target Distribution Date.
NOW THEREFORE, in consideration of the Agreement and mutual promises
hereinafter contained, the parties hereto agree to the following:
Article I
DEFINITIONS. The following definitions shall govern this Agreement:
. BENEFIT means the benefit that will be available to the Executive as
described in Article III.
. BENEFICIARY means the person designated in writing by the Executive to
receive any benefits due the Executive upon his death. If no such
designation is made or if the designated person is not living at the
death of the Executive, the Beneficiary shall be the Executive's
spouse, if living; otherwise, the Beneficiary shall be his estate.
. BOARD OF DIRECTORS means the board of directors of First Charter.
. DISABLED means the inability of the Executive to engage in his
profession by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which is to
last or can be expected to last for a continuous period of not less
than twelve months, as determined by the Board of Directors in its
sole discretion upon certification thereof by a qualified physician
selected by the Board of directors after such physician examines the
Executive.
. DISTRIBUTABLE EVENT means an event upon which the Executive may become
entitled to receive his Benefit as described in Article VI.
. EFFECTIVE DATE means June 21, 1999.
<PAGE> 3
. FIRST CHARTER means First Charter Corporation. In the case of a group
of employers that constitute a controlled group of corporations (as
defined in Section 414(b) of the Internal Revenue Code of 1986, as
amended) or that constitutes trades or businesses that are under
common control (as defined in Section 414(c) of the Internal Revenue
Code of 1986, as amended), all such employers shall be considered a
single employer.
. TARGET DISTRIBUTION DATE means the first day of the first month
beginning on or after the date the Executive both has attained age 65
and terminated employment with First Charter, or any earlier date
mutually agreed to by the Executive and the Board of Directors.
ARTICLE II
VESTING. Except as provided in this Article II in the case of the Executive's
death or disability, the Executive shall not be vested in any part of his
Benefit, as determined under Article III, until January 1, 2004. If he remains
an employee of First Charter until January 1, 2004, he shall become 50% vested
in his Benefit on that date. The Executive shall become fully vested in his
Benefit on January 1, 2009 if he remains an employee of First Charter until that
date. The Executive's Benefit shall be subject at all times to the forfeiture
provisions of Article VI and VII.
Notwithstanding the forgoing, (i) the Executive shall become 50% vested in
his Benefit if he dies or becomes Disabled before January 1, 2004 and (ii)
the Executive shall become fully vested in his Benefit if he dies or
becomes Disabled after January 1, 2004 but before January 1, 2009.
ARTICLE III
AMOUNT OF THE BENEFIT THE EXECUTIVE SHALL BE ENTITLED ON HIS TARGET
DISTRIBUTION DATE TO PAYMENT OF HIS VESTED BENEFIT IN AN AMOUNT EQUAL TO
SEVEN HUNDRED EIGHTY FIVE THOUSAND. DOLLARS ($785,000), PAYABLE AT THE
TIMES AND IN THE FORM DESCRIBED IN ARTICLE VI.
Article IV
ACCRUAL OF BENEFIT. First Charter may use any reasonable accounting policy
in accruing the Benefit. The amount accrued shall be segregated from other
accounts on the books and records of First Charter as a contingent
liability of First Charter to the Executive.
Article V
GENERAL CREDITOR. The Executive shall be regarded as a general creditor of
First Charter with respect to any rights derived by the Executive from the
existence of this Agreement or the existence or amount of the liability.
ASSETS. Title to and beneficial ownership of any assets, whether cash,
investments, life insurance policies, or other assets that First Charter
may intend to use as a source of payment, shall at all times remain with
First Charter. The Executive and his Beneficiary shall not have any
property interest whatsoever in any specific assets of First Charter.
Article VI
DISTRIBUTABLE EVENTS. The Benefit shall be paid to the Executive or the
Executive's estate (unless forfeited by the occurrence of any of the events
of forfeiture specified in Article VII) upon the following events:
o Upon termination of the Executive's employment on or after the
Executive's Target Distribution Date, First Charter shall begin
payments of the Executive's Benefit to the Executive in equivalent
monthly installments over a period of ten (10) years, unless another
<PAGE> 4
form of distribution is selected by the Board of Directors in its sole
discretion. Payment will begin as soon as practicable following the
Executive's termination of employment.
o In the event that the Executive's employment with First Charter is
terminated by reason of his death or if the Executive's death occurs
after a Distributable Event but before full payment of the Benefit has
been made to the Executive, First Charter shall pay (or continue to
pay) the Executive's Benefit to the Executive's Beneficiary in
equivalent monthly installments such that the Executive's Benefit is
paid to the Executive's Beneficiary over a period of ten (10) years
unless another form of distribution is selected by the Board of
Directors in its sole discretion. Payment to the Beneficiary will be
begin as soon as practicable following the Executive's death.
o In the event that the Executive becomes Disabled before reaching his
Target Distribution Date and while in the employ of First Charter,
First Charter shall pay the Executive's vested Benefit to the
Executive in equivalent monthly installments over a period of ten (10)
years unless another form of distribution is selected by the Board of
Directors in its sole discretion. Payment will be begin as soon as
practicable following the date the Executive attains his Target
Distribution Date.
o In the event that the Executive's employment with First Charter is
terminated before the Executive attains his Target Distribution date
for any reason other than the Executive's death or if the Executive
becomes Disabled, First Charter shall begin payments to the Executive
of the Executive's vested Benefit as soon as practicable following the
date the Executive attains his Target Distribution Date.
FORM OF PAYMENT. Payment of the Benefit will be made in the form of
equivalent monthly installments over a period of ten (10) years, or in such
other form as the Board of Directors, in its sole discretion, may
determine.
FACILITY OF PAYMENTS. If any person entitled to payment under this
Agreement shall, in the sole opinion of First Charter, be too physically or
mentally incapacitated to properly receive such payments, First Charter may
make such payments to any member of the family of such person then entitled
to payment, or for the use and benefit of such person, or to any person or
institution providing care for such person then entitled to such payments.
All payments so made by First Charter shall fully discharge and acquit
First Charter to the amounts thereof.
INCOME TAX OR OTHER WITHHOLDING. First Charter may withhold from any
benefits payable under this Agreement all federal, state, city, or other
taxes, or qualified domestic relations order or divorce decree as shall be
required pursuant to any law, government regulation or ruling, or court
order.
Article VII
FORFEITURE PROVISIONS. All rights to any vested and unvested deferred
compensation payments, pursuant to this Agreement, shall be immediately
forfeited if the Executive engages in any act that, in the opinion of the
Board of Directors, is inimical to the best interests of First Charter,
including, but not limited to fraud, embezzlement, non-productivity,
disloyalty or similar acts. The judgment of the Board of Directors, as
expressed by a majority vote, shall be final as to the determination of the
nature of any acts performed by the Executive that are subject to this
Article. The Board of Directors, in its sole discretion, may interpret and
decide upon the nature of such acts.
Article VIII
<PAGE> 5
LIABILITY OF FIRST CHARTER. Nothing in this Agreement shall constitute the
creation of a trust or other fiduciary relationship between First Charter
and the Executive or between First Charter and the Beneficiary or any other
person. First Charter shall not be considered a trustee by reason of this
Agreement.
Article IX
ASSIGNMENT. No rights under this Agreement may be assigned, transferred,
pledged or encumbered by the Executive or the Beneficiary except by will or
by North Carolina intestate laws or other laws of descent and distribution.
This Agreement may be assigned by First Charter only upon the following
events:
. First Charter or its assets are purchased by another entity or are
merged into the assets of another entity.
. Prior written consent of the Executive.
Article X
AGREEMENT BINDING. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective next of kin, successors,
assigns, heirs, personal representatives, executors, administrators, and
legatees. First Charter shall not merge or consolidate with any other
entity or reorganize unless and until such succeeding and continuing entity
agrees to assume and discharge the obligations of First Charter under this
Agreement. Upon such assumption, the term First Charter as used in this
Agreement shall be deemed to refer to such successor to First Charter. The
Board of Directors, at its sole discretion, reserves the right to amend,
revise, or terminate this Agreement with respect to future benefits.
Article XI
ENTIRE AGREEMENT. This document constitutes the entire Agreement between
the parties as to the provision of supplemental retirement benefits by
First Charter to the Executive. This Agreement may only be modified,
altered, or amended by prior written approval and consent of the parties
with respect to Benefits, except those provisions that may be amended
solely by a Board of Directors resolution as described in this Agreement.
Article XII
NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall be construed as
guaranteeing future employment to the Executive. The Executive continues to
be an employee of First Charter either subject to an employment agreement
or, if there is no such employment agreement, solely at the will of First
Charter, notwithstanding this Agreement.
Article XIII
NOT "COMPENSATION" FOR OTHER PURPOSES. Any deferred compensation payable
under this Agreement (or actuarial or the net present value of any such
payments) shall not be deemed salary or other compensation to the Executive
for purposes of any qualified retirement plans maintained by First Charter,
any incentive bonus plans, or for purposes of any other fringe benefit
obligations of First Charter.
Article XIV
CLAIMS SUBMISSION AND REVIEW PROCEDURE. In the event that any claim for
benefits, that must initially be submitted in writing to the Board of
Directors, is denied (in whole or in part) hereunder, the claimant shall
receive from First Charter notice in writing, written in a manner
<PAGE> 6
calculated to be understood by the claimant, setting forth the specific
reasons for denial, with specific reference to pertinent provisions of this
Agreement. The interpretations and construction hereof by the Board of
Directors shall be binding and conclusive on all persons and for all
purposes. Any disagreements about such interpretations and construction
shall be submitted to an arbitrator subject to the rules and procedures
established by the American Arbitration Association. The arbitrator shall
be acceptable to both First Charter and the Executive; if the parties
cannot agree the disagreement shall be heard by a panel of three
arbitrators, with each party to appoint one arbitrator and the third to be
chosen by the other two. No member of the Board of Directors shall be
liable to any person for any action taken hereunder except those actions
undertaken with lack of good faith.
GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of North Carolina, except to the extent
such laws are preempted by federal laws and regulations.
CONSTRUCTION. The masculine gender shall include the feminine, and the
singular the plural, unless the context clearly requires otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
Attest: FIRST CHARTER CORPORATION
/s/ Anne C. Forrest /s/ J. Roy Davis Jr.
---------------------------------- -------------------------------
Anne C. Forrest J. Roy Davis, Jr.
Assistant Corporate Secretary Chairman of the Board
Witnesses: ACKNOWLEDGED:
/s/ Judy E. Montague /s/ Robert E. James
---------------------------------- -------------------------------
Judy E. Montague Robert E. James
<PAGE> 1
EXHIBIT 13.1
<PAGE> 2
ANNUAL REPORT 1999
EXPECT MORE FROM US
[PHOTO]
FIRST CHARTER
<PAGE> 3
TABLE OF CONTENTS
Financial Highlights. . . . . . . . . . . . . . . . . . . . . 1
Letter to our Shareholders. . . . . . . . . . . . . . . . . . 2 - 6
First Charter At A Glance . . . . . . . . . . . . . . . . . . 7
Business Line Review. . . . . . . . . . . . . . . . . . . . . 8 - 13
Strategic Expansion . . . . . . . . . . . . . . . . . . . . . 14 - 15
Community Commitment. . . . . . . . . . . . . . . . . . . . . 16
Financial Information . . . . . . . . . . . . . . . . . . . . 17 - 61
Officers & Directors. . . . . . . . . . . . . . . . . . . . . 62 - 63
Board of Directors. . . . . . . . . . . . . . . . . . . . . . 62
Corporate Information . . . . . . . . . . . . . . . . . . . . 64
Operating Team. . . . . . . . . . . . . . . . . . . . . . . . 65
<PAGE> 4
[MAP OF CFBI and FCTR COMBINED FRANCHISE]
<PAGE> 5
CORPORATE PROFILE
First Charter Corporation is the holding company for First Charter National
Bank. Headquartered in Concord, NC, First Charter has served the financial needs
of businesses and individuals in the Charlotte metropolitan region for 112
years. Common stock for First Charter is traded under the symbol "FCTR" on the
NASDAQ National Market.
FIRST CHARTER
<PAGE> 6
FIRST CHARTER CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
concerning First Charter Corporation (the "Corporation") for the five years
ended December 31, 1999. All financial data has been adjusted to reflect the
acquisition of Bank of Union in 1995, the acquisition of Carolina State Bank in
1997 and the acquisition of HFNC Financial Corp. in 1998, each of which was
accounted for as a pooling of interests. Additionally, all per share data has
been retroactively adjusted to reflect a 6-for-5 stock split declared in the
second quarter of 1997. 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) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income............................... $ 136,717 $ 136,509 $ 123,130 $ 116,371 $ 98,209
Interest expense.............................. 67,269 70,623 62,827 57,416 47,844
------------------------------------------------------------
Net interest income........................... 69,448 65,886 60,303 58,955 50,365
Provision for loan losses..................... 3,350 2,376 2,684 1,481 2,328
------------------------------------------------------------
Net interest income after provision for
loan losses............................... 66,098 63,510 57,619 57,474 48,037
Noninterest income............................ 18,213 13,650 15,082 8,156 7,125
Noninterest expense (2)....................... 45,869 59,166 42,765 39,169 31,817
------------------------------------------------------------
Income before income taxes.................... 38,442 17,994 29,936 26,461 23,345
Income taxes.................................. 12,350 8,758 10,765 9,028 7,467
------------------------------------------------------------
Net income.................................... $ 26,092 $ 9,236 $ 19,171 $ 17,433 $ 15,878
============================================================
PER SHARE DATA:
Basic net income.............................. $ 1.45 0.51 1.06 0.95 0.95
Diluted net income............................ 1.45 0.50 1.03 0.94 0.94
Cash dividends declared (1)................... 0.68 0.61 0.53 0.50 0.43
Period-end book value......................... 12.96 13.34 12.79 12.25 7.08
BALANCE SHEET DATA (AT PERIOD END):
Securities available for sale................. $ 342,136 $ 331,799 $ 315,565 $ 325,825 $399,694
Investment securities......................... -- -- -- 13,940 8,959
Loans, net.................................... 1,408,953 1,406,967 1,246,228 1,108,311 913,892
Allowance for loan losses..................... 17,339 15,554 15,263 14,140 13,552
Total assets.................................. 1,894,317 1,864,357 1,672,641 1,573,177 1,415,368
Deposits...................................... 1,149,512 1,123,035 1,059,262 1,013,696 964,005
Borrowed funds................................ 491,976 469,944 350,079 309,895 124,714
Total liabilities............................. 1,666,605 1,618,385 1,428,732 1,340,396 1,104,293
Total shareholders' equity.................... 227,712 245,972 243,909 232,781 311,075
RATIOS:
Net income to average shareholders' equity (2) 11.34% 3.68% 7.47% 6.20% 7.44%
Net income to average total assets (2)........ 1.43 0.52 1.21 1.16 1.34
Net interest income to average earning assets
(tax equivalent).......................... 4.21 4.07 4.12 4.23 4.34
Average loans to average deposits............. 123.74 128.35 107.89 104.68 86.33
Net loans charged off during period
to average loans.......................... 0.09 0.15 0.16 0.09 0.23
</TABLE>
(1) First Charter Corporation historical cash dividends declared.
(2) Noninterest expense for the years ended 1998, 1997 and 1995 include pretax
merger related expenses of $18,192, $3,356 and $1,062, respectively.
1
<PAGE> 7
SHAREHOLDER LETTER
[PHOTO]
DEAR FELLOW SHAREHOLDERS:
1999 was a year of expecting more and achieving more than we had imagined. We
expanded our geographic reach, broadened our service offerings, strengthened our
financial performance, significantly grew our core loans and deposits, completed
our largest acquisition and launched an intensive company-wide service quality
initiative.
The introduction of "Expect More from Us" in early 1999 as our brand advertising
signature verbalized the daily commitment each First Charter team member has to
exceeding the expectations of each other, our customers, our shareholders and
our communities. Far beyond its use in our advertising efforts, "Expect More
from Us" is what makes us different.
THE RHYTHM OF LEADERSHIP
A corporate-wide commitment to "expecting more" enables every employee to be a
leader, which is central to transforming our work force into an interdependent,
internally motivated, enthusiastic team. At First Charter, leadership is a
consistent, powerful rhythm throughout the entire organization.
In the last two years, First Charter has endeavored not only to grow its
geographic reach, but also to broaden the array of services offered to
customers. By doing so, we have entered into a new arena of highly competitive
markets and dynamic change. As Group Executive for Service and Chief Financial
Officer, Robert O. Bratton has helped steer First Charter through more than 25
years of growth and change. Although Bob and I have 40 years of First Charter
experience between us, we realized that to meet the challenges of the future
growth would require the broadening of our executive leadership team.
Robert E. James, Jr., joined the executive management team in 1999 as the Group
Executive for Sales and Marketing. Drawing on more than 26 years of financial
services experience at Centura Bank, Bob is focusing his team on a proactive
approach to service and sales. With the addition of more experienced,
specialized sales teams and the development of new products, our sales efforts
can reach a broader customer base with more customized solutions.
Realizing that our growth and geographic expansion brings many infrastructure
challenges, we brought C. Thomas McFarland on board as Group Executive for
Technology and Operations. Challenged with keeping us technologically
competitive and integrating acquired institutions, Tom brings 19 years of
organizational experience with BB&T.
Most recently, Stephen M. Rownd joined the team as Group Executive and Chief
Credit Officer bringing us almost 20 years of experience in the financial
services industry, most recently at SunTrust. Consistent with our commitment
to strong financial performance, Steve will focus on energizing our lending
culture by strengthening our loan quality and improving our lending excellence.
2
<PAGE> 8
[PHOTO]
We also strengthened our business line and staff management teams. In addition
to our existing seasoned team members, we hired proven managers in retail sales,
commercial sales, mortgage services, insurance, audit, compliance, brokerage and
financial management.
Challenged to inspire leadership throughout every aspect of our business, all of
our senior managers participate in an intensive leadership development process
that focuses on creating a better understanding of their individual styles of
leadership. By committing themselves to nurturing and empowering employees on a
daily basis, our managers are creating a leadership model that strengthens our
ability to respond quickly and surely to changes in the marketplace and
capitalizes on the many talents of our First Charter team.
STRATEGIC FOCUS
Leadership is the fuel that propels us toward our strategic focus: First Charter
will be the First Choice for Financial Services by our Customers. To achieve our
"first choice" goal, we must offer a full spectrum of financial services and
deliver these services efficiently and proactively in an environment committed
to the highest standards of service quality. The following strategic initiatives
are critical to our becoming the "first choice for financial services."
CONTINUING COMMITMENT
TO UNPARALLELED SERVICE
As financial services become more of a commodity, the differentiating factor
among competitors is service quality. Throughout our 112-year history,
delivering exceptional service to our customers has been the cornerstone of our
competitive advantage. Nevertheless, in 1999, while competing banks were
deemphasizing the value of face-to-face customer service First Charter launched
an intensive, company-wide service quality initiative designed to raise our
service from exceptional to extraordinary.
We began by surveying more than 12,000 retail and commercial customers
regarding their experience with service at First Charter. We received
overwhelmingly high marks in several critical areas, confirming our belief that
we consistently deliver outstanding customer service every day. More than 70
percent of our customers stated that they were "very satisfied" with the service
they receive at First Charter, which was significantly better than our major
competitors.
With these leading scores as our starting point, we launched a company-wide
service quality training program. From the Chief Executive, to tellers, to our
internal audit staff, every First Charter employee received intensive training
in effective customer relations. The training was accomplished in just 90 days.
Going forward, each new employee will complete this course during his or her
first three months at First Charter.
In 2000, service quality will continue to be at the core of our competitive
advantage. Service improvement initiatives are ongoing at First Charter.
Cross-functional action teams have been chartered to improve our performance in
several areas, including problem resolution and customer communication. We
believe the best time to improve service is when you are providing great service
already.
FOSTERING AN ENERGETIC AND
PROACTIVE SALES CULTURE
The sales culture at First Charter is empowered by our commitment to service.
First Charter approaches every customer interaction with a service mindset,
exploring all options thoroughly, and offering each customer a well-planned
solution. We believe that the path to a successful sale begins with good
service.
In 1999, we strengthened our commercial and retail sales teams by hiring
seasoned professionals with exceptional sales records and sophisticated levels
of sales experience. In 2000, we will expand and strengthen the skills of our
entire sales force through an intensive development program we call ExSEL.
