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 June 30, 1998
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.
9,260,078 shares of Common Stock, no par value, outstanding as of
August 14, 1998.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
First Charter Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks .................................................. $ 40,300 $ 33,077
Interest bearing bank deposits ........................................... 342 7,975
Securities available for sale:
U.S. Government obligations ........................................... 13,752 22,333
U.S. Government agency obligations .................................... 40,347 45,863
Mortgage-backed securities ............................................ 8,021 9,676
State and municipal obligations, nontaxable ........................... 86,835 85,532
Other ................................................................. 15,281 13,627
--------------------------------
Total securities available for sale ............................... 164,236 177,031
--------------------------------
Loans .................................................................... 569,852 524,076
Less: Unearned income ................................................. (157) (273)
Allowance for loan losses ....................................... (8,215) (8,004)
--------------------------------
Loans, net ............................................................ 561,480 515,799
--------------------------------
Premises and equipment, net .............................................. 17,142 15,949
Other assets ............................................................. 9,552 11,863
--------------------------------
Total assets ...................................................... $ 793,052 $ 761,694
================================
Liabilities and Shareholders' Equity Deposits, domestic:
Noninterest bearing demand ............................................ $ 104,746 $ 94,434
Interest bearing:
NOW accounts ...................................................... 98,070 95,343
Time .............................................................. 374,442 365,442
Certificates of deposit greater than $100,000 ..................... 72,954 66,135
--------------------------------
Total deposits ................................................ 650,212 621,354
Other borrowings ......................................................... 53,583 53,279
Other liabilities ........................................................ 5,606 9,257
--------------------------------
Total liabilities ................................................. 709,401 683,890
--------------------------------
Shareholders' equity:
Common stock - no par value; authorized, 25,000,000
shares; issued and outstanding, 9,361,319 shares
at 6/30/98 and 9,268,573 shares at 12/31/97 ........................... 51,063 49,514
Retained earnings ........................................................ 28,593 25,102
Accumulated other comprehensive income:
Unrealized gain on securities available for sale, net ............... 3,995 3,188
--------------------------------
Total shareholders' equity ........................................ 83,651 77,804
--------------------------------
Total liabilities and shareholders' equity ........................ $ 793,052 $ 761,694
================================
See accompanying notes to consolidated financial statements.
1
First Charter Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
For the Six Months Ended
- --------------------------------------------------------------------------------
June 30, June 30,
(Dollars in thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------
Interest income:
Interest and fees on loans ........................ $ 25,429 $ 22,179
Federal funds sold ................................ -- 72
Interest bearing bank deposits .................... 74 88
Securities available for sale ..................... 4,661 4,252
Investment securities:
Taxable ........................................ -- 203
Non-taxable .................................... -- 1
-----------------------
Total interest income ....................... 30,164 26,795
-----------------------
Interest expense:
Deposits .......................................... 11,645 10,909
Federal funds purchased and securities
sold under agreements to repurchase ............ 758 544
Federal Home Loan Bank borrowings ................. 526 397
-----------------------
Total interest expense ...................... 12,929 11,850
-----------------------
Net interest income ...................... 17,235 14,945
Provision for loan losses ............................ 1,295 1,016
-----------------------
Net interest income after provision for loan losses 15,940 13,929
-----------------------
Noninterest income:
Trust income ...................................... 947 830
Service charges on deposit accounts ............... 2,017 1,894
Insurance and other commissions ................... 588 493
Securities available for sale transactions, net ... 171 404
Other ............................................. 1,864 850
-----------------------
Total noninterest income ...................... 5,587 4,471
-----------------------
Noninterest expense:
Salaries and fringe benefits ...................... 7,003 5,567
Occupancy and equipment ........................... 2,041 1,647
Other ............................................. 3,702 3,287
-----------------------
Total noninterest expense ..................... 12,746 10,501
-----------------------
Income before income taxes .................... 8,781 7,899
Income taxes ......................................... 2,580 2,399
-----------------------
Net income .................................... $ 6,201 $ 5,500
=======================
Basic net income per share ........................... $ 0.66 $ 0.60
=======================
Weighted average common shares ....................... 9,329,106 9,224,101
Diluted net income per share ......................... $ 0.66 $ 0.59
=======================
Weighted average common and common
equivalent shares ................................. 9,460,334 9,257,945
Cash dividends declared .............................. $ 0.29 $ 0.25
=======================
See accompanying notes to consolidated financial statements.
2
First Charter Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
For the Three Months Ended
- --------------------------------------------------------------------------------
June 30, June 30,
(Dollars in thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------
Interest income:
Interest and fees on loans ........................ $ 12,908 $ 11,496
Federal funds sold ................................ -- 14
Interest bearing bank deposits .................... 23 59
Securities available for sale ..................... 2,303 2,011
Investment securities:
Taxable ........................................ -- 211
Non-taxable .................................... -- 14
-----------------------
Total interest income ....................... 15,234 13,805
-----------------------
Interest expense:
Deposits .......................................... 5,825 5,594
Federal funds purchased and securities
sold under agreements to repurchase ............ 392 290
Federal Home Loan Bank borrowings ................. 271 159
-----------------------
Total interest expense ...................... 6,488 6,043
-----------------------
Net interest income ...................... 8,746 7,762
Provision for loan losses ............................ 585 607
-----------------------
Net interest income after provision for loan losses 8,161 7,155
-----------------------
Noninterest income:
Trust income ...................................... 477 420
Service charges on deposit accounts ............... 1,003 999
Insurance and other commissions ................... 272 313
Securities available for sale transactions, net ... 92 156
Other ............................................. 1,177 369
-----------------------
Total noninterest income ...................... 3,021 2,257
-----------------------
Noninterest expense:
Salaries and fringe benefits ...................... 3,511 2,762
Occupancy and equipment ........................... 1,044 843
Other ............................................. 2,102 1,758
-----------------------
Total noninterest expense ..................... 6,657 5,363
-----------------------
Income before income taxes .................... 4,525 4,049
Income taxes ......................................... 1,335 1,235
-----------------------
Net income .................................... $ 3,190 $ 2,814
=======================
Basic net income per share ........................... $ 0.34 $ 0.31
=======================
Weighted average common shares ....................... 9,347,706 9,233,420
Diluted net income per share ......................... $ 0.34 $ 0.30
=======================
Weighted average common and common
equivalent shares ................................. 9,471,050 9,264,852
Cash dividends declared .............................. $ 0.15 $ 0.125
=======================
See accompanying notes to consolidated financial statements.
