UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2005

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		56-1355866
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

10200 David Taylor Drive, Charlotte, NC		28262-2373
(Address of Principal Executive Offices)		(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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

     As of August 8, 2005 the Registrant had outstanding 30,573,238 shares of Common Stock, no par value.

 

 

First Charter Corporation

Form 10-Q for the Quarterly Period Ended June 30, 2005

INDEX

						Page
Part I		Item 1.		Financial Statements:
Financial Information				Consolidated Balance Sheets at June 30, 2005 and December 31, 2004			3
				Consolidated Statements of Income for the Three and Six Months Ended June 30, 2005 and 2004			4
				Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2005 and 2004			5
				Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004			6
				Notes to Consolidated Financial Statements			7
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk			42
		Item 4.		Controls and Procedures			42
Part II
Other Information		Item 1.		Legal Proceedings			42
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			43
		Item 3.		Defaults Upon Senior Securities			43
		Item 4.		Submission of Matters to a Vote of Security Holders			44
		Item 5.		Other Information			44
		Item 6.		Exhibits			45
		Signature					46

Item 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets

		June 30				December 31
		2005				2004
(Dollars in thousands, except share data)		(Unaudited)
Assets:
Cash and due from banks		$	104,886			$	90,238
Federal funds sold			2,250				1,589
Interest bearing bank deposits			3,167				6,184
Cash and cash equivalents			110,303				98,011
Securities available for sale (cost of $1,430,770 and $1,660,703; carrying amount of pledged collateral $1,009,276 and $1,140,234)			1,412,885				1,652,732
Loans held for sale			8,159				5,326
Loans			2,858,372				2,439,692
Less: Unearned income			(213	)			(291	)
Allowance for loan losses			(29,032	)			(26,872	)
Loans, net			2,829,127				2,412,529
Premises and equipment, net			100,981				97,565
Goodwill and other intangible assets			21,386				21,594
Other assets			150,395				143,848
Total assets		$	4,633,236			$	4,431,605
Liabilities:
Deposits, domestic:
Noninterest bearing demand		$	406,982			$	377,793
Interest bearing			2,344,403				2,232,053
Total deposits			2,751,385				2,609,846
Short-term borrowings			880,406				685,998
Long-term borrowings			622,916				763,738
Other liabilities			50,831				57,336
Total liabilities			4,305,538				4,116,918
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 30,533,551 and 30,054,256 shares			129,987				121,464
Common stock held in Rabbi Trust for deferred compensation			(856	)			(808	)
Deferred compensation payable in common stock			856				808
Retained earnings			208,534				198,085
Accumulated other comprehensive loss:
Unrealized loss on securities available for sale, net			(10,823	)			(4,862	)
Total shareholders’ equity			327,698				314,687
Total liabilities and shareholders’ equity		$	4,633,236			$	4,431,605

See accompanying notes to consolidated financial statements.

First Charter Corporation and Subsidiaries

Consolidated Statements of Income
(Unaudited)

		For the Three Months								For the Six Months
		Ended June 30								Ended June 30
(Dollars in thousands, except share and per share data)		2005				2004				2005				2004
Interest income:
Loans		$	41,965			$	29,285			$	78,411			$	58,478
Federal funds sold			12				3				21				6
Interest bearing bank deposits			26				39				69				83
Securities			13,601				15,579				28,385				31,569
Total interest income			55,604				44,906				106,886				90,136
Interest expense:
Deposits			12,210				8,619				22,724				16,744
Federal funds purchased and securities sold under agreements to repurchase			2,801				600				4,127				1,183
Federal Home Loan Bank and other borrowings			9,304				5,655				18,171				11,804
Total interest expense			24,314				14,874				45,022				29,731
Net interest income			31,290				30,032				61,864				60,405
Provision for loan losses			2,878				2,000				4,778				5,000
Net interest income after provision for loan losses			28,412				28,032				57,086				55,405
Noninterest income:
Service charges on deposit accounts			7,061				6,346				13,297				11,951
Financial management income			1,596				1,545				3,176				3,047
Gain (loss) on sale of securities			18				494				(31	)			820
Loss from equity method investments			(174	)			(76	)			(232	)			(300	)
Mortgage services income			817				596				1,211				1,024
Brokerage services income			793				902				1,595				1,872
Insurance services income			3,099				2,634				6,611				5,665
Bank owned life insurance			1,762				847				2,589				1,697
Gain on sale of properties			188				—				717				777
Other			2,157				1,602				4,198				3,002
Total noninterest income			17,317				14,890				33,131				29,555
Noninterest expense:
Salaries and employee benefits			15,908				14,368				31,477				29,391
Occupancy and equipment			4,687				4,379				9,068				8,616
Data processing			1,333				1,006				2,654				1,868
Marketing			1,065				1,126				2,145				2,244
Postage and supplies			1,187				1,306				2,395				2,577
Professional services			1,984				2,361				3,897				5,073
Telephone			551				507				1,079				1,001
Amortization of intangibles			126				96				257				214
Other			2,523				2,536				5,261				5,009
Total noninterest expense			29,364				27,685				58,233				55,993
Income before income taxes			16,365				15,237				31,984				28,967
Income tax expense			5,085				4,982				10,395				9,472
Net income		$	11,280			$	10,255			$	21,589			$	19,495
Net income per share:
Basic		$	0.37			$	0.34			$	0.71			$	0.65
Diluted		$	0.37			$	0.34			$	0.71			$	0.65
Weighted average shares:
Basic			30,409,307				29,763,619				30,285,244				29,765,952
Diluted			30,679,636				30,067,462				30,607,931				30,061,529

See accompanying notes to consolidated financial statements.

