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 September 30, 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.
6,319,762 shares of Common Stock, $5.00 par value, outstanding as of
November 14, 1996.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
Unaudited
Cash and due from banks . . . . . . . . . . . $ 34,899,682 $ 30,642,072
Federal funds sold . . . . . . . . . . . . . 5,226,907 --
Interest bearing time deposits . . . . . . . -- 3,000,000
Securities available for sale:
U.S. Government obligations . . . . . . . . 29,054,263 23,363,185
U.S. Government agency obligations . . . . 16,963,183 26,523,683
Mortgage-backed securities . . . . . . . . 11,986,973 18,289,995
State and municipal obligations, nontaxable 67,048,485 59,052,874
Other . . . . . . . . . . . . . . . . . . . 4,857,396 5,128,031
Total securities available for sale . . . 129,910,300 132,357,768
Loans . . . . . . . . . . . . . . . . . . . . 350,642,754 333,038,730
Less: Unearned income . . . . . . . . . . . (181,374) (295,701)
Allowance for loan losses . . . . . . (5,127,908) (4,855,540)
Loans, net . . . . . . . . . . . . . . . 345,333,472 327,887,489
Premises and equipment, net . . . . . . . . . 10,402,578 9,833,489
Other assets . . . . . . . . . . . . . . . . 8,711,312 5,674,487
Total assets . . . . . . . . . . . . . . $ 534,484,251 $ 509,395,305
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits, domestic:
Demand . . . . . . . . . . . . . . . . . . $ 77,447,213 $ 72,285,910
NOW accounts . . . . . . . . . . . . . . . 72,259,785 66,813,791
Time . . . . . . . . . . . . . . . . . . . 296,828,905 275,956,530
Total deposits . . . . . . . . . . . . . 446,535,903 415,056,231
Other borrowings . . . . . . . . . . . . . . 27,285,828 35,262,202
Other liabilities . . . . . . . . . . . . . . 3,684,915 5,652,799
Total liabilities . . . . . . . . . . . . 477,506,646 455,971,232
Shareholders' equity:
Common stock - $5 par value; authorized
10,000,000 shares; issued and outstanding
6,303,230 shares at 9/30/96 and 6,236,014
shares at 12/31/95 . . . . . . . . . . . . 31,516,150 31,180,070
Additional paid-in capital . . . . . . . . . 672,507 --
Unrealized gain on securities available
for sale, net . . . . . . . . . . . . . . . 499,704 1,666,036
Retained earnings . . . . . . . . . . . . . . 24,289,244 20,577,967
Total shareholders' equity . . . . . . . 56,977,605 53,424,073
Total liabilities and shareholders' equity $534,484,251 $ 509,395,305
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For Nine Months Ended
Sept. 30, Sept. 30,
Interest Income: 1996 1995
Interest and fees on loans . . . . . . . . . . . . . . . $ 24,114,446 $21,547,409
Federal funds sold . . . . . . . . . . . . . . . . . . . 139,809 272,465
Securities available for sale:
U.S. Government obligations . . . . . . . . . . . . . . 1,263,568 753,732
U.S. Government agency obligations . . . . . . . . . . 1,038,801 705,768
Mortgage-backed securities . . . . . . . . . . . . . . 644,493 241,922
State and municipal obligations, nontaxable . . . . . . 2,483,374 18,082
Other . . . . . . . . . . . . . . . . . . . . . . . . . 173,644 139,919
Investment securities:
U.S. Government obligations . . . . . . . . . . . . . . -- 296,044
U.S. Government agency obligations . . . . . . . . . . -- 536,521
Mortgage-backed securities . . . . . . . . . . . . . . -- 725,177
State and municipal obligations, nontaxable . . . . . . -- 1,814,789
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 279,396 302,507
Total interest income . . . . . . . . . . . . . . . . 30,137,531 27,354,335
Interest Expense:
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . 987,393 956,532
Money Market . . . . . . . . . . . . . . . . . . . . . 868,993 907,988
Savings and Time . . . . . . . . . . . . . . . . . . . 10,061,726 8,419,393
Other borrowings . . . . . . . . . . . . . . . . . . . . 995,985 782,373
Total interest expense . . . . . . . . . . . . . . . 12,914,097 11,066,286
Net interest income . . . . . . . . . . . . . . . . . 17,223,434 16,288,049
Provision for loan losses . . . . . . . . . . . . . . . . 820,000 890,000
Net interest income after provision for loan losses . 16,403,434 15,398,049
Noninterest income:
Trust income . . . . . . . . . . . . . . . . . . . . . . 1,059,040 1,006,800
Service charges on deposit accounts . . . . . . . . . . . 1,961,103 1,767,438
Credit card income . . . . . . . . . . . . . . . . . . . 303,737 38,405
Insurance and other commissions . . . . . . . . . . . . . 127,536 159,159
Securities available for sale transactions, net . . . . . 246,094 (7,394)
