<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
                        SECURITIES EXCHANGE ACT OF 1934

  For the Fiscal Year Ended December 31, 2001 - 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 Number)

 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

          Securities registered pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                   -----------------------------------------
      N/A                                                N/A

          Securities registered pursuant to Section 12(g) of the Act:
                           Common stock, no par value
         Series X Junior Participating Preferred Stock Purchase Rights

         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

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 6, 2002 was $519,898,621.

         As of March 6, 2002 the Registrant had outstanding 30,798,734 shares
of Common Stock, no par value.

                      DOCUMENTS INCORPORATED BY REFERENCE

         PART III: Definitive Proxy Statement filed with the Securities and
Exchange Commission pursuant to Regulation 14A promulgated pursuant to the
Securities Exchange Act of 1934 in connection with the 2002 Annual Meeting of
Shareholders (with the exception of those portions which are specifically
incorporated by reference in this Form 10-K, the Proxy Statement is not deemed
to be filed as part of this report).


<PAGE>


                           FIRST CHARTER CORPORATION
                                AND SUBSIDIARIES

             FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----

<S>           <C>                                                                                              <C>
                                                                         PART I

Item 1.       Business......................................................................................      3
Item 2.       Properties....................................................................................      8
Item 3.       Legal Proceedings.............................................................................      9
Item 4.       Submission of Matters to a Vote of Security Holders...........................................      9
Item 4A.      Executive Officers of the Registrant..........................................................      9

                                                                        PART II

Item 5.       Market For Registrant's Common Stock and Related Shareholder Matters..........................     10
Item 6.       Selected Financial Data.......................................................................     10
Item 7.       Management's Discussion and Analysis of Financial Conditions and Results
                  of Operations.............................................................................     11
Item 7A.      Quantitative and Qualitative Disclosures about Market Risk....................................     37
Item 8.       Financial Statements and Supplementary Data...................................................     38
Item 9.       Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure.......................................................................     71

                                                                       PART III

Item 10.      Directors and Executive Officers of the Registrant............................................     71
Item 11.      Executive Compensation........................................................................     71
Item 12.      Security Ownership of Certain Beneficial Owners and Management................................     71
Item 13.      Certain Relationships and Related Transactions................................................     71

                                                                        PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................     71
</TABLE>


                                       2
<PAGE>


                                     PART I


ITEM 1.  BUSINESS

GENERAL

         First Charter Corporation (hereinafter referred to as either the
"Registrant" or the "Corporation") is a bank holding company established as a
North Carolina Corporation in 1983 and is registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Its principal asset is the stock
of its subsidiary, First Charter Bank ("FCB" or the "Bank"). The Bank accounts
for over 95 percent of the Registrant's consolidated assets and consolidated
revenues. The principal executive offices of the Corporation are located at
10200 David Taylor Drive, Charlotte, North Carolina 28262. Its telephone number
is (704) 688-4300.

         FCB, a North Carolina state bank, is the successor entity to The
Concord National Bank, which was established in 1888. On December 22, 1997, the
Corporation acquired Carolina State Bank ("CSB") which was also merged into
FCB. CSB was a state-chartered commercial bank with four banking offices in
Cleveland and Rutherford Counties, North Carolina. On September 30, 1998, the
Corporation acquired HFNC Financial Corp. ("HFNC"), which merged into the
Corporation. HFNC was the unitary holding company of Home Federal Savings and
Loan Association ("Home Federal"). Home Federal was based in Charlotte, North
Carolina, and operated nine full service branch offices and a loan origination
office in Mecklenburg County, North Carolina. These offices operated under the
Home Federal name until its merger into FCB in March 1999. On April 4, 2000,
the Corporation acquired Carolina First BancShares, Inc. ("Carolina First"),
the holding company for Lincoln Bank, Cabarrus Bank and Community Bank & Trust,
which merged into the Corporation. Carolina First, a North Carolina
corporation, operated, though its subsidiary banks, 31 branch offices
principally in the greater Charlotte, North Carolina area. On September 1,
2000, Business Insurers of Guilford County ("Business Insurers") was merged
into First Charter Insurance Services. Each of these mergers was accounted for
as a pooling of interests and accordingly, all financial information presented
herein has been restated for all periods presented to reflect the mergers. On
June 22, 2001, First Charter's banking subsidiary completed its conversion from
a national bank to First Charter Bank, a North Carolina state bank. The change
was completed after a cost benefit analysis of supervisory regulatory charges
and does not represent any disagreement with the Corporation's or the Bank's
former regulators. The Bank will continue to operate its financial center
network franchise under the "First Charter" brand name.

         FCB is a full service bank, which now operates 52 financial centers,
five insurance offices and one mortgage origination office in addition to its
main office, as well as 99 ATMs (automated teller machines). These facilities
are located in Ashe, Alleghany, Avery, Buncombe, Cabarrus, Cleveland, Guilford,
Iredell, Jackson, Lincoln, McDowell, Mecklenburg, Rowan, Rutherford, Swain,
Transylvania and Union counties of North Carolina. Further, FCB recently opened
one mortgage origination office in Virginia.

         Through its financial center locations, the Bank provides a wide range
of banking products, including interest bearing and non-interest bearing
checking accounts; "Money Market Rate" accounts; certificates of deposit;
individual retirement accounts; overdraft protection; commercial, consumer,
agriculture, real estate, residential mortgage and home equity loans; personal
and corporate trust services; safe deposit boxes; and automated banking. In
addition, through First Charter Brokerage Services, a subsidiary of FCB, the
Registrant offers full service and discount brokerage services, annuity sales
and financial planning services pursuant to a third party arrangement with
UVEST Investment Services. The Bank also operates six other subsidiaries: First
Charter Insurance Services, Inc., First Charter of Virginia Realty Investments,
Inc., First Charter Realty Investments, Inc., FCB Real Estate, Inc., First
Charter Real Estate Holding, LLC., and First Charter Leasing, Inc. First
Charter Insurance Services, Inc. is a North Carolina corporation formed to meet
the insurance needs of businesses and individuals throughout the Charlotte
metropolitan area. First Charter of Virginia Realty Investments, Inc. is a
Virginia corporation engaged in the mortgage origination business and also acts
as a holding company for First Charter Realty Investments, Inc. a Delaware real
estate investment trust. FCB Real Estate, Inc. is a North Carolina real estate
investment trust and First Charter Real Estate Holdings, LLC is a North
Carolina limited liability


                                       3
<PAGE>


company. First Charter Leasing, Inc. is a North Carolina corporation, which
leases commercial equipment. The Bank also has a majority ownership in Lincoln
Center at Mallard Creek, LLC. Lincoln Center is a three-story office building
occupied in part by a branch of FCB.

         At December 31, 2001, the Registrant and its subsidiaries had 833
full-time equivalent employees. The Registrant had no employees who were not
also employees of FCB. The Registrant considers its relations with its
employees to be good.

         As part of its operations, the Registrant is not dependent upon a
single customer or a few customers whose loss would have a material adverse
effect on the Registrant.

         As part of its operations, the Registrant regularly holds discussions
and evaluates the potential acquisition of, or merger with, various financial
institutions. In addition, the Registrant periodically enters new markets and
engages in new activities in which it competes with established financial
institutions. There can be no assurance as to the success of any such new
office or activity. Furthermore, as the result of such expansions, the
Registrant may from time to time incur start-up costs that could affect the
financial results of the Registrant.

COMPETITION

         The banking laws of North Carolina allow banks located in North
Carolina to develop branches throughout the state. In addition, out-of-state
institutions may open de novo branches in North Carolina as well as acquire or
merge with institutions located in North Carolina. As a result of such laws,
banking activities in North Carolina are highly competitive.

         FCB's service delivery facilities are located in Ashe, Alleghany,
Avery, Buncombe, Cabarrus, Cleveland, Guilford, Iredell, Jackson, Lincoln,
McDowell, Mecklenburg, Rowan, Rutherford, Swain, Transylvania and Union
counties of North Carolina. These locations also have numerous branches of
money-center, super-regional, regional, and statewide institutions, some of
which have a major presence in Charlotte. In its market area, the Registrant
faces competition from other banks, savings and loan associations, savings
banks, credit unions, finance companies and major retail stores that offer
competing financial services. Many of these competitors have greater resources,
broader geographic coverage and higher lending limits than the Bank. The Bank's
primary method of competition is to provide quality service and fairly priced
products.

GOVERNMENT SUPERVISION AND REGULATION

         General. As a registered bank holding company, the Registrant is
subject to the supervision of, and to regular inspection by, the Board of
Governors of the Federal Reserve System (the "Federal Reserve"). First Charter
is a North Carolina chartered banking corporation and a Federal Reserve member
bank, with deposits insured by the Federal Deposit Insurance Corporation's
("FDIC") insurance funds: the Bank Insurance Fund ("BIF") and the Savings
Association Insurance Fund ("SAIF"). FCB is subject to extensive regulation and
examination by the office of the North Carolina Commissioner of Banks (the "NC
Commissioner") under the direction and supervision of the North Carolina State
Banking Commission (the "NC Banking Commission") and by the FDIC, which insures
its deposits to the maximum extent permitted by law.

         In addition to state and federal banking laws, regulations and
regulatory agencies, the Corporation and FCB are subject to various other laws
and regulations and supervision and examination by other regulatory agencies,
all of which directly or indirectly affect the Corporation's operations,
management and ability to make distributions. The following discussion
summarizes certain aspects of those laws and regulations that affect the
Corporation.

         Restrictions on Bank Holding Companies. The Federal Reserve is
authorized to adopt regulations affecting various aspects of bank holding
companies. Under the BHCA, the Corporation's activities, and those of companies
which it controls or in which it holds more than five percent of the voting
stock, are


                                       4
<PAGE>


limited to banking or managing or controlling banks or furnishing services to
or performing services for its subsidiaries, or any other activity which the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries
can reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh
possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices.

         Generally, bank holding companies are required to obtain prior
approval of the Federal Reserve to engage in any new activity not previously
approved by the Federal Reserve or to acquire more than 5 percent of any class
of voting stock of any company. The BHCA also requires bank holding companies
to obtain the prior approval of the Federal Reserve before acquiring more than
5 percent of any class of voting stock of any bank which is not already
majority-owned by the bank holding company.

         The Corporation is also subject to the North Carolina Bank Holding
Company Act of 1984. As required by this state legislation, the Corporation, by
virtue of its ownership of FCB, has registered as a bank holding company with
the Commissioner of Banks of the State of North Carolina. The North Carolina
Bank Holding Company Act also prohibits the Corporation from acquiring or
controlling certain non-bank banking institutions which have offices in North
Carolina.

         Interstate Banking and Branching Legislation. Pursuant to the
Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking and Branching Act"), which became effective September 29,
1995, a bank holding company may now acquire banks in states other than its
home state, without regard to the permissibility of such acquisition under
state law, but subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10 percent of the total amount of
deposits of insured depository institutions in the United States and no more
than 30 percent of such deposits in that state (or such lesser or greater
amount set by state law).

         The Interstate Banking and Branching Act also authorized banks to
merge across state lines, thereby creating interstate branches beginning June
1, 1997. Under such legislation, each state had the opportunity either to "opt
out" of this provision, thereby prohibiting interstate branching in such
states, or to "opt in" at an earlier time, thereby allowing interstate
branching within that state prior to June 1, 1997. The State of North Carolina
elected to "opt in" to such legislation, effective June 22, 1995. Furthermore,
pursuant to the Interstate Banking and Branching Act, a bank is now able to
open new branches in a state in which it does not already have banking
operations, if the laws of such state permit such de novo branching.

         Gramm-Leach Bliley Financial Modernization Act of 1999. The
Gramm-Leach-Bliley Financial Modernization Act of 1999 ("Modernization Act")
allows bank holding companies meeting management, capital and Community
Reinvestment Act standards to engage in a substantially broader range of
traditionally nonbanking activities than was permissible before enactment,
including insurance underwriting and making merchant banking investments in
commercial and financial companies. It also allows insurers and other financial
services companies to acquire banks; removes various restrictions that
currently apply to bank holding company ownership of securities firms and
mutual fund advisory companies; and establishes the overall regulatory
structure applicable to bank holding companies that also engage in insurance
and securities operations. The Corporation currently believes it meets the
requirements for the broader range of activities that are permitted by the
Modernization Act.

         In addition, the Modernization Act also modifies current law related
to financial privacy and community reinvestment. The new privacy provisions
generally will prohibit financial institutions from disclosing nonpublic
personal financial information to nonaffiliated third parties unless the
customer has the opportunity to decline disclosure.


                                       5
<PAGE>


         Regulation of FCB. FCB is organized as a North Carolina state
chartered bank subject to regulation, supervision and examination by the
Federal Reserve and NC Banking Commission, and to regulation by the FDIC. The
federal and state laws and regulations are applicable to required reserves
against deposits, allowable investments, loans, mergers, consolidations,
issuance of securities, payment of dividends, establishment of branches,
limitations on credit to subsidiaries and other aspects of the business of such
subsidiaries. The federal and state banking agencies have broad authority and
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies involving the classification of assets
and the establishment of loan loss reserves for regulatory purposes. Such
actions by the regulators prohibit member banks from engaging in unsafe or
unsound banking practices. The Bank is also subject to certain reserve
requirements established by the Federal Reserve Board and is a member of the
Federal Home Loan Bank ("FHLB") of Atlanta, which is one of the 12 regional
banks comprising the FHLB System.

CAPITAL AND OPERATIONAL REQUIREMENTS

         The Federal Reserve and the FDIC issued substantially similar minimum
capital adequacy standards of which both the Corporation and the Bank must
comply. The risk-based guidelines define a two-tier capital framework, under
which the Corporation and the Bank are required to maintain a minimum ratio of
Tier 1 Capital (as defined) to total risk-weighted assets of 4.00 percent and a
minimum ratio of Total Capital (as defined) to risk weighted assets of 8.00
percent. Tier 1 Capital generally consists of total shareholders' equity
calculated in accordance with generally accepted accounting principles less
certain intangibles, and Total Capital generally consists of Tier 1 Capital
plus certain adjustments, the largest of which for the Corporation and the Bank
is the general allowance for loan losses (up to 1.25 percent of risk-weighted
assets). Tier 1 Capital must comprise at least 50 percent of the Total Capital.
Risk-weighted assets refer to the on- and off-balance sheet exposures of the
Corporation and the Bank, as adjusted for one of four categories of applicable
risk-weights established in Federal Reserve regulations, based primarily on
relative credit risk. At December 31, 2001, the Corporation and the Bank were
in compliance with the risk-based capital requirements.

         The leverage ratio is determined by dividing Tier 1 Capital by total
adjusted average assets. Although the stated minimum ratio is 3.00 percent,
most banking organizations are required to maintain ratios of at least 100 to
200 basis points above 3.00 percent. Management believes that the Corporation
and the Bank meet their leverage ratio requirement.

         The Corporation's compliance with existing capital requirements is
summarized in the table below:


<TABLE>
<CAPTION>
                                                                                Risk-Based Capital
                                                           ------------------------------------------------------------
                                 Leverage Capital                Tier 1 Capital                  Total Capital
-----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)     Amount       Percentage(1)       Amount        Percentage(2)      Amount       Percentage(2)
-----------------------------------------------------------------------------------------------------------------------

<S>                       <C>          <C>                 <C>            <C>               <C>           <C>
Actual                    $284,107          8.80%          $284,107          12.80%         $310,485         13.99%
Required                   129,096          4.00             88,773           4.00           177,546          8.00
Excess                     155,011          4.80            195,334           8.80           132,939          5.99
</TABLE>


(1)      Percentage of total adjusted average assets. The Federal Reserve
         minimum leverage ratio requirement is 3.00 percent to 5.00 percent,
         depending on the institution's composite rating as determined by its
         regulators. The Federal Reserve Board has not advised the Corporation
         of any specific requirement applicable to it.

(2)      Percentage of risk-weighted assets.

         In addition to the above described capital requirements, the federal
regulatory agencies may from time to time require that a banking organization
maintain capital above the minimum levels whether because of its financial
condition or actual or anticipated growth.

         Prompt Corrective Action under FDICIA. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), among other things, identifies
five capital categories for insured depository institutions (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically


                                       6
<PAGE>


undercapitalized) and requires the respective federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines
could also subject a banking institution to capital raising requirements. In
addition, pursuant to FDICIA, the various regulatory agencies have prescribed
certain non-capital standards for safety and soundness relating generally to
operations and management, asset quality and executive compensation, and such
agencies may take action against a financial institution that does not meet the
applicable standards.