Consolidated Statements of Shareholders’ Equity
(Unaudited)

										Common Stock
										held in Rabbi				Deferred								Accumulated
										Trust for				Compensation								Other
		Common Stock								Deferred				Payable in				Retained				Comprehensive
(Dollars in thousands, except share data)		Shares				Amount				Compensation				Common Stock				Earnings				Income (Loss)				Total
Balance, December 31, 2003			29,720,163			$	115,270			$	(636	)		$	636			$	178,008			$	6,161			$	299,439
Comprehensive income (loss):
Net income			—				—				—				—				19,495				—				19,495
Unrealized loss on securities available for sale, net			—				—				—				—				—				(24,977	)			(24,977	)
Total comprehensive loss																											(5,482	)
Common stock purchased by Rabbi Trust for deferred compensation			—				—				(103	)			—				—				—				(103	)
Deferred compensation payable in common stock			—				—				—				103				—				—				103
Cash dividends			—				—				—				—				(11,007	)			—				(11,007	)
Stock options exercised			48,823				831				—				—				—				—				831
Balance, June 30, 2004			29,768,986			$	116,101			$	(739	)		$	739			$	186,496			$	(18,816	)		$	283,781
Balance, December 31, 2004			30,054,256			$	121,464			$	(808	)		$	808			$	198,085			$	(4,862	)		$	314,687
Comprehensive income (loss):
Net income			—				—				—				—				21,589				—				21,589
Unrealized loss on securities available for sale, net			—				—				—				—				—				(5,961	)			(5,961	)
Total comprehensive income																											15,628
Common stock purchased by Rabbi Trust for deferred compensation			—				—				(48	)			—				—				—				(48	)
Deferred compensation payable in common stock			—				—				—				48				—				—				48
Cash dividends			—				—				—				—				(11,140	)			—				(11,140	)
Stock options exercised and Dividend Reinvestment Plan stock issued			464,778				8,175				—				—				—				—				8,175
Restricted stock issued			11,400				264				—				—				—				—				264
Other			3,117				84				—				—				—				—				84
Balance, June 30, 2005			30,533,551			$	129,987			$	(856	)		$	856			$	208,534			$	(10,823	)		$	327,698

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows
(Unaudited)

		Six Months
		Ended June 30
(Dollars in thousands)		2005				2004
Cash flows from operating activities:
Net income		$	21,589			$	19,495
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			4,778				5,000
Depreciation			4,897				4,551
Amortization of intangibles			257				214
Premium amortization and discount accretion, net			1,218				2,141
Net loss (gain) on securities available for sale transactions			31				(820	)
Net loss (gain) on sale of foreclosed assets			34				(48	)
Write-downs on foreclosed assets			128				—
Net loss on sale of equipment			—				64
Loss from equity method investments			232				300
Net gain on sale property			(717	)			(777	)
Payment on BOLI claims			(925	)			—
Origination of mortgage loans held for sale			(66,935	)			(56,606	)
Proceeds from sale of mortgage loans held for sale			64,102				13,689
Increase in cash surrender value of bank owned life insurance			(973	)			(1,697	)
Decrease in other assets			2,633				5,721
(Decrease) increase in other liabilities			(6,504	)			3,029
Net cash provided by (used in) operating activities			23,845				(5,744	)
Cash flows from investing activities:
Proceeds from sales of securities available for sale			165,413				38,023
Proceeds from maturities of securities available for sale			100,837				235,513
Purchase of securities available for sale			(37,566	)			(297,198	)
Net increase in loans			(426,608	)			(107,472	)
Proceeds from sale of loans			—				5,828
Proceeds from sales of other real estate			2,525				2,292
Net purchases of premises and equipment			(8,313	)			(3,498	)
Net cash used in investing activities			(203,712	)			(126,512	)
Cash flows from financing activities:
Net (decrease) increase in demand, money market and savings accounts			(1,656	)			145,485
Net increase in certificates of deposit			143,195				21,382
Net increase (decrease) in securities sold under repurchase agreements and other borrowings			53,585				(21,719	)
Proceeds from issuance of common stock			8,175				831
Dividends paid			(11,140	)			(11,007	)
Net cash provided by financing activities			192,159				134,972
Net increase in cash and cash equivalents			12,292				2,716
Cash and cash equivalents at beginning of period			98,011				113,506
Cash and cash equivalents at end of period		$	110,303			$	116,222
Supplemental disclosures of cash flow information:
Cash paid for interest		$	41,602			$	30,473
Cash paid for income taxes			16,264				9,410
Supplemental disclosure of non-cash transactions:
Transfer of loans and premises and equipment to other real estate			5,232				1,690
Unrealized loss on securities available for sale (net of tax effect of $3,954 and $15,966, respectively)			(5,961	)			(24,977	)
Loans held for sale securitized and transferred to the securities available for sale portfolio			—				21,286
Allowance related to loans sold			—				549

See accompanying notes to consolidated financial statements.

Notes to Interim Consolidated Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2005 and 2004

     First Charter Corporation (the “Corporation”) is a regional financial services company with assets of approximately $4.63 billion and is the holding company for First Charter Bank (“First Charter” or “the Bank”). The Bank is a full-service bank and trust company with 53 financial centers, two loan production offices, seven insurance offices and 110 ATMs located predominantly in the Charlotte Metro region of North Carolina. The Bank provides businesses and individuals with a broad range of financial services, including banking, financial planning, funds management, investments, insurance, mortgages and a full array of employee benefit programs.

Note One — Accounting Policies

     The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiary, the Bank. In consolidation, all intercompany accounts and transactions have been eliminated.

     The information contained in the consolidated financial statements, excluding information as of the fiscal year ended December 31, 2004, is unaudited. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

     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 interim periods. All such adjustments are of a normal and recurring nature. Certain amounts reported in prior periods have been reclassified to conform to the current period presentation. Such reclassifications have no effect on net income or shareholders’ equity as previously reported.

     The significant accounting policies followed by the Corporation are presented on pages 56 to 65 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004. With the exception of the Corporation’s newly adopted policy regarding trust-preferred securities, these policies have not materially changed from the disclosure in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.

Trust-Preferred Securities

     The Corporation formed First Charter Capital Trust I (the “Trust”), a wholly owned business trust, in June 2005. The Trust issued $35 million of trust-preferred securities (the “Trust Securities”) that were sold to a third party. The Trust is not consolidated by the Corporation, as it is not the primary beneficiary as defined by FIN 46R. These securities are mandatorily redeemable preferred security obligations of the Trust. The sole assets of the Trust are subordinated debentures of the Corporation (the “Notes”). The Trust is a 100 percent owned finance subsidiary of the Corporation. Obligations associated with these securities are included in long-term borrowings in the Consolidated Balance Sheet.