3
First Charter Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Unaudited)
For The Six Months Ended June 30, 1998 and 1997
Accumulated
Common Stock Other
------------------------ Retained Comprehensive
(Dollars in thousands) Shares Total Earnings Income Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 ..................... 7,391,754 $ 43,101 $ 26,932 $ 1,688 $ 71,721
Net income through June 30, 1997 .............. -- -- 5,500 -- 5,500
Cash dividends of $0.25 per share ............. -- -- (1,891) -- (1,891)
Purchase and retirement of
common stock ............................... (33,195) (775) -- -- (775)
Stock options exercised and Dividend
Reinvestment Plan stock issued ............. 32,644 685 (5) -- 680
6-for-5 Stock Split ........................... 1,259,862 5,809 (5,809) -- --
Pre-merger transactions of pooled bank ........ 609,882 467 -- -- 467
Unrealized loss on securities
available for sale, net .................... -- -- -- 314 314
-----------------------------------------------------------------------------
Balance June 30, 1997 ......................... 9,260,947 $ 49,287 $ 24,727 $ 2,002 $ 76,016
=============================================================================
Balance December 31, 1997 ..................... 9,268,573 49,514 25,102 3,188 77,804
Net income through June 30, 1998 .............. -- -- 6,201 -- 6,201
Cash dividends of $0.29 per share ............. -- -- (2,710) -- (2,710)
Purchase and retirement of common stock ....... (684) (18) -- -- (18)
Stock options exercised and Dividend
Reinvestment Plan stock issued ............. 93,430 1,567 -- -- 1,567
Unrealized gain on securities
available for sale, net .................... -- -- -- 807 807
-----------------------------------------------------------------------------
Balance June 30, 1998 ......................... 9,361,319 $ 51,063 $ 28,593 $ 3,995 $ 83,651
=============================================================================
See accompanying notes to consolidated financial statements.
4
FIRST CHARTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
- --------------------------------------------------------------------------------------------------------------------
June 30, June 30,
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 6,201 $ 5,500
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provision for loan losses ...................................................... 1,295 1,016
Depreciation ................................................................... 1,059 883
Premium amortization and discount accretion, net ............................... 41 24
Net gain on securities available for sale transactions ......................... (171) (404)
Net loss (gain) on sale of premises and equipment .............................. 2 (12)
Origination of mortgage loans held for sale .................................... (35,874) (1,483)
Proceeds from sale of mortgage loans available for sale ........................ 36,074 1,192
Decrease (increase) in other assets ............................................ 2,883 (792)
Decrease in other liabilities .................................................. (3,651) (850)
--------------------------
Net cash provided by operating activities .................................. 7,859 5,074
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale .............................. 12,060 3,902
Proceeds from maturities of securities available for sale ......................... 19,592 15,682
Purchase of investment securities ................................................. -- (1,832)
Purchase of securities available for sale ......................................... (17,405) (18,791)
Net increase in loans ............................................................. (48,263) (38,172)
Proceeds from sales of premises and equipment ..................................... 78 254
Purchases of premises and equipment ............................................... (2,332) (1,919)
--------------------------
Net cash used by investing activities ......................................... (36,270) (40,876)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW, money market
and savings accounts ............................................................ 32,196 (9,937)
Net increase (decrease) in certificates of deposit ................................ (3,338) 31,473
Net increase in securities sold under repurchase
agreements and other borrowings ................................................. 304 1,407
Purchase and retirement of common stock .......................................... (18) (775)
Proceeds from issuance of common stock ............................................ 1,567 680
Pre-merger transactions of pooled bank ............................................ -- 467
Dividends paid .................................................................... (2,710) (1,891)
--------------------------
Net cash provided by financing activities ....................................... 28,001 21,424
--------------------------
Net decrease in cash and cash equivalents ....................................... (410) (14,378)
Cash and cash equivalents at beginning of period ................................ 41,052 49,882
--------------------------
Cash and cash equivalents at end of period ...................................... $ 40,642 $ 35,504
==========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for:
Interest ........................................................................ $ 12,580 $ 11,623
==========================
Income taxes .................................................................... $ 2,481 $ 2,071
==========================
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Transfer of loans and premises and equipment
to other real estate owned ...................................................... $ 1,087 $ --
==========================
Investment securities transferred to available for sale ........................... $ -- $ 14,285
==========================
Unrealized gain (loss) in value of securities available for sale
(net of tax effect of $515 and $207 for June 30, 1998 and
June 30, 1997, respectively) .................................................... $ 807 $ 324
==========================
See accompanying notes to consolidated financial statements.
5
FIRST CHARTER CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997 (UNAUDITED)
1. All financial data has been restated to reflect the merger with
Carolina State Bank in December 1997, which was accounted for as a
pooling-of-interests.