         The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the Total Risk-Based Capital, Tier 1 Risk-Based Capital and Leverage Capital
Ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 Capital ratio of at least 6.00 percent, a Total Capital ratio of
at least 10.00 percent and a Leverage ratio of at least 5.00 percent and not be
subject to a capital directive order. An "adequately capitalized" institution
must have a Tier 1 Capital ratio of at least 4.00 percent, a Total Capital
ratio of at least 8.00 percent and a Leverage ratio of at least 4.00 percent,
or 3.00 percent in some cases. Under these guidelines, FCB is considered well
capitalized. See NOTE EIGHTEEN of the consolidated financial statements.

         Banking agencies have also adopted regulations which mandate that
regulators take into consideration (i) concentrations of credit risk, (ii)
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its off-balance
sheet position) and (iii) risks from non-traditional activities, as well as an
institution's ability to manage those risks, when determining the adequacy of
an institution's capital. This evaluation is made as a part of the
institution's regular safety and soundness examination. In addition, the
banking agencies have amended their regulatory capital guidelines to
incorporate a measure for market risk. In accordance with amended guidelines, a
Corporation or Bank with significant trading activity (as defined) must
incorporate a measure for market risk in its regulatory capital calculations.
The revised guidelines do not materially impact the Corporation's or FCB's
regulatory capital ratios or FCB's well-capitalized status.

         Distributions. The primary source of funds for distributions paid by
the Corporation to its shareholders is dividends received from FCB. Federal
regulatory and other requirements, as well as laws and regulations of the State
of North Carolina, restrict the lending of funds by FCB to the Corporation and
the amount of dividends that FCB can pay to the Corporation. The Federal
Reserve regulates the amount of FCB dividends payable to the Corporation based
on undivided profits for the last two years, less dividends already paid. As of
December 31, 2001, FCB had paid the full allowable amount of dividends to the
Corporation. FCB obtains regulatory approval prior to payment of dividends to
the Corporation. See NOTE NINETEEN of the consolidated financial statements.

         In addition to the foregoing, the ability of the Corporation and FCB
to pay dividends may be affected by the various minimum capital requirements
and the capital and non-capital standards established under FDICIA, as
described above. Furthermore, if, in the opinion of a federal regulatory
agency, a bank under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
bank, could include the payment of dividends), such agency may require, after
notice and hearing, that such bank cease and desist from such practice. The
right of the Corporation, its shareholders and its creditors to participate in
any distribution of assets or earnings of FCB is further subject to the prior
claims of creditors against the Bank.

         Deposit Insurance. The deposits of FCB are insured up to applicable
limits by the FDIC. As insurer, the FDIC is authorized to conduct examinations
of, and to require reporting by, FDIC-insured institutions. It also may
prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the FDIC. The
FDIC also has the authority to initiate enforcement actions against banking
institutions, after giving the institution's primary regulator an opportunity
to take such action. In addition, the Bank is subject to deposit premium
assessments by the


                                       7
<PAGE>


FDIC. As mandated by FDICIA, the FDIC has adopted regulations for a risk-based
insurance assessment system. Under this system, the assessment rates for an
insured depository institution vary according to the level of risk incurred in
its activities. To arrive at a risk assessment for a banking institution, the
FDIC places it in one of nine risk categories using a process based on capital
ratios and on other relevant information from supervisory evaluations of the
bank by the bank's primary federal regulator, the Federal Reserve, statistical
analyses of financial statements and other relevant information.

         The deposits of FCB are insured by the BIF, administered by the FDIC.
Under the FDIC's risk-based insurance system, assessments currently can range
from no assessment to an assessment of 27 basis points per $100 of insured
deposits, with the exact assessment determined by the bank's capital and the
applicable regulatory agency's opinion of the bank's operations. The range of
deposit insurance assessment rates can change from time to time, in the
discretion of the FDIC, subject to certain limits. Presently FCB is not
required to pay any additional assessment to the FDIC. However, the FDIC has
publicly stated that its Bank Insurance Fund will soon fall below its mandatory
reserve limit and that such an event would likely trigger additional premiums
for all banks. At this time, the amount of any future premiums required to be
paid by FCB is not known.

         Source of Strength. According to Federal Reserve policy, bank holding
companies are expected to act as a source of financial strength to subsidiary
banks and to commit resources to support each such subsidiary. This support may
be required at times when a bank holding company may not be able to provide
such support. Similarly, under the cross-guaranty provisions of the Federal
Deposit Insurance Act, in the event of a loss suffered or anticipated by the
FDIC, either as a result of default of a banking or thrift subsidiary of the
Corporation or related to FDIC assistance provided to a subsidiary in danger of
default, the other banking subsidiaries of the Registrant may be assessed for
the FDIC's loss, subject to certain exceptions.

         Future Legislation. Proposals to change the laws and regulations
governing the banking industry are frequently introduced in Congress, in the
state legislatures and before the various bank regulatory agencies. The
likelihood and timing of any such proposals or bills being enacted and the
impact they might have on the Corporation and FCB cannot be determined at this
time.

OTHER CONSIDERATIONS

         There are particular risks and uncertainties that are applicable to an
investment in our common stock. Specifically, there are risks and uncertainties
that bear on our future financial results that may cause our future earnings
and financial condition to be less than our expectations. Some of the risks and
uncertainties relate to economic conditions generally, and would affect other
financial institutions in similar ways. These aspects are discussed under the
heading "Factors that May Affect Future Results" in the accompanying
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". This section addresses particular risks and uncertainties that are
specific to our business.

ITEM 2.  PROPERTIES

         The principal offices of the Corporation are located in the 230,000
square foot First Charter Center located at 10200 David Taylor Drive in
Charlotte, North Carolina, which is owned by the Bank through its subsidiaries.
The First Charter Center contains the corporate offices of the Corporation, the
main office of FCB, as well as the operations, mortgage loan and data
processing departments of FCB.

         The Corporation also leases a facility in Reston, Virginia for the
origination of real estate loans, as well as a holding company for certain
subsidiaries that own real estate and real estate-related assets, including
first and second residential mortgage loans.

         In addition to its main office, FCB has 52 financial centers, five
insurance offices, one mortgage origination office and 99 ATMs located in 17
counties throughout North Carolina. Further, FCB recently opened one mortgage
origination office in Virginia.


                                       8
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

     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.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of stockholders during the
quarter ended December 31, 2001.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

         The following list sets forth with respect to each of the current
executive officers of the registrant his or her name, age, positions and
offices held with the Registrant and the Banks, the period served in such
positions or offices and, if such person has served in such position and office
for less than five years, the prior employment of such person.


<TABLE>
<CAPTION>
                                                                                YEAR POSITION
NAME                        AGE     OFFICE AND POSITION                             HELD
----                        ---     -------------------                         -------------

<S>                         <C>     <C>                                        <C>
Lawrence M. Kimbrough       61      President and Chief Executive Officer      1986 - Present
                                    of the Registrant and FCB

Robert O. Bratton           53      Executive Vice President, Chief            1983 - Present
                                    Financial Officer, Treasurer of the
                                    Registrant and Executive Vice
                                    President of FCB
                                    Vice President Bank of Union               1996 - 1998

Robert E. James, Jr         51      Executive Vice President of the            1999 - Present
                                    Registrant and Executive Vice
                                    President of FCB
                                    Group Executive: Market Planning &         1996 - 1998
                                    Customer Development, Centura Bank
                                    Executive Vice President for               1994 - 1998
                                    Metro Markets, Centura Bank

C. Thomas McFarland         44      Executive Vice President                   1999 - Present
                                    of the Registrant and Executive
                                    Vice President of FCB
                                    Executive Vice President and               1996 - 1999
                                    Alternative Delivery Systems
                                    Manager, BB&T

Stephen M. Rownd            43      Executive Vice President                   2000 - Present
                                    of the Registrant and Executive
                                    Vice President and Chief
                                    Credit Officer of FCB
                                    Director of Risk Management,               1999 - 2000
                                    SunTrust Banks, Inc.
                                    Executive Vice President and               1996 - 1999
                                    Chief Credit Officer, SunTrust
                                    Bank of Gulf Coast
</TABLE>


                                       9
<PAGE>


                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

         The principal market on which the Common Stock is traded is the Nasdaq
National Market. The following table sets forth the high and low sales prices
of the Common Stock for the periods indicated, as reported on the Nasdaq
National Market:


<TABLE>
<CAPTION>
                  Quarter              High               Low
                  ---------------------------------------------

<S>               <C>                <C>               <C>
2000              first              $14.6250          $12.5000
                  second              17.5000           12.5000
                  third               16.8750           13.6250
                  fourth              15.7500           13.0000
2001              first               16.0000           13.4380
                  second              18.7500           15.1250
                  third               18.4500           15.4600
                  fourth              18.4900           15.8500
</TABLE>


         As of March 6, 2002, there were 9,123 record holders of the
Corporation's Common Stock. During 2000 and 2001, the Corporation paid
dividends on the Common Stock on a quarterly basis. The following table sets
forth dividends declared per share of Common Stock for the periods indicated:


<TABLE>
<CAPTION>
                  Quarter         Dividend
                  ------------------------

<S>               <C>             <C>
2000              first            $0.17
                  second            0.17
                  third             0.18
                  fourth            0.18
2001              first             0.18
                  second            0.18
                  third             0.18
                  fourth            0.18
</TABLE>


         For additional information regarding the Corporation's ability to pay
dividends, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources" on page 33.

ITEM 6.  SELECTED FINANCIAL DATA

         See TABLE ONE in Item 7 for Selected Financial Data.


                                       10
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the consolidated financial statements of the Corporation and the notes
thereto, as restated to reflect the Corporation's various mergers.

         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 include, among others, the
following possibilities: (1) projected business increases in connection with
the implementation of our business plan are lower than expected; (2)
competitive pressure among financial services companies increases
significantly; (3) costs or difficulties related to the integration of
acquisitions or expenses in general are greater than expected; (4) general
economic conditions, in the markets in which the company does business, are
less favorable than expected; (5) changes in the interest rate environment
reduce interest margins and affect funding sources; (6) changes in market rates
and prices may adversely affect the value of financial products; (7) any
inability to generate liquidity necessary to meet loan demand or other cash
needs; (8) any inability to accurately predict the adequacy of the loan loss
allowance needs; (9) legislation or regulatory requirements or changes
adversely affect the businesses in which the company is engaged; and (10)
decisions to change the business mix of the company.

OVERVIEW

         The Corporation is a bank holding company established as a North
Carolina Corporation in 1983, with one wholly-owned banking subsidiary, FCB.
The Corporation's principal executive offices are located in Charlotte, North
Carolina. FCB is a full-service bank and trust company with 52 financial
centers, five insurance offices and one mortgage origination office located in
17 counties throughout North Carolina. Further, FCB recently opened one
mortgage origination office in Virginia.

         Through its financial center locations, the Bank provides a wide range
of banking products, including interest bearing and non-interest bearing
checking accounts; "Money Market Rate" accounts; certificates of deposit;
individual retirement accounts; overdraft protection; commercial, consumer,
agriculture, real estate, residential mortgage and home equity loans; personal
and corporate trust services; safe deposit boxes; and automated banking.

         In addition, through First Charter Brokerage Services, a subsidiary of
FCB, the Registrant offers full service and discount brokerage services,
annuity sales and financial planning services pursuant to a third party
arrangement with UVEST Investment Services. The Bank also operates six other
subsidiaries: First Charter Insurance Services, Inc., First Charter of Virginia
Realty Investments, Inc., First Charter Realty Investments, Inc., FCB Real
Estate, Inc., First Charter Real Estate Holding, LLC., and First Charter
Leasing, Inc. First Charter Insurance Services, Inc. is a North Carolina
corporation formed to meet the insurance needs of businesses and individuals
throughout the Charlotte metropolitan area. First Charter of Virginia Realty
Investments, Inc. is a Virginia corporation organized as a holding company for
First Charter Realty Investments, Inc. a real estate investment trust organized
in Delaware, FCB Real Estate, Inc. a real estate investment trust organized in
North Carolina and First Charter Real Estate Holdings, LLC. First Charter
Leasing, Inc. is a North Carolina corporation, which leases commercial
equipment. The Bank also has a majority ownership in Lincoln Center at Mallard
Creek, LLC. Lincoln Center is a three-story office building occupied in part by
a branch of FCB.

         On June 22, 2001, First Charter's banking subsidiary completed its
conversion from a national bank to First Charter Bank, a North Carolina state
Bank. The change was completed after a cost benefit analysis


                                       11
<PAGE>


of supervisory regulatory charges and does not represent any disagreement with
the Corporation's or the Bank's former regulators. The Bank will continue to
operate its financial center network franchise under the "First Charter" brand
name.

         The Corporation's operations are divided into five operating segments:
commercial banking, brokerage services, insurance services, mortgage and
financial management. These segments are identified based on the Corporation's
organizational structure and the Corporation's chief operating decision makers
review separate results of operations of each of these operating segments. Of
these segments, the results of operations of First Charter Bank (commercial
banking) comprise the substantial majority of the consolidated net income,
revenues and assets of the Corporation, as set forth in NOTE TWO of the
consolidated financial statements. Accordingly, a substantial portion of the
discussion contained herein relates to the results of operations of First
Charter Bank.

MERGER AND ACQUISITIONS

         Poolings-of-Interests. On September 1, 2000, Business Insurers was
merged into First Charter Insurer Services. As a result of this merger,
approximately 283,000 shares of the Corporation's common stock were issued.

         On April 4, 2000, the Corporation completed its merger with Carolina
First (the "Merger"). The shareholders of each company approved the Merger at
separate meetings held on March 21, 2000. In accordance with the terms of the
Merger Agreement, (i) each share of the $2.50 par value common stock of
Carolina First (excluding shares held by Carolina First or the Corporation or
their respective companies, in each case other than in a fiduciary capacity or
as a result of debts previously contracted) was converted into 2.267 shares of
the no par value common stock of the Corporation on April 4, 2000, resulting in
the net issuance of approximately 13.3 million common shares to the former
Carolina First shareholders.

         During 1998, the Corporation acquired HFNC. HFNC was merged into the
Corporation effective September 30, 1998.

         During 1997, the Corporation acquired CSB, which was merged into FCB
at that time. CSB financial centers now operate as FCB financial centers.

         Each of these mergers was accounted for as a pooling of interests and,
accordingly, all financial data for the periods prior to the respective dates
of the mergers have been restated to combine the accounts of Union, CSB, HFNC,
Carolina First, and Business Insurers with those of the Corporation.

         Purchases. Insurance Agencies. Since 1999, the Corporation has
acquired five insurance agencies using the purchase accounting method. The
majority of the year over year increases we have experienced in insurance
services income is due to the acquisition noted below. The five insurance
agencies acquired since 1999 and the respective date of acquisition include:
Franklin Brown Company (January 31, 1999), J. L. Suttle, Jr. and Co., Inc.
(December 31, 1999), Faulkner Investments, Inc. (January 1, 2000), Banner and
Greene Agency, Inc. (April 1, 2001), and Hoffman & Young, Inc. (July 31, 2001).

         Financial Centers. On November 17, 2000, the Corporation purchased
four financial centers with total loans of $9.4 million and total deposits of
$88.3 million. The financial centers are located in Bryson City, Jefferson,
West Jefferson and Sparta, North Carolina.

         Each of these acquisitions was accounted for as a purchase.
Accordingly, the results of operations of these companies have been included in
the consolidated results of operations of the Corporation since the date of the
respective acquisition.


                                       12
<PAGE>


CRITICAL ACCOUNTING POLICIES

         The Corporation's significant accounting policies are set forth in
NOTE ONE of the consolidated financial statements. Of these policies, the
Corporation considers its policy regarding the allowance for loan losses to be
one of its most critical accounting policies, because it requires management's
most subjective and complex judgments. The Corporation has developed
appropriate policies and procedures for assessing the adequacy of the allowance
for loan losses, recognizing that this process requires a number of assumptions
and estimates with respect to its loan portfolio. The Corporation's assessments
may be impacted in future periods by changes in economic conditions, the impact
of regulatory examinations and the discovery of information with respect to
borrowers which is not known to management at the time of the issuance of the
consolidated financial statements. For additional discussion concerning the
Corporation's allowance for loan losses and related matters, see ALLOWANCE FOR
LOAN LOSSES.

         In addition, the Corporation also considers its policy regarding
equity method investees to be a critical accounting policy due to the
assumptions in the valuation of these investments and other subjective factors.
The Corporation's equity method investments represent investments in venture
capital limited partnerships which invest in early stage companies.

         The Corporation's recognition of earnings or losses from equity method
investees is determined by the Corporation's share of the investee's earnings
on a quarterly basis. The limited partnerships provide their quarterly
financial information on a quarter lag basis, so the Corporation's policy is to
record its share of earnings or losses on these equity method investments on a
quarter lag basis.

