FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15829
FIRST CHARTER CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-1355866
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
22 Union Street, North, Concord, North Carolina 28025
(Address of principal executive offices) (Zip Code)
(704) 786-3300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
6,284,990 shares of Common Stock, $5.00 par value, outstanding as of May
14, 1996.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
Unaudited
Cash and due from banks . . . . . . . . . . . $ 30,100,308 $ 30,642,072
Federal funds sold . . . . . . . . . . . . . 1,625,844 --
Interest bearing time deposits . . . . . . . 500,000 3,000,000
Securities available for sale:
U.S. Government obligations . . . . . . . . 23,645,723 23,363,185
U.S. Government agency obligations . . . . 23,941,193 26,523,683
Mortgage-backed securities . . . . . . . . 17,240,327 18,289,995
State and municipal obligations, nontaxable 61,524,002 59,052,874
Other . . . . . . . . . . . . . . . . . . . 5,241,015 5,128,031
Total securities available for sale . . . 131,592,260 132,357,768
Loans . . . . . . . . . . . . . . . . . . . . 344,921,516 333,038,730
Less: Unearned income . . . . . . . . . . . (251,686) (295,701)
Allowance for loan losses . . . . . . (4,985,040) (4,855,540)
Loans, net . . . . . . . . . . . . . . . 339,684,790 327,887,489
Premises and equipment, net . . . . . . . . . 9,973,069 9,833,489
Other assets . . . . . . . . . . . . . . . . 6,109,592 5,674,487
Total assets . . . . . . . . . . . . . . $ 519,585,863 $ 509,395,305
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits, domestic:
Demand . . . . . . . . . . . . . . . . . . $ 73,084,926 $ 72,285,910
NOW accounts . . . . . . . . . . . . . . . 67,167,724 66,813,791
Time . . . . . . . . . . . . . . . . . . . 294,418,767 275,956,530
Total deposits . . . . . . . . . . . . . 434,671,417 415,056,231
Other borrowings . . . . . . . . . . . . . . 25,645,046 35,262,202
Other liabilities . . . . . . . . . . . . . . 4,850,047 5,652,799
Total liabilities . . . . . . . . . . . . 465,166,510 455,971,232
Shareholders' equity:
Common stock - $5 par value; authorized,
10,000,000 shares; issued and outstanding,
6,270,438 shares at 3/31/96 and 6,236,014
shares at 12/31/95 . . . . . . . . . . . . 31,352,190 31,180,070
Additional paid-in capital . . . . . . . . . 234,944 --
Unrealized gain on securities available
for sale . . . . . . . . . . . . . . . . . 1,029,736 1,666,036
Retained earnings . . . . . . . . . . . . . . 21,802,483 20,577,967
Total shareholders' equity . . . . . . . 54,419,353 53,424,073
Total liabilities and shareholders' equity $519,585,863 $ 509,395,305
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For Three Months Ended
March 31, March 31,
Interest Income: 1996 1995
Interest and fees on loans . . . . . . . . . . . . . . . $ 7,912,787 $ 6,867,925
Federal funds sold . . . . . . . . . . . . . . . . . . . 12,775 35,588
Securities available for sale:
U.S. Government obligations . . . . . . . . . . . . . . 384,553 286,118
U.S. Government agency obligations . . . . . . . . . . 445,152 175,807
Mortgage-backed securities . . . . . . . . . . . . . . 232,323 81,175
State and municipal obligations, nontaxable . . . . . . 782,291 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . 67,993 46,517
Investment securities:
U.S. Government obligations . . . . . . . . . . . . . . -- 81,450
U.S. Government agency obligations . . . . . . . . . . -- 143,277
Mortgage-backed securities . . . . . . . . . . . . . . -- 261,589
State and municipal obligations, nontaxable . . . . . . -- 609,974
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 79,523 62,701
Total interest income . . . . . . . . . . . . . . . . 9,917,397 8,652,121
Interest Expense:
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . 320,674 311,143
Money Market . . . . . . . . . . . . . . . . . . . . . 282,812 305,834
Savings and Time . . . . . . . . . . . . . . . . . . . 3,320,494 2,398,042
Other borrowings . . . . . . . . . . . . . . . . . . . . 336,659 249,003
Total interest expense . . . . . . . . . . . . . . . 4,260,639 3,264,022
Net interest income . . . . . . . . . . . . . . . . . 5,656,758 5,388,099