Investment securities transactions, net . . . . . . . . . -- 4,298
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 875,878 684,725
Total noninterest income . . . . . . . . . . . . . . 4,573,388 3,653,431
Noninterest expense:
Salaries and fringe benefits . . . . . . . . . . . . . . 6,520,823 5,836,538
Occupancy and equipment . . . . . . . . . . . . . . . . . 1,738,503 1,460,932
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3,428,229 3,384,270
Total noninterest expense . . . . . . . . . . . . . . 11,687,555 10,681,740
Income before income taxes . . . . . . . . . . . . . 9,289,267 8,369,740
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,749,000 2,518,700
Net Income . . . . . . . . . . . . . . . . . . . . . $ 6,540,267 $5,851,040
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
EARNINGS PER SHARE DATA (Unaudited)
For Nine Months Ended
Sept. 30, Sept. 30,
1996 1995
Primary income per share data:
Net income . . . . . . . . . . . . . . . . . . . . . . $1.04 $0.93
Average common equivalent shares . . . . . . . . . . . 6,321,061 6,283,626
Income per share data assuming full dilution:
Net income . . . . . . . . . . . . . . . . . . . . . . $1.04 $0.93
Average common equivalent shares . . . . . . . . . . . 6,321,061 6,297,869
Cash dividends declared . . . . . . . . . . . . . . . . . $0.45 $0.39
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For Three Months Ended
Sept. 30, Sept. 30,
Interest Income: 1996 1995
Interest and fees on loans . . . . . . . . . . . . . . . $8,189,241 $7,509,157
Federal funds sold . . . . . . . . . . . . . . . . . . . 64,101 91,594
Securities available for sale:
U.S. Government obligations . . . . . . . . . . . . . . 466,394 227,227
U.S. Government agency obligations . . . . . . . . . . 247,735 310,681
Mortgage-backed securities . . . . . . . . . . . . . . 202,615 77,087
State and municipal obligations, nontaxable . . . . . . 874,717 17,063
Other . . . . . . . . . . . . . . . . . . . . . . . . . 49,516 56,357
Investment securities:
U.S. Government obligations . . . . . . . . . . . . . . -- 118,121
U.S. Government agency obligations . . . . . . . . . . -- 228,638
Mortgage-backed securities . . . . . . . . . . . . . . -- 226,849
State and municipal obligations, nontaxable . . . . . . -- 596,478
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 99,999 133,994
Total interest income . . . . . . . . . . . . . . . . 10,194,318 9,593,246
Interest Expense:
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . 335,724 321,133
Money Market . . . . . . . . . . . . . . . . . . . . . 301,995 295,492
Savings and Time . . . . . . . . . . . . . . . . . . . 3,380,049 3,121,565
Other borrowings . . . . . . . . . . . . . . . . . . . . 339,827 269,549
Total interest expense . . . . . . . . . . . . . . . 4,357,595 4,007,739
Net interest income . . . . . . . . . . . . . . . . . 5,836,723 5,585,507
Provision for loan losses . . . . . . . . . . . . . . . . 200,000 410,000
Net interest income after provision for loan losses . 5,636,723 5,175,507
Noninterest income:
Trust income . . . . . . . . . . . . . . . . . . . . . . 344,750 344,520
Service charges on deposit accounts . . . . . . . . . . . 644,598 592,694
Credit card income . . . . . . . . . . . . . . . . . . . 96,015 23,025
Insurance and other commissions . . . . . . . . . . . . . 33,680 50,529
Securities available for sale transactions, net . . . . . 101,201 (2,403)
Investment securities transactions, net . . . . . . . . . -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 284,544 282,917
Total noninterest income . . . . . . . . . . . . . . 1,504,788 1,291,282
Noninterest expense:
Salaries and fringe benefits . . . . . . . . . . . . . . 2,311,597 2,018,788
Occupancy and equipment . . . . . . . . . . . . . . . . . 614,828 480,117
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,190,262 981,470
Total noninterest expense . . . . . . . . . . . . . . 4,116,687 3,480,375
Income before income taxes . . . . . . . . . . . . . 3,024,824 2,986,414
Income taxes . . . . . . . . . . . . . . . . . . . . . . 837,000 914,700
Net Income . . . . . . . . . . . . . . . . . . . . . $2,187,824 $2,071,714
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
EARNINGS PER SHARE DATA (Unaudited)
For Three Months Ended
Sept. 30, Sept. 30,
1996 1995
Primary income per share data:
Net income . . . . . . . . . . . . . . . . . . . . . . $0.35 $0.33
Average common equivalent shares . . . . . . . . . . . 6,337,050 6,298,124
Income per share data assuming full dilution:
Net income . . . . . . . . . . . . . . . . . . . . . . $0.35 $0.33