     The Trust has invested the proceeds of such Trust Securities in the Notes. Each issue of the Notes has an interest rate equal to the corresponding Trust Securities distribution rate. The Trust Securities are subject to mandatory redemption upon repayment of the related Notes at their stated maturity dates or their earlier redemption at a redemption price equal to their liquidation amount plus accrued distributions to the date fixed for redemption and the premium, if any, paid by the Corporation upon concurrent repayment of the related Notes.

Note Two — Net Income 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 three and six months ended June 30, 2005 and 2004, respectively. Diluted net income per share reflects the potential dilution that could occur if the Corporation’s potential common stock and contingently issuable shares, which consist of dilutive stock options and restricted stock, were issued. 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 periods presented.

     A reconciliation of the basic average common shares outstanding to the diluted average common shares outstanding is as follows:

		Three Months								Six Months
		Ended June 30								Ended June 30
		2005				2004				2005				2004
Basic weighted average number of common shares outstanding			30,409,307				29,763,619				30,285,244				29,765,952
Dilutive effect arising from potential common stock issuances			270,329				303,843				322,687				295,577
Diluted weighted average number of common shares outstanding			30,679,636				30,067,462				30,607,931				30,061,529

     The effects of outstanding antidilutive stock options are excluded from the computation of diluted earnings per share. For both the three and six months ended June 30, 2005, this amount was 1.0 million shares, and for the three and six months ended June 30, 2004 this amount was 1.0 million shares and 900 thousand shares, respectively.

     Dividends declared by the Corporation were $0.19 per share and $0.185 per share for the three months ended June 30, 2005 and 2004, respectively, and $0.38 per share and $0.37 per share for the six months ended June 30, 2005 and 2004, respectively.

Note Three — Business Segment Information

     The Corporation operates one reportable segment, the Bank, the Corporation’s primary banking subsidiary. The Bank provides businesses and individuals with commercial, consumer and mortgage loans, deposit banking services, brokerage services, insurance products, and comprehensive financial planning solutions to individual and commercial clients. The results of operations of the Bank constitute a substantial majority of the consolidated net income, revenues and assets of the Corporation. Included in Other are revenue, expenses and assets of the parent company, which include cash, securities-available-for-sale and investments in venture capital limited partnerships, and eliminating intercompany transactions.

     The accounting policies of the business segments are the same as those described in Note One on pages 56 to 65 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.

     The Corporation continuously assesses its assumptions, methodologies and reporting classifications to better reflect the true economics of the Corporation’s business segments. Based on these continuous assessments, during the second quarter of 2005, the Corporation changed the composition of its reportable segments to collapse, insurance, brokerage, mortgage and financial planning services into the Bank. Accordingly, the Corporation restated its business segment disclosure for prior periods.

     Information regarding the reportable segment’s separate results of operations and segment assets for the three months ended June 30, 2005 and 2004, is illustrated in the following tables:

Three Months Ended June 30, 2005
(Dollars in thousands)		The Bank				Other (1)				Totals
Total interest income		$	55,602			$	2			$	55,604
Total interest expense			24,058				256				24,314
Net interest income			31,544				(254	)			31,290
Provision for loan losses			2,878				—				2,878
Total noninterest income			17,231				86				17,317
Total noninterest expense			29,308				56				29,364
Net income before income taxes			16,589				(224	)			16,365
Income taxes expense			5,154				(69	)			5,085
Net income		$	11,435			$	(155	)		$	11,280
Total loans held for sale and loans, net		$	2,837,286			$	—			$	2,837,286
Total assets			4,615,003				18,233				4,633,236

Three Months Ended June 30, 2004
(Dollars in thousands)		The Bank				Other (1)				Totals
Total interest income		$	44,887			$	19			$	44,906
Total interest expense			14,708				166				14,874
Net interest income			30,179				(147	)			30,032
Provision for loan losses			2,000				—				2,000
Total noninterest income			14,170				720				14,890
Total noninterest expense			27,637				48				27,685
Net income before income taxes			14,712				525				15,237
Income taxes expense			4,810				172				4,982
Net income		$	9,902			$	353			$	10,255
Total loans held for sale and loans, net		$	2,348,754			$	—			$	2,348,754
Total assets			4,319,324				19,889				4,339,213

     Information regarding the reportable segment’s separate results of operations and segment assets for the six months ended June 30, 2005 and 2004, is illustrated in the following tables:

Six Months Ended June 30, 2005
(Dollars in thousands)		The Bank				Other (1)				Totals
Total interest income		$	106,867			$	19			$	106,886
Total interest expense			44,524				498				45,022
Net interest income (loss)			62,343				(479	)			61,864
Provision for loan losses			4,778				—				4,778
Total noninterest income			33,062				69				33,131
Total noninterest expense			58,127				106				58,233
Net income (loss) before income taxes			32,500				(516	)			31,984
Income taxes expense (benefit)			10,563				(168	)			10,395
Net income (loss)		$	21,937			$	(348	)		$	21,589
Total loans held for sale and loans, net		$	2,837,286			$	—			$	2,837,286
Total assets			4,615,003				18,233				4,633,236

Six Months Ended June 30, 2004
(Dollars in thousands)		The Bank				Other (1)				Totals
Total interest income		$	90,096			$	40			$	90,136
Total interest expense			29,373				358				29,731
Net interest income (loss)			60,723				(318	)			60,405
Provision for loan losses			5,000				—				5,000
Total noninterest income			28,738				817				29,555
Total noninterest expense			55,898				94				55,992
Net income before income taxes			28,563				405				28,968
Income taxes expense			9,340				133				9,473
Net income		$	19,223			$	272			$	19,495
Total loans held for sale and loans, net		$	2,348,754			$	—			$	2,348,754
Total assets			4,319,324				19,889				4,339,213

Note Four — Goodwill and Other Intangible Assets

     The following is a summary of the gross carrying amount and accumulated amortization of amortized intangible assets and the carrying amount of unamortized intangible assets as of June 30, 2005 and December 31, 2004:

		June 30,								December 31,
		2005								2004
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
(Dollars in thousands)		Amount				Amortization				Amount				Amortization
Amortized intangible assets:
Noncompete agreements		$	1,037			$	964			$	1,037			$	949
Customer lists			2,270				761				2,270				545
Mortgage servicing rights			7,557				6,201				7,557				5,910
Branch acquisitions			1,111				1,111				1,111				1,111
Other intangibles (1)			306				98				306				72
Total		$	12,281			$	9,135			$	12,281			$	8,587
Unamortized intangible assets:
Goodwill (2)		$	19,598			$	—			$	19,547			$	—

		(1) Other intangibles include trade name and proprietary software.
		(2) Goodwill of $19,598 is recorded in the Bank.