2. The Corporation calculates its basic and diluted income per share in
accordance with the Financial Accounting Standards Board (FASB)
Standard No. 128, "Earnings per Share". Basic net income per share is
computed by dividing net income by the weighted average number of
shares of common stock outstanding for the year. Diluted net income
per share reflects the potential dilution that could occur if the
Corporation's common stock equivalents, which consist of dilutive stock
options, were exercised. The numerators of the basic net income per
share computations are the same as the numerators of the diluted net
income per share computations for all the periods presented. A
reconciliation of the denominator of the basic net income per share
computations to the denominator of the diluted net income per share
computations is as follows:
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Basic EPS denominator:
Weighted average number of common shares
outstanding ..................................... 9,347,706 9,233,420 9,329,106 9,224,101
Dilutive effect arising from assumed exercise of
stock options .................................. 123,344 31,432 131,228 33,844
----------------------------- -----------------------------
Diluted EPS denominator ............................ 9,471,050 9,264,852 9,460,334 9,257,945
----------------------------- -----------------------------
3. In certain instances, amounts reported in the 1997 consolidated
financial statements have been reclassified to present them in the
format selected for 1998. 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.
5. On January 1, 1998 the Corporation adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income". As
required by the SFAS No. 130, prior year information has been modified
to conform with the new presentation.
Comprehensive income includes net income and all changes to the
Corporation's equity, with the exception of transactions with
shareholders ("other comprehensive income"). The Corporation's only
component of other comprehensive income is the change in unrealized
gains and losses on available for sale securities.
6
The Corporation's total comprehensive income for the three months ended
June 30, 1998 and 1997 was $3,335,000 and $3,770,000, respectively. For
the six months ended June 30, 1998 and 1997, the Corporation recorded
comprehensive income of $7,008,000 and $5,814,000, respectively.
Information concerning the Corporation's other comprehensive income for
the three and six months ended June 30, 1998 and 1997, is as follows:
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
(Dollars in thousands 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Unrealized gains/(losses) on available for sale securities ........ $ 290 $1,710 $1,614 $ 925
Less:
Reclassification of gains recognized in net income ................ 92 156 171 404
Income tax expense/(benefit) relating to unrealized gains on
available for sale securities .................................... 53 598 636 207
-------------------- --------------------
Other comprehensive income ........................................ $ 145 $ 956 $ 807 $ 314
-------------------- --------------------
6. The Corporation and HFNC Financial Corporation ("HFNC") entered into a
definitive agreement and plan of merger (the "Merger Agreement") dated
as of May 17, 1998, as amended and restated on July 29, 1998, for the
merger of HFNC by the Corporation (the "Merger"). In the Merger, the
Corporation will exchange 0.57 of a share of common stock, no par value
per share, of the Corporation (the "Corporation's Common Stock") for
each share of the outstanding shares of common stock, $.01 par value
per share, of HFNC (the "HFNC Common Stock"). As of June 30, 1998,
17,192,500 shares of HFNC Common Stock were issued and outstanding.
The Merger is intended to qualify as a tax-free reorganization and is
anticipated to be accounted for as a pooling of interests. Consummation
of the Merger is subject to certain additional conditions, including
but not limited to, (i) the approval of shareholders of the Corporation
and HFNC; (ii) the approvals of applicable banking regulatory
authorities; and (iii) the effectiveness of a registration statement
related to the Corporation's Common Stock to be issued in the Merger.
On May 17, 1998, the Corporation and HFNC entered into reciprocal stock
option agreements (the "Option Agreements" and each "Option
Agreement"), pursuant to which (i) HFNC granted the Corporation an
option to purchase, under certain circumstances and subject to certain
adjustments and limitations, up to 3,421,300 shares, or approximately
19.9% of the outstanding shares, of HFNC Common Stock at a price of
$13.63 per share (the "HFNC Option Agreement") and (ii) the Corporation
granted HFNC an option to purchase, under certain circumstances and
subject to certain adjustments and limitations, up to 1,859,970 shares,
or approximately 19.9% of the outstanding shares, of the Corporation's
Common Stock at a price of $28.00 per share (the "Corporation's Option
Agreement"). Under the terms of each of the Option Agreements, the
Total Profit (as defined in the Option Agreements) and the Notional
Total Profit (as
7
defined in the Option Agreements) that a holder may realize under each
Option Agreement, as a result of exercising the Option Agreement, may
not exceed $7.5 million. The Option Agreements are exercisable upon the
occurrence of certain events that create the potential for another
party to acquire control of the issuer. To the best knowledge of the
Corporation and HFNC, no such event which would permit exercise of
either of the Option Agreements has occurred as of the date of this
filing. The Option Agreements were granted by the Corporation and HFNC
as a condition of and in consideration of the other party entering into
the Merger Agreement and are intended to increase the likelihood that
the proposed merger will be effected by making it more difficult and
more expensive for a third party to acquire control of either the
Corporation or HFNC.
HFNC, a North Carolina corporation, is a savings and loan 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. As of June 30, 1998, HFNC had total consolidated assets of
$1,007.9 million, total consolidated loans of approximately $813.4
million, total consolidated deposits of approximately $430.5 million,
and total consolidated shareholders' equity of $170.9 million. Also, as
of such date, Home Federal conducted its business from its main office,
eight branch offices, and a loan origination office, all located in
Mecklenburg County, North Carolina.
7. On July 17, 1998, the Corporation and HFNC announced that in
conjunction with the Merger, they intended to purchase in the open
market up to 750,000 shares of the Corporation's Common Stock, or on an
equivalent basis, shares of HFNC Common Stock. This amount would
represent approximately 7.7% of the shares of the Corporation's Common
Stock anticipated to be issued in the Merger. Such purchases would be
made in accordance with Regulation M and could be discontinued at any
time.
As of August 7, 1998, the Corporation completed its repurchases
totaling 125,117 shares of its Common Stock and 1,004,000 shares
(572,280 shares on an equivalent basis) of HFNC Common Stock.
