FIRST CHARTER CORP /NC/ - 10-Q Quarterly Report

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 March 31, 2004

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 May 5, 2004 the Registrant had outstanding 29,753,992 shares of Common Stock, no par value.

First Charter Corporation

Form 10-Q for the Quarterly Period Ended March 31, 2004

INDEX


			Page

Part I	Item 1.	Financial Statements:
Financial Information		Consolidated Balance Sheets at March 31, 2004 and December 31, 2003	2

		Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003	3

		Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2004 and 2003	4

		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003	5

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

	Item 4.	Controls and Procedures	41

Part II
Other Information	Item 1.	Legal Proceedings	41

	Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	41

	Item 3.	Defaults Upon Senior Securities	42

	Item 4.	Submission of Matters to a Vote of Security Holders	42

	Item 5.	Other Information	42

	Item 6.	Exhibits and Reports on Form 8-K	42

	Signature		44

PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

First Charter Corporation and Subsidiaries
Consolidated Balance Sheets

March 31

December 31

2004

2003

(Dollars in thousands, except share data)

(Unaudited)

Assets:

Cash and due from banks

75,040

88,564

Federal funds sold

1,723

1,311

Interest bearing bank deposits

17,951

23,631

Cash and cash equivalents

94,714

113,506

Securities available for sale (cost of $1,604,576 and $1,591,803; carrying amount of pledged collateral $1,171,550 and $1,129,474)

1,622,967

1,601,900

Loans held for sale

17,969

5,137

Loans

2,280,075

2,252,804

Less: Unearned income

(209

)

(167

)

Allowance for loan losses

(25,736

)

(25,607

)

Loans, net

2,254,130

2,227,030

Premises and equipment, net

95,142

95,756

Other assets

162,939

163,364

Total assets

4,247,861

4,206,693

Liabilities:

Deposits, domestic:

Noninterest bearing demand

353,133

326,679

Interest bearing

2,154,309

2,101,218

Total deposits

2,507,442

2,427,897

Other borrowings

1,377,374

1,432,200

Other liabilities

54,308

47,157

Total liabilities

3,939,124

3,907,254

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 29,748,180 and 29,720,163 shares

115,731

115,270

Common stock held in Rabbi Trust for deferred compensation

(706

)

(636

)

Deferred compensation payable in common stock

706

636

Retained earnings

181,747

178,008

Accumulated other comprehensive income:

Unrealized gain on securities available for sale, net

11,259

6,161

Total shareholders’ equity

308,737

299,439

Total liabilities and shareholders’ equity

4,247,861

4,206,693

See accompanying notes to consolidated financial statements.

First Charter Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)


		For the Three Months
		Ended March 31

(Dollars in thousands, except share and per share data)		2004			2003

Interest income:
Loans		$	29,193		$	30,291
Federal funds sold			3			5
Interest bearing bank deposits			44			180
Securities			15,990			14,892

	Total interest income		45,230			45,368

Interest expense:
Deposits			8,125			11,465
Federal funds purchased and securities sold under agreements to repurchase			583			492
Federal Home Loan Bank and other borrowings			6,149			6,828

	Total interest expense		14,857			18,785

Net interest income			30,373			26,583
Provision for loan losses			3,000			2,051

Net interest income after provision for loan losses			27,373			24,532

Noninterest income:
Service charges on deposit accounts			5,605			5,130
Financial management income			1,502			578
Gain on sale of securities			326			1,226
Gain on sale of credit card loan portfolio			—			2,213
Loss from equity method investments			(224	)		(100	)
Mortgage services income			428			641
Brokerage services income			970			486
Insurance services income			3,031			2,437
Trading gains			109			1,164
Bank owned life insurance			850			946
Gain on sale of properties			777			—
Other			1,291			818

	Total noninterest income		14,665			15,539


Noninterest expense:
Salaries and employee benefits			15,023			13,726
Occupancy and equipment			4,237			4,166
Data processing			862			678
Marketing			1,118			1,153
Postage and supplies			1,271			1,136
Professional services			2,712			1,772
Telephone			494			603
Amortization of intangibles			118			85
Other			2,473			2,714

	Total noninterest expense		28,308			26,033

Income before income taxes			13,730			14,038
Income tax expense			4,490			4,092

Net income		$	9,240		$	9,946


Net income per share:
	Basic	$	0.31		$	0.33
	Diluted	$	0.31		$	0.33
Weighted average shares:
	Basic		29,738,553			30,006,417
	Diluted		30,029,056			30,188,853

See accompanying notes to consolidated financial statements.

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, 2002				30,069,147		$	122,870		$	(476	)	$	476	$	185,900		$	15,916		$	324,686
Comprehensive income:
	Net income			—			—			—			—		9,946			—			9,946
	Unrealized loss on securities available for sale, net			—			—			—			—		—			(1,235	)		(1,235	)

		Total comprehensive income																			8,711
Common stock purchased by Rabbi Trust for deferred compensation				—			—			(44	)		—		—			—			(44	)
Deferred compensation payable in common stock				—			—			—			44		—			—			44
Cash dividends				—			—			—			—		(5,548	)		—			(5,548	)
Stock options exercised				46,742			672			—			—		—			—			672
Purchase and retirement of common stock				(125,000	)		(2,450	)		—			—		—			—			(2,450	)

Balance, March 31, 2003				29,990,889		$	121,092		$	(520	)	$	520	$	190,298		$	14,681		$	326,071


Balance, December 31, 2003				29,720,163		$	115,270		$	(636	)	$	636	$	178,008		$	6,161		$	299,439
Comprehensive income:
	Net income			—			—			—			—		9,240			—			9,240
	Unrealized gain on securities available for sale, net			—			—			—			—		—			5,098			5,098

		Total comprehensive income																			14,338
Common stock purchased by Rabbi Trust for deferred compensation				—			—			(70	)		—		—			—			(70	)
Deferred compensation payable in common stock				—			—			—			70		—			—			70
Cash dividends				—			—			—			—		(5,501	)		—			(5,501	)
Stock options exercised				28,017			461			—			—		—			—			461

Balance, March 31, 2004				29,748,180		$	115,731		$	(706	)	$	706	$	181,747		$	11,259		$	308,737

See accompanying notes to consolidated financial statements.

First Charter Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)


		Three Months
		Ended March 31

(Dollars in thousands)		2004			2003

Cash flows from operating activities:
Net income		$	9,240		$	9,946
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Provision for loan losses		3,000			2,051
	Depreciation		2,250			2,308
	Amortization of intangibles		118			85
	Premium amortization and discount accretion, net		929			1,138
	Net gain on securities available for sale transactions		(326	)		(1,226	)
	Net (gain) loss on sale of foreclosed assets		(45	)		63
	Net loss on sale of equipment		1			62
	Gain on sale of credit card loan portfolio		—			(2,213	)
	Loss from equity method investments		224			100
	Net gain on sale property		(777	)		—
	Origination of mortgage loans held for sale		(18,903	)		(84,142	)