Standing for "Extraordinary Sales, Exceptional Leadership," the program
capitalizes on our strong commitment to service and the "Expect More from Us"
tradition. Developed through a partnership with Cohen Brown, a leading sales
training company, ExSEL will be fully implemented in all sales divisions before
the end of the year.
3
<PAGE> 9
SHAREHOLDER LETTER
DEVELOPING AND INTEGRATING
TECHNOLOGICAL ADVANCES
First Charter is constantly evaluating and implementing new technologies to
better serve our customers and to operate more efficiently. One trend that we
have embraced is the increasing use of digital technology. In 1999, we
strengthened our digital infrastructure, which improves our support functions
and prepares the way for a number of new computer-based products and services in
2000, like internet banking. In addition, all employees will be able to send and
receive email via the internet, which will enhance our effectiveness in
communicating with our external service providers.
In 2000 we will be upgrading our core computer system to a high-tech financial
operating system that will smoothly accommodate our growth and facilitate the
expansion of our product offerings. Along with this change, we will be
implementing a new telecommunications system throughout our financial centers to
make our voice mail system easier to use and more customer-friendly.
The introduction of a new mobile work force solution will enable our sales team
and telecommuting employees to have full access to all relevant First Charter
systems anytime and anywhere. So, whether they are with a customer or traveling
on business, our employees can have 24-hour access to essential information.
Technology will take center stage in the first quarter of 2001 when we open the
First Charter Center. Featuring the latest in computer and telephonic systems,
the state-of-the-art facility will seamlessly integrate many facets of our work
force.
As most of the world breathed a sigh of relief at midnight on Dec. 31, 1999, we
realized that our Y2K preparedness efforts yielded an unexpected bonus. TEAM
2000 touched virtually everyone in the company at one point or another, and
required energetic commitment, exceptional organization and company-wide
teamwork. Successfully meeting the Y2K challenge taught us new ways to be more
responsive and efficient by improving many processes and procedures, including
software, systems, communications and crisis planning.
CREATING NEW MARKETS THROUGH CAREFULLY
MANAGED EXPANSION
First Charter has an aggressive, strategically sound growth strategy. 1999 saw
the smooth integration of HFNC Financial Corporation, the holding company for
Home Federal Savings and Loan Association. The integration was so successful
that one of the former Home Federal financial centers led the company in our
most recent sales campaign.
In November 1999 we entered into a definitive agreement to acquire Carolina
First Bancshares, Inc. This acquisition will effectively expand our reach in the
western regions of the state. Carolina First BancShares operates 31 full service
financial centers spanning 12 counties. Strengthening our presence in several
attractive, high growth markets, such as Lincolnton and Mooresville, enables us
to deliver our products and services to an expanded customer base, continue our
strong earnings growth and create greater value for our customers and
shareholders.
First Charter Insurance Services also expanded into new markets and broadened
its customer base through the acquisition of five strong insurance agencies in
the last 14 months. First Charter Insurance Services now operates offices in
Charlotte, Huntersville, Monroe and Shelby.
[PHOTO]
4
<PAGE> 10
[PHOTO]
DEEPENING OUR MARKET REACH BY IMPROVING MARKET AWARENESS
1999 brought new milestones in marketing and advertising. We created and
launched an integrated brand advertising campaign, effectively communicating our
"Expect More from Us" commitment and increasing awareness of First Charter
throughout our markets. Using a carefully blended mix of television, newspaper,
direct mail and radio, we targeted new and existing customers and encouraged
them to find out how First Charter could help them achieve their financial
dreams.
In 2000, we will continue to raise awareness of First Charter, constantly
differentiating ourselves through our commitment to service quality and always
giving more than the customer expects.
A key element to our success will be the effective use of information about our
marketplace. In 2000, we will begin development of an enterprise-wide customer
information system designed to gain more insight into customer needs and
experiences, subsequently enabling us to deliver more customized products and
services.
CONSISTENTLY DELIVERING STRONG FINANCIAL PERFORMANCE
1999 proved to be a year of opportunity and marked success in the financial
performance of First Charter. We achieved strong revenue increases in our
commercial loan, financial management, brokerage and insurance business lines.
The leadership of First Charter believes that our operating results are
demonstrated more clearly by measuring recurring net income, which principally
excludes nonrecurring items such as the effect of costs associated with the
completion of mergers and acquisitions, and other times. Recurring net income
for the year ended December 31, 1999 amounted to $23.8 million, or $1.32 per
diluted share, compared to recurring net income of $22.0 million, or $1.19 per
diluted share for the same period in 1998, an increase of 8.0 percent.
Consistent with our determination to build maximum value for our shareholders,
the Board of Directors approved a stock repurchase plan in April 1999, through
which 994,148 shares were acquired. We believe that our stock continues to be an
attractive investment with the potential for continued long-term growth.
Net interest income for the year ended December 31, 1999
increased 5.4 percent to $69.4 million, compared to $65.9 million in the
comparable period in 1998. This increase was driven primarily by decreases in
the cost of funding. Noninterest income for the year ended December 31, 1999
totaled $18.2 million compared to $13.7 million for the same period in 1998, an
increase of 33.4 percent. For comparative purposes, the 1999 results include
total gains of $3.5 million from the sales of property and mortgage loans, while
the 1998 results included total gains of $2.4 million from the sale of
securities and the sale of First Charter's merchant card program. Excluding
these items, noninterest income increased 30.1 percent for the year ended
December 31, 1999 compared to the same period in 1998.
Noninterest expense for the year ended December 31, 1999 totaled $45.9 million
compared to $59.2 million for the same period in 1998. For comparative purposes,
the 1998 results included merger costs associated with the acquisition of HFNC
Financial Corp. totaling $18.2 million. Excluding the merger costs, noninterest
expense for the year ended December 31, 1999 increased 12.0 percent compared to
the same period in 1998.
Net loans at December 31, 1999 amounted to $1.4 billion. Although this amount is
unchanged from prior periods, it also includes the sale of more than $147
million of 30 year fixed rate mortgages in April 1999. Our goal was to replace a
large amount of fixed rate, inflexible assets with variable rate assets during
this period of rising interest rates. We accomplished that goal by growing our
commercial loan portfolio by $182 million in 1999.
5
<PAGE> 11
SHAREHOLDER LETTER
At the end of 1999, total shareholders' equity was $227.7 million, which
represents a period end equity-to-assets ratio of 12.0 percent. Based on the
$14.875 closing price of First Charter Corporation common stock at December 31,
1999, the Corporation had a market capitalization of $261.4 million.
We are committed to being a high performing institution. The three financial
strategies of 1999 that will continue into 2000 are: (1) aggressively grow loans
and deposits; (2) continue to improve the strength of our balance sheet; and,
(3) increase non-interest fee income from a variety of sources, including
brokerage services, asset management and insurance services.
MAINTAINING OUR COMMITMENT TO COMMUNITY
One of our core beliefs is that good business begins in the communities we
serve. Knowing that one good act can create an endless ripple effect of benefits
for our customers and the community, we adhere to a local market management
philosophy: No matter how we grow, we are committed to investing in the
communities in which we are privileged to serve.
Throughout this report you will find stories about First Charter employees whose
daily commitment to "Expect More from Us" permeates everything they do. Whether
it's spending extra time with a customer to make sure the absolutely best
solution is found, or giving their time and energy to the communities in which
they live, First Charter employees are committed to being involved, helping
people as best they can. We believe it's good business to empower and support
every employee in their endeavors to be leaders in their jobs, their communities
and their families, so that they can, in turn, better support our customers in
their endeavors.
THE FUTURE OF LEADERSHIP
Looking to the years ahead at First Charter, I am confident in the abilities and
character of our leadership team. Moreover, every employee at First Charter will
be encouraged to take a leadership role in fulfilling our commitment to
shareholders, customers, and our communities. I believe our future is in good
hands and that you can always "Expect More from Us".
Sincerely,
/S/ Lawrence M. Kimbrough
Lawrence M. Kimbrough
President & Chief Executive Officer
[PHOTO]
6
<PAGE> 12
FIRST CHARTER AT A GLANCE
FIRST CHARGER STRATEGIC FOCUS:
To be the First Choice for Financial Services by our Customers through the
efficient and convenient delivery of a wide array of financial services with the
best service quality in the market.
CORE OPERATING STRATEGIES
- Continuing commitment to unparalleled service
- Fostering an energetic and proactive sales culture
- Developing and integrating technological advances
- Creating new markets through carefully managed expansion
- Deepening our market reach by improving market awareness
- Consistently delivering strong financial performance
- Maintaining our commitment to community
PRODUCT ARRAY
<TABLE>
<CAPTION>
BANKING SERVICES
CONSUMER COMMERCIAL
<S> <C>
Deposits: Checking, Savings, Deposits: Checking, Savings,
CDs & Money Markets CDs & Money Markets
Installment Loans Loans & Lines of Credit
Credit Cards Cash Sweep Accounts
Mortgages & Real Estate Loans
Home Equity Loans
FINANCIAL SERVICES
CONSUMER COMMERCIAL
Trust & Investment Management Retirement Plan Services
Mutual Funds Cash Management
Discount & Full-Service Brokerage Merchant Processing
Financial Planning Asset Based Lending
Insurance: Property, Casualty, Insurance: Property, Casualty,
Homeowners & Life Life & Group Health
</TABLE>
COMMERCIAL LOANS
(in millions)
[GRAPH]
NET REVENUE
(in millions)
[GRAPH]
DEPOSITS
(in millions)
[GRAPH]
7
<PAGE> 13
BUSINESS LINE REVIEW
The thriving Charlotte metropolitan region has more than 1.6 million potential
retail customers and more than 15,000 small to medium-sized businesses. The
projected total population growth for 1998 - 2003 for the First Charter markets
is a compelling 8.51 percent, compared with 7.17 percent for North Carolina and
4.26 for the United States. This is the dynamic and high growth market before
us, and our strategic focus for this attractive landscape of opportunity is to
become the First Choice for Financial Services by our Customers.
BUILDING THE FOUNDATION FOR GROWTH
In 1995, First Charter was a community bank intent on accomplishing what no
other financial institution of our size was successfully doing - transforming
itself into a high-performance, comprehensive financial services company without
losing our sense of community. We realized that achieving this goal would take
geographic expansion, solid financial health, pro-active sales, the addition of
new products, services and technologies, and an unwavering commitment to
customer service. Most importantly, we recognized the need to strengthen and
broaden the leadership of First Charter. The company we were creating required
us not only to further develop the skills of the existing managers, but also to
recruit several additional executives needed to help us grow.
Over the years First Charter has built a strong reputation and an extraordinary
level of trust among its customers for banking services. However, many of our
customers also needed additional financial services, such as insurance or
investments, which were often scattered among a variety of providers. Seeing an
opportunity to create a convenient, comprehensive solution, we expanded our
business lines, adding brokerage and insurance. Through a solutions-driven,
internal referral program, we are able to offer customers a seamlessly
integrated array of financial services that can be accessed conveniently in
person, by phone, through our growing ATM network, and via the internet.
TOTAL ASSETS
(in millions)
[GRAPH]
DIVIDENDS
[GRAPH]
[PHOTO]
8
<PAGE> 14
BECOMING THE FIRST CHOICE
Today, First Charter is more than a community bank - we are an integrated
financial services company with a strong, active commitment to the communities
we serve.
We expect to reach our goal of becoming the "First Choice for Financial
Services" because we are successfully integrating our service ideals with:
- - Pro-Active, Cross-Selling Sales Culture. First Charter will never sell
customers products they do not need. However, our goal is to sell them
every dollar's worth of products they do need.
Our sales team does not want any customer to "ask" for a product. The
team is dedicated to developing an understanding of a customer's needs
and proactively suggesting products that meet those needs. ExSEL, our
new sales training and leadership program, is designed to improve the
consultative sales skills of our already energetic sales force.
- - Management and Team Specialization. By developing experienced and
knowledgeable managers throughout the organization and letting them
create highly trained employee teams, we can increase our ability to
know our customers and deliver more customized products and services
to them.
- - Investment in Technology. By improving our digital infrastructure, we
can support more efficient internal processes and deliver better
products to our customers. The introduction of mobile technology
solutions for our sales team will enable us to provide
up-to-the-minute information in a customer's office or when traveling.
New telecommunications and email enhancements allow us to better
communicate with internal and external audiences, providing even more
responsive service.
[PHOTO]
Carolyn Fritzsche's passion is to make a positive impact on people's lives. As
a Help Desk Specialist in Technical Services, she loves her job. She can be
found always working to resolve a computer issue promptly and easily, or
training new employees on the First Charter office system.
As a member of her community, she is impacting lives through her love of
running. In the last five years, Carolyn has run nine marathons to benefit
charities that are close to her heart, including the Run for Peace, which
benefits a local battered women's shelter and a family crisis center. She has
also run several times in the Race for the Cure, which benefits the Leukemia
Society.
Despite her hectic training schedule and full-time position, Carolyn is also
dedicated to helping those in her professional field. This year she will begin
teaching a night class in office systems at a local community college.
"Marathons and education are very similar - they both require strength,
commitment, endurance and most of all passion. My passion is to help others
achieve their dreams - whether it's a cure for cancer or a college degree," she
said.
"Leadership requires genuine concern
for others and a commitment to
delivering more than what's required."
Robert O. Bratton
Group Executive for Service and CFO
9
<PAGE> 15
BUSINESS REVIEW
RETAIL FINANCIAL SERVICES
The First Charter Retail Financial Services Division finished 1999 with new
leadership by industry veteran Richard A. Manley and eight financial center
manager additions. The division had its most successful home equity sales
campaign in history, generating more than $23 million in new lines in just two
months.
Enhancements to the First Charter call center in 1999 will continue into
2000, including the implementation of our pro-active sales program. Our goal is
to transform the call center from an in-bound-only customer service center to a
profit center. Experienced customer relationship representatives will contact
existing customers, help them evaluate their needs, and offer them solutions
that fit their lifestyle and financial situation.
Among the new services created in 1999 was Professional and Executive Banking.
This program is designed to provide sophisticated financial services for those
affluent business owners and professionals who have more complex financial
needs and require a higher level of expertise.
In 2000, First Charter will continue the technological enhancements needed to
offer additional service options for our customers, such as Internet banking.
MORTGAGE SERVICES
In 1999, Richard H. Lester joined First Charter to lead our dynamic Mortgage
Services Division. We are transforming from a portfolio lender to a secondary
market origination source. By rearranging the workflow process to the point
where flexibility for the customer is paramount, the customer can now choose
from almost 40 different loan program options, and a credit decision can be made
in a matter of hours. First Charter also began offering a newly enhanced
construction/perm loan in 1999, giving customers a single closing.
The division launched a customer satisfaction tracking process. The results of
the benchmark survey were exceptional, with 93 percent of customers saying that
they would use First Charter Mortgage Services again. Future survey results
will be used to improve the mortgage application process and develop new
services.
When First Charter opens a new financial center, our primary goal is to become
immersed in that community. We operate not only as a natural part of the
business environment, but also as a good corporate citizen, helping businesses
and individuals achieve their financial dreams.
Sharon Hanson joined the First Charter team in 1998 as Financial Center Manager
for our new Mint Hill location. When she joined First Charter, the financial
center only had about four customers per day in the drive thru. Today, more
than 700 customers use the drive thru every week. Deposits and loan growth have
set records and new customers are added weekly.
The Mint Hill team is actively involved in the local business association and
participates in a number of community activities. Sharon and her team organize
food drives three or four times a year to help those less fortunate in the
community. They also developed an educational and savings account program for
more than 100 elementary and secondary students to teach them the importance of
sound financial management.
"Our main goal is to make our customers and our community feel like family,"
Sharon said. "The success of this financial center isn't just mine - it really
belongs to my team. Most importantly, it is the community's success."
[PHOTO]
"A real leader practices leadership every day
- - at work, at home and in the community."
Robert G. Fox, Jr.
Executive Vice President
and Senior Lending Officer
10
<PAGE> 16
A number of new mortgage services are planned for 2000, including online
mortgage applications and approvals over the Internet. Later in the year, the
First Charter website will offer mortgage calculators and links to other useful
sites. Our investment in a new mortgage origination system will enable First
Charter to offer instant point of sale approvals in many of our financial
centers.
COMMERCIAL FINANCIAL SERVICES
The Commercial Sales Division grew significantly in 1999, closing $391 million
in new loans and earning more than $1.8 million in fee income related to
commercial lending. Sound lending decisions continue to be the bedrock of our
performance.
Darren Radson, the division's leader, joined First Charter in 1998 and added
six commercial relationship officers to his team in 1999. Based on a philosophy
of responsiveness and flexibility, the enhanced sales force prides itself on
providing customized solutions with speed and accuracy. The Commercial Sales
Division successfully penetrated the Charlotte market in 1999. Targeted growth
in North Mecklenburg, Cleveland, Cabarrus and Union counties will be enhanced
in 2000 with the addition of the commercial sales force from Carolina First
Bancshares, Inc.
Robert G. Fox, Jr., Executive Vice President and Senior Lending Officer, has
created a team of seasoned specialists who will focus on our large corporate
relationships, correspondent banking and real estate lending.
In 1999 the division began offering a sophisticated, yet flexible, cash
management service, which allowed the sales team to target new customers with
complex cash management needs.
In 2000, First Charter will introduce a new auto borrow feature on sweep
accounts, enabling our sophisticated commercial customers to apply excess funds
more effectively.
BROKERAGE SERVICES
Led by industry veteran Phillip Floyd, First Charter Brokerage Services
experienced a 42 percent increase in revenues over 1998, primarily due to
several very successful promotions and the implementation of effective
cross-selling techniques throughout the retail financial centers.
The subsidiary offers both full service and discount brokerage services. In an
effort to deliver investment services to a broader segment of our customer
base, First Charter will be adding investment counselors to many of our
financial centers, launching a new Series 6 platform program, and expanding the
Series 7 platform.
[PHOTO]
One of the reasons First Charter is able to deliver prompt and efficient service
to customers is because of our employees' emphasis on providing the same level
of superior service to each other.
As a Senior Business Analyst for all voice communications at First Charter, Juan
King interacts with every department and location within the Company. Whether
it's getting a new financial center's communication system up and running in
time to serve customers, or working with a fellow employee on the phone to
resolve a complicated system error, Juan's motto is, "no problem," and he is not
happy until the person he is trying to help is satisfied.
But his commitment to helping others doesn't stop at work. Far from his high
tech position at First Charter, Juan is also helping people find hope at a
special care facility for elderly patients. Through a program with his church,
he regularly spends time with the patients, getting to know them, sharing
stories and listening to them talk about their lives.
"Sharing stories and listening to their words of wisdom is an honor to the
memory of my grandfather, who took the time to share with me," Juan said. "I
visit with the patients because I like to help them learn to smile again. I have
never expected anything in return from them, but seeing hope in their eyes gives
me more joy than they can ever know."
"Effective leadership transcends the local environment
and flows throughout the entire organization."
C. Thomas McFarland
Group Executive for
Technology and Operations
11
<PAGE> 17
[PHOTO "DAVIDSON COLLEGE CREW TEAM"]
12
<PAGE> 18
FINANCIAL MANAGEMENT GROUP
Revenues from trust services grew 15 percent in 1999 to their highest level in
First Charter history. With more than $380 million in assets under management,
the Financial Management Group, also led by Phillip M. Floyd, expanded its
geographic reach into Charlotte by taking advantage of the newly acquired Home
Federal customer base.
The introduction of two new services in 1999 significantly strengthened our
capabilities. First Charter introduced a new generation of 401(k) plans with
the unveiling of its daily valuation option, which allows the customer to have
access to their investment accounts via the Internet. The daily valuation
401(k) plan also offers multiple mutual fund families, allowing a variety of
investment choices per account. In 1999,the division also enhanced its custom
portfolio services, offering customers even greater flexibility when investing
in individual securities.
With the addition of the Carolina First BancShares markets in 2000, First
Charter will have the opportunity to cross-sell financial management trust
services to many new customers.
INSURANCE SERVICES
In its first full year of operation, First Charter Insurance Services turned in
a strong performance, acquiring and integrating five insurance agencies and
exceeding their revenue and expense goals. The efforts were spearheaded by
Clarkson B. McLean, who joined First Charter in 1998 with 25 years of industry
experience.