     Amortization expense, excluding amortization of mortgage servicing rights, totaled $126 thousand and $257 thousand for the three and six months ended June 30, 2005, respectively, and $96 thousand and $214 thousand for the three and six months ended June 30, 2004, respectively.

     The following table presents the estimated amortization expense for intangible assets for the years ended December 31, 2005, 2006, 2007, 2008, 2009, and 2010 and thereafter:

		Noncompete				Customer				Mortgage				Other
(Dollars in thousands)		Agreements				Lists				Servicing Rights				Intangibles				Total
2005		$	30			$	415			$	515			$	51			$	1,011
2006			30				353				377				45				805
2007			28				290				281				39				638
2008			—				228				186				32				446
2009			—				165				117				26				308
2010 and after			—				274				171				41				486
Total		$	88			$	1,725			$	1,647			$	234			$	3,694

Note Five — Comprehensive Income

     Comprehensive income is defined as the change in equity from all transactions other than those with stockholders, and it includes net income and 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.

     The Corporation’s total comprehensive income for the six months ended June 30, 2005 was $15.6 million (net of tax) compared to a total comprehensive loss of $5.5 million (net of tax) for the same 2004 period. Information concerning the Corporation’s other comprehensive income (loss) for six months ended June 30, 2005 and 2004 is as follows:

		For the Six Months Ended June 30,
						2005												2004
(Dollars in thousands)		Pre-Tax Amount				Tax Effect				After Tax Amount				Pre-Tax Amount				Tax Effect				After Tax Amount
Comprehensive income:
Net income		$	31,984			$	10,395			$	21,589			$	28,967			$	9,472			$	19,495
Other comprehensive loss:
Unrealized losses on securities:
Unrealized losses arising during period			(9,945	)			(3,965	)			(5,980	)			(40,123	)			(15,646	)			(24,477	)
Less: Reclassification for realized (losses) gains			(31	)			(12	)			(19	)			820				320				500
Unrealized losses, net of reclassification		$	(9,914	)		$	(3,953	)		$	(5,961	)		$	(40,943	)		$	(15,966	)		$	(24,977	)
Total comprehensive income (loss)		$	22,070			$	6,442			$	15,628			$	(11,976	)		$	(6,494	)		$	(5,482	)

Note Six — Securities-Available-for-Sale

     Securities-available-for-sale at June 30, 2005 and December 31, 2004 are summarized as follows:

		June 30, 2005
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollars in thousands)		Cost				Gains				Losses				Value
US government obligations		$	29,810			$	129			$	295			$	29,644
US government agency obligations			617,168				206				10,749				606,625
Mortgage-backed securities			615,608				917				9,854				606,671
State, county, and municipal obligations			108,792				1,794				204				110,382
Equity securities			59,392				171				—				59,563
Total		$	1,430,770			$	3,217			$	21,102			$	1,412,885

		December 31, 2004
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Dollars in thousands)		Cost				Gains				Losses				Value
US government obligations		$	54,755			$	331			$	712			$	54,374
US government agency obligations			697,083				908				6,021				691,970
Mortgage-backed securities			731,389				3,349				8,357				726,381
State, county, and municipal obligations			112,935				2,568				123				115,380
Equity securities			64,541				86				—				64,627
Total		$	1,660,703			$	7,242			$	15,213			$	1,652,732

     Securities with an aggregate carrying value of $1.01 billion and $1.14 billion at June 30, 2005 and December 31, 2004, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and Federal Home Loan Bank FHLB borrowings.

     Gross gains and losses recognized on the sale of securities are summarized as follows:

		Three months ended June 30,								Six months ended June 30,
(Dollars in thousands)		2005				2004				2005				2004
Gross gains		$	18			$	783			$	1,214			$	1,118
Gross losses			—				(289	)			(1,245	)			(298	)
Net gains (losses)		$	18			$	494			$	(31	)		$	820

     At June 30, 2005 and December 31, 2004, the Bank owned stock in the Federal Home Loan Bank of Atlanta with a cost basis (par value) of $54.1 million and $59.3 million, respectively, which is included in equity securities. While these securities have no quoted fair value, they are redeemable at par value from the FHLB. In addition, the Bank owned Federal Reserve Bank stock with a cost basis (par value) of $4.1 million at both June 30, 2005 and December 31, 2004, which is included in equity securities.

     At June 30, 2005, mortgage-backed securities of $491.7 million were considered temporarily impaired. Mortgage-backed securities are investment grade securities backed by a pool of mortgages or trust deeds. Principal and interest payments on the underlying mortgages are used to pay monthly interest and principal on the securities. U.S. government agency obligations of $580.9 million were considered temporarily impaired at June 30, 2005. U.S. government agency obligations are interest-bearing debt securities of U.S. government agencies (i.e. FNMA and FHLMC). U.S. government obligations of $14.7 million were considered temporarily impaired at June 30, 2005. These obligations are debt securities

issued by the U.S. Treasury. State, county and municipal obligations of $13.9 million were considered temporarily impaired at June 30, 2005.

     The unrealized losses shown in the following table resulted primarily from an increase in short-term and intermediate rates.