Average common equivalent shares . . . . . . . . . . . 6,337,761 6,301,611
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 Nine Months Ended September 30, 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
nine months ended
Sept. 30, 1996.............. -- -- 6,540,267 -- 6,540,267
Cash dividends of $.45
per share................... -- -- (2,828,789) -- (2,828,789)
Purchase and retirement
of 3,140 shares of
common stock................ (15,700) (45,866) -- -- (61,566)
Stock options exercised
and Dividend Reinvestment
Plan stock issued totaling
70,356 shares............... 351,780 718,373 (201) -- 1,069,952
Unrealized loss on
securities available
for sale, net............... -- -- -- (1,166,332) (1,166,332)
Balance, Sept.30, 1996....... $31,516,150 $672,507 $24,289,244 $ 499,704 $56,977,605
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For Nine Months Ended
Sept 30,1996 Sept 30,1995
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,540,267 $ 5,851,040
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . 820,000 890,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . 844,973 627,388
Premium amortization and discount accretion, net . . . . 67,258 (203,853)
Net loss on investment securities transactions . . . . . -- 7,394
Net gain on securities available for sale transactions . (246,094) (4,298)
Net (gain) loss on sale of premises and equipment . . . 3,685 (12,449)
Origination of mortgage loans held for sale . . . . . . (14,670,762) (18,298,806)
Proceeds from sale of mortgage loans available for sale . 13,931,255 16,085,710
Decrease (increase) in other assets . . . . . . . . . . (1,725,428) 922,687
Decrease in other liabilities . . . . . . . . . . . . . (1,907,304) (292,114)
Net cash provided by operating activities . . . . . . 3,657,850 5,572,699
Cash flows from investing activities:
Proceeds from maturities of interest bearing time deposits 3,000,000 1,000,000
Proceeds from sales of investment securities . . . . . . . -- 1,725,292
Proceeds from sales of securities available for sale . . . 6,072,277 12,919,463
Proceeds from maturities and issuer calls of
investment securities, net . . . . . . . . . . . . . . . -- 25,692,941
Proceeds from maturities of securities available for sale . 24,194,301 12,443,450
Purchase of interest bearing time deposits . . . . . . . . -- (4,500,000)
Purchase of investment securities . . . . . . . . . . . . -- (27,062,576)
Purchase of securities available for sale . . . . . . . . (29,513,152) (29,179,984)
Net increase in loans . . . . . . . . . . . . . . . . . . (17,676,636) (28,608,158)
Proceeds from sales of premises and equipment . . . . . . 107,051 30,425
Purchase of premises and equipment . . . . . . . . . . . . (1,979,489) (1,344,030)
Net cash used in investing activities . . . . . . . . . (15,795,648) (36,883,177)
Cash flows from financing activities:
Net increase in demand, NOW, money market and
savings accounts . . . . . . . . . . . . . . . . . . . . 14,186,290 15,746,213
Net increase in certificates of deposit . . . . . . . . . 17,293,382 17,089,081
Net decrease in other borrowings . . . . . . . . . . . . . (7,976,374) (19,834)
Net increase (decrease) in advances for taxes and insurance (60,580) 81,881
Purchase of common stock . . . . . . . . . . . . . . . . . (61,566) (373,063)
Proceeds from issuance of common stock . . . . . . . . . . 1,069,952 475,684
Pre-merger transactions of pooled bank . . . . . . . . . . -- 31,543
Dividends paid . . . . . . . . . . . . . . . . . . . . . . (2,828,789) (1,807,344)
Net cash provided by financing activities . . . . . . 21,622,315 31,224,161
Net increase in cash and cash equivalents . . . . . . . . 9,484,517 (86,317)
Cash and cash equivalents at beginning of period . . . . . 30,642,072 26,500,086
Cash and cash equivalents at end of period . . . . . . . . $ 40,126,589 $ 26,413,769
(Continued)
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
For Nine Months Ended
Sept 30,1996 Sept 30, 1995
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,640,528 $ 10,765,781
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 2,476,740 $ 2,902,671
Supplemental disclosure of non-cash transactions:
Transfer of loans, premises and equipment to other
real estate owned . . . . . . . . . . . . . . . . . . . . $ 608,536 $ 11,531
Unrealized gains (loss) in value of securities available
for sale (net of tax effect of ($706,546) and $499,680
for 9/30/96 and 9/30/95, respectively) . . . . . . . . . . $ (1,166,332) $ 770,489
See accompanying notes to consolidated financial statements.
