First Charter Concludes Lot Loan Portfolio Review and Records Additional Provision
12 Julho 2007 - 7:22PM
Business Wire
On June 14, 2007, First Charter Corporation (NASDAQ: FCTR)
disclosed certain matters regarding its lending arrangements
related to the Penland development project in Spruce Pine, North
Carolina. Several financial institutions, including First Charter
Bank, the banking subsidiary of First Charter Corporation, made
loans in connection with this residential development. The project
and the developers are currently under an investigation by the
North Carolina Attorney General. First Charter Corporation today
reported that its previously announced internal lot loan portfolio
review has been concluded and the Corporation recorded an
additional $7.8 million provision for loan losses (approximately
$0.134 per diluted share after-tax) related to the Penland
development. In connection with its review of the Penland loans,
First Charter�s management performed additional individual credit
assessments on each of the borrowers and the underlying collateral
value of these loans. While these loans are secured by real estate,
First Charter does not believe that the collateral values
determined at the time the loans were made, which were based on
fully developed lots, are realistic in light of their partially
developed condition and the cessation of further work on this
project. At this time, it is not certain if and on what terms this
project will be completed. Based on its assessment of probable
incurred losses associated with this segregated Penland loan
portfolio, First Charter believes the additional $7.8 million
provision for loan losses is warranted at this time. Although no
charge-offs were taken in the second quarter, charge-offs will be
taken in future quarters if, and when, borrowers default on their
obligations. As of June 30, 2007, First Charter had 70 loans with
an aggregate outstanding balance of $14.1 million to individual lot
purchasers related to Penland, yet no loans in the segregated
portfolio had reached a 90-day past-due status. Based upon
management�s consideration of the individual borrowers, $5.4
million of these loans were placed on nonaccrual status at
quarter-end. Generally, it is expected that additional individual
loans in this portfolio will be moved to nonaccrual status upon
borrower bankruptcy filing, foreclosure initiation, a 90-plus day
past-due status, and / or a determination that full repayment of
principal and interest is not expected. �We have completed a
thorough review of these borrower relationships and re-examined our
internal controls, underwriting processes, and risk management
practices,� stated Robert E. James, President and Chief Executive
Officer. �As a result, we have further strengthened our lending and
risk-monitoring processes to reduce any future risk of similar
fraud-related losses.� James further commented, �As part of our
review, First Charter re-examined its entire lot loan portfolio to
clarify developer and subdivision concentrations and to identify
any additional exposure related to the Penland developers. We
believe the Penland loans represent an isolated fraudulent credit
event and do not reflect upon the underlying credit quality of the
remainder of our lot loan portfolio, including loans related to
another real estate development in which the Penland developers
have been involved.� J. Scott Ensor, Chief Risk Officer, added,
�Although we have established a reserve for expected probable
losses in this portfolio and will likely charge off a portion of
these loans against the reserve in future months, we intend to
vigorously pursue collection of these debts from the borrowers.� In
considering the foregoing additional provision for loan losses,
First Charter expects its total provision for loan losses for the
second quarter to be approximately $9.1 million, and it expects to
report earnings of $0.25 to $0.26 per diluted share for the second
quarter. Second quarter earnings are expected to be released the
week of July 23, 2007. James concluded, �We have emphasized a
strong credit culture and solid credit quality as hallmarks of
First Charter. Absent the addition of Penland loans to nonaccrual
status at the end of the second quarter, the Corporation�s credit
quality ratios are expected to remain in line with those reported
in the first quarter. We will work through this credit situation,
and we look forward to putting it behind us, so that we can focus
on continuing to deliver exceptional quality service to our valued
customers, growing our franchise, and creating shareholder value.�
Conference Call First Charter Corporation's executive management
will host a conference call at 9:00 a.m. (ET) on Friday, July 13,
2007, to discuss the contents of this news release. Interested
parties may access the conference call by dialing 800-379-3953,
using the passcode of 7205413. Participants are encouraged to call
in 15 minutes prior to the call in order to register for the event.
The conference call will also be accessible via the Corporation's
Web site, www.firstcharter.com, under the Investor Relations
section. Questions for discussion at the conference call may be
submitted any time prior to the call by sending an email to
investorrelations@firstcharter.com. A replay of the conference call
will be available from 11:00 a.m. (ET) on July 13, 2007, until
midnight (ET) on July 20, 2007. The replay will be accessible by
calling 800-642-1687, using the passcode of 7205413. An audio
replay will also be available on the Corporation's Web site under
the Investor Relations section for 30 days. Forward-Looking
Statements This news release contains forward-looking statements
with respect to the financial condition and results of operations
of First Charter Corporation. These forward-looking statements
involve certain risks and uncertainties. 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,
including risks related to the Penland loans; (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;
(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; (13)�the material weaknesses in
the Corporation�s internal control over financial reporting result
in subsequent adjustments to management�s projected results; and
(14)�implementation of management�s plans to remediate the material
weaknesses takes longer than expected and causes the Corporation to
incur costs that are greater than expected. First Charter
undertakes no obligation to revise or update any forward-looking
statements in order to reflect events or circumstances after the
date any such statement is made. Corporate Profile First Charter
Corporation (NASDAQ: FCTR), headquartered in Charlotte, North
Carolina, is a regional financial services company with assets of
$4.9 billion and is the holding company for First Charter Bank.
First Charter operates 58 full-service financial centers, four
insurance offices, and 138 ATMs in North Carolina and Georgia, and
also operates loan origination offices in Asheville, North Carolina
and Reston, Virginia. First Charter provides businesses and
individuals with a broad range of financial services, including
banking, financial planning, wealth management, investments,
insurance, and mortgages. For more information about First Charter,
visit the Corporation�s Web site at www.firstcharter.com or call
800-601-8471.
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