In 1999, First Charter Insurance Services also expanded its Huntersville agency
and enhanced its agency management system to provide better service and improve
productivity and efficiency levels.
In 2000, First Charter Insurance Services will expand its product offerings and
continue to target books of business and agencies for potential acquisition.
[PHOTO]
Heavy snow days in the Charlotte region are rare. People that actually brave the
elements to get to work on a snow day are even more uncommon, especially when
the office is officially closed.
Knowing that severely inclement weather can be a common cause of serious house
damage and other claims, Joe Trull, the First Charter Insurance Services
personal lines manager, decided to try to get to the office to help customers
anyway...in his convertible.
Amazingly enough he made it into the office. He immediately began to take calls
that were flooding in from anxious customers. One customer had just endured the
trauma of a serious house fire, which had left his home demolished and
unlivable. Joe tracked down all the necessary parties, including the adjuster
who had also been unable to get to work, and helped arrange for temporary
accommodations for the homeowner.
Without Joe's dedicated sense of leadership and "Expect More from Me" attitude,
one of our valuable customers would have been left out in the cold one bitter
winter night, homeless and devastated.
"A true leader has an unwavering commitment to
service and the internal motivation to go beyond
the call of duty."
Kathleen M. Harris
Senior Vice President for Strategic Initiatives
13
<PAGE> 19
STRATEGIC EXPANSION
FIRST CHARTER WELCOMES CAROLINA FIRST BANCHSARES
In a competitive environment where mergers may fail to fulfill expectations,
First Charter has been successful in smoothly integrating acquisitions that have
expanded its geographic reach, broadened its customer base and enhanced its
value for shareholders.
In November 1999,First Charter entered into a definitive merger agreement with
Carolina First BancShares, Inc., the parent company of Lincoln Bank, Cabarrus
Bank and Community Bank & Trust. With similar operating philosophies and
business cultures, the joining of these two service-minded financial
institutions will provide First Charter with a number of significant strategic
advantages.
- - With 31 branch offices spanning a 12 county region, Carolina First
BancShares offers First Charter a solid springboard for growth and an
opportunity to meet customers' needs wherever they live, work and play.
Following the merger, these customers will have access to additional
products, including: insurance, brokerage, financial management and
sophisticated commercial banking services.
- - The strong financial performance and market share growth of Carolina
First BancShares will further strengthen the First Charter loan and
deposit portfolios and balance sheet.
- - Carolina First BancShares has a strong leadership team that offers
First Charter a wealth of experience and a commitment to excellence.
- - The outstanding reputation for quality service enjoyed by the Carolina
First BancShares family of banks is closely aligned with the strategic
focus of First Charter to be the First Choice for Financial Services by
our Customers.
- - With overlapping franchises, a number of synergies are expected once
the merger is completed. In addition, the larger critical mass of the
new combined organization will enable us to continue our investment in
personnel and technology.
- - The deep commitment of the Carolina First BancShares team to community
involvement and local market management is a natural fit with the First
Charter tradition of "Expect More from Us."
[PHOTO OF JAMES E. BURT, III, RONNIE D. BLANTON, JAN H. HOLLAR, JIM R. BEAM,
RONALD D. SMITH]
The Carolina First BancShares Executive Leadership Team
14
<PAGE> 20
"The merger with First Charter will give our customers a variety of benefits,
including a more extensive network of branches and ATMs, full service telephone
banking, and a broader array of financial services to meet their needs. We are
excited about the opportunities that will result from the merger of our two
companies and confident that our employees and shareholders will recognize the
advantages brought by First Charter's depth of management, commitment to
exceptional service quality and marketplace momentum."
James E. Burt, III
President and CEO
Carolina First BancShares
[PHOTO OF DAVIDSON COLLEGE CREW TEAM]
15
<PAGE> 21
COMMITMENT TO COMMUNITY
OUR COMMUNITIES CAN EXPECT MORE FROM US
Community. It means more than a place to us. At First Charter, we adhere to a
local market management philosophy, which means no matter how we grow, we are
committed to investing in the communities in which we are privileged to serve.
For us, "investing" means more than financial contributions as a corporation. In
fact, many times it is the commitment our employees have to giving that extra
time, extra energy and an extra hand to a local charity or community
organization.
We believe that being involved in a community helps us better understand the
needs and dreams of the people in that community, and enables us to serve them
more effectively. "Expect More From Us" means bringing more than sound financial
solutions to businesses and individuals, it means working side-by-side with our
neighbors and friends to help make our communities healthier, stronger and safer
places to live and work.
[PHOTO]
On a very cold day, more than 200 First Charter employees and their family
members turned out for the recent Juvenile Diabetes Foundation annual
walk-a-thon to raise funds for a cure, forming a sea of red sweatshirts and
smiling faces.
16
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Charter Corporation
We have audited the accompanying consolidated balance sheets of First Charter
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998,
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,
1999. These consolidated financial statements are the responsibility of the
Company'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 as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Charlotte, North Carolina
January 18, 2000
17
<PAGE> 23
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks...................................... $ 59,967 $ 41,884
Federal funds sold........................................... 665 6,402
Interest bearing bank deposits............................... 1,995 11,713
-----------------------------------
Cash and cash equivalents............................... 62,627 59,999
Securities available for sale, cost of $349,124 in 1999
and $321,357 in 1998.................................... 342,136 331,799
Loans........................................................ 1,426,495 1,422,676
Less: Unearned income................................... (203) (155)
Allowance for loan losses......................... (17,339) (15,554)
-----------------------------------
Loans, net.............................................. 1,408,953 1,406,967
-----------------------------------
Premises and equipment, net.................................. 43,592 30,603
Other assets................................................. 37,009 34,989
-----------------------------------
Total assets........................................ $ 1,894,317 $ 1,864,357
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY Deposits, domestic:
Noninterest bearing demand.............................. $ 130,613 $ 119,519
Interest bearing........................................ 1,018,899 1,003,516
-----------------------------------
Total deposits...................................... 1,149,512 1,123,035
Other borrowings............................................. 491,976 469,944
Other liabilities............................................ 25,117 25,406
-----------------------------------
Total liabilities................................... $ 1,666,605 $ 1,618,385
===================================
Shareholders' equity:
Common stock - no par value; authorized: 50,000,000 shares;
issued and outstanding: 17,571,729 shares in 1999 and
18,442,202 shares in 1998............................... $ 99,905 $ 121,416
Retained earnings............................................ 132,053 118,078
Accumulated other comprehensive income:
Unrealized gains (losses) on securities available for
sale, net........................................... (4,246) 6,478
-----------------------------------
Total shareholders' equity.......................... 227,712 245,972
-----------------------------------
Total liabilities and shareholders' equity.......... $ 1,894,317 $ 1,864,357
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 24
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share and per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans................................................ $ 116,834 $ 116,376 $ 100,921
Federal funds sold................................... 129 1,026 1,012
Interest bearing bank deposits....................... 274 201 795
Securities available for sale........................ 19,480 18,906 19,581
Investment securities held to maturity............... -- -- 821
-------------------------------------------------
Total interest income............................ 136,717 136,509 123,130
-------------------------------------------------
Interest expense:
Deposits ............................................ 44,371 46,141 46,332
Federal funds purchased and securities
sold under agreements to repurchase.............. 1,571 6,957 7,689
Federal Home Loan Bank and other borrowings.......... 21,327 17,525 8,806
-------------------------------------------------
Total interest expense........................... 67,269 70,623 62,827
-------------------------------------------------
Net interest income..................... 69,448 65,886 60,303
Provision for loan losses................................. 3,350 2,376 2,684
-------------------------------------------------
Net interest income after provision for loan losses.. 66,098 63,510 57,619
-------------------------------------------------
Noninterest income:
Trust income......................................... 2,303 2,006 1,901
Service charges on deposit accounts.................. 4,929 4,320 4,116
Insurance and other commissions...................... 4,871 1,121 959
Securities available for sale transactions, net...... 1,158 2,222 5,694
Gain on sale of loans................................ 1,757 -- --
Gain on sale of properties........................... 1,752 -- --
Other................................................ 1,443 3,981 2,412
-------------------------------------------------
Total noninterest income......................... 18,213 13,650 15,082
-------------------------------------------------
Noninterest expense:
Salaries and fringe benefits......................... 24,057 22,904 21,721
Occupancy and equipment.............................. 7,570 6,205 5,436
Restructuring and merger-related costs............... -- 18,192 3,356
Other ............................................... 14,242 11,865 12,252
-------------------------------------------------
Total noninterest expense........................ 45,869 59,166 42,765
-------------------------------------------------
Income before income taxes ................. 38,442 17,994 29,936
Income taxes.............................................. 12,350 8,758 10,765
-------------------------------------------------
Net income....................................... $ 26,092 $ 9,236 $ 19,171
=================================================
Net income per share:
Basic............................................ $ 1.45 $ 0.51 $ 1.06
Diluted.......................................... $ 1.45 $ 0.50 $ 1.03
Weighted average shares:
Basic............................................ 17,985,960 18,273,281 18,154,131
Diluted.......................................... 18,053,064 18,571,805 18,697,448
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 25
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned
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, 1996.................. 18,451,651 $ 139,050 $ 111,230 $ (23,138) $ 5,639 $232,781
Comprehensive income:
Net income for 1997..................... -- -- 19,171 -- -- 19,171
Unrealized gain on securities available
for sale, net......................... -- -- -- -- 1,249 1,249
Total comprehensive income......... 20,420
Cash dividends.............................. -- (78,918) (8,619) -- -- (87,537)
Purchase and retirement of common stock..... (64,118) (1,126) (194) -- -- (1,320)
Purchase of shares by ESOP and restricted
stock trust............................. -- -- -- (17,707) -- (17,707)
Shares released from ESOP and restricted
stock trusts............................ -- 332 -- 4,873 -- 5,205
Stock options exercised and Dividend
Reinvestment Plan stock issued.......... 69,560 1,263 17 -- -- 1,280
Pre-merger transactions of pooled bank...... 611,205 467 -- -- -- 467
Equity adjustment to conform fiscal periods. -- 78,644 (1,706) 14,738 (1,356) 90,320
-----------------------------------------------------------------------------------
Balance, December 31, 1997.................. 19,068,298 139,712 119,899 (21,234) 5,532 243,909
Comprehensive income:
Net income for 1998..................... -- -- 9,236 -- -- 9,236
Unrealized gain on securities available
for sale, net......................... -- -- -- -- 946 946
Total comprehensive income......... 10,182
Cash dividends ............................. -- -- (11,057) -- -- (11,057)
Purchase and retirement of common stock .... (759,650) (18,074) -- -- -- (18,074)
Shares released from ESOP and restricted
stock trusts............................ (51,072) (3,407) -- 21,234 -- 17,827
Shares issued for business acquisition...... 60,843 1,057 -- -- -- 1,057
Stock options exercised and Dividend
Reinvestment Plan stock issued.......... 123,783 2,128 -- -- -- 2,128
-----------------------------------------------------------------------------------
Balance, December 31, 1998.................. 18,442,202 121,416 118,078 -- 6,478 245,972
Comprehensive income:
Net income for 1999..................... -- -- 26,092 -- -- 26,092
Unrealized loss on securities available
for sale, net......................... -- -- -- -- (10,724) (10,724)
Total comprehensive income......... 15,368
Cash dividends ............................. -- -- (12,117) -- -- (12,117)
Shares issued for business acquisition...... 68,551 1,273 -- -- -- 1,273
Purchase and retirement of common stock..... (994,148) (23,388) -- -- -- (23,388)
Stock options exercised and Dividend
Reinvestment Plan stock issued.......... 55,124 604 -- -- -- 604
-----------------------------------------------------------------------------------
Balance, December 31, 1999.................. 17,571,729 $ 99,905 $ 132,053 $ -- $ (4,246) $227,712
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 26
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 26,092 $ 9,236 $ 19,171
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses.............................. 3,350 2,376 2,684
Depreciation and amortization.......................... 4,237 3,167 2,611
Premium amortization, net.............................. 146 295 119
Net gain on securities available for sale transactions. (1,158) (2,222) (5,694)
Amortization of unearned stock compensation............ -- 17,827 5,205
Net gain on sale of other real estate.................. (597) (621) (104)
Net (gain) loss on sale of premises and equipment...... (1,777) 98 (12)
Origination of mortgage loans held for sale............ (55,911) (85,698) (11,843)
Proceeds from sale of mortgage loans held for sale..... 63,926 79,925 10,671
Decrease (increase) in other assets.................... 6,220 (8,027) (2,782)
Increase (decrease) in other liabilities............... (289) 6,015 2,665
---------------------------------------------
Net cash provided by operating activities.......... 44,239 22,371 22,691
---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale....... 20,816 29,186 155,917
Proceeds from maturities and issuer calls of
investment securities held to maturity................. -- -- 1,500
Proceeds from maturities of securities available for sale.. 40,123 94,269 59,433
Purchase of investment securities held to maturity......... -- -- (1,813)
Purchase of securities available for sale.................. (87,692) (136,356) (113,673)
Net increase in loans...................................... (161,561) (160,978) (205,633)
Proceeds from sales of other real estate................... 3,692 4,919 1,655
Proceeds from sales of premises and equipment.............. 3,020 102 254
Proceeds from sale of loans................................ 144,855 -- --
Purchase of premises and equipment......................... (18,471) (8,879) (5,863)
---------------------------------------------
Net cash used by investing activities.................. (55,218) (177,737) (108,223)
---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, money market, and savings accounts. 31,279 69,627 41,466
Net increase (decrease) in certificates of deposit......... (4,802) (5,854) 3,987
Net increase in securities sold under repurchase
agreements and other borrowings........................ 22,031 119,865 120,183
Purchase and retirement of common stock....................... (23,388) (18,074) (1,320)
Proceeds from issuance of common stock..................... 604 2,128 1,280
Pre-merger transactions of pooled bank..................... -- -- 467
Purchase of shares by ESOP and restricted stock trust...... -- -- (17,707)
Dividends paid............................................. (12,117) (11,057) (87,537)
---------------------------------------------
Net cash provided by financing activities.............. 13,607 156,635 60,819
---------------------------------------------
Net increase (decrease) in cash and cash equivalents... 2,628 1,269 (24,713)
Cash and cash equivalents at beginning of period....... 59,999 58,730 83,443
---------------------------------------------
Cash and cash equivalents at end of period............. $ 62,627 $ 59,999 $ 58,730
=============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 65,413 $ 70,255 $ 58,159
=============================================
Income taxes........................................... $ 4,898 $ 11,079 $ 9,199
=============================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Transfers of loans and premises and equipment
to other real estate owned............................. $ 3,354 $ 4,602 $ 3,445
=============================================
Investment securities transferred to available for sale
following business combination......................... $ -- $ -- $ 13,491
=============================================
Unrealized gain (loss) in value of securities available
for sale, net of taxes................................. $ (10,724) $ 946 $ 1,249
=============================================
Issuance of stock for business acquisition................. $ 1,273 $ 1,057 $ --
=============================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 27
FIRST CHARTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(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
subsidiary, First Charter National Bank ("FCNB" or the "Bank"), follow in
preparing and presenting their consolidated financial statements. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles.
(a) Consolidation - The accompanying consolidated financial statements
include the accounts of the Corporation and its wholly-owned subsidiary, FCNB.
In addition, through its subsidiary First Charter Brokerage Services, the Bank
offers discount brokerage services, insurance and annuity sales and financial
planning services pursuant to a third party arrangement with UVEST Investment
Services. The Bank also operates three other subsidiaries: First Charter
Insurance Services, Inc., First Charter Realty Investment, Inc., and FCNB Real
Estate, Inc. First Charter Insurance Services, Inc. is a North Carolina
corporation formed to meet the insurance needs of businesses and individuals
throughout the Charlotte metropolitan area. First Charter Realty Investment,
Inc. is a Delaware corporation organized as a holding company for FCNB Real
Estate, Inc., a real estate investment trust organized in North Carolina. In
consolidation, all significant intercompany accounts and transactions have been
eliminated. Certain amounts reported in prior years have been reclassified to
conform with current year presentation. The reclassifications have no effect on
shareholders' equity or net income as previously reported.
(b) Business - The Bank, either directly or through its subsidiaries,
provides businesses and individuals a broad range of financial services,
including banking, comprehensive financial planning, funds management,
investments, insurance, mortgages and a full array of employee benefit programs.
The Bank is a regional financial services company with assets of $1.9 billion
operating 33 financial centers and 71 ATMs located in six counties throughout
the greater Charlotte metropolitan area.
(c) Securities - The Corporation classifies securities as trading,
available-for-sale or held-to-maturity based on management's intent at the date
of purchase. For all periods presented, all of the Corporation's securities are
categorized as available-for-sale and, accordingly, are reported at fair value,
based on quoted market prices, with any unrealized gains or losses, net of
taxes, reflected as an element of accumulated other comprehensive income. The
Corporation intends to hold these available-for-sale securities for an
indefinite period of time, but may sell them prior to maturity in response to
changes in interest rates, changes in prepayment risk, changes in the liquidity
needs of the Bank, and other factors. Securities on which there is an unrealized
loss that is deemed to be other-than-temporary are written down to fair value
with the write-down treated as a realized loss in the consolidated statement of
income.
Gains and losses on sales of securities are recognized when realized at
trade date on a specific identification basis. Premiums and discounts are
amortized into interest income using a level yield method.
(d) 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.
Management considers a loan to be impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to contractual terms of the loan agreement. Factors
that influence management's judgment include, but are not limited to, loan
payment pattern, source of repayment, and value of collateral. A loan would not
be considered impaired if an insignificant delay in loan payment occurs and
management expects to collect all amounts due. The major sources for
identification of loans to be evaluated for
22
<PAGE> 28
impairment include past due and nonaccrual reports, internally generated lists
of loans of certain risk grades, and regulatory reports of examination.
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 probable 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 current economic conditions.
Allowances for loan losses related to loans that are identified as impaired
in accordance with the impairment policy set forth above are based on discounted
cash flows using the loans' initial interest rates or the fair value of the
collateral if the loans are collateral dependent. Large groups of
smaller-balance, homogenous loans that are collectively evaluated for impairment
(residential mortgage and consumer installment loans) are excluded from this
impairment evaluation and their allowance is calculated in accordance with the
allowance for loan losses policy discussed above.
Management considers the December 31, 1999 allowance for loan losses
adequate to cover inherent losses in the Bank's loan portfolio. Management
believes it has established the allowance in accordance with generally accepted
accounting principles and in consideration of the current economic environment.
While Management uses the best information available to make evaluations, future
additions to the allowance may be necessary based on changes in economic and
other conditions. Additionally, various regulatory agencies, as an integral part
of their examination process, periodically review the Banks' allowances for loan
losses. Such agencies may require the recognition of adjustments to the
allowance based on their judgments of information available to them at the time
of their examinations.
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 an aggregate loan basis.
(e) Servicing Rights - Servicing rights are periodically evaluated for
impairment based on their fair value where fair value is estimated based on
market prices for similar assets and on the discounted estimated future value of
net cash flows based on market consensus loan prepayment estimates, historical
prepayment rates, interest rates and other economic factors. For purposes of
impairment evaluation, the servicing assets are stratified based on predominant
risk characteristics of the underlying loans, including loan type (conventional
or government), and note rate.
(f) Loan Fees and Costs - Nonrefundable loan fees and certain direct costs
associated with originating or acquiring loans are deferred and recognized over
the contractual life of the related loans as an adjustment to interest income.
(g) Premises and Equipment - Premises and equipment are stated at cost,
less accumulated depreciation. Depreciation and amortization of premises and
equipment are computed using the straight-line method over the estimated useful
lives. Useful lives range from three to ten years for furniture and equipment,
from fifteen to fifty years for buildings and over the terms of the respective
leases for leasehold improvements.
(h) 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 or fair value, less estimated costs
to sell. Generally the fair values of such properties are evaluated annually and
the carrying value, if greater than the estimated fair value less costs to sell,
is adjusted with a charge to income.
(i) Income Taxes - 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. 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.
23
<PAGE> 29
(j) Cash and Cash Equivalents - 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.
