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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-15829

FIRST CHARTER CORPORATION

(Exact name of registrant as specified in its charter)
     
North Carolina
(State or other jurisdiction of
incorporation or organization)		   56-1355866
(I.R.S. Employer
Identification Number)
     
10200 David Taylor Drive, Charlotte, NC
(Address of Principal Executive Offices)		   28262-2373
(Zip Code)

Registrant’s telephone number, including area code (704) 688-4300

     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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes x   No o

     As of November 6, 2003 the Registrant had outstanding 29,653,239 shares of Common Stock, no par value.

 

 

First Charter Corporation

Form 10-Q for the Quarterly Period Ended September 30, 2003

INDEX

             
            Page
           
Part I
Financial Information		   Item 1.   Financial Statements:    
        Consolidated Balance Sheets at September 30, 2003 and December 31, 2002   2
        Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002   3
        Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2003 and 2002   4
        Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002   5
        Notes to Consolidated Financial Statements   6
    Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   16
    Item 3.   Quantitative and Qualitative Disclosures about Market Risk   44
    Item 4.   Controls and Procedures   44
Part II
Other Information		   Item 1.   Legal Proceedings   44
    Item 2.   Changes in Securities and Use of Proceeds   44
    Item 3.   Defaults Upon Senior Securities   44
    Item 4.   Submission of Matters to a Vote of Security Holders   44
    Item 5.   Other Information   45
    Item 6.   Exhibits and Reports on Form 8-K   45
        Signature   46

 

 

PART 1. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

First Charter Corporation and Subsidiaries

Consolidated Balance Sheets
                         
            September 30   December 31
            2003   2002
           
 
(Dollars in thousands, except share data)   (Unaudited)        
Assets:
                
Cash and due from banks
   $ 84,468     $ 162,087  
Federal funds sold
     2,004       1,154  
Interest bearing bank deposits
     42,560       6,609  
 
    
     
 
 
Cash and cash equivalents
     129,032       169,850  
 
    
     
 
Securities available for sale (cost of $1,597,220 and $1,103,107; carrying amount of pledged collateral $1,175,940 and $735,208)
     1,603,262       1,129,212  
Loans held for sale
     14,784       158,404  
Loans
     2,109,481       2,072,717  
 
Less:
  
Unearned income
     (190 )     (247 )
       
Allowance for loan losses
     (23,953 )     (27,204 )
 
    
     
 
 
Loans, net
     2,085,338       2,045,266  
 
    
     
 
Premises and equipment, net
     96,097       94,647  
Other assets
     159,454       148,570  
 
    
     
 
   
Total assets
   $ 4,087,967     $ 3,745,949  
 
    
     
 
Liabilities:
                
Deposits, domestic:
                
 
Noninterest bearing demand
   $ 337,409     $ 305,924  
 
Interest bearing
     2,144,173       2,016,723  
 
    
     
 
   
Total deposits
     2,481,582       2,322,647  
 
    
     
 
Other borrowings
     1,261,412       1,042,440  
Other liabilities
     42,710       56,176  
 
    
     
 
   
Total liabilities
     3,785,704       3,421,263  
 
    
     
 
Shareholders’ equity:
                
Preferred stock — no par value; authorized 2,000,000 shares; no shares issued and outstanding
     —       —  
Common stock — no par value; authorized 100,000,000 shares; issued and outstanding 29,643,114 and 30,069,147 shares
     114,578       122,870  
Common stock held in Rabbi Trust for deferred compensation
     (622 )     (476 )
Deferred compensation payable in common stock
     622       476  
Retained earnings
     183,999       185,900  
Accumulated other comprehensive income:
                
 
Unrealized gain on securities available for sale, net
     3,686       15,916  
 
    
     
 
   
Total shareholders’ equity
     302,263       324,686  
 
    
     
 
     
Total liabilities and shareholders’ equity
   $ 4,087,967     $ 3,745,949  
 
    
     
 

See accompanying notes to consolidated financial statements.

2

 

First Charter Corporation and Subsidiaries

Consolidated Statements of Income
(Unaudited)
                                   
      For the Three Months   For the Nine Months
      Ended September 30   Ended September 30
     
 
(Dollars in thousands, except share and per share data)   2003   2002   2003   2002
     
 
 
 
Interest income:
                                
Loans
   $ 28,936     $ 34,716     $ 89,731     $ 101,028  
Federal funds sold
     6       5       17       14  
Interest bearing bank deposits
     91       45       430       106  
Securities
     14,200       15,016       43,564       47,107  
 
    
     
     
     
 
 
Total interest income
     43,233       49,782       133,742       148,255  
 
    
     
     
     
 
Interest expense:
                                