         These limited partnerships record their investments in investee
companies on a fair value basis, with changes in the underlying fair values
being reflected as an adjustment to their earnings in the period such changes
are determined. The earnings of these limited partnerships, and therefore the
amount recorded on an equity-method basis by the Corporation, are impacted
significantly by changes in the underlying value of the companies in which
these limited partnerships invest. All of the companies in which these limited
partnerships invest are privately held, and their market values are not readily
available. Estimations of these values are made quarterly by the management of
the limited partnerships, and are subject to review by the Corporation for
reasonableness. The assumptions in the valuation of these investments by the
limited partnerships include the viability of the business model, the ability
of the company to obtain alternative financing, their ability to generate
revenues in future periods and other subjective factors. Given the inherent
risks associated with this type of investment in the current economic
environment, there can be no guarantee that there will not be widely varying
gains or losses on these equity method investments in future periods.


                                       13
<PAGE>


RESULTS OF OPERATIONS

         The Corporation's results of operations and financial position are
described in the following sections.

         Refer to TABLE ONE and TABLE FIVE for annual and quarterly selected
financial data, respectively.

2001 VERSUS 2000

         The following discussion and analysis provides a comparison of the
Corporation's results of operations for the years ended December 31, 2001 and
2000. This discussion should be read in conjunction with the consolidated
financial statements and related notes on pages 38 through 70.

         Net income amounted to $35.3 million, or $1.12 diluted net income per
share for the year ended December 31, 2001, compared to $24.8 million or $0.79
diluted net income per share for the year ended December 31, 2000, representing
an increase of $10.5 million. The increase in net income was primarily due to
restructuring charges and merger-related expense of $16.3 million pre-tax
($12.3 million, or $0.39 per diluted share after-tax) in 2000, primarily
associated with the Carolina First merger, which occurred during the three
months ended June 30, 2000. The increase in net income due to the restructuring
charges and merger-related expenses was offset in 2001 by (i) a $2.4 million
decrease in net interest income resulting from a compression of the net
interest margin and decreasing loan demand during 2001 and (ii) increased
expenses resulting primarily from an increase in occupancy and equipment
expense resulting from the move into the new First Charter Center. Net income
in 2001 and 2000 was also impacted certain other items, which are set fort in
TABLE TWO. These other items are considered nonrecurring in nature by
management and therefore should be considered in year over year analysis of
results of operations.

         Net income for the fourth quarter 2001 was $8.2 million, or $0.26 per
diluted share, compared to $9.1 million, or $0.29 per diluted share in the
fourth quarter 2000. The decrease in net income was primarily attributable to a
$5.3 million increase in noninterest expense partially offset by a $3.4 million
increase in noninterest income. The increase in noninterest expense was due to
an increase in occupancy and equipment expense associated with the move into
the First Charter Center, expenses related to the implementation of a new
computer operating system and increased professional service costs. The
increase in noninterest income was due to the active management of our
securities portfolio, service charge income on deposit accounts, mortgage loan
fees, trading gains, and the continued growth of First Charter Insurance
Services. Net income was also impacted by the other items described in TABLE
FIVE. These other items are considered nonrecurring in nature by management and
therefore should be considered in year over year analysis of results of
operations.


                                       14
<PAGE>


TABLE  ONE
SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
(Dollars in thousands,                      -----------------------------------------------------------------------------------
except per share amounts)                      2001              2000              1999              1998              1997
-------------------------------------------------------------------------------------------------------------------------------

<S>                                         <C>               <C>               <C>               <C>               <C>
INCOME STATEMENT
Interest income                             $   215,276       $   216,143       $   194,271       $   188,561       $   168,367
Interest expense                                109,912           108,314            90,299            92,694            82,400
-------------------------------------------------------------------------------------------------------------------------------
Net interest income                             105,364           107,829           103,972            95,867            85,967
Provision for loan losses                         4,465             7,615             5,005             3,741             3,681
Noninterest income                               38,773            30,666            28,795            23,912            21,845
Noninterest expense                              87,579            92,727            75,991            86,888            63,984
-------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                       52,093            38,153            51,771            29,150            40,147
Income taxes                                     16,768            13,312            16,480            12,859            14,255
-------------------------------------------------------------------------------------------------------------------------------
Net income                                  $    35,325       $    24,841       $    35,291       $    16,291       $    25,892
===============================================================================================================================

PER COMMON SHARE
Basic net income                            $      1.12       $      0.79       $      1.12       $      0.51       $      0.84
Diluted net income                                 1.12              0.79              1.11              0.50              0.83
Cash dividends declared(1)                         0.72              0.70              0.68              0.61              0.53
Period-end book value                             10.06              9.79              9.33              9.57              9.29
Average shares outstanding - basic           31,480,109        31,435,342        31,504,746        31,782,843        30,712,930
Average shares outstanding - diluted         31,660,985        31,580,328        31,772,060        32,423,533        31,411,944
RATIOS
Return on average shareholders' equity            11.03%             8.29%            12.08%             5.30%             8.80%
Return on average assets                           1.14              0.90              1.37              0.67              1.26
Net interest margin                                3.74              4.26              4.43              4.29              4.35
Average loans to average deposits                 95.43            110.52            104.60            113.42             97.03
Average equity to average assets                  10.31             10.84             11.31             12.56             14.31
Efficiency ratio(2)                               60.97             64.09             56.85             73.04             61.80
Dividend payout                                   64.29             88.61             61.26            122.00             63.86
SELECTED PERIOD END BALANCES
Securities available for sale               $ 1,077,365       $   441,031       $   486,905       $   483,292       $   438,244
Securities held to maturity                          --                --            36,082            33,307            36,709
Loans, net                                    1,929,052         2,128,960         1,942,830         1,876,353         1,644,416
Allowance for loan losses                        25,843            28,447            25,002            22,278            21,100
Total assets                                  3,332,737         2,932,199         2,679,728         2,594,940         2,289,458
Total deposits                                2,162,945         1,998,234         1,816,491         1,775,638         1,604,312
Borrowings                                      808,512           570,024           542,021           481,019           361,002
Total liabilities                             3,023,396         2,622,912         2,389,460         2,288,034         1,990,596
Total shareholders' equity                      309,341           309,287           290,268           306,175           298,638
SELECTED AVERAGE BALANCES
Loans, net                                    1,990,406         2,074,971         1,878,509         1,783,271         1,517,358
Earning assets                                2,881,295         2,576,853         2,418,011         2,302,896         2,027,624
Total assets                                  3,104,952         2,763,920         2,583,803         2,448,384         2,055,598
Total deposits                                2,085,669         1,877,426         1,795,921         1,572,262         1,563,773
Borrowings                                      652,298           556,859           447,633           443,344           329,987
Total shareholders' equity                      320,215           299,745           292,183           307,460           294,247
===============================================================================================================================
</TABLE>

The table above sets forth certain selected financial data concerning First
Charter Corporation (the "Corporation") for the five years ended December 31,
2001. All financial data has been adjusted to reflect the acquisition of HFNC
Financial Corp. in 1998, the acquisition of Business Insurers of Guilford
County in 2000, and the acquisition of Carolina First BancShares, Inc. in 2000,
each of which was accounted for as a pooling of interest.

(1)      First Charter Corporation historical cash dividends declared.

(2)      Noninterest expense divided by the sum of taxable equivalent net
         interest income plus noninterest income less gain on sale of
         securities.


                                       15
<PAGE>


     The following table presents a schedule of other items included in net
income for the years ended December 31, 2001, 2000, 1999, 1998 and 1997:

TABLE TWO
OTHER ITEMS


<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                    -----------------------------------------------------------------------
(Dollars in thousands)                              2001            2000            1999             1998             1997
---------------------------------------------------------------------------------------------------------------------------

<S>                                                 <C>           <C>              <C>             <C>              <C>
SCHEDULE OF OTHER ITEMS INCLUDED IN EARNINGS
Other items
  Noninterest income
    (Loss) gain on sale of loans                    $  --         $    (99)        $ 1,757         $     --         $    --
    Gain on sale of merchant card business             --               --              --              385              --
    Fixed income portfolio
       restructuring (loss) gain                       --           (3,913)             --            1,962              --
    Equity investment write down                     (144)          (1,601)            (66)              --              --
    Equity method (loss) income                      (442)           4,580             138               --              --
    Gain on sale of property                          416            2,788           1,752               --              --
  Noninterest expense
    Charitable trust                                   --           (1,000)             --               --              --
    Restructuring charges and merger-related           --          (16,250)             --          (20,262)         (3,400)
---------------------------------------------------------------------------------------------------------------------------
    Total other items                               $(170)        $(15,495)        $ 3,581         $(17,915)        $(3,400)
---------------------------------------------------------------------------------------------------------------------------
    Other items, net of tax                         $(116)        $(11,770)        $ 2,328         $(13,615)        $(2,584)
===========================================================================================================================
</TABLE>


NET INTEREST INCOME

         An analysis of the Corporation's net interest income on a
taxable-equivalent basis and average balance sheet for the last three years is
presented in TABLE THREE. The changes in net interest income from year to year
are analyzed in TABLE FOUR.

         Net interest income, the difference between total interest income and
total interest expense, is the Corporation's principal source of earnings. For
the year ended December 31, 2001, net interest income amounted to $105.4
million, a decrease of approximately 2.3 percent from net interest income of
$107.8 million in 2000. The decrease was the result of the declining interest
rate environment resulting from the slowing economy which has had a negative
impact on the net interest margin as variable rate assets reprice faster than
variable rate liabilities. Reduced loan demand, several large loan payoffs and
our increased selectivity in seeking new opportunities in this economic
environment have also had a negative impact on the net interest margin.

         Average interest earning assets increased approximately $304.4 million
to $2.88 billion for the year ended December 31, 2001, compared to $2.58
billion for the same 2000 period. This increase is primarily due to a $229.0
million increase in the Corporation's average securities available for sale
portfolio for the year ended December 31, 2001, excluding the impact of the
securitization of $167.0 million of mortgage loans during the first quarter of
2001. The increase in average securities available for sale was primarily due
to net purchases of approximately $469.3 million in securities available for
sale during the year ended December 31, 2001. Average interest earning assets
also increased due to the purchase of four financial centers in November 2000,
as well as growth in the Corporation's average loan portfolio, which increased
$68.2 million for the year ended December 31, 2001, excluding the impact of the
securitization of $167.0 million of mortgage loans during the first quarter of
2001. The decrease in average yield on interest earning assets to 7.54 percent
in 2001, compared to 8.46 percent in 2000, resulted principally from the
decrease in the average prime rate during 2001 to 6.93 percent, from 9.23
percent in 2000. The decrease in the average prime rate is attributable to the
Federal Reserve's 475 basis point decrease in the Fed Funds rate during 2001.
The average yield earned on loans was 8.01 percent in 2001, compared to 8.89
percent in 2000.

         In addition to the increase in average interest earning assets, the
Corporation experienced an increase in average interest-bearing liabilities of
$295.8 million to $2.49 billion during 2001 due to the use of Federal Home Loan
Bank ("FHLB") advances to fund securities purchases and increases in deposits.
The average rate paid on interest bearing liabilities decreased to 4.42 percent
in 2001, compared to 4.94 percent in 2000, primarily due to a decline in the
average rate of borrowings. The average rate paid on


                                       16
<PAGE>


interest-bearing deposits was 4.27 percent in 2001, down from 4.61 percent in
2000. Similarly, the rate paid on other borrowed funds decreased to 4.85
percent in 2001, compared to 5.94 percent in 2000.

         The net interest margin (tax adjusted net interest income divided by
average interest-earning assets) decreased 54 basis points to 3.72 percent in
2001, compared to 4.26 percent in 2000. The decrease reflects the impact of the
declining interest rate environment in 2001, which had a negative impact on the
net interest margin as assets repriced faster than liabilities. The addition of
lower yielding securities, higher levels of borrowings and competitive forces
related to loan and deposit pricing also had a negative impact on the net
interest margin. See "Asset-Liability Management and Interest Rate Sensitivity"
for additional discussion on the Corporation's management of rate sensitive
assets and liabilities.

         The following table includes for the years ended December 31, 2001,
2000 and 1999 interest income on interest earning assets and related average
yields, as well as interest expense on interest bearing liabilities and related
average rates paid. In addition, the table includes the net yield on average
earning assets. Average balances were calculated based on daily averages.

TABLE THREE
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS


<TABLE>
<CAPTION>
                                                2001                             2000                            1999
                                 -------------------------------- -------------------------------- --------------------------------
                                              INTEREST  AVERAGE                Interest   Average               Interest   Average
                                   AVERAGE     INCOME/ YIELD/RATE   Average     Income/ Yield/Rate  Average     Income/  Yield/Rate
(Dollars in thousands)             BALANCE     EXPENSE   PAID       Balance     Expense   Paid      Balance     Expense     Paid
-----------------------------------------------------------------------------------------------------------------------------------

<S>                              <C>          <C>      <C>        <C>          <C>      <C>        <C>          <C>      <C>
INTEREST EARNING ASSETS:
Loans(1)(2)(3)                   $1,990,406   $159,430    8.01%   $2,074,971   $184,388    8.89%   $1,878,509   $162,726   8.66%
Securities - taxable                788,928     51,647    6.55       400,306     27,274    6.81       423,894     26,053   6.15
Securities - nontaxable              88,448      5,629    6.36        93,226      5,885    6.31       101,184      6,488   6.41
Federal funds sold                    1,971         75    6.78         3,997        250    6.26         9,105        501   5.50
Interest bearing bank deposits       11,542        399    3.46         4,353        224    5.15         5,319        314   5.90
-----------------------------------------------------------------------------------------------------------------------------------
  Total earning assets(4)         2,881,295    217,180    7.54     2,576,853    218,021    8.46     2,418,011    196,082   8.11
===================================================================================================================================
Cash and due from banks              67,600                           67,836                           65,602
Other assets                        156,057                          119,231                          100,190
-----------------------------------------------------------------------------------------------------------------------------------
  TOTAL ASSETS                   $3,104,952                       $2,763,920                       $2,583,803
===================================================================================================================================
INTEREST BEARING
  LIABILITIES:
Demand deposits                  $  515,531   $ 10,129    1.96%   $  485,230   $ 12,454    2.57%   $  472,212   $ 12,100   2.56%
Savings deposits                    115,787      2,004    1.73       149,812      3,765    2.51       192,744      5,945   3.08
Other time deposits               1,203,000     66,119    5.50       998,866     59,044    5.91       908,479     48,055   5.29
Other borrowings                    652,298     31,660    4.85       556,859     33,051    5.94       447,633     24,199   5.41
-----------------------------------------------------------------------------------------------------------------------------------
  TOTAL INTEREST BEARING
    LIABILITIES                   2,486,616    109,912    4.42     2,190,767    108,314    4.94     2,021,068     90,299   4.47
===================================================================================================================================
Noninterest bearing sources:
Noninterest bearing deposits        251,352                          243,517                          222,486
Other liabilities                    46,769                           29,891                           48,066
Shareholders' equity                320,215                          299,745                          292,183
-----------------------------------------------------------------------------------------------------------------------------------
  Total liabilities and
    shareholders' equity         $3,104,952                       $2,763,920                       $2,583,803
===================================================================================================================================
Net interest spread                                       3.12                             3.52                            3.64
Impact of noninterest
  bearing sources                                         0.60                             0.74                            0.73
-----------------------------------------------------------------------------------------------------------------------------------
  NET INTEREST INCOME/
    YIELD ON EARNINGS ASSETS                  $107,268    3.72%                $109,707    4.26%                $105,783   4.37%
===================================================================================================================================
</TABLE>

(1)      The preceding analysis takes into consideration the principal amount
         of nonaccruing loans and only income actually collected on such loans.

(2)      Average loan balances are shown net of unearned income.

(3)      Includes amortization of deferred loan fees of approximately $3,807,
         $3,501 and $3,875, for 2001, 2000 and 1999, respectively.

(4)      Yields on nontaxable securities and loans are stated on a
         taxable-equivalent basis, assuming a Federal tax rate of 35 percent,
         applicable state taxes and TEFRA disallowances for 2001, 2000 and
         1999. The adjustments made to convert to a taxable-equivalent basis
         were $1,904, $1,878 and $1,811 for 2001, 2000 and 1999, respectively.