FIRST CHARTER CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)
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
periods. 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 ("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 September 30, 1996, total shareholders' equity was
$56,977,605, or $9.04 per share compared to $53,424,073, or $8.57
per share at December 31, 1995.
At September 30, 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 $ 56,978 10.66% $56,978 15.02% $61,726 16.27%
Required 21,379 4.00 15,194 4.00 30,387 8.00
Excess 35,599 6.66 41,784 11.02 31,339 8.27
(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 September 30,
1996 was $2,187,824, or $0.35 per share versus $2,071,714, or
$0.33 per share for the comparable period in 1995 which
represents a 5.6% increase. Net income for the nine month period
ended September 30, 1996 was $6,540,267, or $1.04 per share
versus $5,851,040, or $0.93 per share for the comparable period
in 1995 which represents an 11.8% increase. The increases in net
income over the comparable periods in 1995 are 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 1.68% versus 1.70% and a return on
average equity of 15.67% versus 15.66%, for the periods ended
September 30, 1996 and September 30, 1995, respectively.
Total assets at September 30, 1996 were $534,484,251
compared to $509,395,305 at December 31, 1995. The growth in
assets is primarily attributable to an increase in gross loans.
As a result, gross loans increased 5.3% to $350,642,754 from
$333,038,730 at December 31, 1995. Total deposits increased 7.6%
to $446,535,903 from $415,056,231 at December 31, 1995. During
the first nine months of 1996, certificates of deposits increased
primarily due to an addition of $12.0 million in public deposits
with various maturities starting in the third and fourth quarters
of 1996. Additionally, Management does not anticipate that these
certificates will be renewed upon maturity.
Securities available for sale totaled $129,910,300 at
September 30, 1996 for a decrease of $2,447,468 from December 31,
1995. The decrease was primarily due to a pre-tax reduction of
unrealized gains of approximately $1.9 million, resulting from an
overall upward shift in interest rates during the latter part of
the first quarter of 1996. Proceeds from sales, maturities and
paydowns were used to fund increased loan demand and to
reposition the securities available for sale portfolio. U.S.
Government obligations were purchased to provide liquidity and
municipal securities were purchased to maximize interest income.
The carrying value of securities available for sale was $820,145
above their amortized cost at September 30, 1996 which represents
gross unrealized gains of $2,803,292 and gross unrealized losses
of $1,983,147.
For the three and nine month periods ended September 30,
1996, net interest income before provision for loan losses
increased $251,216 and $935,385, respectively, over the
comparable periods 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
5.09% year to date at September 30, 1996 from 5.41% for the same
period in 1995. The average yield on earning assets decreased to
8.64% at September 30, 1996 compared to 8.89% at September 30,
1995, primarily due to a reduction in prime rate of interest, and
the average rate paid on interest-bearing liabilities increased
to 4.43% at September 30, 1996 compared to 4.54% at September 30,
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.
Utilization of stronger analytical and underwriting skills
and the use of a dedicated collection staff have had a positive
impact on asset quality. As a result, the provision for loan
losses decreased for the three and nine months ended September
30, 1996 to $200,000 and $820,000, respectively, from $410,000
and $890,000, for the three and nine months ended September 30,
1996, respectively. At September 30, 1996 and December 31, 1995,
the allowance for loan losses as a percentage of gross loans
remained unchanged at 1.46%. 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; however, if credit quality
deteriorates, additional provisions will be made to the allowance
for loan losses.