8
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").
The following discussion and analysis should be read in conjunction
with the consolidated financial statements of the Corporation and the notes
thereto included in this report. In addition, the following discussion contains
certain forward-looking statements. See "Factors that May Affect Future
Results".
LIQUIDITY
FCNB and Union (the "Banks") derive the major source of their liquidity
from their core deposit base. Liquidity is further provided by loan repayments,
maturities in the investment portfolios, the ability to secure public deposits,
the availability of federal fund lines at correspondent banks and the ability to
borrow from the Federal Reserve Bank ("FRB") 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. At June 30, 1998, the
Banks had two available lines of credit with the FHLB totaling $85 million, with
$63 million available. 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 June 30, 1998, total shareholders' equity was $83,650,601, or $8.94
per share, compared to $77,804,463, or $8.39 per share at December 31, 1997.
At June 30, 1998, 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 Percentage(1) Amount Percentage(2) Amount Percentage (2)
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Actual .............. $76,752 10.26% $76,752 12.55% $84,405 13.79%
Required ............ 29,916 4.00 24,489 4.00 48,978 8.00
Excess .............. 46,836 6.26 52,263 8.55 35,427 5.79
(1) Percentage of total adjusted average assets. The FRB minimum leverage
ratio requirement is 3% to 5%, depending on the institution's composite
rating as determined by its regulators. The FRB has not advised the
Corporation of any specific requirements applicable to it.
(2) Percentage of risk-weighted assets.
9
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 adverse effect on the Corporation's
liquidity, capital resources, or operations.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net income for the three month period ended June 30, 1998 was
$3,189,864, or $0.34 basic income per share versus $2,814,083, or $0.30 basic
income per share for the comparable period in 1997 which represents a 13.4%
increase. Net income for the six month period ended June 30, 1998 was
$6,200,520, or $0.67 basic income per share versus $5,500,182, or $0.60 basic
income per share for the comparable period in 1997, which represents a 12.7%
increase. The increases for the three and six months ended June 30, 1998 are
primarily attributable to increases in net interest income and noninterest
income which were partially offset by increases in provision for loan losses and
noninterest expenses. On an annualized basis, year to date results represent a
return on average assets of 1.64% versus 1.62% and a return on average equity of
15.28 % versus 14.87%, for the periods ended June 30, 1998 and June 30, 1997,
respectively.
Total assets at June 30, 1998 were $793,052,223 compared to
$761,694,285 at December 31, 1997. Strong loan demand continued during the first
six months of 1998. As a result, gross loans increased 8.7% to $569,852,470 from
$524,076,312 at December 31, 1997. Total deposits increased 4.6% to $650,212,526
from $621,354,301 at December 31, 1997.
Securities available for sale totaled $164,236,156 at June 30, 1998 for
a decrease of approximately $12.8 million from December 31, 1997. The decrease
was primarily due to sales of U.S. Government securities which had yields to
maturity lower than cost of funds. Therefore, the proceeds were used to reduce
FHLB borrowings. Additionally, during the period, as maturities or paydowns
occurred on securities, the proceeds were utilized to meet loan demand and
reinvested in additional securities. The carrying value of securities available
for sale was $6,530,232 above their amortized cost at June 30, 1998 which
represents gross unrealized gains of $6,624,190 and gross unrealized losses of
$93,958.
For the three and six month periods ended June 30, 1998, net interest
income before provision for loan losses increased $984,000 and $2,290,000,
respectively, over the comparable periods in 1997. The increase is primarily
attributable to an increase in the level of interest earning assets, which was
further enhanced by a higher net interest margin. The net interest margin
increased to 5.30% at June 30, 1998 from 5.10% at June 30, 1997. The average
yield on interest-earning assets was 9.02% at June 30, 1998 compared to 8.84% at
June 30, 1997, and the average rate paid on interest-bearing liabilities
decreased to 4.49% at June 30, 1998 compared to 4.62% at June 30, 1997.
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
10
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 June 30, 1998
was $585,000, compared to $607,000 for the three months ended June 30, 1997. The
provision for loan losses for the six months ended June 30, 1998 was $1,295,000,
compared to $1,016,000 for the six months ended June 30, 1997. The increase in
the provision for the six months ended June 30, 1998 was due to the growth in
the loan portfolio as well as higher levels of net loan charge-offs. Net
charge-offs were approximately $458,000 and $1,084,000 for the three and six
months ended June 30, 1998, respectively, compared to net charge-offs of
$273,000 and $549,000 for the same periods in 1997, respectively. The increase
in net charge-offs was due to loans acquired through the merger of Carolina
State Bank in December 1997. A provision was made for potential charge-offs at
the time of the merger, and actual charge-offs were made during 1998.
At June 30, 1998 and December 31, 1997, the allowance for loan losses
as a percentage of gross loans was 1.46% and 1.53%, respectively. As part of the
continual grading process used to monitor the credit quality of the loan
portfolio, an analysis is performed monthly independently from any analysis in
conjunction with the origination of loans. Based on this review, management
believes the allowance to be adequate; however, future adjustments may be
necessary if economic and other conditions differ substantially from
management's assumptions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Banks' allowances for loan losses
and losses on real estate owned. Such agencies may require the Banks to
recognize additions to the allowances based on their judgments about information
available to them at the time of their examination.
The following table presents changes in the allowance for loan losses
for the six months ended June 30, 1998 and 1997, respectively.