                                       17
<PAGE>

TABLE FOUR
VOLUME AND RATE VARIANCE ANALYSIS


<TABLE>
<CAPTION>
                                        FROM DEC. 31, 2000 TO DEC. 31, 2001              From Dec. 31, 1999 to Dec. 31, 2000
                                    INCREASE (DECREASE) IN NET INTEREST INCOME        Increase (Decrease) in Net Interest Income
                                                DUE TO CHANGE IN(1)                               Due to Change in(1)
                                  ----------------------------------------------    ---------------------------------------------
                                    2000                                  2001       1999                                  2000
                                   INCOME/                               INCOME/    Income/                               Income/
(Dollars in thousands)             EXPENSE      RATE        VOLUME       EXPENSE    Expense       Rate        Volume      Expense
---------------------------------------------------------------------------------------------------------------------------------

<S>                               <C>         <C>          <C>          <C>         <C>         <C>         <C>          <C>
INTEREST INCOME:
Loans                             $184,388    $(17,814)    $ (7,144)    $159,430    $162,726    $ 4,424     $ 17,238     $184,388
Securities - taxable                27,274      (1,587)      25,960       51,647      26,053      2,750       (1,529)      27,274
Securities - nontaxable              5,885          47         (303)       5,629       6,488        (97)        (506)       5,885
Federal funds sold                     250         (73)        (102)          75         501         49         (300)         250
Interest bearing bank deposits         224        (134)         309          399         314        (37)         (53)         224
---------------------------------------------------------------------------------------------------------------------------------
   TOTAL INTEREST INCOME          $218,021    $(19,561)    $ 18,720     $217,180    $196,082    $ 7,089     $ 14,850     $218,021
=================================================================================================================================
INTEREST EXPENSE:
Demand deposits                   $ 12,454    $ (3,012)    $    687     $ 10,129    $ 12,100    $    20     $    334     $ 12,454
Savings deposits                     3,765      (1,039)        (722)       2,004       5,945       (978)      (1,202)       3,765
Other time deposits                 59,044      (4,568)      11,643       66,119      48,055      5,927        5,062       59,044
Other borrowings                    33,051      (6,539)       5,148       31,660      24,199      2,658        6,194       33,051
---------------------------------------------------------------------------------------------------------------------------------
   TOTAL INTEREST EXPENSE          108,314     (15,158)      16,756      109,912      90,299      7,627       10,388      108,314
---------------------------------------------------------------------------------------------------------------------------------
        NET INTEREST INCOME       $109,707    $ (4,403)    $  1,964     $107,268    $105,783    $  (538)    $  4,462     $109,707
=================================================================================================================================
</TABLE>

(1)      The changes for each category of income and expense are divided
         between the portion of change attributable to the variance in rate or
         volume for that category. The amount of change that cannot be
         separated is allocated to each variance proportionately.

PROVISION FOR LOAN LOSSES

         The provision for loan losses in 2001 amounted to $4.5 million
compared to the provision for loan losses of $7.6 million in 2000. The decrease
in the provision for loan losses was due to lower loan volume in 2001 and a
significant increase in nonaccrual loans in 2000, which did not recur in 2001.
Partially offsetting these factors in 2001 was the effect of higher net
charge-offs. As adjusted to remove the effects of the February 2001 loan
securitization and the sale of $45.3 million in lower-yielding loans in May
2000, gross loans increased $9.7 million during the year ended December 31,
2001 as compared to an increase of $234.9 million during the year ended
December 31, 2000. See "Allowance for Loan Losses" for additional discussion of
trends within the allowance for loan losses in current year and for a
discussion of the Corporation's management of credit risk related to the loan
portfolio.

         Net charge-offs for 2001 were $6.7 million or 0.33 percent of average
loans compared to $4.1 million or 0.20 percent of average loans in 2000. The
year-to-date increase in net loan charge-offs was attributable to $2.5 million
of charge-offs associated with two large commercial relationships which were
written down during the fourth quarter of 2001. These charge-offs are not
considered to be necessarily indicative of an overall deterioration in the
quality of the remaining portfolio. Without these two charge-offs, the ratio of
net charge-offs to average loans would have been 0.21 percent of average loans
for 2001 versus 0.20 percent for 2000. The provision for loan losses was less
than the amount of net charge-offs for 2001 because the commercial loans noted
above had been identified as impaired during 2000 and specific reserves were
allocated at that time.


                                       18
<PAGE>


NONINTEREST INCOME

         Noninterest income increased $8.1 million to $38.8 million for the
year ended December 31, 2001, compared to $30.7 million for the same period in
2000. This increase was driven primarily by a 23.8 percent increase in service
charge income on deposit accounts for the year ended December 31, 2001 compared
to the same 2000 period, which was due to the implementation of revenue
enhancing projects as well as re-pricing opportunities resulting from the
acquisition of Carolina First. In addition, the declining rate environment has
increased mortgage origination volume. This has resulted in additional loan
sales to the secondary market and correspondingly greater fee income. Active
management of our securities portfolio resulted in the recognition of $2.4
million in gains on security sales during 2001, compared to losses of $4.3
million during 2000. Of the $4.3 million loss in 2000, $3.9 million was
attributed to a restructuring of the Corporation's bond portfolio as a result
of rising interest rates at the time of the sales. Continued growth of First
Charter Insurance Services, higher brokerage revenue and trading gains also
increased noninterest income.

         Premiums earned on written covered call options on fixed income
securities accounts for a majority of our trading gains. At December 31, 2001,
the Corporation did not have any written covered call options outstanding. It
is generally the Corporation's policy to structure these option contracts so
that there are none outstanding at the end of a reporting period.

         See NOTE SIXTEEN of the consolidated financial statements for a
discussion of certain related party transactions which impacted deposit service
charges in the fourth quarter of 2001.

         Noninterest income was also impacted in both periods by income and
losses from equity method investees. During 2001 the Corporation recorded
losses on equity method investees of $0.4 million, compared to gains of $4.6
million in 2000. The Corporation's equity method investments represent
investments in venture capital limited partnerships which invest in early stage
companies. The Corporation's recognition of earnings or losses from equity
method investees represents the Corporation's share of the limited
partnership's earnings on a quarterly basis.

         These limited partnerships record their investments in investee
companies on a fair value basis, with changes in the underlying fair values
being reflected as an adjustment to their earnings in the period such changes
are determined. The earnings of these limited partnerships, and therefore the
amount recorded on an equity-method basis by the Corporation, are impacted
significantly by changes in the underlying value of the companies in which
these partnerships invest. All of the companies in which these limited
partnerships invest are privately held, and their market values are not readily
available. Estimations of these values are made quarterly by the management of
the limited partnerships. The assumptions in the valuation of these investments
by the limited partnerships include the viability of the investee's business
model, the ability of the company to obtain alternative financing, the
company's ability to generate revenues in future periods, and other subjective
factors.

         The limited partnerships provide their quarterly financial information
on a quarter lag basis, so the Corporation has a policy of recording their
share of these earnings or losses also on a quarter lag basis. During the first
quarter of 2002, the Corporation was notified by the management of one of the
limited partnerships that they were in the process of revaluing one of their
investments and that they expected that the value would decrease for the
limited partnership's fourth quarter 2001 valuation. As a result, the
Corporation expects to record losses on equity method investments in the first
quarter of 2002. Based on preliminary estimates by the management of the
limited partnership, the Corporation believes its share of the loss on this
equity method investment could be between $3.0 million and $4.0 million. These
losses would represent elimination of a portion of previously recorded
unrealized gains on this investee company, and would not represent a loss of
the original principal invested in this company. Nevertheless, given the
inherent risks associated with this type of investment in the current economic
environment, there can be no guarantee that there will not be additional losses
on these equity method investments in future periods.


                                       19
<PAGE>


NONINTEREST EXPENSE

         Noninterest expense decreased $5.1 million to $87.6 million for the
year ended December 31, 2001 from $92.7 million in the comparable 2000 period.
The decrease was attributable to the restructuring charges and merger-related
expenses of $16.3 million during the quarter ended June 30, 2000, primarily
associated with the acquisition of Carolina First. This decrease was partially
offset during 2001 by the additional operating costs associated with the four
financial centers acquired during the fourth quarter of 2000, an increase in
occupancy and equipment expense as a result of the move into the new First
Charter Center and investments in people and technology to position the
Corporation for growth.

INCOME TAX EXPENSE

         Total income tax expense amounted to $16.8 million for the year ended
December 31, 2001 and $13.3 million for the same comparable 2000 period. The
increase in the income tax expense was attributable to an increase in taxable
income. The increase in income tax expense, however, was not proportionate with
the decrease in net income because portions of the merger and acquisition costs
in 2000 were not deductible. This created a decrease in the effective tax rate
to 32.2 percent in 2001 from 34.9 percent in 2000.

         In the normal course of business, the Corporation evaluates and
implements tax-planning strategies. As a result of these strategies, management
anticipates our effective tax rate to decrease to approximately 27 percent to
28 percent in 2002.


                                       20
<PAGE>

TABLE FIVE
SELECTED QUARTERLY FINANCIAL DATA


<TABLE>
<CAPTION>
                                                                  2001 QUARTERS
 (Dollars in thousands, except     ----------------------------------------------------------------
 per share amounts)                  FOURTH              THIRD          SECOND            FIRST
---------------------------------------------------------------------------------------------------

<S>                                <C>               <C>             <C>               <C>
INCOME STATEMENT
 Total interest income             $     51,166      $    54,649     $     55,391      $     54,070
 Total interest expense                  24,352           27,826           29,043            28,691
---------------------------------------------------------------------------------------------------
 Net interest income                     26,814           26,823           26,348            25,379
 Provision for loan losses                1,200            1,325            1,190               750
 Total noninterest income                11,183           10,356            8,814             8,420
 Total noninterest expense               24,766           21,892           20,878            20,043
---------------------------------------------------------------------------------------------------
 Net income (loss) before
   income taxes                          12,031           13,962           13,094            13,006
 Income taxes                             3,881            4,502            4,223             4,162
---------------------------------------------------------------------------------------------------
 Net income (loss)                 $      8,150      $     9,460     $      8,871      $      8,844
===================================================================================================

PER SHARE DATA:
 Basic income (loss)               $       0.26      $      0.30     $       0.28      $       0.28
 Diluted income (loss)                     0.26             0.30             0.28              0.28
 Cash dividends declared(1)                0.18             0.18             0.18              0.18
 Period-end book value                    10.06            10.49            10.22             10.06
 Average shares
   outstanding - basic               31,197,190       31,545,721       31,719,241        31,696,764
 Average shares
   outstanding - diluted             31,364,373       31,314,550       31,906,705        31,833,564
RATIOS
 Return on average
   shareholders' equity(2)                 9.88%           11.72%           11.12%            11.46%
 Return on average assets(2)               1.00             1.18             1.15              1.24
 Net interest margin(2)                    3.62             3.68             3.73              3.90
 Average loans to
   average deposits                       91.15            92.38            95.50            103.56
 Average equity to
   average assets                         10.08            10.06            10.33             10.85
 Efficiency ratio(3)                      66.16            59.45            59.05             58.90
SELECTED PERIOD END
  BALANCES
 Securities available for sale     $  1,077,365      $ 1,134,374     $    939,993      $    876,421
 Securities held to maturity                 --               --               --                --
 Loans, net                           1,929,052        1,958,949        1,941,616         1,958,436
 Allowance for loan losses               25,843           28,221           28,049            28,049
 Total assets                         3,332,737        3,348,870        3,138,989         3,081,263
 Total deposits                       2,162,945        2,163,799        2,119,027         2,012,087
 Borrowings                             808,512          806,141          643,483           696,134
 Total liabilities                    3,023,396        3,021,297        2,814,885         2,762,284
 Total shareholders' equity             309,341          327,573          324,104           318,979
-----------------------------------------------------------------------------------------------------
SELECTED AVERAGE
  BALANCES
 Loans, net                           1,977,638        1,973,373        1,968,304         2,043,217
 Earning assets                       3,005,225        2,957,440        2,881,629         2,676,436
 Total assets                         3,246,863        3,184,788        3,098,598         2,884,703
 Total deposits                       2,169,743        2,136,217        2,060,997         1,973,002
 Borrowings                              46,070           45,832           47,385            47,823
 Total shareholders' equity             327,410          320,242          319,968           313,081
---------------------------------------------------------------------------------------------------

SCHEDULE OF OTHER ITEMS
  INCLUDED IN EARNINGS
 Noninterest income
   (Loss) gain on sale of loans              $-               $-     $         --      $         --
   Fixed income portfolio
    restructuring loss                       --               --               --                --
   Equity investment write down              --               --               --              (144)
   Equity method (loss) income             (524)              73             (102)              111
   Gain on sale of properties               287              129               --                --
 Noninterest expense
   Charitable trust                          --               --               --                --
   Merger and
    restructuring charges                    --               --               --                --
---------------------------------------------------------------------------------------------------
 Total other items                         (237)             202             (102)              (33)
---------------------------------------------------------------------------------------------------
 Other items, net of tax           $       (161)     $       137     $        (69)     $        (22)
===================================================================================================

<CAPTION>
                                                                  2000 Quarters
 (Dollars in thousands, except     ------------------------------------------------------------------
 per share amounts)                   Fourth             Third             Second            First
-----------------------------------------------------------------------------------------------------

<S>                                <C>               <C>               <C>               <C>
INCOME STATEMENT
 Total interest income             $     56,524      $     54,739      $     53,242      $     51,638
 Total interest expense                  29,451            28,065            26,199            24,599
-----------------------------------------------------------------------------------------------------
 Net interest income                     27,073            26,674            27,043            27,039
 Provision for loan losses                2,075             2,200             1,370             1,970
 Total noninterest income                 7,791             7,686             7,914             7,275
 Total noninterest expense               19,469            17,757            35,670            19,831
-----------------------------------------------------------------------------------------------------
 Net income (loss) before
   income taxes                          13,320            14,403            (2,083)           12,513
 Income taxes                             4,223             4,464               681             3,944
-----------------------------------------------------------------------------------------------------
 Net income (loss)                 $      9,097      $      9,939      $     (2,764)     $      8,569
=====================================================================================================

PER SHARE DATA:
 Basic income (loss)               $       0.29      $       0.32      $      (0.09)     $       0.27
 Diluted income (loss)                     0.29              0.31             (0.09)             0.27
 Cash dividends declared(1)                0.18              0.18              0.17              0.17
 Period-end book value                     9.79              9.49              9.19              9.52
 Average shares
   outstanding - basic               31,588,105        31,503,251        31,402,488        31,245,099
 Average shares
   outstanding - diluted             31,688,490        31,646,483        31,584,528        31,399,895
RATIOS
 Return on average
   shareholders' equity(2)                11.87%            13.31%            (3.67)%           11.70%
 Return on average assets(2)               1.28              1.43             (0.40)             1.28
 Net interest margin(2)                    4.17              4.19              4.30              4.39
 Average loans to
   average deposits                      108.89            112.18            111.69            109.69
 Average equity to
   average assets                         10.78             10.72             10.93             10.97
 Efficiency ratio(3)                      53.16             46.41            101.37             57.31
SELECTED PERIOD END
  BALANCES
 Securities available for sale     $    441,031      $    474,077      $    500,310      $    476,017
 Securities held to maturity                 --                --                --            35,324
 Loans, net                           2,128,960         2,083,283         2,062,674         2,025,677
 Allowance for loan losses               28,447            27,861            26,700            25,979
 Total assets                         2,932,199         2,787,955         2,788,426         2,754,178
 Total deposits                       1,998,234         1,922,440         1,870,958         1,856,180
 Borrowings                             570,024           519,762           584,144           567,536
 Total liabilities                    2,622,912         2,488,905         2,499,711         2,456,201
 Total shareholders' equity             309,287           299,050           288,715           297,977
SELECTED AVERAGE
  BALANCES
 Loans, net                           2,133,452         2,099,690         2,068,958         1,997,860
 Earning assets                       2,628,331         2,578,372         2,582,473         2,519,053
 Total assets                         2,826,068         2,771,990         2,775,567         2,687,784
 Total deposits                       1,959,300         1,871,704         1,852,470         1,821,291
 Borrowings                             522,346           563,377           589,354           552,831
 Total shareholders' equity             304,770           297,122           303,546           294,442
-----------------------------------------------------------------------------------------------------

SCHEDULE OF OTHER ITEMS
  INCLUDED IN EARNINGS
 Noninterest income
   (Loss) gain on sale of loans    $         --      $         --      $        (99)     $         --
   Fixed income portfolio
    restructuring loss                   (1,059)           (2,854)               --                --
   Equity investment write down            (231)             (571)             (299)             (500)
   Equity method (loss) income               28             4,106               446                --
   Gain on sale of properties             2,261               527                --                --
 Noninterest expense
   Charitable trust                      (1,000)               --                --                --
   Merger and
    restructuring charges                    --                --           (16,250)               --
-----------------------------------------------------------------------------------------------------
 Total other items                           (1)            1,208           (16,202)             (500)
-----------------------------------------------------------------------------------------------------
 Other items, net of tax           $         --      $        825      $    (12,253)     $       (342)
=====================================================================================================
</TABLE>


(1)      First Charter Corporation historical cash dividends declared.