(k) Net Income 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 potential common stock and
contingently issuable shares, which consist of dilutive stock options and
restricted stock, were issued. Unallocated shares associated with an Employee
Stock Ownership Plan established by Home Federal (See Note 14) are excluded from
weighted average shares outstanding for purposes of computing basic and diluted
earnings per share. 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 periods presented. A reconciliation of the denominator of
the basic EPS computations to the denominator of the diluted EPS computations is
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
Basic EPS denominator - weighted average
number of common shares outstanding..... 17,985,960 18,273,281 18,154,131
Dilutive effect of assumed exercise of
stock options........................... 67,104 100,355 208,969
Dilutive effect of restricted stock assumed
to be issued............................ - 198,169 334,348
---------------------------------------------------------
Diluted EPS denominator....................... 18,053,064 18,571,805 18,697,448
=========================================================
</TABLE>
(l) Dividends Per Share - Dividends declared by the Corporation were $0.68
per share, $0.61 per share and $0.53 per share for the years ended December 31,
1999, 1998 and 1997, respectively. Dividends declared by HFNC were $0.24 per
share and $5.28 per share for the years ended December 31, 1998 and 1997, as
adjusted to conform to the Corporation's December 31 fiscal year-end. Dividends
declared by HFNC in the year ended December 31, 1997 included a special
distribution of $5.00 per share to HFNC shareholders, substantially all of which
was deemed to represent a return of capital to shareholders.
(m) Stock-Based Compensation - The Corporation accounts for stock-based
compensation under the provisions of Accounting Principles Board Opinion No. 25.
The pro forma impact on net income and net income per share as if the fair value
of stock-based compensation plans had been recorded as a component of
compensation expense in the consolidated financial statements as of the date of
grant of awards related to such plans, pursuant to the provisions of the
Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" is disclosed in Note 14.
(n) Comprehensive Income - Comprehensive income includes net income and all
non-owner changes to the Corporation's equity. 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 years ended December
31, 1999, 1998, and 1997 was $15,368,000, $10,182,000 and $20,420,000,
respectively. Information concerning the Corporation's other comprehensive
income for the years ended December 31, 1999, 1998, and 1997 is as follows:
24
<PAGE> 30
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended December 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during the period $(15,340) $ 3,621 $ 7,615
Less: tax expense (benefit) on holding
gains (losses) arising during the period 5,369 (1,231) (2,665)
-----------------------------------------
(9,971) 2,390 4,950
-----------------------------------------
Less: reclassification adjustment for realized
gains included in net income............. 1,158 2,222 5,694
Less: tax expense on realized gains..... (405) (778) (1,993)
-----------------------------------------
753 1,444 3,701
-----------------------------------------
Other comprehensive income (loss)........... $(10,724) $ 946 $ 1,249
-----------------------------------------
</TABLE>
(o) Segment Reporting - Prior to 1999, the Corporation had two reportable
segments: a bank and trust company (FCNB) and a savings and loan association
(Home Federal). FCNB offers a full array of financial services to business and
individual customers, with its loan products consisting predominately of
short-term business and individual loans. Home Federal had traditionally offered
a more limited group of loan and deposit products to individuals, consisting
primarily of mortgage loans and savings accounts. Home Federal was acquired
through the Company's merger with Home Federal's holding company, HFNC Financial
Corp., on September 30, 1998 (See Note 2), and was operated as a separate
entity. With the March 1999 completion of the integration of Home Federal into
FCNB, the Corporation ceased having two separate reportable segments. Therefore,
for 1999, the Corporation only has one reportable segment, FCNB.
During 1998 and 1997, the FCNB and Home Federal segments had no significant
intercompany transactions. Both segments operated within the greater Charlotte
metropolitan area, and the accounting policies of both segments were the same as
those described herein. The Corporation's chief operating decision maker
evaluated the segments separately based on earnings from interest earning
assets, the cost of interest bearing liabilities, noninterest sources of income
and expense, as well as total segment profitability.
Information regarding the reportable segments' separate results of
operations and segment assets is illustrated in the following tables:
<TABLE>
<CAPTION>
1999
-----------------------------------------
(Dollars in thousands) FCNB OTHER(1) TOTALS
-----------------------------------------
<S> <C> <C> <C>
Total interest income............................ $ 136,385 $ 332 $ 136,717
Total interest expense........................... 67,216 53 67,269
-----------------------------------------
Net interest income.............................. 69,169 279 69,448
Provision for loan losses........................ 3,350 - 3,350
Total noninterest income......................... 17,151 1,062 18,213
Total noninterest expense........................ 45,779 90 45,869
-----------------------------------------
Net income before income taxes................... 37,191 1,251 38,442
Income taxes..................................... 11,950 400 12,350
-----------------------------------------
Net income....................................... $ 25,241 $ 851 $ 26,092
=========================================
Total loans, net................................. $1,408,953 $ - $1,408,953
Total assets..................................... 1,874,931 19,386 1,894,317
</TABLE>
25
<PAGE> 31
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Home
(Dollars in thousands) FCNB Federal Other(1) Totals
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income............................ $ 61,156 $ 75,004 $ 349 $ 136,509
Total interest expense........................... 26,707 43,852 64 70,623
-----------------------------------------------------------
Net interest income.............................. 34,449 31,152 285 65,886
Provision for loan losses........................ 2,300 76 - 2,376
Total noninterest income......................... 10,590 2,552 508 13,650
Total noninterest expense........................ 27,825 27,506 3,835 59,166
-----------------------------------------------------------
Net income before income taxes................... 14,914 6,122 (3,042) 17,994
Income taxes..................................... 4,318 4,845 (405) 8,758
-----------------------------------------------------------
Net income....................................... $ 10,596 $ 1,277 $ (2,637) $ 9,236
===========================================================
Total loans, net................................. $ 586,342 $ 820,625 $ - $ 1,406,967
Total assets..................................... 848,587 996,476 19,294 1,864,357
1997
-----------------------------------------------------------
Home
(Dollars in thousands) FCNB Federal Other(1) Totals
-----------------------------------------------------------
Total interest income............................ $ 55,869 $ 67,176 $ 85 $ 123,130
Total interest expense........................... 24,788 38,076 (37) 62,827
-----------------------------------------------------------
Net interest income.............................. 31,081 29,100 122 60,303
Provision for loan losses........................ 2,702 (18) - 2,684
Total noninterest income......................... 10,141 5,630 (689) 15,082
Total noninterest expense........................ 27,037 17,124 (1,396) 42,765
-----------------------------------------------------------
Net income before income taxes................... 11,483 17,624 829 29,936
Income taxes..................................... 3,660 6,855 250 10,765
-----------------------------------------------------------
Net income....................................... $ 7,823 $ 10,769 $ 579 $ 19,171
-----------------------------------------------------------
Total loans, net................................. $ 515,799 $ 730,429 $ - $ 1,246,228
Total assets..................................... $ 752,151 $ 910,947 $ 9,543 $ 1,672,641
</TABLE>
(1) Included in "other" are revenues, expenses and assets of the parent
company.
(2) MERGERS
(a) Carolina First BancShares, Inc. The Corporation and Carolina First
BancShares, Inc. ("CFBI") entered into a definitive agreement and plan of merger
(the "Merger Agreement") dated as of November 7, 1999. As of December 31, 1999,
CFBI had total assets of $768.1 million. Under the terms of the agreement, CFBI
will be merged into the Corporation and each CFBI shareholder will receive 2.267
shares of the Corporation's common stock for each share of CFBI common stock.
Subject to certain conditions, including the approval of both companies'
shareholders and applicable regulatory authorities, the merger is expected to
close no later than the second quarter of 2000. The transaction is intended to
be tax-free to the shareholders of CFBI and will be accounted for as a
pooling-of-interests. As of December 31, 1999, the Corporation held 157,215
shares of CFBI representing 2.62% of CFBI outstanding stock. This investment is
reflected at a market value of $4.9 million which represents a $2.5 million
increase over cost.
(b) HFNC Financial Corp. On May 17, 1998, the Corporation entered into an
Agreement and Plan of Merger with HFNC, pursuant to which HFNC merged with and
into the Corporation (the "HFNC Merger"). On September 30, 1998, the Merger was
completed and was accounted for as a pooling of interests. Accordingly, all
current and prior periods' financial statements have been restated to combine
the accounts of HFNC with those of the corporation. The accompanying
consolidated financial statements have been restated to include the effects of
this merger for all periods presented. HFNC's fiscal period was conformed from
its June 30 year-end to the December 31 year-end of the Corporation for the
preparation of the 1998 and 1997 consolidated financial statements.
26
<PAGE> 32
As of September 30, 1998, there were 16,949,000 shares of HFNC common stock
outstanding. Each share of HFNC common stock was converted into 0.57 shares of
the Corporation's common stock.
HFNC, a North Carolina corporation, was a unitary holding company organized
in August 1995 in connection with the conversion of Home Federal Savings and
Loan Association ("Home Federal") from mutual to stock form (the "Conversion").
The Conversion was effected on December 28, 1995, at which time Home Federal
converted to a federal stock savings and loan association and became a wholly
owned subsidiary of HFNC. Home Federal conducted its business from its main
office, eight branch offices, and a loan origination office, all located in
Mecklenburg County, North Carolina. During 1999, Home Federal was merged with
and into First Charter National Bank. At September 30, 1998, HFNC had total
consolidated assets of approximately $1.03 billion, total consolidated loans of
approximately $819.5 million, total consolidated deposits of approximately
$437.3 million, and total consolidated shareholders' equity of $174.2 million.
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 accrued
retirement payments for former executives of HFNC, there are no remaining
accrued liabilities associated with these charges at December 31, 1999.
(c) Carolina State Bank. On August 15, 1997, the Corporation entered into
an Agreement and Plan of Merger with CSB, pursuant to which CSB merged with and
into FCNB (the "CSB Merger"). On December 22, 1997, the CSB Merger was completed
and was accounted for as a pooling of interests. As of December 22, 1997, there
were 1,663,992 shares of CSB common stock outstanding. Each share of CSB common
stock was converted into 1.023 shares of the Corporation's common stock.
CSB was a North Carolina-chartered commercial bank providing general
banking services through a network of four branch offices located in Shelby,
Kings Mountain, Boiling Springs and Forest City, North Carolina, which are now
branches of FCNB. At December 31, 1996, CSB had total assets of approximately
$133 million and total deposits of approximately $115 million. In the fourth
quarter of 1997, the Corporation recognized $3.4 million of costs associated
with the acquisition of CSB. The primary components of these merger-related
expenses were transaction and professional expenses and various
severance-related obligations.
(3) FINANCIAL STATEMENT PRESENTATION 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 previously issued consolidated
financial statements have been made to conform to the financial statement
presentation for 1999. Such reclassifications had no effect on the net income or
shareholders' equity of the combined entity as previously reported.
(4) SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1999 and 1998 are summarized
as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------
GROSS GROSS
(Dollars in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS...................... $ 6,003 $ 13 $ -- $ 6,016
U.S. GOVERNMENT AGENCY OBLIGATIONS............... 176,728 -- 7,971 168,757
MORTGAGE-BACKED SECURITIES....................... 39,104 99 386 38,817
STATE, COUNTY AND MUNICIPAL OBLIGATIONS.......... 89,870 472 1,892 88,450
EQUITY SECURITIES................................ 37,419 3,423 746 40,096
---------------------------------------------------------------
TOTAL....................................... $ 349,124 $ 4,007 $ 10,995 $ 342,136
===============================================================
</TABLE>
27
<PAGE> 33
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Gross Gross
(Dollars in thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government obligations...................... $ 10,021 $ 184 $ -- $ 10,205
U.S. government agency obligations............... 153,915 1,093 355 154,653
Mortgage-backed securities....................... 35,697 539 36 36,200
State, county and municipal obligations.......... 94,016 3,484 65 97,435
Equity securities................................ 27,708 5,656 58 33,306
---------------------------------------------------------------
Total....................................... $ 321,357 $ 10,956 $ 514 $ 331,799
===============================================================
</TABLE>
A schedule of debt securities by contractual maturity at December 31, 1999
is shown below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Fair
(Dollars in thousands) Cost Value
----------------------------
<S> <C> <C>
Due in one year or less............................ $ 32,299 $ 32,076
Due from one to five years......................... 137,111 133,443
Due from five to ten years......................... 53,032 51,734
Due after ten years................................ 50,159 45,970
Mortgage-backed securities......................... 39,104 38,817
----------------------------
Total.............................................. $ 311,705 $ 302,040
============================
</TABLE>
Securities with an aggregate carrying value of $161,121,000 at December 31,
1999 were pledged to secure public deposits, securities sold under agreements to
repurchase and Federal Home Loan Bank ("FHLB") borrowings. Proceeds from the
sale of securities available for sale were $20,816,000 in 1999, $29,186,000 in
1998, and $155,917,000 in 1997. Gross gains of $1,899,000 and gross losses of
$741,000 were realized in 1999. Gross gains of $2,258,000 and gross losses of
$36,000 were realized in 1998. Gross gains of $6,825,000 and gross losses of
$1,131,000 were realized in 1997. At December 31, 1999 and 1998, the Banks owned
stock in the Federal Home Loan Bank of Atlanta with a cost basis of $22,091,400
and $18,006,500, respectively, which is included in equity securities.
In connection with the merger with CSB in 1997, FCNB transferred CSB's
investment securities with an amortized cost of $13,464,188 and unrealized gains
of $27,073 to securities available for sale.
(5) LOANS
The Corporation's primary market area includes the states of North and
South Carolina, and predominately centers on the Metro region of Charlotte,
North Carolina. At December 31, 1999, the majority of the total loan portfolio,
as well as a substantial portion of the commercial and real estate loan
portfolios, were to borrowers within this region. The diversity of the region's
economic base provides a stable lending environment. An area of significant
concentration of credit risk has not been specified due to the diverse
industrial base in the region.
Loans at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural................................... $ 136,276 $ 94,425
Real estate - construction............................................... 253,272 180,475
Real estate - commercial................................................. 262,260 194,624
Real estate - residential................................................ 730,520 882,420
Installment.............................................................. 44,167 70,732
-----------------------------------
Total............................................................... $ 1,426,495 $ 1,422,676
===================================
</TABLE>
28
<PAGE> 34
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans included above.......................................... $ 7,738 $ 5,758
Other real estate........................................................ 2,041 3,537
Loans 90 days or more past due and still accruing included above......... 3,460 2,270
Restructured loans....................................................... 37 577
-----------------------------------
Total problem assets................................................ $ 13,276 $ 12,142
===================================
</TABLE>
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 March 1999, selling the loans in April 1999. The loans were sold
with servicing rights retained. The Corporation recognized a gain of
approximately $1.8 million on the sales transaction during 1999 and recorded
$1.7 million in servicing rights. The carrying value and estimated fair value of
such servicing rights is $1.5 million and $1.7 million, respectively, at
December 31, 1999.
Residential real estate loans are presented net of loans serviced for
others totaling $152.9 million and $21.0 million at December 31, 1999 and 1998,
respectively. As a result of the loan sale in the second quarter of 1999, $1.7
million in servicing rights were recognized by the Corporation. At year-end
1999, the Corporation's servicing rights were $1.5 million, with a fair value of
$1.7 million. Prior to the loan sale, the Corporation did not have servicing
rights.
Interest income that would have been recorded on nonaccrual loans and
restructured loans for the years ended December 31, 1999, 1998, and 1997, had
they performed in accordance with their original terms, amounted to
approximately $706,000, $457,000, and $767,000, respectively. Interest income on
all such loans included in the results of operations for 1999, 1998, and 1997
amounted to approximately $384,000, $124,000, and $383,000, respectively.
The recorded investment in impaired loans was $8,193,000 (of which
$7,728,000 was on nonaccrual status) and $3,897,000 (of which $2,836,000 was on
nonaccrual status) at December 31, 1999 and 1998, respectively. The related
allowance for loan losses on these loans was $2,966,000 and $1,260,000 at
December 31, 1999 and 1998, respectively. The average recorded investment in
impaired loans for 1999 was $7,553,000, and the income recognized during 1999
was $386,000, $291,000 of which was recognized using the cash method of income
recognition. The average recorded investment in impaired loans for 1998 was
$4,531,000, and the income recognized during 1998 was $107,000, $60,000 of which
was recognized using the cash method of income recognition. The average recorded
investment in impaired loans for 1997 was $4,795,000, and the income recognized
during 1997 was $67,000, $36,000 of which was recognized using the cash method
of income recognition.
The following is a reconciliation of loans outstanding to executive
officers, directors and their associates for the year ended December 31, 1999:
(Dollars in thousands)
Balance at December 31, 1998...................... $ 3,857
New loans......................................... 3,223
Principal repayments.............................. (1,876)
-----------
Balance at December 31, 1999...................... $ 5,204
===========
In the opinion of management, these loans were 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.
29
<PAGE> 35
(6) 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, 1999:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance............................................. $ 15,554 $ 15,263 $ 14,140
Provision charged to operations............................... 3,350 2,376 2,684
Adjustment for merged bank.................................... -- -- 269
Adjustment for loan sales..................................... (369) -- --
Charge-offs................................................... 1,915 2,737 2,261
Recoveries.................................................... 719 652 431
---------------------------------------------
Net loan charge-offs..................................... 1,196 2,085 1,830
---------------------------------------------
Ending balance................................................ $ 17,339 $ 15,554 $ 15,263
=============================================
</TABLE>
(7) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land............................................................................ $ 8,329 $ 10,011
Buildings....................................................................... 20,654 18,071
Furniture and equipment......................................................... 22,411 18,635
Leasehold improvements.......................................................... 1,438 1,222
Construction in progress........................................................ 12,127 1,675
----------------------------
Total premises and equipment............................................... 64,959 49,614
Less accumulated depreciation and amortization.................................. 21,367 19,011
----------------------------
Premises and equipment, net..................................................... $ 43,592 $ 30,603
============================
</TABLE>
(8) DEPOSITS
A summary of deposit balances at December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand...................................................... $ 130,613 $ 119,519
Interest bearing demand......................................................... 124,481 132,581
Money market accounts........................................................... 199,344 142,077
Savings deposits................................................................ 105,640 134,623
Certificates of deposit......................................................... 589,434 594,235
----------------------------
Total........................................................................... $ 1,149,512 $ 1,123,035
============================
</TABLE>
The aggregate amount of certificates of deposit with denominations greater
than $100,000 was $239,839,000 and $201,918,000 at December 31, 1999 and 1998,
respectively.
30
<PAGE> 36
At December 31, 1999, the scheduled maturities of all certificates of deposit
are as follows:
(Dollars in thousands)
2000.................................... $ 521,534
2001.................................... 54,148
2002.................................... 10,472
2003.................................... 1,168
2004 ................................... 1,516
2005 and after.......................... 596
------------
$ 589,434
============
(9) OTHER BORROWINGS
The following is a schedule of other borrowings:
<TABLE>
<CAPTION>
INTEREST MAXIMUM
BALANCE RATE AVERAGE OUTSTANDING
AS OF AS OF AVERAGE INTEREST AT ANY
(Dollars in thousands) DECEMBER 31, DECEMBER 31, BALANCE RATE MONTH-END
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
FEDERAL FUNDS PURCHASED AND SECURITIES
SOLD UNDER AGREEMENTS
TO REPURCHASE ................. $ 57,150 5.44% $ 67,077 5.07% $ 115,786
FHLB BORROWINGS..................... 434,826 5.11% 354,680 5.48% 434,826
OTHER............................... -- -- 887 5.84% 2,590
-------------- ------------- --------------
TOTAL.......................... $ 491,976 $ 422,644 $ 553,202
============== ============= ==============
Interest Maximum
Balance Rate Average Outstanding
as of as of Average Interest at Any
(Dollars in thousands) December 31, December 31, Balance Rate Month-end
- -----------------------------------------------------------------------------------------------------------------------
1998
Federal funds purchased and securities
sold under agreements
to repurchase ................. $ 122,355 5.69% $ 125,401 5.55% $ 130,713
FHLB borrowings..................... 344,999 5.44% 306,021 5.67% 345,899
Other............................... 2,590 7.09% 2,838 6.47% 8,315
-------------- ------------- --------------
Total.......................... $ 469,944 $ 434,260 $ 484,927
============== ============= ==============
</TABLE>
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions by the Banks. Securities sold under agreements to
repurchase represent short-term borrowings by the Banks with maturities ranging
from 1 to 89 days collateralized by a portion of the Corporation's securities of
the United States government or its agencies, which have been delivered to a
third party custodian for safekeeping.