As of June 30, 2005
		Less than 12 months								12 months or longer								Total
						Gross								Gross								Gross
						Unrealized								Unrealized								Unrealized
(Dollars in thousands)		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
US government obligations		$	4,886			$	(58	)		$	9,779			$	(237	)		$	14,665			$	(295	)
US government agency obligations			366,308				(5,407	)			214,545				(5,342	)			580,853				(10,749	)
Mortgage-backed securities			157,946				(1,633	)			333,746				(8,221	)			491,692				(9,854	)
State, county and muncipal obligations			6,764				(33	)			7,181				(171	)			13,945				(204	)
Total temporarily impaired securities		$	535,904			$	(7,131	)		$	565,251			$	(13,971	)		$	1,101,155			$	(21,102	)

     Investments that are in a gross unrealized loss position include three U.S. government obligations, forty-six U.S. agency securities, forty-three mortgage-backed securities and twelve municipal obligations. The unrealized losses associated with these securities are not considered to be other-than-temporary, because they are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or the issuer. In addition, investments that have been in an unrealized loss position for longer than one year have an external credit rating of AAA or higher by Standard & Poors. At June 30, 2005, the Corporation has the ability to hold these investments to maturity.

Note Seven — Derivatives

     The Corporation accounts for interest rate swaps as a hedge of the fair value of designated liabilities. For the three months ended June 30, 2005 and 2004, the Corporation recognized a net gain of less than $1 thousand and a net gain of $19 thousand, respectively, for the portion of the interest rate swap market value change that did not have an offsetting change in the value of the hedged instrument (“ineffective”). For the six months ended June 30, 2005 and 2004, the Corporation recognized a net loss of less than $1 thousand and a net gain of $18 thousand, respectively, for the ineffective portion of the interest rate swaps. The Corporation records the derivative hedging instruments at fair value in other assets. These instruments had gross unrealized gains of $0.7 million and gross unrealized losses of $7.5 million at June 30, 2005.

     Information concerning the Corporation’s derivative instruments for the six months ended June 30, 2005 is as follows:

		June 30, 2005
						Average				Average				Average
		Notional				Receive				Pay				Remaining				Fair Value
(Dollars in thousands)		Amount				Rate				Rate				Maturity in Years				Gains				Losses				Ineffectiveness
Fair Value Hedges:
Interest rate swaps — received fixed		$	222,000				5.16	%			4.93	%			4.51			$	735			$	(7,458	)		$	-

     According to the provisions of SFAS No. 133, the “short cut” method assumes that the change in the fair value of the derivative hedging instrument and the hedged debt obligation is one hundred percent correlated, which results in no ineffectiveness and no income statement effect. Of the $222.0 million aggregate notional amount of interest rate swap agreements entered into during 2004, three out of seven agreements totaling $90.0 million qualify for the “short cut” method; therefore, there was no impact on earnings during the three and six months ended June 30, 2005 from those interest rate swap agreements.

Note Eight — Loans and Allowance for Loan Losses

     The Corporation’s primary market area includes North Carolina, and predominately centers around the Metro region of Charlotte, North Carolina. At June 30, 2005, the majority of the total loan portfolio was to borrowers within this region. The diversity of the region’s economic base provides a stable lending environment. No areas of significant concentrations of credit risk have been identified due to the diverse industrial base in the region.

     Loans at June 30, 2005 and December 31, 2004 were:

		June 30, 2005								December 31, 2004
(Dollars in thousands)		Amount				Percent				Amount				Percent
Commercial real estate		$	785,718				27.5	%		$	776,474				31.8	%
Commercial non real estate			219,029				7.7				212,031				8.7
Construction			444,125				15.5				332,264				13.6
Mortgage			581,257				20.3				347,606				14.2
Consumer			328,163				11.5				304,151				12.5
Home equity			500,080				17.5				467,166				19.2
Total loans		$	2,858,372				100.0	%		$	2,439,692				100.0	%

     Loans held for sale consist primarily of 15- and 30-year mortgages which the Corporation intends to sell as whole loans. Loans held for sale are carried at the lower of aggregate cost or market and at June 30, 2005 no valuation allowance was recorded. Loans held for sale were $8.2 million and $5.3 million at June 30, 2005 and December 31, 2004, respectively.

     The following is a summary of the changes in the allowance for loan losses for the three and six months ended June 30, 2005 and 2004:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands)		2005				2004				2005				2004
Balance, beginning of period		$	27,483			$	25,736			$	26,872			$	25,607
Provision for loan losses			2,878				2,000				4,778				5,000
Allowance related to loans sold			—				—				—				(549	)
Charge-offs			(1,516	)			(2,475	)			(3,434	)			(5,054	)
Recoveries			187				791				816				1,048
Net charge-offs			(1,329	)			(1,684	)			(2,618	)			(4,006	)
Balance, June 30		$	29,032			$	26,052			$	29,032			$	26,052

     The table below summarizes the Corporation’s nonperforming assets and loans 90 days or more past due and still accruing interest at the dates indicated.

		June 30				December 31
(Dollars in thousands)		2005				2004
Nonaccrual loans		$	9,858			$	13,970
Other real estate owned			6,390				3,844
Total nonperforming assets			16,248				17,814
Loans 90 days or more past due and still accruing			—				—
Total nonperforming assets and loans 90 days or more past due and still accruing		$	16,248			$	17,814

     The recorded investment in individually impaired loans was $4.2 million (all of which were on nonaccrual status) and $7.7 million (all of which were on nonaccrual status) at June 30, 2005 and December 31, 2004, respectively. The related allowance for loan losses on these loans was $1.3 million and $2.1 million at June 30, 2005 and December 31, 2004, respectively. The average recorded investment in individually impaired loans for the six months ended June 30, 2005 and 2004 was $5.0 million and $6.1 million, respectively.