Provision for loan losses . . . . . . . . . . . . . . . . 320,000 265,000
Net interest income after provision for loan losses . 5,336,758 5,123,099
Noninterest income:
Trust income . . . . . . . . . . . . . . . . . . . . . . 344,570 317,770
Service charges on deposit accounts . . . . . . . . . . . 629,609 582,776
Credit card income . . . . . . . . . . . . . . . . . . . 79,676 4,967
Insurance and other commissions . . . . . . . . . . . . . 47,944 54,543
Securities available for sale transactions, net . . . . . 3,591 28,611
Investment securities transactions, net . . . . . . . . . -- 4,298
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 270,353 168,590
Total noninterest income . . . . . . . . . . . . . . 1,375,743 1,161,555
Noninterest expense:
Salaries and fringe benefits . . . . . . . . . . . . . . 2,051,173 1,962,530
Occupancy and equipment . . . . . . . . . . . . . . . . . 527,523 503,108
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,038,021 1,110,106
Total noninterest expense . . . . . . . . . . . . . . 3,616,717 3,575,744
Income before income taxes . . . . . . . . . . . . . 3,095,784 2,708,910
Income taxes . . . . . . . . . . . . . . . . . . . . . . 930,500 807,100
Net Income . . . . . . . . . . . . . . . . . . . . . $ 2,165,284 $ 1,901,810
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
EARNINGS PER SHARE DATA (Unaudited)
For Three Months Ended
March 31, March 31,
1996 1995
Primary income per share data:
Net income . . . . . . . . . . . . . . . . . . . . . . $0.34 $0.30
Average common equivalent shares . . . . . . . . . . . 6,309,620 6,271,755
Income per share data assuming full dilution:
Net income . . . . . . . . . . . . . . . . . . . . . . $0.34 $0.30
Average common equivalent shares . . . . . . . . . . . 6,309,620 6,272,857
Cash dividends declared . . . . . . . . . . . . . . . . . $0.15 $0.13
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
For The Three Months Ended March 31, 1996
Unrealized
Gains
(Losses)
on
Add'l Securities
Common Paid-in Retained Available
Stock Capital Earnings for Sale Total
Balance, December 31, 1995... $ 31,180,070 $ -- $ 20,577,967 $ 1,666,036 $ 53,424,073
Net income for the
three months ended
March 31, 1996.............. -- -- 2,165,284 -- 2,165,284
Cash dividends of $.15
per share................... -- -- (940,567) -- (940,567)
Purchase and retirement
of 1,169 shares of
common stock................ (5,845) (18,121) -- -- (23,966)
Stock options exercised
and Dividend Reinvestment
Plan stock issued totaling
35,593 shares............... 177,965 253,065 (201) -- 430,829
Unrealized loss on
securities available
for sale.................... -- -- -- (636,300) (636,300)
Balance, March 31, 1996...... $ 31,352,190 $234,944 $ 21,802,483 $ 1,029,736 $54,419,353
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For Three Months Ended
March 31,1996 March 31,1995
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,165,284 $ 1,901,810
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . 320,000 265,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . 244,336 222,725
Premium amortization and discount accretion, net . . . . 10,064 (48,240)
Net gain on investment securities transactions . . . . . -- (4,298)
Net gain on securities available for sale transactions . (3,591) (28,611)
Net loss on sale of premises and equipment . . . . . . . -- 2,477
Origination of mortgage loans held for sale . . . . . . (4,407,618) (3,056,783)
Proceeds from sale of mortgage loans available for sale . 3,941,186 2,756,406
Decrease (increase) in other assets . . . . . . . . . . (24,626) 69,904
Decrease in other liabilities . . . . . . . . . . . . . (814,275) (405,340)
Net cash provided by operating activities . . . . . . 1,430,760 1,675,050
Cash flows from investing activities:
Proceeds from maturities of interest bearing time deposits 2,500,000 1,000,000
Proceeds from sales of investment securities . . . . . . . -- 1,725,292
Proceeds from sales of securities available for sale . . . 394,341 8,560,782
Proceeds from maturities and issuer calls of
investment securities, net . . . . . . . . . . . . . . . -- 11,899,213
Proceeds from maturities of securities available for sale . 3,996,512 4,169,094
Purchase of investment securities . . . . . . . . . . . . -- (11,154,139)