At December 31, 1999, the Bank had one available line of credit with the
FHLB totaling $468,750,000 with approximately $434,826,000 outstanding. The
outstanding amounts consist of $156,805,000 maturing in 2000, $571,000 maturing
in 2001, $76,000,000 maturing in 2002, $13,000,000 maturing in 2003, $86,000,000
maturing in 2004, $ 26,000,000 in 2008, $76,000,000 in 2009, and $450,000
maturing in 2011. In addition, the Bank is required to pledge collateral to
secure the advances as described in the line of credit agreement. The collateral
consists of FHLB stock and qualifying 1-4 family residential mortgage loans.
31
<PAGE> 37
(10) OTHER NONINTEREST EXPENSE
Components of other noninterest expense in excess of one percent of the
aggregate amount of total interest income and total noninterest income follow:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising............................................. $ 2,263 $ 1,312 $ 1,996
Data processing......................................... 1,696 1,493 1,192
Professional services................................... 2,973 2,491 3,515
FDIC insurance.......................................... 316 342 353
Stationery and supplies................................. 1,606 1,281 1,009
All other items......................................... 5,388 4,946 4,187
-------------------------------------------
Total.............................................. $ 14,242 $ 11,865 $ 12,252
===========================================
</TABLE>
(11) INCOME TAX
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) Current Deferred Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
FEDERAL................................................. $ 11,744 $ 402 $ 12,146
STATE................................................... 99 105 204
-------------------------------------------
TOTAL.............................................. $ 11,843 $ 507 $ 12,350
===========================================
Year ended December 31, 1998
Federal................................................. $ 8,385 $ (751) $ 7,634
State................................................... 1,268 (144) 1,124
-------------------------------------------
Total.............................................. $ 9,653 $ (895) $ 8,758
===========================================
Year ended December 31, 1997
Federal................................................. $ 10,949 $ (1,635) $ 9,314
State................................................... 1,789 (338) 1,451
-------------------------------------------
Total.............................................. $ 12,738 $ (1,973) $ 10,765
===========================================
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to pretax income as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
% OF % of % of
PRETAX Pretax Pretax
(Dollars in thousands) AMOUNT INCOME Amount Income Amount Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes.............. $ 38,442 $ 17,994 $ 29,936
========= ========== ==========
Tax at federal income tax rate.......... 13,455 35.0% 6,298 35.0% 10,477 35.0%
Reasons for differences:
Tax exempt income.................. (1,561) (4.0) (1,398) (7.7) (1,199) (4.0)
Nondeductible merger expenses...... -- -- 3,104 17.2 459 1.5
State income tax, net of
federal benefit................ 133 0.3 730 4.1 943 3.2
Other.............................. 323 0.8 24 0.1 85 0.3
--------------------------------------------------------------------------
Total.......................... $ 12,350 32.1% $ 8,758 48.7% $ 10,765 36.0%
==========================================================================
</TABLE>
32
<PAGE> 38
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan losses.................................................. $ 7,047 $ 6,073
Deferred loan fees......................................................... 318 657
Accrued expenses deductible when paid for tax purposes..................... 2,134 2,366
Deferred compensation...................................................... 1,179 1,895
Unrealized losses on securities available for sale, net.................... 2,743 --
Other...................................................................... 346 570
-----------------------------
Total gross deferred tax assets........................................ 13,767 11,561
Less valuation allowance................................................... -- --
-----------------------------
Deferred tax asset, net of valuation allowance......................... 13,767 11,561
-----------------------------
Deferred Tax Liabilities:
Unrealized gains on securities available for sale, net..................... -- (3,958)
Fixed assets, primarily due to difference in depreciation.................. (72) (82)
Federal Home Loan Bank of Atlanta stock.................................... (873) (877)
Other...................................................................... (31) (47)
-----------------------------
Total gross deferred tax liability..................................... (976) (4,964)
-----------------------------
Net deferred tax asset................................................. $ 12,791 $ 6,597
=============================
</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 $6,701,000 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 $507,000.
There was no valuation allowance for deferred tax assets as of December 31,
1999 and 1998. There was no change in the total valuation allowance during 1999
and 1998. It is management's belief that realization of the deferred tax asset
is more likely than not.
Tax returns for 1996 and subsequent years are subject to examination by
taxing authorities.
Retained income at December 31, 1999 and 1998 includes approximately $6.8
million (tax effect) representing pre-1988 tax bad debt reserve base year
reserve amounts for which no deferred income tax liability has been provided
since these reserves are not expected to reverse and may never reverse.
Circumstances that would require an accrual of a portion or all of this
unrecorded tax liability are a reduction in qualifying loan levels relative to
the end of 1987, failure to meet the definition of a bank, dividend payments in
excess of current year or accumulated tax earnings and profits, or other
distributions in dissolution, liquidation or redemption of the Corporation's
stock.
(12) EMPLOYEE BENEFIT PLANS
401(k) Plan and Money Purchase Pension Plan. The Corporation has a
qualified Retirement Savings Plan (401(k) Plan) for all eligible employees of
the Corporation. Pursuant to the Savings Plan, an eligible employee may elect to
defer between 1% and 10% of compensation. At the discretion of the Board of
Directors, the Corporation may contribute an amount necessary to match all or a
portion of a participant's elective deferrals in an amount to be determined by
the Board of Directors from time to time, up to a maximum of 6% of a
participant's compensation. In addition, the Corporation may contribute an
additional amount to each participant's Savings Plan account as determined at
the discretion of the Board of Directors. The Corporation adopted a qualified
Money Purchase Pension Plan effective January 1, 1997 for all eligible employees
of the Corporation. Pursuant to the Money Purchase Pension Plan, the Corporation
contributes annually to each participant's Plan account an amount equal to 3% of
the participant's compensation. Prior to 1997, such contributions were made to
the Savings Plan. The Corporation's aggregate contribution to the Savings Plan
and Money Purchase Pension Plan (excluding Home Federal in 1998 and 1997)
amounted to $1,235,000, $872,000, and $627,000 for 1999, 1998, and 1997,
respectively.
33
<PAGE> 39
Profit Sharing Plan. Home Federal sponsored a contributory 401(k)
profit sharing plan ("Profit Sharing Plan"). The Profit Sharing Plan permitted
all full time employees with at least one year of service to contribute up to 9%
of their salary to the plan each year. The plan provided for matching
contributions by Home Federal equal to 100% of employee contributions up to the
first 3% of compensation. Home Federal could, at its discretion, make profit
sharing contributions to the plan. Plan participants' accounts were 100% vested
in Company contributions after 5 years of qualifying service. Home Federal's
matching contributions charged to expense for 1998 and 1997 were approximately
$80,000 and $52,000, respectively. The Profit Sharing Plan was merged into First
Charter's 401(k) Plan during 1999.
(14) COMMON STOCK
The Corporation maintains the Dividend Reinvestment and Stock Purchase Plan
(the "DRIP"), pursuant to which 1,000,000 shares 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 $3,000 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, the Corporation
can either 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 1999, the Corporation issued no shares and the
administrator of the DRIP purchased 103,778 shares in the open market. During
1998, the Corporation issued 52,368 shares and the administrator of the DRIP
purchased 28,189 shares in the open market. The Corporation currently expects to
issue new shares for future investment of dividends and optional cash payments.
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 360,000 shares of common stock are reserved for issuance under the
Restricted Stock Plan. Compensation expense of approximately $62,000 and $29,000
was recognized during 1999 and 1998, respectively, in connection with the
Restricted Stock Plan. The following table presents the status of the Restricted
Stock Plan as of December 31, 1999 and 1998 and changes during the years then
ended:
<TABLE>
<CAPTION>
Weighted Average
First Charter Restricted Stock Award Program Shares Grant Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997.................................. -- $ --
Granted...................................................... 5,853 25.6250
Vested....................................................... (1,170) 25.6250
Forfeited.................................................... -- --
--------
Outstanding at December 31, 1998.................................. 4,683 $ 25.6250
GRANTED...................................................... 15,000 18.5833
VESTED....................................................... (4,170) 20.5591
FORFEITED.................................................... -- --
--------
OUTSTANDING AT DECEMBER 31, 1999.................................. 15,513 $ 20.1780
========
</TABLE>
The Management Recognition and Retention Plan ("MRRP") was sponsored by
Home Federal and provided for Home Federal's Board of Directors to award
restricted stock to officers and key employees of Home Federal as well as
non-employee directors of Home Federal. The MRRP authorized Home Federal to
grant up to 391,590 shares of Corporation stock. One-fifth of the shares granted
vested immediately upon grant, with the remainder vesting at a rate of 25% per
year over the next four anniversary dates of the grants. Approximately
$2,200,000 and $3,200,000 in compensation expense related to the MRRP was
recognized during the years ended December 31, 1998 and 1997, respectively. In
addition, the Corporation recognized approximately $6,500,000 in merger expenses
during 1998 related to the accelerated vesting of shares in connection with the
merger with HFNC, in accordance with the terms of the MRRP. Subsequent to the
consummation of the merger of the Corporation with HFNC, no further grants of
MRRP shares are to be made. The following table presents the status of the MRRP
as of December 31, 1998 and 1997 and changes during the years then ended:
34
<PAGE> 40
<TABLE>
<CAPTION>
Weighted Average
Management Recognition and Retention Plan Shares Grant Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996.................................. 282,168
Granted...................................................... -- $ --
Vested....................................................... (35,313) 30.26
Forfeited.................................................... (228) 30.26
--------
Outstanding at December 31, 1997.................................. 246,627
Granted...................................................... -- --
Vested....................................................... (246,171) 30.26
Forfeited.................................................... (456) 30.26
--------
Outstanding at December 31, 1998.................................. --
========
</TABLE>
In connection with its conversion to a stock savings and loan
association, Home Federal established an Employee Stock Ownership Plan ("ESOP").
Concurrent with the conversion, 900,000 shares of the Corporation's common stock
were purchased on December 28, 1995 by the ESOP with the proceeds of a $9.0
million loan from Home Federal's wholly owned subsidiary, HFNC Investment Corp.
A corresponding amount related to unearned ESOP shares of $11,343,587 at
December 31, 1997 is included as a reduction of shareholders' equity. In
accordance with the terms of the ESOP, all shares were considered allocated to
participants (after repayment of the debt) concurrent with the consummation of
the HFNC Merger; accordingly, there was no reduction of shareholders' equity at
December 31, 1998. As the loan is internally leveraged, the note receivable from
the ESOP is not reported as an asset nor is the ESOP's debt reported as a
liability at December 31, 1997. However, because the shares are considered
earned at the time of the Merger, the Corporation had a receivable from the ESOP
of $7,400,000 at December 31, 1998, which was payable once the ESOP had sold
sufficient shares to repay the note. During 1999, the ESOP sold 429,708 shares
of previously unallocated ESOP shares at $16.675 per share. The proceeds were
used to repay the ESOP debt in accordance with the terms of the ESOP. The
remaining 224,870 shares owned by the ESOP were then allocated to participants.
Compensation expense related to the ESOP was approximately $990,000 and
$1,670,000 for each of the years ended December 31, 1998 and 1997, respectively.
Additionally, the Corporation recognized $2,000,000 in merger expenses during
1998 related to the termination of the ESOP in connection with the merger with
HFNC.
Under the terms of the First Charter Corporation Comprehensive Stock Option
Plan (the "Comprehensive Stock Option 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. The terms and
vesting schedules of options granted under the Comprehensive Plan generally
shall be determined by the Compensation Committee of the Board of Directors of
the Corporation (the "Compensation Committee"). However, no options may be
exercisable prior to six months following the grant date, and certain additional
restrictions, including the term and exercise price, apply with respect to any
incentive stock options.
In April 1997, the shareholders approved the First Charter Corporation
Stock Option Plan for Non-Employee Directors (the "Director Plan"). Under the
Director Plan, non-statutory stock options may be granted to non-employee
Directors of the Corporation and its subsidiaries. The terms and vesting
schedules of any options granted under the Director Plan generally shall be
determined by the Compensation Committee. The exercise price for each option
granted, however, shall be the fair value of the common stock as of the date of
grant. A maximum of 180,000 shares are reserved for issuance under the Director
Plan.
The Corporation previously adopted an Employee Stock Purchase Plan (the
"ESPP") in 1998 and 1996, pursuant to which stock options were granted to
employees, based on their eligibility and compensation, at a price of 85% to 90%
of the fair market value of the shares at the date of grant. The option and
vesting period was generally for a term of two years. A maximum of 180,000
shares are reserved for issuance under the 1996 ESPP and 180,000 shares are
reserved for issuance under the 1998 ESPP, which was approved by the
shareholders of the Corporation in April 1997.
The Board of Directors of the Corporation determined that it was in the
best interest of the Corporation to implement a new employee stock purchase plan
that can continue beyond a two-year period, to allow more flexibility
35
<PAGE> 41
with the timing of the grant of, and the exercise periods for, options granted
to employees. The 1999 ESPP described below allows for multiple grants of
options thereunder and is designed to remain in effect as long as there are
shares available under the 1999 ESPP to be granted. Pursuant to the terms of the
1999 ESPP, a maximum of 300,000 shares of the Corporation's Common Stock may be
issued to employees under the 1999 ESPP, subject to adjustment generally to
protect against dilution in the event of changes in the capitalization of the
Corporation.
The 1999 ESPP will be administered by the Compensation Committee. The
Compensation Committee will be able to prescribe rules and regulations for such
administration and to decide questions with respect to the interpretation or
application of the 1999 ESPP.
The Corporation intends that options granted under the 1999 ESPP will
satisfy the requirements of Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder. The 1999 ESPP, however, is
not qualified under the provisions of Section 401(a) of the Code and is not
subject to any of the provisions of the Employee Retirement Income Security Act
of 1974, as amended.
The following is a summary of activity under the Comprehensive Plan,
Director Plan and the 1999, 1998 and 1996 ESPP's during the periods indicated.
For comparison purposes, HFNC and the Corporation were consolidated using
conforming calendar years.
<TABLE>
<CAPTION>
Option Option Price Weighted Average
Shares Per Share Exercise Price
------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996............ 1,171,288 $ 3.64 - 25.93 $ 22.31
Granted................................ 89,134 17.60 - 25.00 20.98
Exercised.............................. 35,662 3.64 - 18.85 13.40
Forfeited.............................. 8,227 8.75 - 17.92 17.60
---------
Outstanding at December 31, 1997............ 1,216,533 3.64 - 25.93 22.54
Granted................................ 48,788 22.63 - 26.75 25.76
Exercised.............................. 41,778 3.64 - 18.85 8.85
Forfeited.............................. 23,636 17.71 - 26.75 20.10
---------
Outstanding at December 31, 1998............ 1,199,907 3.64 - 26.75 22.47
GRANTED................................ 288,361 14.93 - 24.88 18.56
EXERCISED.............................. 40,124 5.34 - 18.85 8.11
FORFEITED.............................. 20,931 14.93 - 26.75 21.35
---------
OUTSTANDING AT DECEMBER 31, 1999............ 1,427,213 3.64 - 26.75 22.11
=========
SHARES EXERCISABLE AT DECEMBER 31, 1999..... 1,156,613 $ 3.64 - 26.75 $ 22.66
=========
</TABLE>
The weighted average remaining contractual lives of stock options were
6.10, 7.01, and 7.24 years at December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999, as described above, the Corporation has various
stock-based compensation plans. The Corporation adopted SFAS 123, "Accounting
for Stock-Based Compensation" on January 1, 1996, and elected to continue to
measure compensation cost relative to these plans using APB 25. The disclosure
of the pro forma net income and earnings per share as if the fair value based
accounting method of SFAS 123 had been used to account for stock-based
compensation is required only for awards granted after December 31, 1994, and is
provided below. Consequently, the effects of applying SFAS 123 pro forma
disclosures during the initial phase-in period may not be representative of the
effects on reported net income in future years.
36
<PAGE> 42
The following table presents the pro forma effect on net income and on
basic and diluted income per share of applying the fair value provisions of SFAS
No. 123 discussed above:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
(Dollars in thousands, except per share data) 1999 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported............................. $ 26,092 $ 9,236 $ 19,171
Pro forma............................... $ 24,904 $ 7,995 $ 18,257
Basic income per share:
As reported............................. $ 1.45 $ 0.51 $ 1.06
Pro forma............................... $ 1.38 $ 0.44 $ 1.01
Diluted income per share:
As reported............................. $ 1.45 $ 0.50 $ 1.03
Pro forma............................... $ 1.38 $ 0.43 $ 0.98
</TABLE>
The fair value of each option granted during 1999, 1998 and 1997 was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Comprehensive Stock Option Plan
-------------------------------
Dividend yield.............................. 4.57% 2.4% 3.0%
Risk free interest rates.................... 4.66 TO 6.06% 5.50% to 6.65% 5.88% to 6.89%
Expected lives.............................. 6 YEARS 6 years 6 years
Volatility.................................. 38% 25% 23%
Director Plan
-------------
Dividend yield.............................. 4.57% 2.2% 3.0%
Risk free interest rates.................... 6.17% 5.64% 6.57% to 6.67%
Expected lives.............................. 6 YEARS 6 years 6 years
Volatility.................................. 38% 25% 23%
1999 Employee Stock Purchase Plan
---------------------------------
Dividend yield.............................. 4.57% N/A N/A
Risk free interest rates.................... 6.04% N/A N/A
Expected lives.............................. 6 YEARS N/A N/A
Volatility.................................. 38% N/A N/A
1998 Employee Stock Purchase Plan
---------------------------------
Dividend yield.............................. N/A 1.7% N/A
Risk free interest rates.................... N/A 6.28% N/A
Expected lives.............................. N/A 4 years N/A
Volatility.................................. N/A 18% N/A
</TABLE>
(15) COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
Commitments and Off-Balance Sheet Risk. The Corporation is party to various
financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit,
and involve, to varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the consolidated financial statements. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for
37
<PAGE> 43
instruments reflected in the consolidated financial statements. The
creditworthiness of each customer is evaluated on a case-by-case basis.
At December 31, 1999, the Corporation's exposure to credit risk was
represented by preapproved but unused lines of credit for loans totaling
$443,553,000 and standby letters of credit aggregating $6,808,000. Management
expects that these commitments can be funded through normal operations. The
amount of collateral obtained if deemed necessary by the Corporation upon
extension of credit is based on management's credit evaluation of the
38
<PAGE> 44
borrower at that time. The Corporation generally extends credit on a secured
basis. Collateral obtained may include, but may not be limited to, accounts
receivable, inventory and commercial and residential real estate.
The Bank grants primarily commercial and installment loans to customers
throughout its market areas. The Corporation's primary market area includes the
states of North and South Carolina, and predominately centers on the Metro
region of Charlotte, 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, 1999 amounted to $404,000.
Contingencies. In June 1995, a lawsuit was initiated against Home Federal
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 plaintiff has 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 in prior litigation. In April 1997, 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 corporations, claiming that officers of
Home Federal promised to resume making loans to her husband's corporation
after the payment. Home Federal and its officers vigorously denied all of her
allegations. Home Federal filed a motion for summary judgment and dismissal
of the counterclaim. The motion for summary judgment was heard in the
Superior Court division of the Mecklenburg County General Court of Justice in
April 1998. 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. In April 1999, Home Federal moved for summary judgement to
dismiss the counterclaims. At a hearing in May 1999, the Bankruptcy Judge
granted part and denied part of Home Federal's Motion for Summary Judgement.
The Judge dismissed the wife's counterclaim for breach of fiduciary duty, but
allowed her claim for fraud to continue. The borrower, his wife and daughter
filed a motion for jury trial. The request was not filed within the time
allowed; however, the Judge may, in his discretion, order a jury trial. We
have filed an objection to the request and a hearing on the motion is
scheduled for April 4, 2000. A trial date has not been set; however, we
anticipate a trial within 90 days. Home Federal believes it has strong
defenses to the defendant's counterclaim.
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. The action pending in the
bankruptcy court has been stayed. All defendants filed motions for summary
judgment in the state court action which were 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
39
<PAGE> 45
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. In
early June 1999, the United States Bankruptcy court entered its Memorandum
Decision and Order adopting the State Court dismissal of the lawsuit. In late
June 1999, the plaintiff gave notice of appeal which Home Federal is opposing.