Note Nine — Stock-Based Compensation

     The Corporation accounts for stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The following table presents the Corporation’s net income and earnings per share as reported, and proforma net income and proforma earnings per share assuming compensation cost for the Corporation’s stock option plans had been determined based on the fair value at the grant dates for awards under those plans granted, pursuant to the provisions of the Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands, except per share data)		2005				2004				2005				2004
Net income, as reported		$	11,280			$	10,255			$	21,589			$	19,495
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(500	)			(473	)			(1,097	)			(941	)
Pro forma net income		$	10,780			$	9,782			$	20,492			$	18,554
Earnings per share:
Basic-as reported		$	0.37			$	0.34			$	0.71			$	0.65
Basic-pro forma		$	0.35			$	0.33			$	0.68			$	0.62
Diluted-as reported		$	0.37			$	0.34			$	0.71			$	0.65
Diluted-pro forma		$	0.35			$	0.33			$	0.67			$	0.62

Note Ten — Commitments, Contingencies and Off-Balance Sheet Risk

     Commitments and Off-Balance Sheet Risk. The Corporation is party to various financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements. Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require collateral from the borrower if deemed necessary by the Corporation. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party up to a stipulated amount and with specified terms and conditions. Standby letters of credit are recorded as a liability by the Corporation at the fair value of the obligation undertaken in issuing the guarantee. The fair value and carrying value at June 30, 2005 of standby letters of credit issued or modified during the three months ended June 30, 2005 was immaterial. Commitments to extend credit are not recorded as an asset or liability by the Corporation until the instrument is exercised. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for instruments reflected in the consolidated financial statements. The creditworthiness of each customer is evaluated on a case-by-case basis.

     At June 30, 2005, the Corporation’s exposure to credit risk was represented by preapproved but unused lines of credit totaling $425.1 million, loan commitments totaling $604.2 million, deposit overdrafts of $41.6 million and standby letters of credit of $11.1 million. Of the $425.1 million of preapproved unused lines of credit, $27.6 million were at fixed rates and $397.5 million were at floating rates. Of the $604.2 million of loan commitments, $129.7 million were at fixed rates and $474.5 million were at floating rates. Of the $11.1 million of standby letters of credit, $10.9 million expire in less than one year and $0.3 million expire in one to three years. The maximum amount of credit loss of standby letters of credit is represented by the contract amount of the instruments. Management expects that these commitments can be funded through normal operations. The amount of collateral obtained if deemed necessary by the Corporation upon extension of credit is based on management’s credit evaluation of the borrower at that time. The

Corporation generally extends credit on a secured basis. Collateral obtained may include, but is not limited to, accounts receivable, inventory and commercial and residential real estate.

     Contingencies. The Corporation and the Bank are defendants in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated operations, liquidity or financial position of the Corporation or the Bank.

     During the third quarter of 2004, the Corporation received a proposed income tax assessment from the North Carolina Department of Revenue for the 1999 and 2000 tax years. As a result of this assessment, the Corporation increased its tax reserves by $818 thousand during 2004. The Corporation’s maximum exposure related to this assessment in excess of the current reserve is approximately $1.5 million, net of tax. The Corporation may also have similar exposure related to its 2001 — 2004 state tax filings. The Corporation is in the process of appealing this assessment. The Corporation believes it has substantial authority for its reporting and believes that the ultimate outcome will not result in an adverse impact to its results of operations. The Corporation will re-evaluate the adequacy of this reserve as new information or circumstances warrant.

Note Eleven — Related Party Transactions

     In the ordinary course of business, the Corporation engages in business transactions with certain of its directors. Such transactions are competitively negotiated at arms-length by the Corporation and are not considered to include terms which are unfavorable to the Corporation or that are unduly advantageous to the specific director.

     During 2001, the Corporation implemented an automatic overdraft product, which allows customers the ability to overdraw their account and have their transactions honored for a fee. During the fourth quarter of 2001, the Corporation engaged Impact Financial Services (“Impact”) to provide this product. Impact received a fee from the Corporation equal to 15 percent of the incremental income from this new product for a twenty four-month period commencing the fourth full month after the Corporation began to offer the product. John Godbold, a director of the Corporation, is the president and owner of Godbold Financial Associates, Inc. (“GFA”), which acts as an independent sales representative for Impact for Maryland, North Carolina, South Carolina and Virginia, and as such GFA and Mr. Godbold received commissions from Impact based on fees earned by Impact. Management believes that the transaction was at arms-length. Pursuant to the Corporation’s conflict of interest policy for directors and executive officers, the members of the Corporation’s Board of Directors who did not have a direct or indirect interest in the related party transaction reviewed this related party transaction and determined that it was fair to the Corporation and subsequently approved and ratified the transaction. As described above, no fees were required to be paid to Impact until the fourth full month following introduction of the new product, therefore, no fees were payable to Impact and no commissions were payable to GFA and Mr. Godbold until March 2002. This arrangement terminated on March 31, 2004. For the three months ended March 31, 2004, the Corporation received revenues of approximately $1.1 million, which resulted in fees of $164 thousand to Impact and resulted in Impact paying commissions to GFA (and Mr. Godbold) of $115 thousand.

     During the third quarter of 2004, the Corporation entered into a three-year contract with Impact pertaining to a software licensing agreement and regulatory compliance guarantee. The aggregate cost for the three-year period is $76 thousand. Under the terms of the contract, Mr. Godbold has a 50 percent financial interest in this transaction. Pursuant to the Corporation’s conflict of interest policy for directors and executive officers, the members of the Corporation’s Board of Directors who did not have a direct or indirect interest in the related party transaction reviewed this related party transaction and determined that it was fair to the Corporation and subsequently approved the transaction.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Factors that May Affect Future Results

     The following 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 those contemplated by such forward- looking statements, and which may be beyond the Corporation’s control, include, among others, the following possibilities: (1) projected results in connection with management’s implementation of, or changes in, the Corporation’s business plan and strategic initiatives are lower than expected; (2) competitive pressure among financial services companies increases significantly; (3) costs or difficulties related to the integration of acquisitions, including deposit attrition, customer retention and revenue loss, or expenses in general are greater than expected; (4) general economic conditions, in the markets in which the Corporation does business, are less favorable than expected; (5) risks inherent in making loans, including repayment risks and risks associated with collateral values, are greater than expected; (6) changes in the interest rate environment, or interest rate policies of the Board of Governors of the Federal Reserve System, may reduce interest margins and affect funding sources; (7) changes in market rates and prices may adversely affect the value of financial products; (8) legislation or regulatory requirements or changes thereto, including changes in accounting standards, may adversely affect the businesses in which the Corporation is engaged; (9) regulatory compliance cost increases are greater than expected; (10) the passage of future tax legislation, or any negative regulatory, administrative or judicial position, may adversely impact the Corporation; (11) the Corporation’s competitors may have greater financial resources and may develop products that enable them to compete more successfully in the markets in which it operates; and (12) changes in the securities markets, including changes in interest rates, may adversely affect the Corporation’s ability to raise capital from time to time.