(2)      Annualized

(3)      Noninterest expense divided by the sum of taxable equivalent net
         interest income plus noninterest income less gain on sale of
         securities.


                                       21
<PAGE>


2000 VERSUS 1999

         The following discussion and analysis provides a comparison of the
Corporation's results of operations for the years ended December 31, 2000 and
1999. This discussion should be read in conjunction with the consolidated
financial statements and related notes on pages 38 through 70.

OVERVIEW

         Net income amounted to $24.8 million, or $0.79 diluted net income per
share for the year ended December 31, 2000, compared to $35.3 million or $1.11
diluted net income per share for the year ended December 31, 1999, representing
a decrease of $10.5 million. This decrease was primarily attributable to the
differences in the items described below, which management considers as
nonrecurring in nature and therefore should be considered in year over year
analysis of operations. Net income for the year ended December 31, 2000
included the following items: (i) $16.3 million pre-tax ($12.3 million
after-tax) merger and restructuring charge primarily associated with the merger
of Carolina First; (ii) $4.6 million pre-tax earnings ($3.2 million after-tax)
from equity method income on certain investments due to unrealized gains in
underlying equity investments during the period; (iii) $2.8 million pre-tax
($1.9 million after-tax) gain on sale of property related to the sale of four
duplicate branch facilities and one office building; (iv) $3.9 million pre-tax
($2.7 million after-tax) loss associated with the restructuring of the
available-for-sale securities portfolio; (v) $1.6 million pre-tax ($1.1 million
after-tax) loss associated with the write down of certain equity securities due
to other-than-temporary impairment in value; (vi) $0.1 million pre-tax ($0.1
million after-tax) loss associated with the sale of mortgage loans; and (vii)
$1.0 million pre-tax ($0.7 million after-tax) charitable trust contribution.
Net income for the year ended December 31, 1999 includes the following items:
(i) $1.8 million pre-tax ($1.1 million after-tax) gain associated with the sale
of mortgage loans; (ii) $0.1 million pre-tax earnings ($0.1 million after-tax)
from equity method income on certain investments due to unrealized gains in
underlying equity investments during the period; (iii) $1.8 million pre-tax
($1.1 million after-tax) gain associated with the sale of property; and (iv)
$66,000 pre-tax ($43,000 after-tax) loss associated with the write down of
certain equity securities due to other-than-temporary impairment in value.
Refer to TABLE TWO for detail of other items included in earnings.

NET INTEREST INCOME

         For the year ended December 31, 2000, net interest income was $107.9
million, an increase of 3.8 percent from net interest income of $104.0 million
in 1999. The increase is attributable to an increase in average interest
earning assets of $158.8 million from $2.4 billion during 1999 to $2.6 billion
during 2000. The net interest margin (tax adjusted net interest income divided
by average interest earning assets) decreased to 4.26 percent in 2000 from 4.37
percent in 1999.

         The average yield on interest-earning assets was 8.46 percent in 2000
compared to 8.11 percent in 1999. The average rate paid on interest-bearing
liabilities was 4.94 percent in 2000, compared to 4.47 percent in 1999. The
average yield earned on loans was 8.89 percent in 2000, compared to 8.66
percent in 1999. The average rate paid on interest-bearing deposits was 4.61
percent in 2000, from 4.20 percent in 1999. The increases in the average yields
and average rates for 2000 compared to 1999, resulted from the increase in the
average prime rate during 2000, from 8.02 percent in 1999 to 9.23 percent in
2000.

PROVISION FOR LOAN LOSSES

         The provision for loan losses for 2000 was $7.6 million compared to
$5.0 million in 1999. The increase in the provision was due to: (i) loan
growth, primarily in the commercial portfolio; (ii) increases in net
charge-offs due to the effect of higher interest rates and slower economic
growth on some customers within the portfolio; and (iii) increases in
nonperforming assets.


                                       22
<PAGE>


NONINTEREST INCOME

         Noninterest income was $30.6 million in 2000 compared to $28.8 million
in 1999, for an increase of 6.3 percent. The increase was primarily due to
increases in service charge income resulting from applying FCB's service charge
rates to Carolina First deposit accounts subsequent to the merger, as well as
continued growth of First Charter Insurance Services. Noninterest income was
also impacted by the other items described in TABLE TWO on page 16.

NONINTEREST EXPENSE

         Noninterest expense was $92.7 million in 2000 compared to $76.0
million in 1999. The increase was primarily attributable to restructuring
charges and merger-related expenses of $16.3 million, which occurred during
2000 as well as investments in people and technology to position First Charter
to better serve our existing and future clients. Noninterest expense was also
impacted by the other items described in TABLE TWO on page 16.

INCOME TAX EXPENSE

         Total income tax expense for 2000 was $13.3 million versus $16.5
million in 1999. The decrease is attributable to a decrease in taxable income.
The decrease in tax expense, however, was not proportionate with the decrease
in income because portions of the restructuring charges and merger-related
expense in 2000 were not deductible. This created an increase in the effective
tax rate from 31.8 percent in 1999 to 34.9 percent in 2000.


                                       23
<PAGE>


FINANCIAL CONDITION

SUMMARY

         Total assets at December 31, 2001 and 2000 were $3.33 billion and
$2.93 billion, respectively. Gross loans at December 31, 2001 and 2000 were
$1.96 billion and $2.16 billion, respectively. This decrease from prior periods
was due to the securitization of $167.0 million of mortgage loans in February
2001. These loans were securitized because of a change in interest rates and
the resulting impact of that condition on the Corporation's interest rate risk.
The securitized mortgage loans are now classified as mortgage backed securities
in our available for sale portfolio. Total deposits increased $164.7 million,
or 8.2 percent, to $2.16 billion at December 31, 2001 and other borrowings
increased $238.5 million, or 41.8 percent, to $808.5 million at December 31,
2001. The increase in other borrowings was primarily due to increases in
Federal Home Loan Bank advances principally used to fund security purchases.

INVESTMENT PORTFOLIO

         Securities available for sale are a component of the Corporation's
asset-liability management strategy and may be sold in response to liquidity
needs, changes in interest rates, changes in prepayment risk, and other
factors. They are accounted for at fair value, with unrealized gains and losses
recorded net of tax as a component of other comprehensive income.

         All securities are classified as available for sale at December 31,
2001. As maturities, sales, or paydowns occur on securities, the proceeds are
utilized to meet loan demand and to reinvest in additional securities.

         At December 31, 2001, securities available for sale were $1.08 billion
or 32.3 percent of total assets, compared to $441.0 million, or 15.0 percent of
total assets, at December 31, 2000. The increase in securities available for
sale was due to the securitization of $167.0 million of mortgage loans in
February 2001, as well as the net purchase of $469.3 million in securities
available for sale made to raise the level of our interest earning assets. The
carrying value of these securities was approximately $9.6 million above their
amortized cost at December 31, 2001 and $3.3 million above their amortized cost
at December 31, 2000. The tax equivalent average yield on the securities
available for sale portfolio was 6.53 percent for 2001 and 6.72 percent for
2000. The weighted-average life of the portfolio was 4.77 years at December 31,
2001 and 6.19 years at December 31, 2000. In conjunction with the Merger, the
Corporation transferred $35.3 million of Carolina First's securities classified
as held to maturity to available for sale due to the significance of the impact
on the Corporation's interest rate forecast as compared to Corporate policy.
See NOTE FIVE of the consolidated financial statements for further details on
securities.

         The following table shows, as of December 31, 2001, 2000, and 1999, the
carrying value of (i) U.S. government obligations, (ii) U.S. government agency
obligations, (iii) mortgage-backed securities, (iv) state and municipal
obligations, and (v) equity securities.

TABLE SIX
INVESTMENT PORTFOLIO


<TABLE>
<CAPTION>
                                                                         December 31,
                                                    --------------------------------------------------
(Dollars in thousands)                                 2001                 2000                1999
------------------------------------------------------------------------------------------------------

<S>                                                 <C>                   <C>                 <C>
SECURITIES AVAILABLE FOR SALE
US government obligations                           $       --            $     --            $ 21,532
US government agency obligations                       288,253             158,228             285,080
Mortgage-backed securities                             655,690             153,276              56,970
State, county, and municipal obligations                87,548              94,024              88,450
Equity securities                                       45,874              35,503              34,873
------------------------------------------------------------------------------------------------------
  TOTAL                                             $1,077,365            $441,031            $486,905
======================================================================================================

SECURITIES HELD TO MATURITY
US government obligations                           $       --            $     --            $  1,996
US government agency obligations                            --                  --               7,831
Mortgage-backed securities                                  --                  --              17,668
State, county, and municipal obligations                    --                  --               8,587
------------------------------------------------------------------------------------------------------
  TOTAL                                             $       --            $     --            $ 36,082
======================================================================================================
</TABLE>


                                       24
<PAGE>

LOAN PORTFOLIO

         Gross loans totaled $1.96 billion and $2.16 billion at December 31,
2001 and 2000, respectively. This decrease from prior periods was due primarily
to the securitization of $167.0 million of mortgage loans in February 2001 as
well as the effects of the slowing economy on dampened loan growth. These
mortgage loans were securitized because of a change in interest rates and the
resulting impact of that condition on the Corporation's interest rate risk. The
securitized mortgage loans are now classified as mortgage backed securities in
our available for sale portfolio. Due to changes in certain interest rates
during 2000, and the resulting impact on the Corporation's interest rate risk,
the Corporation sold $45.3 million in lower-yielding mortgage loans in the
second quarter of 2000.

         The loan portfolio at December 31, 2001 was composed of 10.9 percent
commercial, financial, and agricultural loans, 17.3 percent real estate
construction loans, 65.3 percent real estate mortgage loans, and 6.5 percent
installment loans. This compares to a composition of 10.0 percent commercial,
financial and agricultural, 15.4 percent real estate construction, 69.5 percent
real estate mortgage, and 5.1 percent installment at December 31, 2000.
Approximately $14.5 million of the real estate loans at December 31, 2001 are
loans for which the principal source of repayment comes from the sale of real
estate. The remaining $1.6 billion of loans collateralized by real estate at
December 31, 2001 are (i) other commercial loans for which the primary source of
repayment is derived from the ongoing cash flow of the business and which are
also collateralized by real estate - $875.5 million, (ii) home equity loans
which are collateralized by real estate - $228.2 million, (iii) individual
residential mortgage loans - $496.5 million, and (iv) non real estate loans
which are collateralized by real estate - $25.2 million.

         The Corporation's primary market area includes the state of North
Carolina, and predominately centers around the Metro region of Charlotte. At
December 31, 2001, the majority of the total loan portfolio, as well as a
substantial portion of the commercial and real estate loan portfolio, represents
loans to borrowers within this region. The diversity of the region's economic
base tends to provide a stable lending environment. No significant concentration
of credit risk has been identified due to the diverse industrial base in the
region.

         In the normal course of business, there are various outstanding
commitments to extend credit, which are not reflected in the consolidated
financial statements. At December 31, 2001, preapproved but unused lines of
credit totaled $276.1 million, loan commitments totaled $250.1 million and
standby letters of credit aggregated $18.4 million. These amounts represent the
Bank's exposure to credit risk, and in the opinion of management, have no more
than the normal lending risk that the Bank commits to its borrowers. If these
commitments are drawn, the Bank will obtain collateral if it is deemed necessary
based on management's credit evaluation of the borrower. Such obtained
collateral varies, but may include accounts receivable, inventory, and
commercial or residential real estate. Management expects that these commitments
can be funded through normal operations.

         The table below summarizes loans in the classifications indicated as of
December 31, 2001, 2000, 1999, 1998, and 1997.

         TABLE SEVEN
         LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
         -----------------------------------------------------------------------------------------------------------------------
                                                                                December 31,
                                         ---------------------------------------------------------------------------------------
         (Dollars in thousands)                  2001             2000              1999              1998              1997
         -----------------------------------------------------------------------------------------------------------------------
         <S>                                 <C>               <C>               <C>               <C>               <C>
         Commercial, financial and
          agricultural                       $   213,578       $   216,515       $   204,360       $   161,808       $   128,924
         Real estate - construction              338,705           332,474           316,794           234,916           170,182
         Real estate - mortgage                1,276,182         1,499,618         1,337,369         1,377,388         1,227,049
         Installment                             126,621           109,015           109,512           125,240           140,159
         -----------------------------------------------------------------------------------------------------------------------
            Total loans                        1,955,086         2,157,622         1,968,035         1,899,352         1,666,314
         -----------------------------------------------------------------------------------------------------------------------
         Less - allowance for loan
            losses                               (25,843)          (28,447)          (25,002)          (22,278)          (21,100)
         Unearned income                            (191)             (215)             (203)             (721)             (812)
         -----------------------------------------------------------------------------------------------------------------------
            Loans, net                       $ 1,929,052       $ 2,128,960       $ 1,942,830       $ 1,876,353       $ 1,644,402
         -----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       25
<PAGE>

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGE IN INTEREST RATES

         Set forth in the table below are the amounts of each loan type, except
installment loans and real estate mortgage loans, due in one year, after one
year through five years, and after five years, at December 31, 2001. This table
excludes non-accrual loans.

         TABLE EIGHT
         MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
         ---------------------------------------------------------------------------------------------
                                                                   December 31, 2001
                                                 -----------------------------------------------------
                                                   Commercial,
                                                 Financial, and      Real estate -
         (Dollars in thousands)                   Agricultural        Construction             Total
         ---------------------------------------------------------------------------------------------
         <S>                                     <C>                 <C>                     <C>
         Fixed rate:
         1 year or less                            $  65,523            $  38,335            $ 103,858
         1-5 years                                     7,097               58,360               65,457
         After 5 years                                13,726               31,419               45,145
         ---------------------------------------------------------------------------------------------
             Total fixed rate                         86,346              128,114              214,460
         ---------------------------------------------------------------------------------------------
         Variable rate:
         1 year or less                                6,621              105,907              112,528
         1-5 years                                    95,357               85,276              180,633
         After 5 years                                19,470               14,601               34,071
         ---------------------------------------------------------------------------------------------
             Total variable rate                     121,448              205,784              327,232
         ---------------------------------------------------------------------------------------------
                 Total selected loans              $ 207,794            $ 333,898            $ 541,692
         ---------------------------------------------------------------------------------------------
</TABLE>

NONPERFORMING ASSETS

         Nonperforming assets, which consist of foreclosed assets, nonaccrual
loans, and restructured loans, were $31.9 million at December 31, 2001, as
compared to $29.6 million at December 31, 2000. As a percentage of total assets,
nonperforming assets have decreased to 0.96 percent at December 31, 2001
compared to 1.01 percent at December 31, 2000. The decrease in the percentage of
nonperforming assets to total assets was primarily due to the increase in
securities available for sale described in the Investment Portfolio section.

         Total nonperforming assets and loans 90 days or more past due and still
accruing interest at December 31, 2001 were $32.0 million or 1.62 percent of
total loans and other real estate, compared to $30.0 million or 1.37 percent of
total loans and other real estate at December 31, 2000. Nonaccrual loans have
decreased to $23.8 million at December 31, 2001 from $26.6 million at December
31, 2000. The decrease is primarily attributable to the transfer of one large
commercial relationship from nonaccrual status to other real estate as such loan
was foreclosed on during the fourth quarter of 2001 as well as one commercial
relationship which was repaid. Other real estate increased to $8.0 million at
December 31, 2001 from $3.0 million at December 31, 2000 due to the large
commercial relationship noted above. The increase in nonaccrual loans in 2000,
and the decrease in loans 90 days or more past due and still accruing interest
in the same year, was attributable to the impact of higher interest rates and
slower economic growth on some customers during that year. Interest income that
would have been recorded on nonaccrual loans and restructured loans for the
years ended December 31, 2001, 2000 and 1999, had they performed in accordance
with their original terms, amounted to approximately $2.2 million, $2.3 million,
and $1.0 million, respectively. Interest income on all such loans included in
the results of operations for 2001, 2000 and 1999 amounted to approximately $1.0
million, $1.3 million, and $0.4 million, respectively.

         The determination to discontinue the accrual of interest is based on a
review of each loan. Generally, accrual of interest is discontinued on loans 90
days past due as to principal or interest unless in management's opinion
collection of both principal and interest is assured by way of
collateralization, guarantees or other security and the loan is in the process
of collection. Management's policy for any accruing loan greater than 90 days
past due is to perform an analysis of the loan, including a consideration of the
financial position of the borrower and any guarantor as well as the value of the
collateral, and use this information to make an assessment as to whether
collectibility of the principal and


                                       26
<PAGE>

interest appears probable. Based on such a review, Management has determined it
is probable that the principal as well as the accruing interest on these loans
will be collected in full.