The appeal is pending. On February 12, 2000, the borrower filed a motion to
close his bankruptcy case and remand the action to State Court. We filed an
objection to the motion. At a hearing on March 7, 2000, the Judge denied the
borrower's request to close the case and denied the borrower's motion to remand
to State Court. The Corporation is bound by Home Federal's agreement 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 are
seeking 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. In
February 1999, the United States District Court entered an Order sanctioning the
attorneys for the plaintiffs and ordering that the plaintiff be prohibited from
filing any further action or proceeding in the United States District Court for
the Western District of North Carolina arising from facts involved in this
matter. The Plaintiff appealed the entry of that order. On March 6, 2000, the
United States Court of Appeals for the 4th Circuit ruled against the borrower
on both appeals and affirmed the District Court's opinion.
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 Banks 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 Banks.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments 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. Where information regarding the fair value of a financial
instrument is available, those values are used, as is the case with investment
securities and residential mortgage loans. In these cases, an open market exists
in which those financial instruments are actively traded.
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, FCNB 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.
The Corporation's fair value methods and assumptions are as follows:
Cash and due from banks, federal funds sold, interest bearing bank
deposits - the carrying value is a reasonable estimate of fair value
due to the short term nature of these financial instruments.
Securities available for sale - fair value is based on available quoted
market prices or quoted market prices for similar securities if a
quoted market price is not available.
40
<PAGE> 46
Loans - the carrying value for variable rate loans that are performing
is a reasonable estimate of fair value due to contractual interest
rates being based on current indices. Fair value for fixed rate loans
is estimated based upon discounted future cash flows using discount
rates comparable to rates currently offered for such loans. The fair
value of nonperforming 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 for nonperforming assets
based on one or a combination of the following: external appraisals,
internal assessments using available market information and specific
borrower information, or discounted cash flow analysis.
Deposit accounts -the fair value of certificates of deposit is
estimated using rates currently offered for deposits of similar
remaining maturities. The fair value of all other deposit account types
is the amount payable on demand at year-end.
Other borrowings - the carrying value for shorter-term borrowings is a
reasonable estimate of fair value because these instruments are
generally payable in 90 days or less. The fair value for borrowings
with maturities greater than one year is estimated based upon
discounted future cash flows using a discount rate comparable to the
current market rate for such borrowings.
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 of these financial instruments is considered
to approximate their carrying value.
Based on the limitations, methods, and assumptions noted above, the
following table presents the carrying amounts and fair values of the
Corporation's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks................................. $ 59,967 $ 59,967 $ 41,884 $ 41,884
Federal funds sold...................................... 665 665 6,402 6,402
Interest bearing bank deposits.......................... 1,995 1,995 11,713 11,713
Securities available for sale........................... 342,136 342,136 331,799 331,799
Loans, net of allowance for loan losses................. 1,408,953 1,391,331 1,406,967 1,444,782
Financial liabilities:
Deposits................................................ 1,149,512 1,147,258 1,123,035 1,126,039
Other borrowings........................................ 491,976 489,146 469,944 472,342
</TABLE>
(17) REGULATORY MATTERS
The Corporation and the Bank 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 Bank 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 Bank 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
41
<PAGE> 47
defined). Management believes, as of December 31, 1999, that the Corporation and
the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notifications from the
Corporation's various regulators categorized the Corporation and FCNB 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.
The Corporation's and the 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, 1999:
Total Capital (to Risk Weighted Assets)
First Charter Corporation.......... $ 245,306 18.20 % $ 107,844 8.00 % $ 134,805 10.00 %
First Charter National Bank........ 216,759 16.51 105,008 8.00 131,260 10.00
Tier I Capital (to Risk Weighted Assets)
First Charter Corporation.......... $ 228,449 16.95 % $ 53,922 4.00 % $ 80,883 6.00 %
First Charter National Bank........ 200,340 15.26 52,504 4.00 78,756 6.00
Tier I Capital (to Adjusted Average Assets)
First Charter Corporation.......... $ 228,449 12.40 % $ 73,707 4.00 % $ 92,133 5.00 %
First Charter National Bank........ 200,340 11.00 72,820 4.00 91,024 5.00
At December 31, 1998:
Total Capital (to Risk Weighted Assets)
First Charter Corporation.......... $ 251,965 20.59 % $ 97,913 8.00 % $ 122,391 10.00 %
First Charter National Bank........ 226,556 18.77 96,557 8.00 120,699 10.00
Tier I Capital (to Risk Weighted Assets)
First Charter Corporation.......... $ 236,666 19.34 % $ 48,957 4.00 % $ 73,435 6.00 %
First Charter National Bank........ 211,469 17.52 48,279 4.00 72,418 6.00
Tier I Capital (to Adjusted Average Assets)
First Charter Corporation.......... $ 236,666 13.36 % $ 70,850 4.00 % $ 88,562 5.00 %
First Charter National Bank........ 211,469 11.98 70,592 4.00 88,010 5.00
</TABLE>
(18) FIRST CHARTER CORPORATION (PARENT COMPANY)
The principal assets of the Parent Company are its investment in the
Bank, and its principal source of income is dividends from the Bank. Certain
regulatory and other requirements restrict the lending of funds by the Bank 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 Bank if they determine that such payment would constitute an
unsafe or unsound practice. At December 31, 1999, the Parent Company's $198.0
million investment in subsidiaries total amount is restricted as to transfer to
the Parent Company without obtaining prior regulatory approval.
42
<PAGE> 48
The Parent Company's balance sheet data as of December 31, 1999 and 1998
and related statements of income and cash flow data for each of the years in the
three-year period ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................. $ 9,257 $ 96
Securities available for sale........................ 14,571 11,795
Investment in subsidiaries........................... 197,953 227,891
Receivable from subsidiaries......................... 4,682 7,677
Premises and equipment............................... 316 316
Other assets......................................... 4,113 3,146
-------------------------------
$ 230,892 $ 250,921
===============================
Borrowed funds....................................... $ -- $ 2,590
Accrued liabilities.................................. 3,180 2,359
Shareholders' equity................................. 227,712 245,972
-------------------------------
$ 230,892 $ 250,921
===============================
INCOME STATEMENT DATA:
Dividends from subsidiaries.......................... $ 43,500 $ 29,160 $ 111,905
Other operating income (expense)..................... 851 (2,685) (1,669)
Income before equity in undistributed (excess of
dividends over) net income of subsidiaries....... 44,351 26,475 110,236
Excess of dividends over net income of subsidiaries.. (18,259) (17,239) (91,065)
------------------------------------------------
Net income....................................... $ 26,092 $ 9,236 $ 19,171
================================================
CASH FLOW STATEMENT DATA:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 26,092 $ 9,236 $ 19,171
Net gain on securities available for sale transactions (897) (409) (752)
Amortization of unearned stock compensation.......... -- 17,827 5,205
Increase (decrease) in accrued liabilities........... 821 (1,570) 1,826
Increase in other assets............................. (800) (1,305) (10,585)
Decrease (increase) in receivable from subsidiaries.. 2,995 (5,977) (500)
Decrease in investment in subsidiaries............... 19,474 8,130 90,773
------------------------------------------------
Net cash provided by operating activities............ 47,685 25,932 105,138
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale............ (4,841) (3,406) (3,444)
Proceeds from sale of securities available for sale.. 2,535 551 1,311
Proceeds from sale of premises and equipment......... -- -- 237
------------------------------------------------
Net cash used by investing activities................ (2,306) (2,855) (1,896)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock............................. (23,388) (18,074) (1,320)
Purchase of shares by ESOP and restricted
stock trust...................................... -- -- (17,707)
Proceeds from issuance of common stock upon
exercise of stock options........................ 1,877 3,185 1,280
Proceeds from note payable........................... -- 9,329 28,000
Repayment of note payable............................ (2,590) (6,739) (28,000)
Pre-merger transactions of pooled banks.............. -- -- 467
Cash dividends paid.................................. (12,117) (11,057) (87,537)
------------------------------------------------
Net cash used by financing activities................ (36,218) (23,356) (104,817)
------------------------------------------------
Net increase (decrease) in cash.................. 9,161 (279) (1,575)
Cash at beginning of year............................ 96 375 1,950
------------------------------------------------
Cash at end of year.................................. $ 9,257 $ 96 $ 375
================================================
</TABLE>
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<PAGE> 49
(19) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1999
- ----------------------------------------------------------------------------------------------------------------
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............................ $ 34,767 $ 33,232 $ 33,551 $ 35,167 $ 136,717
TOTAL INTEREST EXPENSE........................... 17,537 16,110 16,348 17,274 67,269
-------------------------------------------------------------
NET INTEREST INCOME.............................. 17,230 17,122 17,203 17,893 69,448
PROVISION FOR LOAN LOSSES........................ 975 1,250 375 750 3,350
TOTAL NONINTEREST INCOME......................... 3,781 5,360 5,373 3,699 18,213
TOTAL NONINTEREST EXPENSE........................ 10,900 11,695 11,649 11,625 45,869
-------------------------------------------------------------
NET INCOME BEFORE INCOME TAXES................... 9,136 9,537 10,552 9,217 38,442
INCOME TAXES..................................... 2,963 3,016 3,434 2,937 12,350
-------------------------------------------------------------
NET INCOME....................................... $ 6,173 $ 6,521 $ 7,118 $ 6,280 $ 26,092
=============================================================
PER SHARE DATA:
BASIC INCOME PER SHARE........................... $ 0.33 $ 0.36 $ 0.40 $ 0.36 $ 1.45
=============================================================
DILUTED INCOME PER SHARE......................... $ 0.33 $ 0.36 $ 0.40 $ 0.36 $ 1.45
=============================================================
1998
- ----------------------------------------------------------------------------------------------------------------
First Second Third Fourth
(Dollars in thousands, except income per share) Quarter Quarter Quarter Quarter Total
- ----------------------------------------------------------------------------------------------------------------
Total interest income............................ $ 33,098 $ 34,177 $ 34,628 $ 34,606 $ 136,509
Total interest expense........................... 16,781 17,690 18,139 18,013 70,623
-------------------------------------------------------------
Net interest income.............................. 16,317 16,487 16,489 16,593 65,886
Provision for loan losses........................ 662 600 655 459 2,376
Total noninterest income......................... 3,667 4,111 2,699 3,173 13,650
Total noninterest expense........................ 9,878 9,816 29,299 10,173 59,166
-------------------------------------------------------------
Net income before income taxes................... 9,444 10,182 (10,766) 9,134 17,994
Income taxes..................................... 3,274 3,548 (1,318) 3,254 8,758
-------------------------------------------------------------
Net income....................................... $ 6,170 $ 6,634 $ (9,448) $ 5,880 $ 9,236
=============================================================
Per share data:
Basic income per share........................... $ 0.34 $ 0.36 $ (0.52) $ 0.32 $ 0.51
=============================================================
Diluted income per share......................... $ 0.33 $ 0.35 $ (0.51) $ 0.32 $ 0.50
=============================================================
</TABLE>
44
<PAGE> 50
FIRST CHARTER CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
First Charter Corporation (the "Corporation") is a bank holding company
established as a North Carolina Corporation in 1983, with one wholly-owned
banking subsidiary, First Charter National Bank ("FCNB" or the "Bank"). The
Corporation's principal executive offices are located in Concord, North
Carolina. FCNB is a full-service bank and trust company with thirty-three branch
offices and two limited service facilities located in Cabarrus, Rowan, Union,
Cleveland, Rutherford and Mecklenburg counties, North Carolina.
Through its branch locations, the Bank provides a wide range of banking
products, including interest bearing and non-interest bearing checking accounts;
"Money Market Rate" accounts; certificates of deposit; individual retirement
accounts; overdraft protection; commercial, consumer, agricultural, real estate,
residential mortgage and home equity loans; personal and corporate trust
services; safe deposit boxes; and automated banking.
In addition, through its subsidiary First Charter Brokerage Services,
the Bank offers discount brokerage services, insurance and annuity sales and
financial planning services pursuant to a third party arrangement with UVEST
Investment Services. The Bank also operates three other subsidiaries: First
Charter Insurance Services, Inc., First Charter Realty Investment, Inc., and
FCNB Real Estate, Inc. First Charter Insurance Services, Inc. is a North
Carolina corporation formed to meet the insurance needs of businesses and
individuals throughout the Charlotte metropolitan area. First Charter Realty
Investment, Inc. is a Delaware corporation organized as a holding company for
FCNB Real Estate, Inc., a real estate investment trust organized in North
Carolina. The financial results of all subsidiaries are reported on a
consolidated basis as the Corporation.
During 1998, the Corporation acquired HFNC Financial Corp. ("HFNC"), a
North Carolina Corporation organized in August 1995 by Home Federal Savings and
Loan Association ("Home Federal") for the purpose of becoming the unitary
holding company of Home Federal. Home Federal's conversion to stock form and the
concurrent offer and sale of HFNC's common stock was consummated on December 28,
1995. HFNC was merged into the Corporation effective September 30, 1998.
During 1995, the Corporation acquired Bank of Union ("Union"), a full
service bank with five offices located in Union and southern Mecklenburg
counties of North Carolina. In September 1998, Union was merged into FCNB.
During 1997, the Corporation acquired Carolina State Bank ("CSB"), which was
merged into FCNB at that time. CSB was a state-chartered commercial bank with
four banking offices in Cleveland and Rutherford Counties, North Carolina. Union
and CSB offices now operate as FCNB offices.
Each of these mergers was accounted for as a pooling-of-interests and,
accordingly, all financial data for the periods prior to the respective dates of
the mergers have been restated to combine the accounts of Union, CSB and HFNC
with those of the Corporation. In the third quarter of 1998, the Corporation
recognized pretax charges of $17.6 million associated with the merger of HFNC
and pretax charges of $560,000 associated with the
45
<PAGE> 51
merger of Union into FCNB. The Corporation recognized pretax charges of $3.4
million in the fourth quarter of 1997 associated with the merger of CSB into
FCNB.
On November 7, 1999, First Charter Corporation entered into a
definitive merger agreement with Carolina First BancShares, Inc. ("Carolina
First") for First Charter to acquire Carolina First. As of December 31, 1999,
Carolina First had total assets of $768.1 million. Under the terms of the
agreement, Carolina First will be merged into First Charter and each Carolina
First shareholder will receive 2.267 shares of First Charter common stock for
each share of Carolina First common stock. Subject to certain conditions,
including the approval of both companies' shareholders and applicable regulatory
authorities, the merger is expected to close no later than the second quarter of
2000. The transaction is intended to be tax-free to the shareholders of Carolina
First and will be accounted for as a pooling-of-interests.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements of the Corporation and the notes
thereto, as restated to reflect the aforementioned mergers. In addition, the
following discussion contains certain forward-looking statements. See "Factors
that May Affect Future Results."
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1999 VERSUS 1998
OVERVIEW
The Corporation earned $26.1 million in 1999, or $1.45 diluted income
per share, an increase from $9.2 million, or $0.50 diluted income per share, in
1998. For comparative purposes, the 1999 results include pretax total gains of
$3.5 million ($0.13 per diluted share, after tax) on the sales of property and
mortgage loans. The 1998 results included a pretax net expense of $15.8 million
($0.69 per diluted share, after tax), which was comprised of pretax merger
expenses of $18.2 million that were offset by pretax gains totaling $2.4 million
from the nonrecurring sales of securities and First Charter's merchant card
program. For comparative purposes, recurring net income for 1999 amounted to
$23.8 million, or $1.32 per diluted share, compared to recurring net income for
1998 of $22.0 million, or $1.19 per diluted share. Recurring diluted earnings
per share increased 10.9% from 1998. Earnings in 1999, excluding the
nonrecurring items, equated to a return on average assets of 1.30%, compared to
1.24% for 1998, and a return on average equity of 10.35% in 1999, versus 8.76%
in 1998.
Total assets at December 31, 1999 and 1998 were $1.9 billion. Gross
loans at December 31, 1999 and 1998 were $1.4 billion. Due to increases in
certain interest rates during 1999, and the resulting impact on the
Corporation's interest rate risk, the Corporation sold $147.6 million in
lower-yielding mortgage loans in April of 1999. Strong commercial loan volume
during 1999 allowed the Corporation to replace the lower-yielding mortgage loans
which were sold. Total deposits increased $26.5 million, or 2.4%, to $1.1
billion and other borrowings increased $22.0 million, or 4.7%, to $492.0
million.
LIQUIDITY
Liquidity is the ability to maintain cash flows adequate to fund
operations and meet obligations and other commitments on a timely and
cost-effective basis. Liquidity is provided by the ability to attract deposits,
flexible repricing schedules in a sizable portion of the
46
<PAGE> 52
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 net interest income while continuing to
provide adequate liquidity to meet continuing loan demand and deposit withdrawal
requirements and to service normal operating expenses.
If additional funding sources are needed, the Bank has access to
federal fund lines at correspondent banks and borrowings from the Federal
Reserve discount window. In addition to these sources, the Bank is a member of
the Federal Home Loan Bank of Atlanta ("FHLB"), which provides access to FHLB
lending sources. At December 31, 1999, the Bank had an available line of credit
with the FHLB totaling $468.8 million with $33.9 million available.
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 Bank's sources of liquidity are
adequate to meet loan demand, operating needs and deposit withdrawal
requirements.
ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The primary objective of the Corporation's asset-liability management
strategy is to reduce the risk of a significant decrease in net interest income
caused by interest rate changes without unduly penalizing current earnings. 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 at least quarterly and is based on a range of interest rate scenarios.
Under the Corporation's policy, the limit for interest rate risk is 10% of net
interest income 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. Based on an increase or decrease in
interest rates over a twelve-month period, the earnings simulation model
indicates that interest rate risk was within guidelines at approximately 3.87%
and 6.50% of net interest income at December 31, 1999 and 1998, respectively.
The Corporations's balance sheet is liability sensitive, meaning that
in a given period there will be more liabilities than assets subject to
immediate repricing as market rates change. Because immediately rate sensitive
interest bearing liabilities exceed rate sensitive assets, the earnings position
could improve in a declining rate environment and could deteriorate in a rising
rate environment, depending on the correlation of rate changes in these two
categories. At December 31, 1999 total rate sensitive liabilities due within one
year were $1.3 billion compared to rate sensitive assets of $590.7 million, for
a negative one-year cumulative gap of approximately $707.1 million. 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. Management
is developing a plan to reduce the Corporation's negative one-year cumulative
gap.
From time to time, the Corporation may use derivative financial
instruments including futures, forwards, interest rate swaps, option contracts,
and other financial instruments with similar characteristics. At
47
<PAGE> 53
December 31, 1999, the Corporation had no derivative financial instruments.
Additionally, the Corporation is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated financial statements. Commitments to
extend credit are agreements to lend to a customer so long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates and may require collateral from the borrower if
deemed necessary by the Corporation. Standby letters of credit are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party up to a stipulated amount and with specified terms and
conditions.
Commitments to extend credit and standby letters of credit are not
recorded as an asset or liability by the Corporation until the instrument is
exercised. See "BALANCE SHEET ANALYSIS - Loans".