Overview

     The Corporation is a bank holding company established as a North Carolina Corporation in 1983, with one wholly-owned banking subsidiary, the Bank. The Corporation’s principal executive offices are located in Charlotte, North Carolina. The Bank is a full service bank and trust company with 53 financial centers and seven insurance offices located in 18 counties located predominantly in the Charlotte Metro region of North Carolina. The Corporation also operates a loan production office in Raleigh, NC and Reston, Virginia for the production of real estate loans. The operation in Reston, Virginia also serves as a holding company for certain subsidiaries that own real estate and real estate-related assets, including first and second residential mortgage loans.

     Charlotte is the twenty-sixth largest city in the United States and has a diverse economic base. Primary business sectors in the Charlotte Metro region include banking and finance, insurance, manufacturing, health care, transportation, retail, telecommunications, government services and education. The Corporation believes that it is not dependent on any one or a few types of commerce due to the region’s diverse economic base. Since the North Carolina economy has historically relied on the manufacturing and transportation sectors, it has been significantly impacted by global competition and rising energy prices. As a result, the North Carolina economy is transitioning to a more service-oriented economy. Recently, the education, healthcare, information technology, finance and business services industries have shown the most growth. The unemployment rate for the Charlotte Metro region was 5.3 percent in June 2005 compared to 6.4 percent in June 2004. The service industry is now the major employer in the Charlotte Metro region, followed by wholesale and retail trade.

     The Corporation’s operations are divided into five primary lines of business: community banking, mortgage, brokerage, insurance, and financial management. Community banking provides a variety of depository accounts including interest-bearing and noninterest-bearing checking accounts, certificates of deposit and money market accounts. In addition, community banking offers numerous loan products including commercial, consumer, real estate and home equity loans. The community bank also maintains 110 ATM’s and enables customers to access their accounts on-line. The mortgage business provides both fixed-rate and variable-rate mortgage products and loan servicing pursuant to a third party arrangement. First Charter Brokerage Services offers full service and discount brokerage services, annuity sales and financial planning services pursuant to a third party arrangement. First Charter Insurance Services, Inc. is a North Carolina corporation formed to meet the insurance needs of businesses and individuals throughout the Charlotte Metro region. Financial management provides comprehensive financial planning solutions to individual and commercial clients and record keeping services for many national companies.

     The Corporation derives interest income through traditional banking activities such as generating loans and earning interest on securities. Additional sources of income are derived from fees on deposit accounts, Bank Owned Life Insurance (“BOLI”) and from the Corporation’s various lines of business including mortgage, brokerage, insurance and financial management. Also, the Corporation may recognize gains from securities portfolio management and from the sale of bank owned property.

     Loan growth is a major focus of the Corporation. The lending environment is highly competitive. However, the loan portfolio has shown steady growth during the first six months of 2005 in all major loan categories. Management believes the Corporation is positioned for future loan growth due to an improving market for commercial loans, an increased number of commercial loan officers and an increased focus on small business loans.

     In addition, as part of its growth strategy, the Corporation entered the Raleigh market during the first quarter of 2005, opening a loan production office and establishing teams to originate retail mortgages and construction loans to residential builders. The Corporation expects to open a new financial center in Raleigh during the fourth quarter of 2005 offering banking services for individuals and small businesses, commercial lending, mortgages, and brokerage services. All regulatory approvals for this financial center have been received. In addition, the company anticipates opening an additional de novo financial center in Charlotte during the fourth quarter of 2005, bringing the total number of financial centers to 55 by year-end.

     During the first quarter of 2005, the Corporation purchased $215.5 million of adjustable-rate mortgage (“ARM”) loans. This purchase was executed under a previously disclosed strategy in which the sale of investment securities and portfolio cash flows would fund the ARM purchases. The Corporation did not purchase any such loans during the second quarter of 2005.

     The Corporation’s strategy is to minimize its funding costs through growing deposit balances and diversifying its funding sources. The Corporation’s Checking Account Marketing Program (“CHAMP”) continues to attract new customers and low-cost deposits.

     Credit risk management is another area of emphasis. The Corporation devotes significant resources to the measurement and management of the risk inherent in lending.

     The Corporation is also focused on retaining existing customers and attracting new customers. The Corporation tries to distinguish itself from competitors by providing exceptional customer service, flexible solutions to customers’ financial needs and convenient accessibility to our services. To meet the convenience needs of existing and potential customers, the Corporation opened one de novo financial center and upgraded two existing financial centers during 2004, recently introduced extended business hours in select financial centers and its call center and added bilingual personnel and ATM capability. The Corporation will continue to update existing financial centers and expand into new markets as both market and economic conditions warrant. At this time, two de novo financial centers and three financial center upgrades are in process, with the expectation that all of these will be completed by December 31, 2005.

     Another focus for the Corporation is growing fee income through complementary lines of business. These business lines diversify the Corporation’s earnings with minimal credit risk. The Corporation, through a subsidiary of the Bank, acquired an insurance agency during the fourth quarter of 2004. This acquisition expanded the reach of the Corporation’s insurance services to businesses and individuals throughout the Charlotte Metro region. As a result of this acquisition, insurance services increased from the second quarter of 2004. Mortgage services revenues increased from 2004 levels as a result of higher loan origination volume. Financial management revenues grew from 2004 as assets under management have increased. The Corporation continuously reviews other opportunities for new products and new services to offer to new and existing customers.

     Competitive pricing pressure on both sides of the balance sheet and a flat yield curve have acted to compress the net interest margin. The Corporation is actively pursuing strategies to reduce the proportion of its securities portfolio and wholesale borrowings to the composition of total assets and total liabilities, respectively.