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

         TABLE NINE
         NONPERFORMING AND PROBLEM ASSETS
<TABLE>
<CAPTION>
         -----------------------------------------------------------------------------------------------------------------------
                                                                                           December 31,
                                                                    ------------------------------------------------------------
         (Dollars in thousands)                                       2001         2000         1999          1998        1997
         -----------------------------------------------------------------------------------------------------------------------
         <S>                                                        <C>          <C>          <C>          <C>          <C>
         Nonaccrual loans                                           $ 23,824     $ 26,587     $ 10,353     $  7,190     $  6,839
         Restructured loans                                               --           --           37          577          587
         -----------------------------------------------------------------------------------------------------------------------
           Total nonperforming loans                                  23,824       26,587       10,390        7,767        7,426
         -----------------------------------------------------------------------------------------------------------------------
         Other real estate                                             8,049        2,989        2,262        3,863        4,520
         -----------------------------------------------------------------------------------------------------------------------
           Total nonperforming assets                                 31,873       29,576       12,652       11,630       11,946
         -----------------------------------------------------------------------------------------------------------------------
         Loans 90 days or more past due and
              still accruing interest                                    152          430        3,638        2,381        2,261
         -----------------------------------------------------------------------------------------------------------------------
           Total nonperforming assets and loans 90 days or
         more past due and still accruing interest                  $ 32,025     $ 30,006     $ 16,290     $ 14,011     $ 14,207
         -----------------------------------------------------------------------------------------------------------------------
         Nonperforming assets as a percentage of:
           Total assets                                                 0.96%        1.01%        0.47%        0.45%        0.52%
           Loans and other real estate                                  1.62%        1.37%        0.64%        0.61%        0.72%
         Ratio of allowance for loan losses to
           nonperforming loans                                          1.08x        1.07x        2.41x        2.87x        2.84x
         -----------------------------------------------------------------------------------------------------------------------
</TABLE>

SUMMARY OF LOAN LOSS AND RECOVERY EXPERIENCE

         The table below presents certain data for the years ended December 31,
2001, 2000, 1999, 1998, and 1997, including the following: (i) the average
amount of net loans outstanding during the year, (ii) the allowance for loan
losses at the beginning of the year, (iii) the provision for loan losses, (iv)
loans charged off and recovered (v) loan charge-offs, net, (vi) the allowance
for loan losses at the end of the year, (vii) the ratio of net charge-offs to
average loans and (viii) the ratio of the allowance for loan losses to loans at
year-end.

TABLE TEN
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                 Years Ended December 31,
                                                        --------------------------------------------------------------------------
(Dollars in thousands)                                     2001              2000           1999           1998            1997
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>             <C>            <C>
Balance, January 1                                      $    28,447     $    25,002     $    22,278     $    21,100    $    19,453
----------------------------------------------------------------------------------------------------------------------------------
Loan charge-offs:
Commercial, financial and agricultural                        4,280           2,532             951             870            741
Real estate - construction                                       50             351              36             390             --
Real estate - mortgage                                          564             519             138             173            344
Installment                                                   2,512           1,661           1,648           1,984          1,814
----------------------------------------------------------------------------------------------------------------------------------
Total loans charged-off                                       7,406           5,063           2,773           3,417          2,899
----------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural                          243             623             295             305            176
Real estate - construction                                       --              --              --              76             --
Real estate - mortgage                                          169              49              72              51             71
Installment                                                     285             334             494             422            349
Other                                                            57              --              --              --             --
----------------------------------------------------------------------------------------------------------------------------------
Total recoveries of loans previously charged-off                754           1,006             861             854            596
----------------------------------------------------------------------------------------------------------------------------------
Net charge-offs                                               6,652           4,057           1,912           2,563          2,303
----------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                                     4,465           7,615           5,005           3,741          3,681
Adjustment for merged banks                                      --              --              --              --            269
Adjustment for loans sold and securitized                      (417)           (113)           (369)             --             --
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31                                    $    25,843     $    28,447     $    25,002     $    22,278    $    21,100
----------------------------------------------------------------------------------------------------------------------------------

Average loans, net                                      $ 1,990,406     $ 2,074,971     $ 1,878,509     $ 1,783,271    $ 1,517,358
Net charge-offs to average loans                               0.33%           0.20%           0.10%           0.14%          0.15%
Allowance for loan losses to
gross loans at year-end                                        1.32            1.32            1.27            1.17           1.27
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       27
<PAGE>

ALLOWANCE FOR LOAN LOSSES

         All estimates of the loan portfolio risk, including the adequacy of the
allowance for loan losses, are subject to general and local economic conditions,
among other factors, which are unpredictable and beyond the Corporation's
control. Since a significant portion of the loan portfolio is comprised of real
estate loans and loans to area businesses, the Corporation is subject to
continued risk that the real estate market and economic conditions could
continue to change and could result in future losses and require increases in
the provision for loan losses.

         Management currently uses several measures to assess and control the
loan portfolio risk. For example, all loans over a certain dollar amount must
receive an in-depth review by an analyst in the Bank's Credit Department. Any
issues regarding risk assessments of those credits are addressed by the Bank's
Senior Risk Managers and factored into management's decision to originate or
renew the loan. Furthermore, large commitments are reviewed by both a Board of
Directors Loan Committee and an Executive Loan Committee comprised of executive
management, the Chief Credit Officer and senior lending officers of the Bank.
The Corporation also continues to employ an independent third party risk
assessment group to review the underwriting, documentation and risk grading
analysis. This third party group reviews loans on a sampling basis at regular
intervals throughout the year. The third party's evaluation and report is shared
with Executive Management and the Loan and Audit Committees of the Bank.

         Management uses the information developed from the procedures described
above in evaluating and grading the loan portfolio. This continual grading
process is used to monitor the credit quality of the loan portfolio and to
assist management in determining the appropriate levels of the allowance for
loan losses.

         As part of the continual grading process, individual commercial loans
are assigned a credit risk grade based on their credit quality, which is subject
to change as conditions warrant. Any changes in those risk assessments as
determined by the outside risk assessment group, regulatory examiners or the
Corporation's Risk Management Division are also considered in the allowance for
loan losses analysis. Management considers certain commercial loans on
nonaccrual status to be individually impaired and measures such impairment and
the related allowance for loan loss based primarily upon collateral values. An
estimate of an allowance is made for all other graded loans in the portfolio
based on their assigned credit risk grade, type of loan, historical loss
experience and other matters related to credit risk. In the allowance for loan
loss analysis process, the Bank also aggregates non-graded loans into pools of
similar credits and reviews the historical loss experience associated with these
pools as additional criteria to allocate the allowance to each category. The
Bank also considers the impact of the area, local, regional and national
economies in making estimates of the allowance for loan losses.

         At December 31, 2001 the allowance for loan losses was $25.8 million or
1.32 percent of gross loans compared to $28.4 million or 1.32 percent at
December 31, 2000 and $25.0 million, or 1.27 percent at December 31, 1999.
During 2001 the ratio of the allowance for loan losses to gross loans increased
due to the February 2001 mortgage loan securitization, which removed $417,000 of
allowance for loan losses when the loans were securitized and reclassified from
loans into securities available for sale. Securitized loans consisted of
residential mortgage loans, which generally have a lower percentage of allocated
allowance for loan losses. This increase in the ratio of the allowance for loan
losses to gross loans was offset by higher net loan charge-offs associated with
two large commercial relationships which were written down during the fourth
quarter of 2001. These commercial loans had been identified as impaired during
2000 and had specific allocated reserves.

         Management considers the allowance for loan losses adequate to cover
inherent losses in the Bank's loan portfolio as of the date of the financial
statements. Management believes it has established the allowance in
consideration of the current economic environment. While management uses the
best information available to make evaluations, future additions to the
allowance may be necessary based on changes in economic and other conditions.
Additionally, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowances for loan losses.
Such agencies may


                                       28
<PAGE>

require the recognition of adjustments to the allowances based on their
judgments of information available to them at the time of their examinations.

         The following table presents the dollar amount of the allowance for
loan losses applicable to major loan categories, the percentage of the allowance
amount in each category to the total allowance and the percentage of the loans
in each category to total loans as of December 31, 2001, 2000, 1999, 1998 and
1997.

TABLE ELEVEN
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                        December 31,
                            --------------------------------------------------------------------------------------------------------
                                  2001                2000                  1999                 1998                 1997
                            --------------------------------------------------------------------------------------------------------
                                         Loan/                Loan/                Loan/                Loan/              Loan/
(Dollars in thousands)      Amount  Total Loans  Amount  Total Loans   Amount  Total Loans  Amount  Total Loans  Amount  Total Loans
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>     <C>          <C>     <C>          <C>      <C>         <C>      <C>         <C>      <C>
Commercial, financial
    and agricultural        $ 4,103      11%     $ 5,465      10%     $ 4,773      10%     $ 3,322       8%     $ 2,240       8%
Real estate - construction    5,969      17        6,568      15        5,276      16        3,408      12        2,952      10
Real estate - mortgage       11,569      65       15,120      70       12,583      68       13,378      73       13,355      74
Installment                   4,202       7        1,294       5        2,370       6        2,170       7        2,553       8
------------------------------------------------------------------------------------------------------------------------------------
     Total                  $25,843     100%     $28,447     100%     $25,002     100%     $22,278     100%     $21,100     100%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The allowance amounts assigned to each category of loans represent the
      historical loss experience of the loans adjusted for current economic
      events or conditions.

DEPOSITS

         TABLE THREE provides information on the average amounts of deposits and
the rates paid by deposit category. Total deposits at December 31, 2001 were
$2.16 billion, an 8.2 percent increase from December 31, 2000. Insured money
market accounts increased $42.3 million or 17.3 percent, demand deposits
increased $45.5 million or 9.1 percent, and certificates of deposit increased
$87.4 million or 7.7 percent, while savings deposits decreased $10.5 million or
8.6 percent. Increases in money market and certificates of deposit were due to
marketing campaigns directed toward packaging and promoting these accounts more
effectively, as well as the purchase of $57.6 million of brokered certificates
of deposits used as a funding source. The reduction in savings deposits was due
to the Corporation reducing the interest rates paid on these accounts which
encouraged migration to other deposit account types. See NOTE TEN of the
consolidated financial statements for further details on deposits.

OTHER BORROWINGS

         Other borrowings increased $238.5 million during the year, to $808.5
million at December 31, 2001, from $570.0 million at December 31, 2000. The
components of this increase consisted primarily of an increase of $183.7 million
in FHLB advances and an increase of $54.8 million in short term borrowings
consisting primarily of federal funds purchased and securities sold under
agreements to repurchase. These borrowings were principally used to fund
securities purchases.

         The following is a schedule of other borrowings which consists of the
following categories: securities sold under repurchase agreements, federal funds
purchased and Federal Home Loan Bank of Atlanta ("FHLB") borrowings for the
years ended December 31, 2001, 2000 and 1999.

         Table Twelve
         Other Borrowings
<TABLE>
<CAPTION>
         --------------------------------------------------------------------------------------------------
         (Dollars in thousands)                                  2001              2000              1999
         --------------------------------------------------------------------------------------------------
         <S>                                                 <C>               <C>               <C>
         Federal funds purchased, securities
           sold under agreements to repurchase,
           FHLB and other borrowings:
                  Balance as of December 31                  $  808,512        $  570,024        $  542,021
                  Average balance                               652,298           556,859           447,633
                  Maximum outstanding at
                     any month end                              808,512           627,916           633,519
                  Interest rate as of December 31                  3.84%             5.98%             5.18%
                  Average interest rate                            4.85%             5.94%             5.41%
         --------------------------------------------------------------------------------------------------
</TABLE>


                                       29
<PAGE>

         At December 31, 2001, FCB had one available line of credit with the
FHLB totaling $736.8 million with approximately $639.4 million outstanding. The
outstanding amounts consisted of $156.0 million maturing in 2002, $30.0 million
maturing in 2003, $25.0 million maturing in 2004, $65.0 million in 2006, $76.0
million maturing in 2009, $107.0 million maturing in 2010 and $180.4 million
maturing in 2011. In addition, the FHLB requires banks to pledge collateral to
secure the advances as described in the line of credit agreement. The collateral
consists of FHLB stock and qualifying 1-4 family residential mortgage loans.

LIQUIDITY

         Liquidity is the ability to maintain cash flows adequate to fund
operations and meet obligations and other commitments on a timely and
cost-effective basis. Liquidity is provided by the ability to attract deposits,
flexible repricing schedules in a sizable portion of the loan portfolio, current
earnings, a strong capital base and the ability to use alternative funding
sources that complement normal sources. Management's asset-liability policy is
to maximize net interest income while continuing to provide adequate liquidity
to meet continuing loan demand and deposit withdrawal requirements and to
service normal operating expenses.

         The Corporation's primary source of funding is from customer deposits,
loan repayments, and securities available for sale. If additional funding
sources are needed, the Bank has access to federal fund lines at correspondent
banks and borrowings from the Federal Reserve discount window. In addition to
these sources, as described above, the Bank is a member of the FHLB, which
provides access to FHLB lending sources. At December 31, 2001, the Bank had an
available line of credit with the FHLB totaling $736.8 million with $97.4
million available. At December 31, 2001, FCB also had federal funds back-up
lines of credit totaling $50.0 million, of which there were no amounts
outstanding. At December 31, 2001, the Corporation had lines of credit with
SunTrust Bank totaling $25.0 million with $15.0 million outstanding and
commercial paper outstandings of $16.9 million.

         The Corporation's other borrowings capacity is limited to 30 percent of
earning assets. At December 31, 2001, earning assets totaled $3.04 billion,
which translated to a borrowing capacity of approximately $912.0 million.

         Another source of liquidity is the securities available for sale
portfolio. See "FINANCIAL CONDITION - Investment Portfolio" for a further
discussion. Management believes the Bank's sources of liquidity are adequate to
meet loan demand, operating needs and deposit withdrawal requirements.

         The Corporation has obligations under existing contractual obligations
that will require payments in future periods. The following table presents
aggregated information about such payments to be made in future periods. The
Corporation anticipates refinancing during 2002 any contractual obligations that
are due in less than one year.

Table Thirteen
Contractual Obligations
As of December 31, 2001
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                   Payments Due by Period
                                                                   ----------------------
                                                 Less than
(Dollars in thousands)                            1 year         1-3 Years       4-5 Years     Over 5 Years         Total
----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>             <C>             <C>             <C>
Other borrowings                               $   355,182       $  25,080       $  65,080       $ 363,170       $   808,512
Lease obligations                                      114           4,590           2,134           1,400             8,238
Equity method investees funding (1)                    925              --              --              --               925
Deposits (2)                                     1,944,639         179,565          37,623           1,118         2,162,945
----------------------------------------------------------------------------------------------------------------------------
  Total Contractual Cash Obligations           $ 2,300,860       $ 209,235       $ 104,837       $ 365,688       $ 2,980,620
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Equity method investee funding is not related to the expected equity
      investment loss detailed in Note Twenty.
(2)   Deposits with no stated maturity (demand, money market, and savings
      deposits) are presented in the less than one year category.


                                       30
<PAGE>

ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY

         The primary objective of the Corporation's asset-liability management
strategy is to reduce the risk of a significant decrease in net interest income
caused by interest rate changes without unduly penalizing current earnings. One
method used to manage interest rate sensitivity is to measure, over various time
periods, the interest rate sensitivity positions, or gaps; however, this method
addresses only the magnitude of timing differences and does not address earnings
or market value. Management uses an earnings simulation model to assess the
amount of earnings at risk due to changes in interest rates. This model is
updated monthly and is based on a range of interest rate scenarios. Under the
Corporation's policy, the limit for interest rate risk is 10 percent of net
interest income when considering an increase or decrease in interest rates of
300 basis points over a twelve-month period. Management believes this method
more accurately measures interest rate risk. Assuming a 300 basis point pro-rata
increase in interest rates over a twelve-month period, the Corporation's
sensitivity to interest rate risk would positively impact net interest income by
approximately 1.50 percent of net interest income at December 31, 2001. Assuming
a 150 basis point pro-rata decrease in interest rates over a twelve-month
period, the Corporation's sensitivity to interest rate risk would negatively
impact net interest income by approximately 1.68 percent of net interest income
at December 31, 2001. Both scenarios are within Management's acceptable range.

         In an effort to increase earning assets during 2001, the Corporation
added $636.3 million in securities available for sale to minimize the effects on
net interest income of the 475 basis point decrease in interest rates and
dampened loan demand due to the 2001 slowing economic environment. This action
increased the securities available for sale balance to $1.08 billion at December
31, 2001 from $441.0 million at December 31, 2000.