Purchase of securities available for sale . . . . . . . . (4,636,791) (8,234,906)
Net increase in loans . . . . . . . . . . . . . . . . . . (11,715,869) (6,388,214)
Proceeds from sales of premises and equipment . . . . . . -- 8,125
Purchase of premises and equipment . . . . . . . . . . . . (383,916) (601,592)
Net cash provided (used) in investing activities . . (9,845,723) 983,655
Cash flows from financing activities:
Net increase in demand, NOW, money market and
savings accounts . . . . . . . . . . . . . . . . . . . . 3,142,507 893,219
Net increase in certificates of deposit . . . . . . . . . 16,472,679 2,393,041
Net decrease in other borrowings . . . . . . . . . . . . . (9,617,156) (4,056,381)
Net increase in advances for taxes and insurance . . . . . 34,717 16,874
Purchase of common stock . . . . . . . . . . . . . . . . . (23,966) (352,561)
Proceeds from issuance of common stock . . . . . . . . . . 430,829 137,011
Pre-merger transactions of pooled bank . . . . . . . . . . -- 10,500
Dividends paid . . . . . . . . . . . . . . . . . . . . . . (940,567) (603,071)
Net cash provided (used) by financing activities . . 9,499,043 (1,561,368)
Net increase in cash and cash equivalents . . . . . . . . 1,084,080 1,097,337
Cash and cash equivalents at beginning of period . . . . . 30,642,072 26,500,086
Cash and cash equivalents at end of period . . . . . . . . $ 31,726,152 $27,597,423
(Continued)
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For three Months Ended
March 31,1996 March 31,1995
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,107,656 $ 3,256,352
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 43,500 $ 26,971
Supplemental disclosure of non-cash transactions:
Transfer of loans, premises and equipment to other
real estate owned . . . . . . . . . . . . . . . . . . . $ 117,000 $ --
Unrealized gains (loss) in value of securities available
for sale (net of tax effect of ($368,673) and $254,003
for 3/31/96 and 3/31/95, respectively) . . . . . . . . . $ (636,300) $ 417,967
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
1. All financial data has been adjusted to reflect the acquisition of Bank
of Union in December 1995 which was accounted for as a pooling of
interests.
2 Primary earnings per share and income per share assuming full dilution
are computed based on the weighted average number of shares outstanding
during the period, including Common Stock equivalent shares applicable to
stock options, assuming the exercise of outstanding stock options at
market value per share.
3. In certain instances, amounts reported in the 1995 financial statements
have been reclassified to present them in the format selected for 1996.
Such reclassifications have no effect on net income or shareholders'
equity as previously reported.
4. The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to present a fair statement
of the financial condition and the results of operations for the interim
period. All such adjustments were of a normal recurring nature.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated balance sheets of First Charter Corporation (the
"Corporation") represent account balances for the Corporation and its wholly
owned banking subsidiaries, First Charter National Bank (the "FCNB") and Bank of
Union ("Union").
LIQUIDITY
FCNB and Union (the "Banks") derive the major source of their liquidity
from their core deposit base. Liquidity is further provided by maturities in
the investment portfolios, the ability to secure public deposits, the
availability of Federal fund lines at correspondent banks and the ability to
borrow from the Federal Reserve Bank discount window. In addition to these
sources, the Banks are members of the Federal Home Loan Bank ("FHLB") System
which provides access to FHLB lending sources. Another source of liquidity is
the securities available for sale portfolios which may be sold in response to
liquidity needs. Management believes the Banks' sources of liquidity are
adequate to meet operating needs and deposit withdrawal requirements.
CAPITAL RESOURCES
At March 31, 1996, total shareholders' equity was $54,419,353, or $8.68
per share compared to $53,424,073, or $8.57 per share at December 31, 1995.