For the Six Months Ended
-------------------------
June 30, June 30,
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------
Beginning Balance .......................... $ 8,004 $ 6,528
Provision charged to operations ........... 1,295 1,016
Loan charge-offs .......................... (1,354) (711)
Less loan recoveries ....................... 270 162
------- -------
Net loan charge-offs ....................... 1,084 549
------- -------
Ending Balance ............................. $ 8,215 $ 6,995
======= =======
At June 30, 1998, the recorded investment in loans that were considered
to be impaired under the FASB Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" and No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," was $2,063,253 (of which $1,627,550
was on nonaccrual) compared to the recorded investment in impaired loans of
$2,216,380 (of which $2,062,173 was on nonaccrual) at December 31, 1997. The
related allowance for loan losses on these loans was $732,451 and $764,538 at
June 30, 1998 and
11
December 31, 1997, respectively. The average recorded investment in impaired
loans for the six months ended June 30, 1998 and 1997 was $1,974,585 and
$1,564,472, respectively. For the six months ended June 30, 1998 and 1997, the
Corporation recognized interest income on impaired loans of $12,918 and $15,092,
respectively, none of which was recognized using the cash method of income
recognition.
Total problem assets at June 30, 1998 were $5,504,000 or 0.97% of gross
loans, compared to $5,632,000 or 1.07% at December 31, 1997. The components of
nonperforming and problem assets are presented in the table below:
June 30, December 31,
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------
Nonaccrual loans .................................... $1,717 $2,105
Other real estate ................................... 2,007 1,418
Total non-performing assets ......................... 3,724 3,523
Loans 90 days or more past due and still accruing ... 1,780 2,109
Total problem assets ................................ $5,504 $5,632
Interest income that would have been recorded on nonaccrual loans for
the six months ended June 30, 1998 and 1997, had they performed in accordance
with their original terms, amounted to approximately $94,746 and $61,616,
respectively. There was no interest income recorded on non-accrual loans for the
six months ended June 30, 1998 and 1997.
Other real estate increased primarily due to one loan foreclosed in the
first quarter of 1998 which was previously classified as 90 days past due or
more and still accruing. This loan was secured by collateral equal to the
carrying value of the loan.
Noninterest income for the three and six month periods ended June 30,
1998 increased approximately $764,000 or 33.85% and $1,116,000 or 24.96%,
respectively, over the comparable periods in 1997. The major components of this
increase were in other income which relates to higher mortgage loan income due
to increased loan originations and the one-time gain on the sale of the merchant
credit card program for approximately $385,000 which was recognized in April
1998. Other factors contributing to this increase were higher trust income
primarily due to higher levels of assets under management, higher commissions
earned on brokerage services resulting from increased sales volumes and higher
service charge income on deposit accounts due to increased non-sufficient fund
charges.
Noninterest expense for the three and six month periods ended June 30,
1998 increased approximately $1,294,000 or 24.13% and $2,245,000 or 21.38%,
respectively, over the comparable periods in 1997. The increase is primarily
attributable to higher salaries and fringe benefits due to a greater number of
full-time equivalents and commissions paid on increased mortgage and brokerage
service volumes. Occupancy and equipment expense also increased due to
depreciation expense for ongoing additions in computer network technology.
Additional increases were incurred in professional services, data processing and
postage expenses.
12
Total income tax expense for the three and six month periods ended June
30, 1998 increased approximately $100,000 or 8.1% and $181,000 or 7.5%,
respectively, over the comparable periods in 1997. The increases for the three
and six month periods ended June 30, 1998 are attributable to increases in
taxable income which were partially offset by a decrease in the effective tax
rate.
PENDING MERGER OF HFNC FINANCIAL CORP.
The Corporation and HFNC Financial Corporation ("HFNC") entered into a
definitive agreement and plan of merger (the "Merger Agreement") dated as of May
17, 1998, as amended and restated on July 29, 1998, for the Merger of HFNC by
the Corporation (the "Merger"). In the Merger, the Corporation will in exchange
for 0.57 of a share of common stock , no par value per share, of the Corporation
(the "Corporation's Common Stock") for each share of the outstanding shares of
common stock, $.01 par value per share, of HFNC (the "HFNC Common Stock"). As of
June 30, 1998, 17,192,500 shares of HFNC Common Stock were issued and
outstanding.
First Charter anticipates one-time merger and related charges of $19.7
million ($16.3 million, net of tax effects) in connection with the Merger.
Dissolution of the HFNC Employee Stock Option Plan (the "ESOP") and the HFNC
Management Recognition and Retention Plan (the "MRRP") (representing $10.5
million of the $19.7 million) along with professional fees associated with the
transaction (including fixed financial advisor fees as well as attorneys' and
accountants' fees) are expected to represent the largest portion of the expenses
and charges, as well as estimated expenses associated with various
severance-related obligations.
The Merger is intended to qualify as a tax-free reorganization and is
anticipated to be accounted for as a pooling of interests. Consummation of the
Merger is subject to certain additional conditions, including but not limited
to, (i) the approval of shareholders of the Corporation and HFNC; (ii) the
approvals of applicable banking regulatory authorities; and (iii) the
effectiveness of a registration statement related to the Corporation's Common
Stock to be issued in the Merger.
On May 17, 1998, the Corporation and HFNC entered into reciprocal stock
option agreements (the "Option Agreements" and each "Option Agreement"),
pursuant to which (i) HFNC granted the Corporation an option to purchase, under
certain circumstances and subject to certain adjustments and limitations, up to
3,421,300 shares, or approximately 19.9% of the outstanding shares, of HFNC
Common Stock at a price of $13.63 per share (the "HFNC Option Agreement") and
(ii) the Corporation granted HFNC an option to purchase, under certain
circumstances and subject to certain adjustments and limitations, up to
1,859,970 shares, or approximately 19.9% of the outstanding shares, of the
Corporation's Common Stock at a price of $28.00 per share (the "Corporation's
Option Agreement"). Under the terms of each of the Option Agreements, the Total
Profit (as defined in the Option Agreements) and the Notional Total Profit (as
defined in the Option Agreements) that a holder may realize under each Option
Agreement, as a result of exercising the Option Agreement, may not exceed $7.5
million. The Option Agreements are exercisable upon the occurrence of certain
events that create the potential for another party to acquire control of the
issuer. To the best knowledge of the Corporation and HFNC, no such event which
would permit exercise of either of the Option Agreements has occurred as of the
date of this filing. The Option Agreements were granted by the Corporation and
HFNC as a condition of and in consideration of
13
the other party entering into the Merger Agreement and are intended to increase
the likelihood that the proposed merger will be effected by making it more
difficult and more expensive for a third party to acquire control of either the
Corporation or HFNC.