         From time to time, the Corporation may use derivative financial
instruments including futures, forwards, interest rate swaps, option contracts,
and other financial instruments with similar characteristics. At December 31,
2001, the Corporation had no such derivative financial instruments. Refer to
NOTES ONE AND SIX to consolidated financial statements and RESULTS OF OPERATIONS
for a discussion of the Corporation's use of written over-the-counter covered
call options during 2001. The Corporation does not have any special purpose
entities or off-balance sheet financing arrangements.

         The Corporation is party to 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. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount 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. Commitments to extend credit and standby letters of credit are not
recorded as an asset or liability by the Corporation until the instrument is
exercised. See "FINANCIAL CONDITION - Loans Portfolio".

         The following table presents aggregated information about commitments
of the Corporation which could impact future periods.

TABLE FOURTEEN
COMMITMENTS
As of December 31, 2001
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                    Amount of Commitment Expiration Per Period
                                                    ------------------------------------------
                                     Less than                                                   Total Amounts
(Dollars in thousands)                 1 year        1-3 Years      4-5 Years     Over 5 Years     Committed
--------------------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>            <C>           <C>            <C>
Lines of Credit                      $  82,291       $  2,024       $  4,461       $ 187,284       $ 276,060
Standby Letters of Credit               17,940            495             --              --          18,435
Loan Commitments                       174,876         44,632         22,650           7,934         250,092
--------------------------------------------------------------------------------------------------------------
  Total Commitments                  $ 275,107       $ 47,151       $ 27,111       $ 195,218       $ 544,587
--------------------------------------------------------------------------------------------------------------
</TABLE>


                                       31
<PAGE>

         The following table presents the Corporation's interest sensitivity
analysis for December 31, 2001 and sets forth at various maturity periods the
cumulative interest sensitivity gap, which is the difference between rate
sensitive assets and rate sensitive liabilities for assets and liabilities that
management considers rate sensitive. The mortgage-backed securities are shown at
their weighted average expected life obtained from an outside evaluation of the
average remaining life of each security based on historic prepayment speeds of
the underlying mortgages at December 31, 2001. Demand deposits, money market
accounts and certain savings deposits are presented in the earliest repricing
window because the rates are subject to immediate repricing. At December 31,
2001 total rate sensitive liabilities due within one year were $2.02 billion
compared to rate sensitive assets of $1.22 billion, for a negative one-year
cumulative gap of approximately $805.1 million. As a result, increases in
interest rates in future periods may have the impact of reducing net interest
income. As part of the Corporation's asset-liability management strategy, the
Corporation has preliminarily decided to restructure the securities available
for sale portfolio by selling a portion of the securities portfolio with longer
term maturities and replacing such securities with securities having shorter
term maturities. If the Corporation takes the actions described above during the
first quarter of 2002, it is expected that the Corporation would realize a gain
in the range of $2.5 million to $3.0 million.

         Interest sensitivity of the Corporation's balance sheet as of a
specific date is not necessarily indicative of the Corporation's position on
other dates.

TABLE FIFTEEN
INTEREST RATE SENSITIVITY
As of December 31, 2001
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                          Due after 1    Due after 5
                                         Due in 1 year     through 5      through 10     Due after      Non-
(Dollars in thousands)                      or less          years          years         10 years   Sensitive(1)     Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>            <C>             <C>         <C>           <C>
Interest-earning assets:
Interest-bearing due
  from banks                             $    38,331       $       --      $     --      $     --     $     --     $   38,331
Fed funds sold                                 1,161               --            --            --           --          1,161
Securities available for sale, at
  amortized cost:                             12,636          558,155       432,748        19,564       44,684      1,067,787
Loans                                      1,165,864          564,053       140,844        58,291           --      1,929,052
-----------------------------------------------------------------------------------------------------------------------------
    Total earning assets                   1,217,992        1,122,208       573,592        77,855       44,684      3,036,331
-----------------------------------------------------------------------------------------------------------------------------

Interest-bearing liabilities:
Interest-bearing deposits:
  Demand deposits                            266,667               --            --            --           --        266,667
  Money market accounts                      286,653               --            --            --           --        286,653
  Savings deposits                           102,054            9,620            --            --           --        111,674
  Other time deposits                      1,012,566          207,568         1,118            --           --      1,221,252
Other borrowings                             355,182           90,160       363,170            --           --        808,512
-----------------------------------------------------------------------------------------------------------------------------
    Total interest-bearing
      liabilities                          2,023,122          307,348       364,288            --           --      2,694,758
-----------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap                 $  (805,130)      $  814,860      $209,304      $ 77,855     $ 44,684     $  341,573
-----------------------------------------------------------------------------------------------------------------------------
Cumulative gap                           $  (805,130)      $    9,730      $219,034      $296,889     $341,573     $  341,573
-----------------------------------------------------------------------------------------------------------------------------
Ratio of earning assets to interest-
  bearing liabilities                          60.20%          365.13%       157.46%          N/A          N/A         112.68%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Represents equity securities which have no stated maturity and are
      presented for illustrative purposes only.


                                       32
<PAGE>

CAPITAL RESOURCES

         At December 31, 2001, total shareholders' equity at December 31, 2001
was $309.3 million unchanged from December 31, 2000. Cash dividends declared per
share in 2001 by the Corporation were $0.72 compared to $0.70 in 2000.

         The principal asset of the Corporation is its investment in the Bank.
Thus, the Corporation derives its principal source of income through dividends
from the Bank. Certain regulatory and other requirements restrict the lending of
funds by the Bank to the Corporation and the amount of dividends which can be
paid to the Corporation. In addition, certain regulatory agencies may prohibit
the payment of dividends by the Bank if they determine that such payment would
constitute an unsafe or unsound practice. At December 31, 2001, the Bank is
required to obtain prior regulatory approval for payments of dividends. See NOTE
EIGHTEEN of notes to consolidated financial statements.

         The Corporation and the Bank must comply with regulatory capital
requirements established by the applicable federal regulatory agencies. Under
the Federal Reserve Board (the "FRB") standards, the Corporation must maintain a
minimum ratio of Tier I Capital (as defined) to total risk-weighted assets of
4.00 percent and a minimum ratio of Total Capital (as defined) to risk-weighted
assets of 8.00 percent. Tier I Capital is comprised of total shareholders'
equity calculated in accordance with generally accepted accounting principles
less certain intangible assets and excluding unrealized gains or losses on
securities available for sale. Total Capital is comprised of Tier I Capital plus
certain adjustments, the largest of which for the Corporation is the allowance
for loan losses (up to 1.25 percent of risk weighted assets). Total Capital must
consist of at least 50 percent of Tier 1 Capital. Risk-weighted assets refer to
the on- and off-balance sheet exposures of the Corporation adjusted for their
related risk levels using amounts set forth in FRB regulations.

         In addition to the aforementioned risk-based capital requirements, the
Corporation is subject to a leverage capital requirement, requiring a minimum
ratio of Tier I Capital (as defined previously) to total adjusted average assets
of 3.00 percent to 5.00 percent.

         The Bank also has similar regulatory capital requirements imposed by
the OCC. See NOTE NINETEEN of notes to consolidated financial statements for
additional discussion of requirements.

         At December 31, 2001, both the Corporation and the Bank were in
compliance with all existing capital requirements. The Corporation's
consolidated capital requirements are summarized in the table below:

TABLE SIXTEEN
CAPITAL RATIOS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                      Risk-Based Capital
                                                                -------------------------------------------------------------------
                                 Leverage Capital                     Tier 1 Capital                      Total Capital
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)       Amount         Percentage (1)       Amount        Percentage (2)         Amount         Percentage (2)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>              <C>                <C>             <C>                  <C>             <C>
Actual                     $ 284,107            8.80%          $ 284,107            12.80%          $ 310,485            13.99%
Required                     129,096            4.00              88,773             4.00             177,546             8.00
Excess                       155,011            4.80             195,334             8.80             132,939             5.99
</TABLE>

         (1)      Percentage of total adjusted average assets. The FRB minimum
                  leverage ratio requirement is 3.00 percent to 5.00 percent,
                  depending on the institution's composite rating as determined
                  by its regulators. The FRB has not advised the Corporation of
                  any specific requirement applicable to it.
         (2)      Percentage of risk-weighted assets.

         On April 27, 2001, the Corporation's Board of Directors authorized the
repurchase of up to 1 million shares of the Corporation's common stock. Through
December 31, 2001, the Corporation had repurchased all shares of its common
stock authorized in open market transactions at an average per-share price of
approximately $17.96, subject to adjustment as discussed below, which reduced
shareholders' equity by $18.0 million. On December 21, 2001, the Corporation
entered into a share


                                       33
<PAGE>

repurchase agreement with a third party for the final 493,000 shares repurchased
according to this authorization. The transaction will be settled with the
counterparty during the second quarter of 2002 based on the average of the
Corporation's stock price during the term of the agreement. The Corporation has
structured the agreement so as to account for the repurchase as equity in
accordance with Emerging Issues Task Force (EITF) 00-19. Fluctuations in the
value of the Corporation's common stock will not be recognized in the
Corporation's consolidated financial statements. The earnings per share
calculation assumes that this transaction will settle in shares, so the diluted
earnings per share calculations during the period the agreement is outstanding
are impacted in that the potential common shares that could be issued will be
included in diluted average shares outstanding.

         On January 23, 2002, the Corporation's Board of Directors authorized
the repurchase of up to 1.5 million additional shares of the Corporation's
common stock.

REGULATORY RECOMMENDATIONS

         Management is not presently aware of any current recommendations to the
Corporation or to the Bank by regulatory authorities, which, if they were to be
implemented, would have a material effect on the Corporation's liquidity,
capital resources, or operations.

ACCOUNTING AND REGULATORY MATTERS

         Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivatives and hedging activities. It
requires that all derivatives be recognized as assets or liabilities on the
balance sheet and that such instruments be carried at fair value through
adjustments to either other comprehensive income or current earnings or both, as
appropriate. SFAS No. 133 was originally effective for financial statements
issued for all fiscal quarters of fiscal years beginning after June 15, 1999.
The implementation date of SFAS No. 133 was delayed by Statement of Financial
Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133" to the
first fiscal quarters of fiscal years beginning after June 15, 2000.
Accordingly, the Corporation adopted SFAS No. 133 on January 1, 2001. The impact
to the Corporation upon adoption was immaterial.

         In September 2000, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 140 (SFAS No. 140),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities--a replacement of FASB Statement 125", which revises the criteria
for accounting for securitizations and other transfers of financial assets and
collateral, and introduces new disclosures. The enhanced disclosure requirements
were effective for year-end 2000. The other provisions of SFAS No. 140 apply
prospectively to transfers of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Accordingly, the Corporation adopted
SFAS No. 140 on April 1, 2001. The impact to the Corporation upon adoption was
not significant.

         In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 (SFAS No. 141), "Business Combinations", and Statement of
Financial Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other
Intangible Assets". SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS 141 also
specifies criteria which must be met for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from
goodwill. SFAS 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142. SFAS
142 will also require that identifiable intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of".

         The Corporation was required to adopt the provisions of SFAS 141 as of
June 30, 2001 and will adopt SFAS 142 effective January 1, 2002. Furthermore,
any goodwill and any intangible asset determined to have an indefinite useful
life that are acquired in a purchase business combination completed after June


                                       34
<PAGE>

30, 2001 will not be amortized, but will continue to be evaluated for impairment
in accordance with the appropriate accounting literature issued prior to SFAS
142. Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 continued to be amortized in 2001 prior to the adoption of
SFAS 142 on January 1, 2002.

         SFAS 141 requires, upon adoption of SFAS 142, that the Corporation
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Corporation will be required to
reassess the useful lives and residual values of all identifiable intangible
assets acquired in purchase business combinations, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. In addition, any intangible asset classified as goodwill under SFAS
142 will be subjected to a transitional impairment test during the first six
months of 2002 based on the level of goodwill as of January 1, 2002. Any
impairment losses identified as a result of this transitional impairment test
will be recognized in the 2002 statement of income as the effect of a change in
accounting principle.

         As of December 31, 2001, the Corporation had intangible assets totaling
$19.2 million. Management has evaluated the Corporation's existing intangible
assets and goodwill and made appropriate reclassifications in order to conform
to the new criteria in SFAS 141 for recognition apart from goodwill, as further
described below.

         The Corporation has determined that upon adoption of SFAS 142 on
January 1, 2002, the Corporation had $6.0 million of goodwill that will no
longer be amortized beginning in 2002. The amortization expense associated with
this goodwill during the years ended December 31, 2001, 2000 and 1999 was
$440,000, $363,000 and $203,000, respectively. In accordance with SFAS 142, the
Corporation will perform a transitional impairment test of this goodwill in the
first six months of 2002, and will perform an annual impairment test of the
goodwill in 2002 and thereafter.

         At December 31, 2001, the Corporation also had approximately $709,000
of identified intangible assets (primarily book of business agreements and
noncompete agreements) which will continue to be amortized over their useful
lives (which range from 3 to 15 years) in accordance with SFAS 142. The
amortization expense associated with these identified intangible assets during
the years ended December 31, 2001, 2000 and 1999 was $263,000, $277,000, and
$163,000, respectively, and is expected to be $254,000 for 2002.

         The remaining intangible assets, totaling $12.4 million at December 31,
2001, relate to acquisitions of branches that are being accounted for in
accordance with Statement of Financial Accounting Standards No. 72 (SFAS 72),
"Accounting for Certain Acquisitions of Banking and Thrift Institutions." SFAS
72, which was not amended by SFAS 142, requires that identified intangible
assets and unidentified intangible assets associated with certain acquisitions
of branches be amortized into expense. Accordingly, these intangible assets will
continue to be amortized over their useful lives (generally 10 to 15 years).
Management periodically reviews the useful lives of these assets and adjusts
them downward where appropriate. The amortization expense associated with these
branches was $1.2 million, $506,000, and $588,000 for the years ended December
31, 2001, 2000 and 1999, respectively, and is expected to be $1.1 million for
the year ending December 31, 2002.

         In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 (SFAS No. 143), "Accounting for Asset Retirement Obligations",
which addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement cost. This standard requires the Corporation to record the fair value
of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and or normal
use of the assets. The Corporation also is to record a corresponding increase to
the carrying amount of the related long-lived asset and to depreciate that cost
over the life of the asset. The liability is changed at the end of each period
to reflect the passage of time and changes in the estimated future cash flows
underlying the initial fair value measurement. This statement is effective for
fiscal years beginning after


                                       35
<PAGE>

June 15, 2002. At this time, the Corporation is assessing the impact of SFAS No.
143 on its financial condition and results of operations.

         In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS No. 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This standard provides guidance on differentiating between long-lived assets to
be held and used, long-lived assets to be disposed of other than by sale and
long-lived assets to be disposed of by sale. SFAS No. 144 supersedes FASB
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS No. 144 also supersedes Accounting Principals Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". This statement is effective for fiscal years beginning
after December 15, 2001. The Corporation does not expect adoption of this
statement to have a material effect on its consolidated financial statements.

         From time to time, the FASB 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 drafts.

LEGAL PROCEEDINGS

         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.


                                       36
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Certain information called for by Item 7A is set forth in Item 7 under
the caption "Asset-Liability Management and Interest Rate Sensitivity" on page
31 and is incorporated herein by reference. The following table presents
information concerning market risk sensitive instruments at December 31, 2001:

TABLE SEVENTEEN
MARKET RISK
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
December 31, 2001
                                                                                      Expected Maturity
                                                       ---------------------------------------------------------------------------
                                                                                                                           After
(Dollars in thousands)                   Total            2002          2003        2004         2005         2006         2006
----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>            <C>          <C>          <C>          <C>          <C>
Assets
Debt securites
  Fixed rate
  Book value                           $  983,321      $  133,432     $128,349     $140,357     $122,198     $199,841     $259,144
  Weighted average effective yield           6.02%
  Fair value                           $  990,104
  Variable rate
  Book value                           $   39,782          20,016       19,646          120           --           --           --
  Weighted average effective yield           6.66%
  Fair value                           $   41,387
Loans
  Fixed rate
  Book value                           $1,130,459         234,975      177,602      176,815      129,883       61,189      349,995
  Weighted average effective yield           7.37%
  Fair value                           $1,166,034
  Variable rate
  Book value                           $  798,593         392,413      111,471       83,412       99,987       93,273       18,037
  Weighted average effective yield           5.65%
  Fair value                           $  794,498

Liabilities
Deposits
  Fixed rate
  Book value                           $1,221,252       1,012,566      130,048       39,897        8,897       28,726        1,118
  Weighted average effective yield           4.19%
  Fair value                           $1,227,845
  Variable rate
  Book value                           $  664,995         656,102        8,697          196           --           --           --
  Weighted average effective yield           1.19%
  Fair value                           $  664,581
Other borrowings
  Fixed rate
  Book value                           $  607,512         154,182           40       25,040           40       65,040      363,170
  Weighted average effective yield           4.25%
  Fair value                           $  618,891
  Variable rate
  Book value                           $  201,000         156,000       30,000       15,000           --           --           --
  Weighted average effective yield           2.38%
  Fair value                           $  201,044
</TABLE>


                                       37
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
First Charter Corporation

We have audited the accompanying consolidated balance sheets of First Charter
Corporation and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Charter
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.