At March 31, 1996, the Corporation and the Banks were in compliance with
all existing capital requirements. The Corporation's capital requirements are
summarized in the table below:
Risk-Based Capital
Leverage Capital Tier 1 Capital Total Capital
Amount %(1) Amount %(2) Amount %(2)
(Dollars in thousands)
Actual $ 53,269 10.27% $53,269 13.64% $58,152 14.89%
Required 20,737 4.00 15,625 4.00 31,250 8.00
Excess 32,532 6.27 37,644 9.64 26,902 6.89
(1) Percentage of total adjusted assets. The FRB minimum leverage ratio
requirement is 3% to 5%, depending on the institution's composite rating as
determined by its regulators. The FRB has not advised the Corporation of any
specific requirements applicable to it.
(2) Percentage of risk-weighted assets.
REGULATORY RECOMMENDATIONS
Management is not presently aware of any current recommendations to the
Corporation or to the Banks by regulatory authorities which, if they were to be
implemented, would have a material effect on the Corporation's liquidity,
capital resources, or operations.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net income for the three month period ended March 31, 1996 was
$2,165,284, or $0.34 share versus $1,901,810, or $0.30 per share for the
comparable period in 1995 which represents a 13.9% increase. The increase is
primarily attributable to increases in net interest income and noninterest
income. On an annualized basis, year to date results represent a return on
average assets of 1.71% versus 1.76% and a return on average equity of 15.88%
versus 15.91%, for the periods ended March 31, 1996 and March 31, 1995,
respectively.
Total assets at March 31, 1996 were $519,585,863 compared to $509,395,305
at December 31, 1995. Loan demand was strong during the first three months of
1996. As a result, gross loans increased 3.6% to $344,921,516 from $333,038,730
at December 31, 1995. Total deposits increased 4.7% to $434,671,417 from
$415,056,231 at December 31, 1995. During the first quarter of 1996,
certificates of deposits increased primarily due to an addition of $12.0 million
public deposits.
Securities available for sale totaled $131,592,260 at March 31, 1996 for
a slight decrease of approximately $0.8 million from December 31, 1995. The
decrease was primarily due to a pre-tax reduction of unrealized gains of
approximately $1.0 million, resulting from an overall upward shift in the
treasury yield curve during the latter part of the first quarter of 1996.
Proceeds from sales, maturities and paydowns in the securities available for
sale portfolio were used to fund increased loan demand and to reinvest in
additional securities. The carrying value of securities available for sale was
$1,688,091 above their amortized cost at March 31, 1996 which represents gross
unrealized gains of $3,218,869 and gross unrealized losses of $1,530,778.
For the three month period ended March 31, 1996, net interest income
before provision for loan losses increased $268,659, over the comparable period
in 1995. The increase is primarily attributable to an increase in the level of
interest earning assets, which was partially offset by escalating interest
expense (both volume and rate.) The net interest margin declined to 5.11% at
March 31, 1996 from 5.62% at March 31, 1995. The average yield on earning
assets was 8.72% at March 31, 1996 compared to 8.84% at March 31, 1995, and the
average rate paid on interest-bearing liabilities increased to 4.47% at March
31, 1996 compared to 4.06% at March 31, 1995.
Management continues to assess interest rate risk based on an earnings
simulation model. The Corporation's balance sheet is liability sensitive,
meaning that in a given period there will be more liabilities than assets
subject to immediate repricing as market rates change. Because immediately rate
sensitive interest-bearing liabilities exceed immediately rate sensitive assets,
the earnings position could improve in a declining rate environment and could
deteriorate in a rising rate environment, depending on the correlation of rate
changes in these two categories.
The provision for loan losses for the three months ended March 31, 1996
was $320,000, compared to $265,000, for the three months ended March 31, 1995.
The increase in the provision was attributable to the increase in gross loans
outstanding and net charge-offs of approximately $191,000 compared to charge-
offs of approximately $50,000 for the same period of 1995. At March 31, 1996
and December 31, 1995, the allowance for loan losses as a percentage of gross
loans was 1.45% and 1.46%, respectively. Management continues to perform a
monthly analysis of the allowance utilizing a system for risk grading the
portfolio. Based on this review, management believes the allowance to be
adequate.