     The Corporation also wants to ensure it has sufficient capital and liquidity to support anticipated future growth. To support this, the Corporation issued $35 million in floating rate, trust-preferred securities (the “Trust Securities”) through a specially formed subsidiary trust in the second quarter of 2005.

     The Corporation competes against other banks, savings and loan associations, savings banks, credit unions, finance companies and major retail stores that offer competing financial services. Competitors have different resources, different areas of geographic coverage and potentially higher lending limits than the Corporation.

Financial Overview

     Net income was $11.3 million, or $0.37 per diluted share, for the three months ended June 30, 2005, an increase of 10 percent from net income of $10.3 million, or $0.34 per diluted share, for the same period in 2004. Net income for the six months ended June 30, 2005 was $21.6 million, or $0.71 per diluted share, an increase of 11 percent from net income of $19.5 million, or $0.65 per diluted share, for the same 2004 period.

     The annualized return on average assets and common shareholders equity was 1.00 percent and 14.1 percent for the three months ended June 30, 2005, respectively, compared to 0.96 percent and 13.9 percent for the same period in 2004. The annualized return on average assets and common shareholders equity was 0.97 percent and 13.7 percent in for the six months ended June 30, 2005, respectively, compared to 0.92 percent and 13.1 percent for the same period in 2004.

     Net interest income was $31.3 million during the three months ended June 30, 2005 compared to $30.0 million for the three months ended June 30, 2004, representing a 4 percent increase. A primary driver of this increase was strong loan growth. The provision for loan losses was $2.9 million for the three months ended June 30, 2005 compared to $2.0 million for the same period a year ago. Net charge-offs for the three months ended June 30, 2005 were $1.3 million compared to $1.7 million for the same 2004 period. For the three months ended June 30, 2005, noninterest income increased $2.4 million, or 16 percent, to $17.3 million primarily due to increases in service charges, a gain recognized as a result of a payment on BOLI claims (nontaxable), other miscellaneous fees, and insurance service income. Noninterest expense increased $1.7 million, or 6 percent, to $29.4 million primarily due to a previously disclosed $1.1 million expense associated with an employee benefit plan, increased data processing expense and increased occupancy and equipment expense.

     Net interest income for the six months ended June 30, 2005 was $61.9 million compared to $60.4 million for the same 2004 period. A primary driver of this increase was an increase in loan volume, including the previously discussed ARM purchases. For the six months ended June 30, 2005, the provision for loan losses was $4.8 million compared to $5.0 million for the same 2004 period. The decrease was primarily due to improved asset quality trends. Net charge-offs for the six months ended June 30, 2005 were $2.6 million compared to $4.0 million for the same 2004 period. For the six months ended June 30, 2005, noninterest income increased $3.6 million, or 12 percent, to $33.1 million primarily

due to increases in service charges, a gain recognized as a result of a payment on BOLI claims (nontaxable), other miscellaneous fees, and insurance service income. Noninterest expense increased $2.2 million, or 4 percent, to $58.2 million primarily due to a previously disclosed $1.1 million expense associated with an employee benefit plan and a previously disclosed $1.0 million expense associated with the retirement of the Corporation’s former CFO.

Table One
Selected Financial Data

		For the Three Months								For the Six Months
		Ended June 30								Ended June 30
(Dollars in thousands, except per share amounts)		2005				2004				2005				2004
Income statement
Interest income		$	55,604			$	44,906			$	106,886			$	90,136
Interest expense			24,314				14,874				45,022				29,731
Net interest income			31,290				30,032				61,864				60,405
Provision for loan losses			2,878				2,000				4,778				5,000
Noninterest income			17,317				14,890				33,131				29,555
Noninterest expense			29,364				27,685				58,233				55,993
Income before income taxes			16,365				15,237				31,984				28,967
Income tax expense			5,085				4,982				10,395				9,472
Net income		$	11,280			$	10,255			$	21,589			$	19,495
Per common share
Basic net income		$	0.37			$	0.34			$	0.71			$	0.65
Diluted net income			0.37				0.34				0.71				0.65
Cash dividends declared			0.190				0.185				0.380				0.370
Period-end book value			10.73				9.53				10.73				9.53
Average shares outstanding — basic			30,409,307				29,763,619				30,285,244				29,765,952
Average shares outstanding — diluted			30,679,636				30,067,462				30,607,931				30,061,529
Ratios
Return on average shareholders’ equity(1)			14.12	%			13.90	%			13.67	%			13.07	%
Return on average assets(1)			1.00				0.96				0.97				0.92
Net interest margin(1) (2)			3.03				3.07				3.04				3.13
Average loans to average deposits			103.68				91.82				100.42				92.55
Average equity to average assets			7.05				6.87				7.09				7.03
Efficiency ratio(2) (3)			59.70				61.56				60.54				62.06
Dividend payout			51.35				54.41				53.52				56.92
Selected period end balances
Securities available for sale		$	1,412,885			$	1,604,585			$	1,412,885			$	1,604,585
Loans held for sale			8,159				26,768				8,159				26,768
Loans			2,858,372				2,348,235				2,858,372				2,348,235
Allowance for loan losses			29,032				26,052				29,032				26,052
Total assets			4,633,236				4,339,213				4,633,236				4,339,213
Total deposits			2,751,385				2,594,765				2,751,385				2,594,765
Borrowings			1,503,322				1,410,481				1,503,322				1,410,481
Total liabilities			4,305,538				4,055,432				4,305,538				4,055,432
Total shareholders’ equity			327,698				283,781				327,698				283,781
Selected average balances
Loans and loans held for sale			2,788,438				2,339,435				2,670,810				2,306,505
Earning assets			4,236,232				3,995,390				4,179,586				3,940,172
Total assets			4,543,846				4,316,360				4,492,094				4,263,381
Total deposits			2,689,390				2,547,909				2,659,757				2,492,291
Borrowings			1,491,636				1,424,556				1,467,904				1,427,342
Total shareholders’ equity			320,412				296,699				318,455				299,848