HFNC, a North Carolina corporation, is a savings and loan 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. As of June 30, 1998, HFNC had total
consolidated assets of $1,007.9 million, total consolidated loans of
approximately $813.4 million, total consolidated deposits of approximately
$430.5 million, and total consolidated shareholders' equity of $170.9 million.
Also, as of such date, Home Federal conducted its business from its main office,
eight branch offices, and a loan origination office, all located in Mecklenburg
County, North Carolina.
On July 17, 1998, the Corporation and HFNC announced that in conjunction
with the Merger, they intended to purchase in the open market up to 750,000
shares of the Corporation's Common Stock, or on an equivalent basis, shares of
HFNC Common Stock. This amount would represent approximately 7.7% of the shares
of the Corporation's Common Stock anticipated to be issued in the Merger. Such
purchases would be made in accordance with Regulation M and could be
discontinued at any time.
As of August 7, 1998, the Corporation completed its repurchases totaling
125,117 shares of its Common Stock and 1,004,000 shares (572,280 shares on an
equivalent basis) of HFNC Common Stock.
YEAR 2000 CONSIDERATION
Year 2000 Compliance
The Corporation recognizes the potentially severe implications of the
"Year 2000 Issue" and is actively pursuing solutions. The "Year 2000 Issue" is a
general term used to describe the various problems that may result from the
improper processing of dates and date-sensitive calculations by computers and
other machinery as the Year 2000 approaches. These problems generally arise
because most computer hardware and software historically have used only two
digits to identify the applicable year. Since there may be no accommodation for
the full four-digit year, computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
error could result in system failure or miscalculations causing disruption of
operations, including among other things a temporary inability to process
customer transactions, properly accrue interest income and expense or engage in
similar normal business activities. In addition, non-banking systems, such as
security alarms, telephones, vaults, etc. are also subject to malfunction due to
their dependence upon software that utilizes special codes and conventions using
the date field.
14
The Board of Directors of the Corporation has approved a Year 2000
Action Plan ("Action Plan") that has been developed in accordance with the
Federal Financial Institutions Examination Council (FFIEC) guidelines. In the
implementation of the Action Plan, the Corporation has performed a thorough
inventory on all hardware, software and facilities that might be impacted by the
Year 2000 Issue. The Corporation does not perform in-house programming of its
software. Therefore, it is dependent upon its third-party vendors for
modifications or conversions of its existing systems to correct the effects of
the Year 2000 Issue. The Corporation is soliciting written documentation from
all of its software and hardware vendors, as well as the providers of facilities
using imbedded chip technology, with respect to their Year 2000 compliance
status. The validation phase of the Corporation's project includes the receipt
and analysis of vendor-performed testing, as well as the testing of all
hardware, software and facilities in the Corporate environment. The vendor of
the Corporation's core processing system has indicated to the Corporation that
its product will be tested and fully compliant no later than October 18, 1998,
and the Corporation receives updates on its progress on a regular basis.
Based upon the information currently available from vendors, the
Corporation currently anticipates that the renovation and validation phases of
its Year 2000 project will be completed no later than December 31, 1998. If this
schedule is met, the Corporation anticipates conducting integrated data-exchange
testing during the first quarter of 1999.
The Corporation also has developed a communication and assessment plan
for its customers. Pursuant to this plan, the Corporation is initiating contact
with its key customers to determine such customers' plans with respect to the
Year 2000 Issue and the Corporation's vulnerability to any such customer's
failure to remediate its own Year 2000 Issue. As most corporate customers depend
on computer systems that must be Year 2000 compliant, a disruption in their
businesses may result in potentially significant financial difficulties that
could affect their creditworthiness. The Corporation is also initiating contact
with key suppliers to determine their plan with respect to the Year 2000 Issue.
There can be no guarantee that customers and suppliers will convert their
systems on a timely basis or in a manner that is compatible with the
Corporation's systems. Significant business interruptions or failures by key
business customers, suppliers, trading partners or governmental agencies
resulting from the effects of the Year 2000 Issue could have a material adverse
effect on the Corporation.
The expected cost to the Corporation of the Year 2000 project is
currently estimated at $250,000 for hardware, software and facilities upgrades,
customer communications, testing and other items required to pursue the Action
Plan. All remediation costs will be expensed in the year incurred and will be
funded through normal operating cash flow. Year 2000 project costs during the
six months ended June 30, 1998 were not material.
Management of the Corporation believes that the potential effects on the
Corporation's internal operations of the Year 2000 Issue can be mitigated on
timely basis. However, if required modifications or conversions are not made or
are not completed on a timely basis, the Year 2000 Issue could disrupt normal
business operations and have a material adverse impact on the Corporation.
Contingency plans are being developed to mitigate the potential effects
of a disruption in normal business operations. Contingency planning includes
developing alternative solutions
15
should a vendor not become compliant, as well as plans for the resumption of
business if, despite the Corporation's best efforts, a business operation
disruption occurs.