The following table presents changes in the allowance for loan
losses at September 30, 1996:
Sept. 30, Sept. 30,
1996 1995
(In Thousands)
Beginning Balance $4,856 $4,131
Add:
Provision charged to operations 820 890
5,676 5,021
Less:
Loan charge-offs 845 456
Less loan recoveries 297 139
Net loan charge-offs 548 317
Ending Balance $5,128 $4,704
At September 30, 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 $1,803,822 (of which $1,449,084 was on nonaccrual). There is
a specific allocation of the allowance for loan loss for each
impaired loan totalling $755,530 at September 30, 1996. The
average recorded investment in impaired loans for the nine months
ended September 30, 1996 was $2,064,823. For the nine months
ended September 30, 1996, the Corporation recognized interest
income on impaired loans of $25,284, none of which was recognized
using the cash method of income recognition.
Nonperforming assets at September 30, 1996 were $2,504,361
or 0.7% of gross loans, foreclosed properties and other real
estate owned compared to $2,890,461 or 0.9% at December 31, 1995.
The level of nonperforming assets is presented in the following
table.
Sept. 30, December 31,
1996 1995
Loans:
Nonaccrual loans $1,767,123 $2,287,210
Restructured loan -- 300,000
Loans 90 days or more past
due and still accruing 215,038 242,001
Foreclosed Property 87,700 61,250
Other Real Estate Owned 434,500 --
Other real estate owned increased due to the
reclassification of land originally purchased for a branch
location. Nonaccrual loans and restructured loans decreased
during the nine month period ended September 30, 1996 primarily
due to loan payoffs.
Interest income that would have been recorded on
nonaccrual loans for the nine months ended September 30, 1996,
had they performed in accordance with their original terms,
amounted to approximately $128,000. Interest income on
nonaccrual loans included in the results of operations for the
nine months ended September 30, 1996 amounted to approximately
$1,000.
Noninterest income for the three and nine month periods
increased approximately $213,506 or 16.5% and $919,957 or 25.2%,
respectively, over the comparable periods in 1995. The major
components of these increases were higher credit card income due
to increased volumes and the conversion of FCNB merchant card
holders from a third party card provider, higher securities gains
due to the sale of equity securities held by the Corporation and
higher mortgage loan income due to increased loan originations.
Noninterest expense for the three and nine month periods
increased approximately $636,312 or 18.3% and $1,005,815 or 9.4%,
respectively, over the comparable periods in 1995. The increase
is primarily attributable to higher salaries and fringe benefits
due to normal salary adjustments and a greater number of full-
time equivalents. Occupancy and equipment increased due to
additional technology added and the opening of a full service
branch. Additional increases in noninterest expense 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. Based on
Congressional legislation passed on September 30, 1996, FDIC
Insurance expense will increase to an annual rate of 1.29 cents
per $100 of deposits or approximately $60,000 for 1997.
Total income tax expense for the three months ended
September 30, 1996 decreased $77,700 and for the nine month
period ended September 30, 1996 increased $230,300. The three
month decrease is attributable to a lower effective rate, due to
an increase in tax-exempt securities, which is offset by an
increase in taxable income. The nine month increase is
attributable to an increase in taxable income that was partially
offset by a decrease in the effective tax rate.
ACCOUNTING MATTERS
On June 28, 1996, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (Statement). This Statement
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured
borrowings.
Statement No. 125 is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively.
Earlier or retroactive application is not permitted. The
periodic effect on net income of the Corporation has not been
determined, but is not expected to be significant.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The foregoing discussion contains forward-looking
statements about the Corporation's financial condition and
results of operations, which are subject to certain risks and
uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking
statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's
judgement only as of the date hereof. The Corporation undertakes
no obligation to publicly revise these forward-looking statements
to reflect events and circumstances that arise after the date
hereof.
Factors that may cause actual results to differ materially
from these forward-looking statements are the passage of
unforeseen state or Federal Legislation or regulation applicable
the Corporation's operations and the Company's ability to
accurately predict loan loss provision needs using its present
risk grading system.
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
No reports on Form 8-K were filed this quarter.
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: November 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