The following table presents the scheduled maturity of market risk
sensitive instruments at December 31, 1999:
(Dollars in thousands)
<TABLE>
<CAPTION>
There
Maturing in: 2000 2001 2002 2003 2004 -after Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Debt securities..... $ 32,313 $ 6,046 $ 33,214 $ 27,906 $ 41,545 $ 161,016 $ 302,040
Loans............... 254,905 117,213 87,059 108,885 127,742 713,149 1,408,953
-----------------------------------------------------------------------------------------
Total............ $ 287,218 $ 123,259 $ 120,273 $ 136,791 $ 169,287 $ 874,165 $1,710,993
=========================================================================================
LIABILITIES
Savings, NOW
and IMMA's....... $ 533,682 $ 25,794 $ 603 $ -- $ -- $ -- $ 560,078
CDs................. 521,534 54,148 10,472 1,168 1,516 596 589,434
Short-term
borrowings....... 213,955 -- -- -- -- -- 213,955
Long-term
borrowings....... -- 571 76,000 13,000 86,000 102,450 278,021
-----------------------------------------------------------------------------------------
Total.......... $1,269,171 $ 80,513 $ 87,075 $ 14,168 $ 87,516 $ 103,046 $1,641,488
=========================================================================================
</TABLE>
48
<PAGE> 54
The following table presents the average interest rate and estimated
fair value of market risk sensitive instruments at December 31, 1999:
<TABLE>
<CAPTION>
Carrying Average Estimated
(Dollars in thousands) Value Interest Rate Fair Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Debt securities.......... $ 302,040 5.95% $ 302,040
Loans.................... 1,408,953 8.24 1,391,331
------------- ------------
Total .............. $ 1,710,993 7.82 $ 1,693,371
============= ============
LIABILITIES
Savings, NOW
and IMMA's............. $ 560,078 2.34% $ 559,802
CDs...................... 589,434 5.45 587,456
Short-term
borrowings............. 213,955 4.86 213,963
Long-term
borrowings............. 278,021 5.19 275,183
------------- ------------
Total............... $ 1,641,488 4.27 $ 1,636,404
============= ============
</TABLE>
CAPITAL RESOURCES
At December 31, 1999, total shareholders' equity was $227.7 million, a
7.4% decrease from December 31, 1998. The decrease in capital is primarily
attributable to the Corporation's share repurchase plan announced on April 27,
1999. The Corporation repurchased and retired 994,148 shares of First Charter
Corporation Common Stock during 1999. The Corporation will not repurchase any
additional shares under the share repurchase plan announced April 27, 1999. Cash
dividends declared per share in 1999 by the Corporation were $0.68, compared to
$0.61 in 1998 excluding HFNC.
The principal asset of the Corporation is its investment in the Bank.
Thus, the Corporation derives its principal source of income through dividends
from the Bank. Certain regulatory and other requirements restrict the lending of
funds by the Bank to the Corporation and the amount of dividends which can be
paid to the Corporation. In addition, certain regulatory agencies may prohibit
the payment of dividends by the Bank if they determine that such payment would
constitute an unsafe or unsound practice. At December 31, 1999, the Bank is
required to obtain prior regulatory approval for payments of dividends.
The Corporation and the Bank must comply with regulatory capital
requirements established by the applicable federal regulatory agencies. Under
the Federal Reserve Board (the "FRB") standards, the Corporation must 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 and excluding unrealized gains or losses on securities
available for sale. Total Capital is comprised of Tier I Capital plus certain
adjustments, the largest of which for the Corporation is the allowance for loan
losses (up to 1.25% of risk weighted assets). Total Capital must consist of at
least 50% of Tier 1 Capital. 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.
49
<PAGE> 55
In addition to the aforementioned risk-based capital requirements, the
Corporation is subject to a leverage capital requirement, requiring a minimum
ratio of Tier I Capital (as defined previously) to total adjusted average assets
of 3.00% to 5.00%.
At December 31, 1999, both the Corporation and the Bank were in
compliance with all existing capital requirements. The Corporation's
consolidated 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..................... $228,449 12.40% $228,449 16.95% $245,306 18.20%
Required................... 73,707 4.00 53,922 4.00 107,844 8.00
Excess..................... 154,742 8.40 174,527 12.95 137,462 10.20
</TABLE>
(1) Percentage of total adjusted average assets. The FRB minimum
leverage ratio requirement is 3.00% to 5.00%, 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 Bank by regulatory authorities, which, if they were to be
implemented, would have a material effect on the Corporation's liquidity,
capital resources, or operations.
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
net of tax as a component of other comprehensive income.
All securities are classified as available for sale. As maturities,
sales, or paydowns occur on securities, the proceeds are utilized to meet loan
demand and to reinvest in additional securities.
At December 31, 1999, securities available for sale were $342.1 million
or 18.1% of total assets, compared to $331.8 million, or 17.8% of total assets,
at December 31, 1998. The fair value of these securities was approximately $7.0
million below and $10.4 million above their amortized cost at December 31, 1999
and 1998, respectively. The tax equivalent average yield on the securities
available for sale portfolio was 6.62% for 1999 and 6.93% for 1998. The
weighted-average life of the portfolio was 5.80 years at December 31, 1999
compared to 9.45 years at year-end 1998.
LOANS
Due to increases in certain interest rates during 1999, and the
resulting impact on the Corporation's interest rate risk, the Corporation sold
$147.6 million in lower-yielding mortgage loans in April of 1999.
50
<PAGE> 56
Strong commercial loan volume during 1999 allowed the Corporation to replace the
lower-yielding mortgage loans which were sold. As a result, gross loans remained
at $1.4 billion at December 31, 1999 and 1998.
The loan portfolio at December 31, 1999 was composed of 9.6%
commercial, financial, and agricultural loans, 17.8% real estate construction
loans, 69.5% real estate mortgage loans, and 3.1% installment loans. This
compares to a composition of 6.6% commercial, financial and agricultural, 12.7%
real estate construction, 75.7% real estate mortgage, and 5.0% installment at
December 31, 1998. Approximately $11.4 million of the real estate mortgage loans
at December 31, 1999 are loans for which the principal source of repayment comes
from the sale of real estate. The remaining $1.3 billion of loans collateralized
by real estate at December 31, 1999 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 - $504.3 million, (ii)
personal installment loans which are collateralized by real estate - $11.7
million, (iii) home equity loans - $90.5 million, and (iv) individual
residential mortgage loans - $639.7 million.
The Corporation's primary market area includes the states of North and
South Carolina, and predominately centers on the Metro region of Charlotte. At
December 31, 1999, the majority of the total loan portfolio, as well as a
substantial portion of the commercial and real estate loan portfolio, represents
loans to borrowers within this region. The diversity of the region's economic
base tends to provide a stable lending environment. No significant concentration
of credit risk has been identified due to the diverse industrial base in the
region.
In the normal course of business, there are various outstanding
commitments to extend credit, which are not reflected in the consolidated
financial statements. At December 31, 1999, pre-approved but unused lines of
credit for loans totaled $443.6 million and standby letters of credit aggregated
$6.8 million. These amounts represent the Bank's exposure to credit risk, and in
the opinion of management, have no more than the normal lending risk that the
Bank commits to its borrowers. If these commitments are drawn, the Bank will
obtain collateral if it is deemed necessary based on management's credit
evaluation of the borrower. Such obtained collateral varies, but may include
accounts receivable, inventory, and commercial or residential real estate.
Management expects that these commitments can be funded through normal
operations.
ASSET QUALITY
Nonperforming assets, which consist of foreclosed assets, nonaccrual
loans, and restructured loans, were $9.8 million at December 31, 1999, as
compared to $9.9 million at December 31, 1998. Non-performing assets as a
percentage of loans and foreclosed assets at year-end amounted to 0.69% in 1999
and 1998. Total problem assets (nonperforming assets and loans 90 days or more
past due) amounted to $13.3 million at December 31, 1999 and $12.1 million at
December 31, 1998. Total problem assets represented 0.93% of loans and
foreclosed assets at December 31, 1999, compared to 0.85% at December 31, 1998.
The components of nonperforming and problem assets are presented in the
table:
51
<PAGE> 57
December 31, December 31,
(Dollars in thousands) 1999 1998
- -------------------------------------------------------
Nonaccrual loans $7,738 $5,758
Restructured loans 37 577
Other real estate 2,041 3,537
------- -------
Total non-
performing assets 9,816 9,872
Loans 90 days or more
past due and still
accruing 3,460 2,270
------- -------
Total problem assets $13,276 $12,142
======= =======
Nonaccrual loans increased primarily due to the addition of two
commercial relationships to nonaccrual during 1999. These relationships are
currently in the process of collection. Interest income that would have been
recorded on all nonaccrual loans for the year ended December 31, 1999, had they
performed according to their original terms, amounted to approximately $706,000,
compared to $457,000 for the year ended December 31, 1998. Interest income on
nonaccrual loans included in the results of operations for the years ended
December 31, 1999 and 1998, amounted to approximately $384,000 and $124,000,
respectively.
Accruing loans 90 days or more past due increased to 0.24% of gross
loans at December 31, 1999, compared to 0.16% of gross loans at December 31,
1998. The increase in accruing loans 90 days or more past due can be primarily
attributed to conforming the accounting practices of Home Federal to FCNB during
1999. Prior to 1999, loans accounted for by Home Federal were automatically
placed on nonaccrual status when they reached 90 days past due. Loans accounted
for by FCNB are reviewed and a determination is made whether to place the loan
on nonaccrual status. After the consolidation of Home Federal into FCNB, the
nonaccrual policy of FCNB has been used. Application of FCNB's method to the
Home Federal loan portfolio did not have a significant effect on the results of
operations for 1999.
Management's policy for any accruing loan greater than 90 days past due
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 use this information 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.
Other real estate decreased to $2.0 million at December 31, 1999 from
$3.5 million at December 31, 1998. The sale of several foreclosed properties and
branch properties no longer in use accounted for the $1.5 million decrease.
CREDIT ADMINISTRATION AND ALLOWANCE FOR LOAN LOSSES
All estimates of the loan portfolio risk, 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 currently uses several measures to assess and control the
loan portfolio risk. For example, all loans over a certain dollar amount must
receive an in-depth review by an analyst in the Bank's Credit Administration
department. Any issues regarding risk assessments of those credits are addressed
by the Bank's loan administration and senior credit officer and factored into
management's decision to originate or renew the loan. Furthermore, large
commitments are reviewed and approved by a Senior Loan
52
<PAGE> 58
Committee comprised of senior management, the senior credit officer and senior
lending officers of the Bank. The Loan Committee of the Board of Directors
reviews loans above predetermined amounts.
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.
As part of the continual grading process, an analysis is performed
monthly independently 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. Each grade determines the
percentage of the outstanding loan balance allocated to the loan loss reserve.
Loans with 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 Bank also aggregates the loans into pools of similar credits and
reviews the historical loss experience associated with these pools as additional
criteria to allocate the allowance to each category.
The allowance for loan losses as a percentage of gross loans
outstanding was 1.22% at December 31, 1999, compared to 1.09% at year-end 1998.
The increase in the allowance as a percentage of gross loans at December 31,
1999 compared to December 31, 1998 is largely attributable to the sale of $147.6
million in lower-yielding mortgage loans in April of 1999, for which $369,000 of
allowance for loan losses was removed at the time of the transaction. Mortgage
loans traditionally have had lower incurred losses than commercial loans.
Commercial loans originated during the year accounted for the majority of the
loans that replaced the mortgage loans sold, which also contributed to the
increase in the allowance as a percentage of gross loans. Total problem assets
as a percentage of gross loans outstanding was 0.93% at December 31, 1999,
compared to 0.85% at December 31, 1998.
Management considers the December 31, 1999 allowance for loan losses
adequate to cover losses that are estimated to have been incurred in the Bank's
loan portfolio. Management believes it has established the allowance in
accordance with generally accepted accounting principles and in consideration of
the current economic environment. While Management uses the best information
available to make evaluations, future additions to the allowance may be
necessary based on changes in economic and other conditions. Additionally,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the recognition of adjustments to the allowance based on their judgments
of information available to them at the time of their examinations.
DEPOSITS
Total deposits at December 31, 1999 were $1.1 billion, a 2.4% increase
from December 31, 1998. Demand deposits increased $3.0 million or 1.2%; and
insured money market accounts increased $57.3 million or 40.3%; while savings
deposits decreased $29.0 million or 21.5%; and certificates of deposit decreased
$4.8 million or 0.8%. Increases in demand and money market accounts were due to
marketing campaigns directed toward packaging and promoting these accounts more
effectively,
53
<PAGE> 59
while the reduction in savings and certificates of deposits were due to the
Corporation's management of interest rates paid.
OTHER BORROWINGS
Other borrowings increased $22.0 million during the year, to $491.9
million at December 31, 1999, from $469.9 million at December 31, 1998. The
components of this increase consisted of an increase of $89.8 million in FHLB
advances which was partially offset by a decrease of $67.8 million in short term
borrowings consisting primarily of federal funds purchased and securities sold
under agreements to repurchase. These borrowings were principally used to fund
loan growth.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income, the difference between total interest income and
total interest expense, is the Corporation's principal source of earnings. For
the year ended December 31, 1999, net interest income amounted to $69.4 million,
an increase of 5.4% from net interest income of $65.9 million in 1998. This was
attributable to an increase in average interest earning assets of $32.0 million
to $1.7 billion for the year ended December 31, 1999. This increase is primarily
due to the growth in the Corporation's average loan portfolio, which increased
$22.8 million. The decline in average yield on interest earning assets to 8.13%
during 1999, compared to 8.25% during 1998, resulted from the reduction in
average prime rate during 1999, from 8.31% in 1998 to 8.02% in 1999. The average
yield earned on loans was 8.50% in 1999, compared to 8.59% in 1998.
In addition to the increase in average interest earning assets, the
Corporation experienced an increase in average interest-bearing liabilities of
$60.0 million, or 4.4% from the prior year, due to the use of FHLB advances and
increases in deposits to fund loan growth. The average rate paid on interest
bearing liabilities declined during the period to 4.71% in 1999, compared to
5.16% in 1998. The average rate paid on interest-bearing deposits was 4.41% in
1999, down from 4.94% in 1998. Similarly, the rate paid on other borrowed funds
declined to 5.42% in 1999, compared to 5.64% in 1998.
The net interest margin (tax adjusted net interest income divided by
average interest-earning assets) increased somewhat to 4.21% in 1999, from 4.07%
in 1998. This reflects the impact of the Corporation's repricing of deposit
products during the year and its favorable effect on net interest margin
percentage. See "Asset-Liability Management and Interest Rate Sensitivity" for
additional discussion on the Corporation's management of rate sensitive assets
and liabilities.
PROVISION FOR LOAN LOSSES
The provision for loan losses in 1999 was $3.4 million compared to $2.4
million in 1998. The increase was due to the strong commercial loan volume the
Corporation incurred during 1999.
Net charge-offs for 1999 were $1.2 million or 0.09% of average loans
compared to $2.1 million or 0.15% of average loans in 1998. The decrease in net
charge-offs in 1999 was primarily due to certain problem loans acquired through
the merger of CSB in December 1997 which were charged off during early 1998.
NONINTEREST INCOME
Noninterest income was $18.2 million in 1999 compared to $13.7 million
in 1998, an increase of 33.4%. This increase is principally attributable to an
increase in fee income from the Bank's Insurance Agency subsidiary as well as
increases in service charge income,
54
<PAGE> 60
trust income and mortgage loan fees. For comparative purposes, the 1999 results
include total gains of $3.5 million from the sales of property and mortgage
loans, while the 1998 results include total gains of $2.4 million from the sale
of HFNC securities and the sale of the Corporation's merchant card program.
Excluding these items, noninterest income increased 30.1% from 1998 to 1999.
NONINTEREST EXPENSE
Noninterest expense decreased $13.3 million in 1999 as compared to
1998. The majority of this decrease involved merger costs of $18.2 million in
1998 primarily related to the HFNC merger. For comparative purposes, noninterest
expense, excluding the $18.2 million HFNC merger expense, increased $4.9
million, or 12.0% during 1999. Components of the current year increase included
salaries and fringe benefits, which increased $1.2 million, or 5.0%, occupancy
and equipment costs, which increased $1.4 million, or 22.0%, and marketing which
increased $1.0 million, or 72.5%. The salary and benefits costs increased due to
regular salary increases and investments in additional personnel. Occupancy and
equipment increases reflect the costs associated with additional facilities and
added technology. Marketing increases reflect the Corporation's major brand
advertising campaign designed to increase the Corporation's name recognition
throughout the greater Charlotte metropolitan region.
Total income tax expense for 1999 was $12.4 million versus $8.8 million
in 1998. The increase is attributable to an increase in taxable income for 1999
over 1998. The increase in tax expense, however, was not proportionate with the
increase in income because portions of the 1998 HFNC merger and acquisition
costs were not deductible. This created a decrease in the effective tax rate
from 48.7% in 1998 to 32.1% in 1999.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1998 VERSUS 1997
The Corporation earned $9.2 million or $0.50 diluted income per share
in 1998, a 51.8% decrease from $19.2 million or $1.03 diluted income per share
in 1997. Excluding the nonrecurring charges primarily associated with the HFNC
merger cost, 1998 earnings per share increased 19.0% to $1.19 diluted income per
share compared to $1.00 diluted income per share for 1997. Key factors
contributing to the increase in net income, excluding the nonrecurring charges,
were an increase of 9.3% in net interest income and an increase in noninterest
income of 10.6%. These increases were partially offset by an increase of 4.0% in
noninterest expense. Earnings in 1998, excluding the nonrecurring charges,
equate to a return on average assets of 1.24% for 1998, compared to 1.18% for
1997, and a return on average equity of 8.78% in 1998, versus 7.31% in 1997.
Total assets at December 31, 1998, were $1.9 billion, up 11.5% from the
level at year-end 1997. Gross loans increased 12.8% to $1.4 billion and total
deposits increased 6.0% to $1.1 billion.
At December 31, 1998, securities available for sale were $331.8 million
or 17.8% of total assets, compared to $315.6 million, or 18.9% of total assets,
at year-end 1997. The fair value of these assets was approximately $10.4 million
and $9.0 million above their amortized cost at December 31, 1998 and 1997,
respectively. The tax equivalent average yield on the securities available for
sale portfolio was 6.93% for 1998 and 6.72% for 1997. The average life of the
portfolio was 9.45 years at December 31, 1998 compared to 10.06 years at
year-end 1997.
55
<PAGE> 61
The loan portfolio at December 31, 1998 was composed of 6.6%
commercial, financial, and agricultural loans, 12.7% real estate construction
loans, 75.7% real estate mortgage loans, and 5.0% installment loans. This
compares to a composition of 6.4% commercial, financial, and agricultural, 10.5%
real estate construction, 76.1% real estate mortgage, and 7.0% installment at
December 31, 1997.
Problem assets at December 31, 1998 were $12.1 million, or 0.85% of
gross loans and foreclosed properties, compared to $12.8 million, or 1.02% at
December 31, 1997. The components of problem assets are presented in the table
below:
December 31, December 31,
(Dollars in thousands) 1998 1997
- -----------------------------------------------------
Nonaccrual loans $ 5,758 $ 6,119
Restructured loans 577 587
Other real estate 3,537 4,006
------- -------
Total non-
performing assets 9,872 10,712
Loans 90 days or more
past due and still
accruing 2,270 2,109
------- -------
Total problem assets $12,142 $12,821
======= =======
Interest income that would have been recorded on nonaccrual loans for
the years ended December 31, 1998 and 1997, had they performed according to
their original terms, amounted to approximately $457,000 and $767,000,
respectively. Interest income on nonaccrual loans included in the results of
operations for the years ended December 31, 1998 and 1997, amounted to
approximately $124,000 and $383,000, respectively.
Accruing loans 90 days or more past due decreased to 0.16% of gross
loans at December 31, 1998 compared to 0.17% of gross loans at December 31,
1997.
Net charge-offs for 1998 were $2.1 million or 0.15% of average loans
compared to $1.8 million or 0.16% of average loans in 1997.
Other real estate decreased to 3.5 million at December 31, 1998 from
$4.0 million at December 31, 1997. The primary reason for the $0.5 million
decrease is due to the sale of several foreclosed properties during 1998 which
was partially offset by the reclassification of property totaling $553,000 that
was originally purchased for the construction of a branch location. Management
decided not to construct a branch on this property; and therefore, the carrying
value of this property was reclassified from premises and equipment to other
real estate. Additionally, two residential construction loans were foreclosed in
December 1998.
Total deposits at December 31, 1998 were $1.1 billion, a 6.0% increase
from a 1997 year-end level. Demand deposits increased $37.5 million or 17.5%;
insured money market accounts increased $28.8 million or 25.4%; savings deposits
decreased $3.3 million or 2.5%; and certificates of deposit decreased $5.9
million or 1.0%. Increases in demand and money market accounts were due to
marketing campaigns directed toward packaging and promoting these accounts more
effectively, while the reduction in certificates of deposits was due to the
Corporation's management of interest rates paid as the certificates matured
during 1998.
For the year ended December 31, 1998, net interest income was $65.9
million, an increase of 9.3% from net interest income of $60.3 million in 1997.
The increase is attributable to an increase in average interest earning assets
of $178.3 million from $1.5 billion during 1997 to approximately $1.7 billion
during 1998. The net interest margin (tax adjusted net interest income divided
by average interest earning assets) declined somewhat to 4.07% in 1998 from
4.12% in 1997.