The costs of the Year 2000 project and the schedule for achieving
Year 2000 compliance are based on management's best estimates, which were
derived using numerous assumptions of future events such as the availability of
certain resources (including internal and external resources (including
appropriately trained personnel)), third-party vendor plans and other factors.
However, there can be no guarantee that these estimates will be achieved at the
cost disclosed or within the timeframes indicated, and actual results could
differ materially from these plans. Factors that might affect the timely and
efficient completion of the Corporation's Year 2000 project include, but are not
limited to, vendors' abilities to adequately correct or convert software and the
effect on the Corporation's ability to test its systems, the availability and
cost of personnel trained in the Year 2000 area, the ability to identify and
correct all relevant computer programs, the readiness of key utilities,
suppliers and customers, and similar uncertainties.
ACCOUNTING AND REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for the
way that business enterprises report information about operating segments in
annual financial statements and requires that these enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 31, 1997 and requires restatement of all prior periods
presented. The implementation of the statement will not have an impact on the
consolidated financial position or consolidated results of operations of the
Corporation, but the statement could require additional disclosures to be made.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits". The new statement revises an
employer's disclosure with respect to pension obligations and other
postretirement benefit plans but does not change the measurement or recognition
provisions of those plans. SFAS No. 132 provides additional information to
facilitate financial analysis and eliminates certain disclosures which are no
longer useful. The implementation of the statement is effective for fiscal years
beginning after December 15, 1997. The statement is not expected to have a
material impact on the consolidated financial statements of the Corporation.
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
fiscal quarters of fiscal years beginning after June 15, 1998. Earlier
application of all provisions of this statement is encouraged. The Corporation
plans to adopt this statement on January 1, 2000 and does not anticipate any
material effect on its consolidated financial statements.
16
From time to time, the 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 and proposed effective
dates of exposure draft.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The foregoing discussion contains certain forward-looking statements
about the Corporation's financial condition and results of operations, which are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgment only as of the date hereof. The
Corporation undertakes no obligation to publicly revise these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
Factors that may cause actual results to differ materially from these
forward-looking statements include, but are not limited to, the passage of
unforeseen state or federal legislation or regulation applicable to the
Corporation's operations, the Corporation's ability to accurately predict the
adequacy of the loan loss allowance needs using its present risk grading system,
the ability to generate liquidity if necessary to meet loan demand, the ability
to manage unforeseen domestic and global rapid changes in interest rates, the
reliance on third party vendors to become Year 2000 compliant and, the
availability of resources for the Corporation, or its vendors and customers, to
complete their respective Year 2000 compliance effectively, and, with respect to
the estimated merger-related expenses, the inability to consummate the Merger by
the end of the third quarter of 1998 or the inability of First Charter to
effectively consolidate the operations of HFNC with those of First Charter or to
achieve operating efficiencies as soon as anticipated.
17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The following table presents the scheduled maturity of market risk
sensitive instruments at June 30, 1998:
(Dollars in thousands)
There
Maturing in: 1 Year 2 Years 3 Years 4 Years 5 Years -after Total
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Debt securities .................. $ 18,299 $ 23,342 $ 15,048 $ 18,270 $ 17,330 $ 53,740 $146,029
Loans ............................ 142,110 74,452 79,730 57,889 51,881 155,418 561,480
--------------------------------------------------------------------------------------------
Total ............................ $160,409 $ 97,794 $ 94,778 $ 76,159 $ 69,211 $209,158 $707,509
============================================================================================
LIABILITIES
Savings, NOW, Demand and IMMA's .. $402,869 $ -- $ -- $ -- $ -- $ -- $402,869
CD's ............................. 213,936 25,709 7,440 71 112 75 247,343
Short-term Borrowings ............ 51,473 -- -- -- -- -- 51,473
Long-term Borrowings ............. -- -- 1,000 -- 550 510 2,060
--------------------------------------------------------------------------------------------
Total ............................ $668,278 $ 25,709 $ 8,440 $ 71 $ 662 $ 585 $703,745
============================================================================================
The following table presents the average interest rate and estimated fair value
of market risk sensitive instruments at June 30, 1998:
Average Estimated
(Dollars in thousands) Total Interest Rate Fair Value
- ----------------------------------------------------------------------------------------------------------
ASSETS
Debt Securities ......................... $146,029 6.84% $148,956
Loans ................................... 561,480 9.05 561,480
-------------------------------------------------------
Total ................................... $707,509 8.59% $710,436
=======================================================
LIABILITIES
Savings, NOW, Demand and IMMA's ......... $402,869 3.10% $402,869
CD's .................................... 247,343 5.48 245,913
Short-term Borrowings ................... 51,473 5.50 51,473
Long-term Borrowings .................... 2,060 6.66 2,060
-------------------------------------------------------
Total ................................... $703,745 4.12% $702,315
=======================================================
18
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Registrant periodically issues unregistered shares of its Common
Stock to key employees pursuant to the exercise of options granted under its
Comprehensive Stock Option Plan pursuant to the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933, as amended. During the
quarter ended June 30, 1998, the Registrant issued the following shares pursuant
to such option exercises:
On April 16, 1998, the Registrant issued 100 shares for an aggregate of
$1,226.00.
On April 22, 1998, the Registrant issued 100 shares for an aggregate
of $1,885.00.
Item 4. Submission of matters to a Vote of Security Holders.
(a) First Charter Corporation's Annual Meeting of Shareholders was
held on April 28, 1998.