The following table presents changes in the allowance for loan losses at March
31, 1996:
Beginning Balance $4,855,540
Add:
Provision charged to operations 320,000
5,175,540
Less:
Loan charge-offs 269,325
Less loan recoveries 78,825
Net loan charge-offs 190,500
Ending Balance $4,985,040
At March 31, 1996, the recorded investment in loans that were considered to be
impaired under the Financial Accounting Standards Board (FASB) Standard No. 114
and No. 118 was $2,662,393 (of which $1,996,320 was on nonaccrual). The related
allowance for loan losses on these loans was $1,035,702. There is a specific
allocation of the allowances for loan loss for each impaired loan. The average
recorded investment in impaired loans for the three months ended March 31, 1996
was $2,797,551. For the three months ended March 31, 1996, the Corporation
recognized interest income on impaired loans of $13,311, of which $4,550 was
recognized using the cash method of income recognition.
Nonperforming assets at March 31, 1996 were $2,749,789 or 0.8% of gross
loans and foreclosed properties compared to $2,890,461 or 0.9% at December 31,
1995. The level of nonperforming assets is presented in the following table.
March 31, December 31,
1996 1995
Loans:
Nonaccrual loans $2,139,333 $2,287,210
Restructured loan 300,000 300,000
Loans 90 days or more past
due and still accruing 132,206 242,001
Foreclosed Property 178,250 61,250
Interest income that would have been recorded on nonaccrual loans for the
three months ended March 31, 1996, had they performed in accordance with their
original terms, amounted to approximately $68,000. Interest income on
nonaccrual loans included in the results of operations for the three months
ended March 31, 1996 amounted to approximately $9,000.
Noninterest income increased approximately $214,000 or 18.4% for the
three month period ended March 31, 1996 over the comparable period in 1995. The
major components of this increase were higher trust income due to higher levels
of assets under management, higher service charges on deposit accounts due to
higher non-sufficient fund charges, higher credit card income due to increased
volumes and the one-time conversion of FCNB merchant card holders from a third
party card provider and higher mortgage loan income due to increased loan
originations.
Noninterest expense increased approximately $41,000 or 1.1%, for the
three month period ended March 31, 1996, over the comparable period in 1995.
The increase is primarily attributable to higher salaries and fringe benefits
due to a greater number of full-time equivalents. Additional increases were
incurred in advertising, data processing, postage, supplies and telephone
expenses. These increases were offset by a reduction of FDIC insurance premiums
to the current level of $500 per quarter for each Bank, effective January 1,
1996.
Beginning in the second quarter of 1996, the Banks will be installing
local and wide area PC networks. It is anticipated that additional depreciation
expense relating to this installation will be approximately $100,000 for the
remainder of 1996. These systems will enhance customer service and internal
communication and efficiency.
Total income tax expense for the three month period ended March 31, 1996
increased $123,400, over the comparable period in 1995. The increase is
attributable to an increase in taxable income and a slight increase in the
effective tax rate.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
(per Exhibit Table
in item 601 of
Regulation S-K) Description of Exhibits
3.1 Restated Charter of the Registrant,
incorporated herein by reference to
Exhibit 3.1 of the Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1994 (Commission File
No. 0-15829).
3.2 By-laws of the Registrant, as amended,
incorporated herein by reference to
Exhibit 3.2 of the Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1995 (Commission File
No. 0-15829).
11 Statements regarding computation of per
share earnings.
27 Financial Data Schedules
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K under Item 2 on
January 5, 1996, which included a description of the Registrant's
acquisition of Bank of Union, effective December 21, 1995.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CHARTER CORPORATION
(Registrant)
Date: May 14, 1996 By \s\ Robert O. Bratton
Robert O. Bratton
Executive Vice President &
Principal Financial and
Accounting Officer
EXHIBIT INDEX
Exhibit No.
(per Exhibit Table
in item 601 of Sequential
Regulation S-K) Description of Exhibits Page Number
11 Statements regarding
computation of per share
earnings.
27 Financial Data Schedules