Deposits
     9,963       12,498       33,095       38,941  
Federal funds purchased and securities sold under agreements to repurchase
     590       586       1,633       1,777  
Federal Home Loan Bank and other borrowings
     6,480       7,733       20,192       22,414  
 
    
     
     
     
 
 
Total interest expense
     17,033       20,817       54,920       63,132  
 
    
     
     
     
 
Net interest income
     26,200       28,965       78,822       85,123  
Provision for loan losses
     2,400       1,750       23,943       6,095  
 
    
     
     
     
 
Net interest income after provision for loan losses
     23,800       27,215       54,879       79,028  
Noninterest income:
                                
Service charges on deposit accounts
     5,674       4,689       16,375       14,135  
Financial management income
     1,400       566       2,466       1,913  
Gain on sale of securities
     270       1,416       9,782       6,168  
Gain on sale of credit card loan portfolio
     49       —       2,262       —  
Income (loss) from equity method investments
     78       (2,525 )     (298 )     (5,461 )
Mortgage services income
     1,329       504       2,613       1,320  
Brokerage services income
     861       640       2,159       1,697  
Insurance services income
     2,327       2,313       6,993       6,658  
Trading gains
     158       298       1,754       1,040  
Bank owned life insurance
     992       —       2,905       —  
Gain on sale of properties
     382       —       382       1,013  
Other
     1,324       829       3,270       2,869  
 
    
     
     
     
 
 
Total noninterest income
     14,844       8,730       50,663       31,352  
 
    
     
     
     
 
Noninterest expense:
                                
Salaries and employee benefits
     13,277       11,988       39,588       38,093  
Occupancy and equipment
     4,079       3,839       12,158       12,264  
Data processing
     712       758       2,024       2,208  
Marketing
     1,173       630       3,487       1,904  
Postage and supplies
     982       967       3,270       3,234  
Professional services
     3,158       1,393       8,160       4,774  
Telephone
     584       461       1,700       1,575  
Amortization of intangibles
     127       88       289       278  
Prepayment costs on borrowings
     —       —       7,366       —  
Other
     2,451       1,616       7,587       5,811  
 
    
     
     
     
 
 
Total noninterest expense
     26,543       21,740       85,629       70,141  
 
    
     
     
     
 
Income before income taxes
     12,101       14,205       19,913       40,239  
Income tax expense
     3,207       3,878       5,277       10,985  
 
    
     
     
     
 
Net income
   $ 8,894     $ 10,327     $ 14,636     $ 29,254  
 
    
     
     
     
 
Net income per share:
                                
 
Basic
   $ 0.30     $ 0.34     $ 0.49     $ 0.95  
 
Diluted
   $ 0.30     $ 0.34     $ 0.49     $ 0.95  
Weighted average shares:
                                
 
Basic
     29,672,137       30,379,838       29,825,313       30,667,773  
 
Diluted
     29,904,440       30,506,426       30,020,709       30,864,476  

See accompanying notes to consolidated financial statements.

3

 

First Charter Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity
(Unaudited)
                                                           
                      Common Stock                        
                      held in Rabbi   Deferred           Accumulated
      Common Stock   Trust for   Compensation           Other        
     
  Deferred   Payable in   Retained   Comprehensive
(Dollars in thousands, except share data)   Shares   Amount   Compensation   Common Stock   Earnings   Income   Total
     
 
 
 
 
 
 
Balance, December 31, 2001
     30,742,532     $ 135,167     $ (388 )   $ 388     $ 168,334     $ 5,840     $ 309,341  
Comprehensive income:
                                                        
 
Net income
     —       —       —       —       29,254       —       29,254  
 
Unrealized gain on securities available for sale, net
     —       —       —       —       —       13,798       13,798  
 
                                                    
 
 
Total comprehensive income
                                                     43,052  
Common stock purchased by Rabbi Trust for deferred compensation
     —       —       (59 )     —       —       —       (59 )
Deferred compensation payable in common stock
     —       —       —       59       —       —       59  
Cash dividends
     —       —       —       —       (16,676 )     —       (16,676 )
Stock options exercised
     95,662       1,033       —       —       —       —       1,033  
Purchase and retirement of common stock
     (698,600 )     (11,995 )     —       —       —       —       (11,995 )
 
    
     
     
     
     
     
     
 
Balance, September 30, 2002
     30,139,594     $ 124,205     $ (447 )   $ 447     $ 180,912     $ 19,638     $ 324,755  
 
    
     
     
     
     
     
     
 
Balance, December 31, 2002
     30,069,147     $ 122,870     $ (476 )   $ 476     $ 185,900     $ 15,916     $ 324,686  
Comprehensive income:
                                                        
 
Net income
     —       — &n