(b) The following directors were elected for three-year terms
expiring in 2001:
For Withholding
------------------------
J. Knox Hillman, Jr. 6,713,085 47,998
--------- -------
Lawrence M. Kimbrough 6,713,085 47,998
--------- -------
Dr. Jerry E. McGee 6,713,055 48,028
--------- -------
Thomas R. Revels 6,597,007 164,076
--------- -------
For a two-year term expiring in 2000:
For Withholding
------------------------
Charles F. Harry, III 6,713,085 47,998
--------- ---------
For one-year terms expiring in 1999:
For Withholding
------------------------
T. Carl Dedmon 6,702,487 58,597
--------- ------
John J. Godbold, Jr. 6,703,125 57,959
--------- ------
19
The following directors' terms of office continued after the Annual Meeting:
Michael R. Coltrane
J. Roy Davis, Jr.
James B. Fincher
Hugh M. Morrison
William R. Black
H. Clark Goodwin
Frank H. Hawfield, Jr.
A brief description of the other matters (exclusive of procedural
matters) voted upon at the meeting is set forth below:
A motion to approve the Corporation's 1999 Employee Stock Purchase
Plan was adopted by a vote of the majority of the shares of the Corporation's
Common Stock present or represented by proxy and entitled to vote, as follows:
For: 7,384,243
---------
Against: 65,408
---------
Abstained: 79,333
---------
Broker Non-Votes: 159,388
---------
A motion to ratify the action of the Board of Directors in selection
of KPMG Peat Marwick LLP as independent public accountants for 1998 was adopted
by a vote of the majority of the votes cast with respect to shares of the
Corporation's Common Stock, as follows:
For: 7,629,806
---------
Against: 22,645
---------
Abstained: 35,345
---------
Broker Non-Votes: 159,388
---------
Item 5. Other Information
On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4 promulgated under the Securities Exchange Act of
1934, as amended, which governs a company's use of its discretionary proxy
voting authority with respect to certain shareholder proposals raised at a
shareholders' meeting. For the Corporation's 1999 Annual Meeting of
Shareholders, if the Corporation receives notice of a shareholder proposal
after February 2, 1999, such notice will be considered untimely. Therefore,
the persons named in proxies solicited by the Board of Directors, if any,
may exercise discretionary voting power with respect to such proposal.
20
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
2.1 Agreement and Plan of Merger dated May 17, 1998, as Amended and
Restated as of July 29, 1998, between the Registrant and HFNC
Financial Corp. incorporated herein by reference to Exhibit A of
the Registrant's Registration Statement filed July 31, 1998 on
Form S-4 (Commission File No. 333-60449).
3.1 Amended and Restated Articles of Incorporation 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, 1997 (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).
10 Stock Option Agreement, dated as of May 17, 1998, issued by First
Charter Corporation to HFNC Financial Corp. and Stock Option
Agreement, dated as of May 17, 1998, issued by HFNC Financial
Corp. to First Charter Corporation incorporated herein by
reference to Exhibit 2.2 and 2.3, respectively, of the
Registrant's Registration Statement filed July 31, 1998 on Form
S-4 (Commission File No. 333-60449)
11 Statement regarding computation of per share earnings.
27 Financial Data Schedules
21
(b) Reports on Form 8-K
(i) On April 15, 1998, the Registrant filed a Current Report on Form
8-K, reporting pursuant to Item 5 thereof its earnings for the fiscal
quarter ended March 31, 1998.
(ii) On May 28, 1998, the Registrant filed a Current Report on Form
8-K, reporting pursuant to Item 5 thereof the proposed Merger of HFNC
pursuant to an Agreement and Plan of Merger entered into on May 17,
1998. On August 4, 1998, the Registrant filed a Current Report on Form
8-K/A-1, amending the Current Report on Form 8-K filed on May 28, 1998
to include following historical financial statements of HFNC and
certain pro forma financial information related to the proposed Merger:
Consolidated Statements of Financial Position of HFNC as of June 30,
1997 and 1996.
Consolidated Statements of Income of HFNC for the years ended June 30,
1997, 1996 and 1995.
Consolidated Statements of Changes in Equity of HFNC for the years
ended June 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows of HFNC for the years ended June
30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements of HFNC for the years ended
June 30, 1997 and 1996.
Reports of Deloitte & Touche LLP, independent auditors, on the
Consolidated Financial Statements of HFNC as of June 30, 1997 and 1996
and for each of the years in the three-year period ended June 30,
1997.
Unaudited Consolidated Condensed Balance Sheets of HFNC as of March 31,
1998 and June 30, 1997.
Unaudited Consolidated Condensed Statements of Income of HFNC for the
three and nine months ended March 31, 1998 and 1997.
Unaudited Consolidated Condensed Statements of Changes in Shareholders'
Equity of HFNC for the nine months ended March 31, 1998 and 1997.
Notes to Unaudited Condensed Consolidated Condensed Financial
Statements of HFNC for certain financial periods ended March 31,1998.
Unaudited Pro Forma Condensed Balance Sheet as of March 31, 1998.
22
Unaudited Pro Forma Condensed Statement of Earnings for the three
months ended March 31, 1998 and 1997 and for the years ended December
31, 1997, 1996, and 1995.
Notes to the Unaudited March 31, 1998 Pro Forma Condensed Financial
Information.
(iii) On July 10, 1998, the Registrant filed a Current Report on Form
8-K, reporting pursuant to Item 5 thereof its earnings for the fiscal
quarter ended June 30, 1998.
(iv) On July 17, 1998, the Registrant filed a Current Report on Form
8-K, reporting pursuant to Item 5 thereof a stock repurchase program
announced by the Registrant and HFNC, in connection with the proposed
Merger.
23
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)
By \s\ Robert O. Bratton
---------------------
Robert O. Bratton
Date: August 14, 1998
Executive Vice President &
Principal Financial and
Accounting Officer
24
EXHIBIT INDEX
Exhibit No.
(per Exhibit Table
in item 601 of Sequential
Regulation S-K) Description of Exhibits Page Number
11 Statement regarding computation of per share earnings.
27 Financial Data Schedules
25