56
<PAGE> 62
The average yield on interest-earning assets was 8.25% in 1998 compared
to 8.28% in 1997. The average rate paid on interest-bearing liabilities was
5.16% in 1998, compared to 5.12% in 1997. The average yield earned on loans was
8.59% in 1998, compared to 8.83% in 1997. The average rate paid on
interest-bearing deposits was 4.94% in 1998, from 4.91% in 1997.
The provision for loan losses for 1998 was $2.4 million compared to
$2.7 million in 1997. The decrease in the provision was due to an incremental
$1.4 million provision for loan losses in 1997 for loans specifically identified
in the CSB loan portfolio which were deemed to have impairment losses, and, in
some cases, required charging off. When excluding the effect of this prior year
incremental provision, the current year provision increased over 1997 largely
due to growth in the Bank's loan portfolio.
Noninterest income was $13.7 million in 1998 compared to $15.1 million
in 1997, for an increase of 9.5%. The decrease in other noninterest income is
attributable to reduced securities gains in 1998 as compared to the prior year.
Security sales were reduced during 1998, reducing the amount of related gains to
$2.2 million in 1998 compared to $5.7 million in 1997. The improvement in other
noninterest income included increases in service charge income, trust income and
mortgage loan fees. In addition, the Corporation recorded a one-time gain during
1998 of approximately $450,000 from the sale of its merchant card program.
Excluding the $18.2 million in nonrecurring costs associated with the
1998 merger with HFNC and the $3.4 million in nonrecurring costs associated with
the 1997 merger with CSB, total noninterest expense in 1998 was $41.0 million,
compared to $39.4 million in 1997, representing a 4.0% increase. The increase
was primarily attributable to increases in costs associated with salaries and
benefits, occupancy and equipment and other noninterest expense.
Salaries and fringe benefits increased $1.2 million, or 5.4%, primarily
due to regular salary increases and investment in additional personnel, as well
as the increased commissions paid on higher levels of mortgage and brokerage
activity.
Occupancy and equipment increased approximately $769,000 or 14.1%. A
primary reason for the increase is due to an increase in depreciation expense in
connection with the local area network (LAN) and the wide area network (WAN)
which were added in mid-1996. This technology continues to improve the Bank's
ability to service loan and deposit customers and to gain greater operating
efficiency. Additionally, with the Bank's continued growth, additional office
space was required. The Corporation entered into several leasing agreements for
office space.
Total income tax expense for 1998 was $8.8 million versus $10.8 million
in 1997. The decrease is attributable to a decrease in taxable income resulting
from the merger expenses. The reduction in tax expense, however, was not
proportionate with the reduction in income because portions of the merger and
acquisition costs were not deductible. This created an increase in the effective
tax rate from 36.0% in 1997 to 48.7% in 1998. The 1997 rate was likewise higher
than the Corporation's "normal" tax rate due to similar nondeductible costs
associated with its 1997 merger with CSB.
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
57
<PAGE> 63
that such instruments be carried at fair market value through adjustments to
either other comprehensive income or current earnings or both, as appropriate.
The Standard was originally effective for financial statements issued for all
fiscal quarters of fiscal years beginning after June 15, 1999. The
implementation date of the Standard was delayed to quarters of fiscal years
beginning after June 15, 2000 by the Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133". The Corporation is in
the process of assessing the impact of this Standard.
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. The Corporation adopted this standard in the first quarter of
1999; its effect on the Corporation was not material.
From time to time, the Financial Accounting Standards Board (FASB) also
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 statements of the Corporation and
monitors the status of changes to issued exposure drafts and to proposed
effective dates.
In 1999, the President of the United States signed into law the
Gramm-Leach-Bliley Financial Modernization Act of 1999 ("Modernization Act").
The Modernization Act allows bank holding companies meeting management, capital
and Community Reinvestment Act standards to engage in substantially broader
range of traditionally nonbanking activities than was permissable before
enactment, including insurance underwriting and making merchant banking
investments in commercial and financial companies. It also allows insurers and
other financial services companies to acquire banks; removes various
restrictions that currently apply to bank holding company ownership of
securities firms and mutual fund advisory companies; and establishes the overall
regulatory structure applicable to bank holding companies that also engage in
insurance and securities operations. This part of the Modernization Act will
become effective 120 days after enactment. The Corporation currently believes it
meets the requirements for the broader range of activities that will be
permitted by the Modernization Act.
In addition, the Modernization Act also modifies current law related to
financial privacy and community reinvestment. The new privacy provisions
generally will prohibit financial institutions from disclosing nonpublic
personal financial information to nonaffiliated third parties unless the
customer has the opportunity to decline disclosure.
YEAR 2000
The Corporation successfully addressed the Year 2000 issue through
implementation of a systematic, disciplined plan. Other than the time and costs
involved in preparing for Year 2000, the Company is not aware of any negative
consequences involving the Company itself, its vendors, or its customers as a
result of the Y2K issue.
LEGAL PROCEEDINGS
In June 1995, a lawsuit was initiated against Home Federal by a borrower's
affiliated companies in which the plaintiffs
58
<PAGE> 64
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 plaintiff has
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 in prior
litigation. In April 1997, 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
corporations, claiming that officers of Home Federal promised to resume making
loans to her husband's corporation after the payment. Home Federal and its
officers vigorously denied all of her allegations. Home Federal filed a motion
for summary judgment and dismissal of the counterclaim. The motion for summary
judgment was heard in the Superior Court division of the Mecklenburg County
General Court of Justice in April 1998. 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. In April 1999, Home Federal moved for summary
judgement to dismiss the counterclaims. At a hearing in May 1999, the Bankruptcy
Judge granted part and denied part of Home Federal's Motion for Summary
Judgement. The Judge dismissed the wife's counterclaim for breach of fiduciary
duty, but allowed her claim for fraud to continue. The borrower, his wife and
daughter filed a motion for jury trial. The request was not filed within the
time allowed; however, the Judge may, in his discretion, order a jury trial. We
have filed an objection to the request and a hearing on the motion is scheduled
for April 4, 2000. A trial date has not been set; however, we anticipate a trial
within 90 days. Home Federal believes it has strong defenses to the defendant's
counterclaim.
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,
59
<PAGE> 65
constructive fraud, interference with business expectancy, wrongful bank
account set-off, and unfair and deceptive acts and practices. The action pending
in the bankruptcy court has been stayed. All defendants filed motions for
summary judgment in the state court action which were 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. In early June 1999, the United States Bankruptcy court
entered its Memorandum Decision and Order adopting the State Court dismissal of
the lawsuit. In late June 1999, the plaintiff gave notice of appeal which Home
Federal is opposing. The appeal is pending. On February 12, 2000, the borrower
filed a motion to close his bankruptcy case and remand the action to State
Court. We filed an objection to the motion. At a hearing on March 7, 2000, the
Judge denied the borrower's request to close the case and denied the borrower's
motion to remand to State Court. The Corporation is bound by Home Federal's
agreement 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 are
seeking 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. In
February 1999, the United States District Court entered an Order sanctioning the
attorneys for the plaintiffs and ordering that the plaintiff be prohibited from
filing any further action or proceeding in the United States District Court for
the Western District of North Carolina arising from facts involved in this
matter. The Plaintiff appealed the entry of that order. On March 6, 2000, the
United States Court of Appeals for the 4th Circuit ruled against the borrower on
both appeals and affirmed the District Court's opinion.
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.
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.
60
<PAGE> 66
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.
61
<PAGE> 67
OFFICERS & DIRECTORS
FIRST CHARTER CORPORATION BOARD OF DIRECTORS
William R. Black, M.D. Oncologist - Carolina Oncology Associates
Michael R. Coltrane President, CEO - CT Communications, Inc.
Vice Chairman - First Charter Corporation
J. Roy Davis, Jr. Owner - S&D Coffee, Inc.
Chairman - First Charter Corporation
John J. Godbold, Jr. Retired
Charles F. Harry, III President - Grover Industries, Inc.
Frank H. Hawfield, Jr. Owner, President - Firestone Home and Auto
Lawrence M. Kimbrough President, CEO -
First Charter Corporation
and First Charter National Bank
Jerry E. McGee President - Wingate University
Hugh H. Morrison President - E.L. Morrison Lumber Company
Thomas R. Revels Healthcare Consultant
FIRST CHARTER CORPORATION OFFICERS
President and Chief Executive Officer
Lawrence M. Kimbrough
Executive Vice President, Chief Operating Officer
and Chief Financial Officer
Robert O. Bratton
Executive Vice President
Phillip M. Floyd Robert G. Fox, Jr. Robert E. James, Jr.
C. Thomas McFarland Stephen M. Rownd
Senior Vice President
Laura N. Blalock Bobby D. Doby, Jr. James T. Mathews, Jr.
Vice President and Chief Auditor
William O. Turner
Corporate Secretary
James W. Townsend, Jr.
Assistant Corporate Secretary
Rose W. Edwards Anne C. Forrest David E. Keul
Assistant Treasurer
David E. Keul
FIRST CHARTER NATIONAL BANK BOARD OF DIRECTORS
William R. Black, M.D. Oncologist - Carolina Oncology Associates
Michael R. Coltrane President, CEO - CT Communications, Inc.
Vice Chairman - First Charter National Bank
J. Roy Davis, Jr. Owner - S&D Coffee, Inc.
Chairman - First Charter National Bank
John J. Godbold, Jr. Retired
H. Clark Goodwin Retired
Charles F. Harry, III President - Grover Industries, Inc.
Frank H. Hawfield, Jr. Owner, President - Firestone Home and Auto
Lawrence M. Kimbrough President, CEO -
First Charter Corporation
and First Charter National Bank
Jerry E. McGee President - Wingate University
Ellen L. Messinger Private Investor - Messinger, Inc.
Hugh M. Morrison President - E.L. Morrison Lumber Company
Thomas R. Revels Healthcare Consultant
FIRST CHARTER NATIONAL BANK OFFICERS
<TABLE>
<S> <C> <C> <C>
President and Executive Vice President Bobby D. Doby, Jr. Jerold L. Marlow
Chief Executive Officer J. Harold Barnes, Jr. Thomas J. Elkins James T. Mathews, Jr.
Lawrence M. Kimbrough Phillip M. Floyd Patricia M. Gosnell Danny H. Patton
Robert G. Fox, Jr. Kathleen M. Harris Darren M. Radson
Group Executive Vice President Patricia K. Horton Robert L. Sands
Robert O. Bratton Senior Vice President Phillip R. Jurney J. Kevin Toomb
Robert E. James, Jr. Laura N. Blalock Donna J. Kenney J. W. Townsend, Jr.
C. Thomas McFarland Lisa B. Boylen David E. Keul Will Weill, III
Stephen M. Rownd James L. Brewer Richard H. Lester L. Eugene Willard
Kenneth W. Caldwell Earl H. Lutz, Jr. John M. Woods
Jerrell M. Deaver, Jr. Richard A. Manley
</TABLE>
62
<PAGE> 68
OFFICERS & DIRECTORS
FIRST CHARTER NATIONAL BANK OFFICER (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Vice President Deborah W. Craig Donel T. Holcomb* Matthew M. Page
Harvey E. Baker Travis B. Edwards David E. Keul* James Rhodes
John R. Baker Cathy H. Faucette Earl H. Lutz, Jr.* Andria C. Rhymer
Thomas W. Bennett Anne C. Forrest Lynn A. McDaniel Katherine L. Schiele
Michael A. Brejda Crystal D. Funches Judy E. Montague Renata C. Schoner
Steven C. Calhoun Laurie A. Gagliano Lisa C. Parker* Earl C. Schooley
Julie J. Carter Jennifer M. Gragg Patricia E. Pate Deborah J. Thomas
Jo-Ann L. Copeland Jan G. Griffin Andria C. Rhymer* Loretta T. Thomas
E. Stephen Costner Sharon J. Hanson Tammy D. Scruggs* Matthew J. Triplett
Deborah R. Deese Robin T. Hinson E. Taylor Vickrey
Brian J. Doran Karen F. Hodge Chief Auditor Jeffrey B. Ward
C. Eugene Efird, Jr. Brian A. Ingold William O. Turner*
Kenneth L. Frie Steven C. Koman Trust Officer
Linda S. Gibson Teresa A. Laskey Banking Officer Paul M. Anderson
R. Dwight Henry Robin S. Leslie Debbie B. Alexander Michael S. Johnson*
D. Jean Hovis Sandra J. Mansur Angel M. Anderson Craig E. Kamis*
Michael S. Johnson Kevin J. Mason Wendy T. Barnhardt Eric C. Radford
Douglas L. Joyce Jesse F. Milliken Alisa R. Baucom Nancy B. Smith
Craig E. Kamis Mary T. Morgan Kati W. Beaver Danny H. Patton*
Brenda K. Kinley Dawn W. O'Dell Leah P. Berry
Carl T. Larson Lisa C. Parker Tamara C. Brewer
Gary J. Ma Renae M. Plattenberger Damon A. Cahill Assistant Trust Officer
Eleanor M. McIntire Philip Presson Deborah Starr Cloninger Carolyn M. Craver
Nancy L. Mills Elizabeth G. Quesenberry James R. Cooper
Michael J. Mittelman Marilyn L. Robertson Kathleen M. Erickson First Charter Insurance Services
Kevin T. Morgan SueAnn Schoening James A. Fletcher Clarkson B. McLean, President/CEO
Jeffrey C. Mylton Gordon M. Stallings Gail B. Fox Robert C. Boyd, Senior Vice President
Linda V. Ritter Linda H. Thomas Melba M. Funderburk Jonathan W. Cooper,
Tammy D. Scruggs Nancy S. Verble Donna B. Glover Senior Vice President/Secretary
Arnold B. Sharar Michelle L. Yagiel William S. Gray Richard H. Martin, Vice President
Gregory R. Silliman JoAnn J. Hall Joseph D. Trull, Vice President
Gary L. Slusser Corporate Secretary Connie S. Harris David E. Keul, Treasurer/Asst. Secretary
Russel D. Sprehe J.W. Townsend, Jr.* Sheryl R. Hinson
James E. Steere, III Cheryl S. Hurlocker First Charter Brokerage Services
William W. Swink Assistant Corporate Secretary Mercedes D. Ikard Phillip M. Floyd, President/CEO/Secretary
William O. Turner Cheryl P. Barbee* Richard E. James Ronnie L. Franks, Vice President
Lawrence S. Weir, III Patricia H. Blackwell* Juan R. King Michael E. Lenahan, Vice President
Mark R. Wellner Lisa P. Bryant Brian R. Kiser Nancy L. Mills, Vice President
Charles H. Wingo Mary S. Collins Kathryn W. Kluttz Harvey F. Whitley, Vice President
Rose W. Edwards Christopher B. Leazer David E. Keul, Treasurer/Asst. Secretary
Assistant Vice President Amy P. Elam Gayle S. Love
Cheryl P. Barbee Kathleen M. Erickson* Angela R. Lovelace
Patricia H. Blackwell Phillip M. Floyd* Paul A. Lyle
Bridgette M. Boggs Anne C. Forrest* Tammy S. Merck
Joyce S. Broome Gail B. Fox* Irvin L. Moore
Elizabeth L. Cline Jan G. Griffin* Mavadell D. Newsome * Indicates Duplicate Position
</TABLE>
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<PAGE> 69
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 LLP
Suite 2300
401 S. Tryon Street
Charlotte, NC 28202-1911
CORPORATE COUNSEL
Smith Helms Mulliss & Moore, L.L.P.
30th Floor
201 N. Tryon Street
Charlotte, NC 28202
SUBSIDIARY
First Charter National Bank
PO Box 228
Concord, NC 28026-0228
STOCK LISTING
The NASDAQ National Market
Symbol: FCTR
MARKET MAKERS
Dean Witter Reynolds, Inc.
Interstate/Johnson Lane Corporation
Legg Mason Wood Walker, Inc.
Robinson-Humphrey Company, LLC
Trident Securities
Wheat First Securities, Inc.
TRANSFER AGENT
Registrar and Transfer Company
SHAREHOLDERS' MEETING
Oasis Auditorium at University Place
604 Daniel Burham Way
Charlotte, NC 28262
June 6, 2000 at 5:00 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, no par value (the "Common Stock"), is
reported on The Nasdaq Stock Market as a National Market Security 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. The table also sets
forth per share cash dividend information for the periods indicated (as adjusted
for the stock split). 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 March 22, 2000, there were 5,191 shareholders of record of the
Corporation's Common Stock.
QUARTERLY COMMON STOCK PRICE RANGES AND DIVIDENDS
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
QUARTER High Low Dividend High Low Dividend
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $19.125 $ 16.375 $ 0.170 $ 26.25 $ 23.00 $ 0.140
- -------------------------------------------------------------------------------------------------
Second 24.750 18.125 0.170 27.00 18.75 0.150
- -------------------------------------------------------------------------------------------------
Third 24.875 17.125 0.170 25.63 18.38 0.150
- -------------------------------------------------------------------------------------------------
Fourth 19.625 14.000 0.170 19.50 12.50 0.170
- -------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE> 70
[PHOTO]
J. Kevin Toomb, Kathleen M. Harris,
James T. Mathews, Jr., Phillip M. Floyd,
David E. Keul
[PHOTO]
Darren M. Radson, Bobby D. Doby, Jr.,
Anne C. Forrest, William O. Turner,
Richard A. Manley
[PHOTO]
Jerold L. Marlow
Clarkson B. McLean
Patricia K. Horton
Laura N. Blalock
Robert G. Fox, Jr.
65
<PAGE> 71
FIRST CHARTER
CORPORATION
P.O. Box 228, Concord, NC 28026-0228
ww.firstcharter.com
<PAGE> 1
EXHIBIT 21.1
<PAGE> 2
Exhibit 21.1
FIRST CHARTER CORPORATION
Affiliated Companies
As of March 29, 2000
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
First Charter Brokerage Services (1)
First Charter Insurance Services (1)
First Charter Realty Investment, Inc. (1)
FCNB Real Estate, Inc. (2)
(1) Owned by First Charter National Bank
(2) Owned by First Charter Realty Investment, Inc.
<PAGE> 1
EXHIBIT 23.1
<PAGE> 2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Charter Corporation:
We consent to incorporation by reference in the registration statements of First
Charter Corporation (the Corporation) on Form S-4 (No. 333-95003), the
registration statements on Forms S-3 (Nos. 333-60641 and 333-71495) and the
registration statements on Forms S-8 (Nos. 333-43617, 333-54019, 333-54021,
333-54023, 333-60949, and 333-71497), of our report dated January 18, 2000,
relating to the consolidated balance sheets of First Charter Corporation and
subsidiaries as of December 31, 1999 and 1998, 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, 1999, which report appears in the
1999 Annual Report to Shareholders and is incorporated by reference in the 1999
Annual Report on Form 10-K of First Charter Corporation.
KPMG LLP
Charlotte, North Carolina
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST CHARGER CORPORATION FOR THE YEAR ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> DEC-31-1999
<CASH> 59,967
<INT-BEARING-DEPOSITS> 1,995
<FED-FUNDS-SOLD> 665
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 342,136
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,426,495
<ALLOWANCE> 17,339
<TOTAL-ASSETS> 1,894,317
<DEPOSITS> 1,149,512
<SHORT-TERM> 213,955
<LIABILITIES-OTHER> 25,117
<LONG-TERM> 278,021
0
0
<COMMON> 99,905
<OTHER-SE> 127,807
<TOTAL-LIABILITIES-AND-EQUITY> 1,894,317
<INTEREST-LOAN> 116,834
<INTEREST-INVEST> 19,480
<INTEREST-OTHER> 403
<INTEREST-TOTAL> 136,717
<INTEREST-DEPOSIT> 44,371
<INTEREST-EXPENSE> 22,898
<INTEREST-INCOME-NET> 69,448
<LOAN-LOSSES> 3,350
<SECURITIES-GAINS> 1,158
<EXPENSE-OTHER> 45,869
<INCOME-PRETAX> 38,442
<INCOME-PRE-EXTRAORDINARY> 38,442
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,092
<EPS-BASIC> 1.45
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 4.17
<LOANS-NON> 7,738
<LOANS-PAST> 3,460
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,554
<CHARGE-OFFS> 1,915
<RECOVERIES> 719
<ALLOWANCE-CLOSE> 17,339
<ALLOWANCE-DOMESTIC> 17,339
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