                                                      /s/ KPMG LLP
                                                     ---------------------
Charlotte, North Carolina
January 15, 2002, except for Note 20,
which is as of February 28, 2002


                                       38
<PAGE>

                   FIRST CHARTER CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      December 31       December 31
                                                                                          2001             2000
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>               <C>
Assets:
Cash and due from banks                                                              $    134,084      $     71,196
Federal funds sold                                                                          1,161             1,015
Interest bearing bank deposits                                                              6,220           122,461
-------------------------------------------------------------------------------------------------------------------
  Cash and cash equivalents                                                               141,465           194,672
-------------------------------------------------------------------------------------------------------------------
Securities available for sale (cost of $1,067,787 at December 31, 2001 and
  $437,684 at December 31, 2000; carrying amount of pledged collateral
  at December 31, 2001, $138,541)                                                       1,077,365           441,031
Loans                                                                                   1,955,086         2,157,622
 Less: Unearned income                                                                       (191)             (215)
       Allowance for loan losses                                                          (25,843)          (28,447)
-------------------------------------------------------------------------------------------------------------------
  Loans, net                                                                            1,929,052         2,128,960
-------------------------------------------------------------------------------------------------------------------
Premises and equipment, net                                                                96,976            76,666
Other assets                                                                               87,879            90,870
-------------------------------------------------------------------------------------------------------------------
    Total assets                                                                     $  3,332,737      $  2,932,199
-------------------------------------------------------------------------------------------------------------------

Liabilities:
Deposits, domestic:
  Noninterest bearing demand                                                         $    276,699      $    242,983
  Interest bearing                                                                      1,886,246         1,755,251
-------------------------------------------------------------------------------------------------------------------
    Total deposits                                                                      2,162,945         1,998,234
-------------------------------------------------------------------------------------------------------------------
Other borrowings                                                                          808,512           570,024
Other liabilities                                                                          51,939            54,654
-------------------------------------------------------------------------------------------------------------------
    Total liabilities                                                                   3,023,396         2,622,912
-------------------------------------------------------------------------------------------------------------------

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 30,742,532 and 31,601,263 shares                                 135,167           151,486
Common stock held in Rabbi Trust for deferred compensation                                   (388)               --
Deferred compensation payable in common stock                                                 388                --
Retained earnings                                                                         168,334           155,762
Accumulated other comprehensive income:
  Unrealized gains on securities available for sale, net                                    5,840             2,039
-------------------------------------------------------------------------------------------------------------------
   Total shareholders' equity                                                             309,341           309,287
-------------------------------------------------------------------------------------------------------------------
    Total liabilities and shareholders' equity                                       $  3,332,737      $  2,932,199
-------------------------------------------------------------------------------------------------------------------
</TABLE>

       See accompanying notes to consolidated financial statements.


                                       39
<PAGE>

                   FIRST CHARTER CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31
                                                                 --------------------------------------------------
(Dollars in thousands, except share and per share data)               2001               2000               1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>                <C>
Interest income:
Loans                                                            $     158,985      $     184,035      $    162,490
Federal funds sold                                                          75                250               501
Interest bearing bank deposits                                             399                224               314
Securities                                                              55,817             31,634            30,966
-------------------------------------------------------------------------------------------------------------------
  Total interest income                                                215,276            216,143           194,271
-------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits                                                                78,252             75,263            66,101
Federal funds purchased and securities
  sold under agreements to repurchase                                    5,034              6,620             4,119
Federal Home Loan Bank and other borrowings                             26,626             26,431            20,079
-------------------------------------------------------------------------------------------------------------------
  Total interest expense                                               109,912            108,314            90,299
-------------------------------------------------------------------------------------------------------------------
Net interest income                                                    105,364            107,829           103,972
Provision for loan losses                                                4,465              7,615             5,005
-------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                    100,899            100,214            98,967

Noninterest income:
Service charges on deposit accounts                                     13,848             11,187             9,042
Financial management income                                              2,323              2,819             2,564
Gain (loss) on sale of securities                                        2,399             (4,303)              919
(Loss) gain on sale of loans                                                --                (99)            1,757
Gain on sale of property                                                   416              2,788             1,752
(Loss) income from equity method investees                                (442)             4,580               138
Mortgage loan fees                                                       2,643              1,001               688
Brokerage services income                                                1,746              1,543               447
Insurance services income                                                7,681              6,805             2,741
Trading gains                                                            2,592                 --                --
Other                                                                    5,567              4,345             8,747
-------------------------------------------------------------------------------------------------------------------
  Total noninterest income                                              38,773             30,666            28,795
-------------------------------------------------------------------------------------------------------------------

Noninterest expense:
Salaries and employee benefits                                          44,719             40,942            39,314
Occupancy and equipment                                                 14,607             12,342            11,533
Data processing                                                          2,956              2,380             2,957
Advertising                                                              2,363              3,390             2,938
Postage and supplies                                                     4,820              4,379             4,181
Professional services                                                    6,727              3,760             4,036
Telephone                                                                1,396              1,425             1,290
Restructuring charges and merger-related                                    --             16,250                --
Other                                                                    9,991              7,859             9,742
-------------------------------------------------------------------------------------------------------------------
  Total noninterest expense                                             87,579             92,727            75,991
-------------------------------------------------------------------------------------------------------------------
Income before income taxes                                              52,093             38,153            51,771
Income taxes                                                            16,768             13,312            16,480
-------------------------------------------------------------------------------------------------------------------
Net income                                                       $      35,325      $      24,841      $     35,291
-------------------------------------------------------------------------------------------------------------------

Net income per share:
  Basic                                                          $        1.12      $        0.79      $       1.12
  Diluted                                                        $        1.12      $        0.79      $       1.11
Weighted average shares:
  Basic                                                             31,480,109         31,435,342        31,504,746
  Diluted                                                           31,660,985         31,580,328        31,772,060
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       40
<PAGE>

                   FIRST CHARTER CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                       Common Stock
                                                                                       held in Rabbi    Deferred
                                                               Common Stock              Trust for    Compensation
                                                      ----------------------------      Deferred       Payable in    Retained
(Dollars in thousands, except share data)               Shares            Amount       Compensation   Common Stock    Earnings
------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>            <C>            <C>           <C>
Balance, December 31, 1998                            32,007,898        $  168,904        $   --        $  --       $  130,736
Comprehensive income:
  Net income                                                  --                --            --           --           35,291
  Unrealized loss on securities available
    for sale, net                                             --                --            --           --               --
    Total comprehensive income
Cash dividends                                                --                --            --           --          (14,812)
Stock options exercised and Dividend
  Reinvestment Plan stock issued                         204,831             1,041            --           --               --
Shares issued in connection with
  business acquisition                                    68,551             1,273            --           --               --
Purchase and retirement of common stock               (1,180,970)          (24,780)           --           --               --
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                            31,100,310           146,438            --           --          151,215
------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
  Net income                                                  --                --            --           --           24,841
  Unrealized gain on securities available
    for sale, net                                             --                --            --           --               --
    Total comprehensive income
Cash dividends                                                --                --            --           --          (20,294)
Stock options exercised and Dividend
  Reinvestment Plan stock issued                         380,680             3,050            --           --               --
Shares issued in connection with
  business acquisition                                   122,263             2,025            --           --               --
Purchase and retirement of common stock                   (1,990)              (27)           --           --               --
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                            31,601,263           151,486            --           --          155,762
------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
  Net income                                                  --                --            --           --           35,325
  Unrealized gain on securities available
    for sale, net                                             --                --            --           --               --
    Total comprehensive income
Common stock purchased by Rabbi Trust
  for deferred compensation                                   --                --          (388)          --               --
Deferred compensation payable
  in common stock                                             --                --            --          388               --
Cash dividends                                                --                --            --           --          (22,753)
Stock options exercised and Dividend
  Reinvestment Plan stock issued                         141,269             1,643            --           --               --
Purchase and retirement of common stock               (1,000,000)          (17,962)           --           --               --
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                            30,742,532        $  135,167        $ (388)       $ 388       $  168,334
------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
---------------------------------------------------------------------------
                                                   Accumulated
                                                       Other
                                                   Comprehensive
(Dollars in thousands, except share data)          Income (Loss)    Total
---------------------------------------------------------------------------
<S>                                                <C>             <C>
Balance, December 31, 1998                            $ 6,535      $306,175
Comprehensive income:
  Net income                                               --        35,291
  Unrealized loss on securities available
    for sale, net                                     (13,920)      (13,920)
                                                                   --------
    Total comprehensive income                                       21,371
Cash dividends                                             --       (14,812)
Stock options exercised and Dividend
  Reinvestment Plan stock issued                           --         1,041
Shares issued in connection with
  business acquisition                                     --         1,273
Purchase and retirement of common stock                    --       (24,780)
---------------------------------------------------------------------------
Balance, December 31, 1999                             (7,385)      290,268
---------------------------------------------------------------------------
Comprehensive income:
  Net income                                               --        24,841
  Unrealized gain on securities available
    for sale, net                                       9,424         9,424
                                                                    -------
    Total comprehensive income                                       34,265
Cash dividends                                             --       (20,294)
Stock options exercised and Dividend
  Reinvestment Plan stock issued                           --         3,050
Shares issued in connection with
  business acquisition                                     --         2,025
Purchase and retirement of common stock                    --           (27)
---------------------------------------------------------------------------
Balance, December 31, 2000                              2,039       309,287
---------------------------------------------------------------------------
Comprehensive income:
  Net income                                               --        35,325
  Unrealized gain on securities available
    for sale, net                                       3,801         3,801
                                                                     ------
    Total comprehensive income                                       39,126
Common stock purchased by Rabbi Trust
  for deferred compensation                                --          (388)
Deferred compensation payable
  in common stock                                          --           388
Cash dividends                                             --       (22,753)
Stock options exercised and Dividend
  Reinvestment Plan stock issued                           --         1,643
Purchase and retirement of common stock                    --       (17,962)
---------------------------------------------------------------------------
Balance, December 31, 2001                            $ 5,840      $309,341
---------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       41
<PAGE>

                   FIRST CHARTER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                                                                        2001            2000          1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                                $     35,325       $ 24,841    $  35,291
Adjustments to reconcile net income to net cash provided by operating activities:
    Provision for loan losses                                                                    4,465          7,615        5,005
    Depreciation                                                                                 8,025          6,407        6,869
    Premium amortization and discount accretion, net                                              (615)           (17)          73
    Net (gain) loss on securities available for sale transactions                               (2,399)         4,303         (919)
    Net (gain) loss on sale of other real estate                                                   (10)            87         (640)
    Net gain on sale of property                                                                  (416)        (2,788)      (1,752)
    Loss (income) from equity method investees                                                     442         (4,580)        (138)
    Net loss (gain) on sale of mortgage loans                                                       --             99       (1,757)
    Net loss (gain) on sale of premises and equipment                                               11             17       (1,781)
    Origination of mortgage loans held for sale                                               (203,231)       (44,351)     (55,911)
    Proceeds from sale of mortgage loans held for sale                                         200,961         85,476       65,683
    Decrease (increase) in other assets                                                          4,093        (16,752)       7,350
    (Decrease) increase in other liabilities                                                    (1,654)        23,217         (944)
-----------------------------------------------------------------------------------------------------------------------------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES                                               44,997         83,574       56,429
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale                                           549,402        212,086       68,017
Proceeds from maturities of securities available for sale                                      245,081         71,927      113,710
Purchase of securities available for sale                                                   (1,254,580)      (190,716)    (206,946)
Proceeds from issuer calls and maturities of securities held to maturity                            --            758        7,819
Purchase of securities held to maturity                                                             --             --      (13,985)
Net decrease (increase) in loans                                                                22,466       (229,914)    (226,576)
Proceeds from sale of loans                                                                         --             --      144,855
Proceeds from sales of other real estate                                                         3,205          2,402        3,948
Net purchases of premises and equipment                                                        (28,345)       (27,688)     (16,466)
Acquisition of businesses, net of cash paid                                                        439         70,429           --
-----------------------------------------------------------------------------------------------------------------------------------
        NET CASH USED IN INVESTING ACTIVITIES                                                 (462,332)       (90,716)    (125,624)
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, money market and savings accounts                            77,311       (132,185)      58,808
Net increase (decrease) in certificates of deposit                                              87,400        225,599      (17,953)
Net increase in securities sold under repurchase agreements and other borrowings               238,489         28,003       61,001
Purchase and retirement of common stock                                                        (17,962)           (27)     (24,780)
Proceeds from issuance of common stock                                                           1,643          3,050        1,041
Dividends paid                                                                                 (22,753)       (20,294)     (14,812)
-----------------------------------------------------------------------------------------------------------------------------------
        NET CASH PROVIDED BY FINANCING ACTIVITIES                                              364,128        104,146       63,305
-----------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                                           (53,207)        97,004       (5,890)
Cash and cash equivalents at beginning of period                                               194,672         97,668      103,558
-----------------------------------------------------------------------------------------------------------------------------------
    CASH AND CASH EQUIVALENTS AT END OF PERIOD                                            $    141,465      $ 194,672    $  97,668
===================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest                                                                    $    110,860      $ 104,180    $  88,096
Cash paid for income taxes                                                                       4,254          4,455       10,043
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Transfer of loans and premises and equipment to other real estate owned                          8,255          4,516        3,466
Unrealized gain (loss) on securities available for sale
    (net of tax effect of $2,430, $6,025 and $(9,232) for the years ended
    December 31, 2001, 2000, and 1999, respectively)                                             3,801          9,424      (13,920)
Issuance of common stock for business acquisitions                                                  --          2,025        1,273
Loans securitized and retained in the available for sale portfolio                             166,992             --           --
Transfer of loans in portfolio to held for sale                                                     --         45,252      147,555
Transfer of securities held to maturity to available for sale in connection
    with business combination                                                                       --         35,324           --
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       42

<PAGE>

                   FIRST CHARTER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999


NOTE ONE -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The following is a description of the more significant accounting and
reporting policies which First Charter Corporation (the "Corporation") and its
subsidiary, First Charter Bank ("FCB" or the "Bank"), follow in preparing and
presenting their consolidated financial statements. The consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America.

Principles of Consolidation and Basis of Presentation

         The accompanying consolidated financial statements include the accounts
of the Corporation and its wholly-owned subsidiary, FCB. In addition, through
First Charter Brokerage Services, a subsidiary of FCB, the Registrant offers
full service and discount brokerage services, annuity sales and financial
planning services pursuant to a third party arrangement with UVEST Investment
Services. The Bank also operates six other subsidiaries: First Charter Insurance
Services, Inc., First Charter of Virginia Realty Investments, Inc., First
Charter Realty Investments, Inc., FCB Real Estate, Inc., First Charter Real
Estate Holding, LLC., and First Charter Leasing, Inc. First Charter Insurance
Services, Inc. is a North Carolina corporation formed to meet the insurance
needs of businesses and individuals throughout the Charlotte metropolitan area.
First Charter of Virginia Realty Investments, Inc. is a Virginia corporation
engaged in the mortgage origination business and also acts as a holding company
for First Charter Realty Investments, Inc. a Delaware real estate investment
trust. FCB Real Estate, Inc. is a North Carolina real estate investment trust
and First Charter Real Estate Holdings, LLC is a North Carolina limited
liability company. First Charter Leasing, Inc. is a North Carolina corporation,
which leases commercial equipment. The Bank also has a majority ownership in
Lincoln Center at Mallard Creek, LLC. Lincoln Center is a three-story office
building occupied in part by a branch of FCB. In consolidation, all significant
intercompany accounts and transactions have been eliminated.

         The preparation of the 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 consolidated financial statements, as well as the amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.

         Reclassifications of certain amounts in the previously issued
consolidated financial statements have been made to conform to the financial
statement presentation for 2001. Such reclassifications had no effect on the net
income or shareholders' equity of the combined entity as previously reported.

Business

         The Bank, either directly or through its subsidiaries, provides
businesses and individuals a broad range of financial services, including
banking, comprehensive financial planning, funds management, investments,
insurance, mortgages and a full array of employee benefit programs. The Bank is
a regional financial services company operating 52 financial centers, five
insurance offices, one mortgage origination office and 99 ATMs located in 17
counties throughout North Carolina. Further, FCB recently opened one mortgage
origination office in Virginia.

         On June 22, 2001, First Charter's banking subsidiary completed its
conversion from a national bank to First Charter Bank, a North Carolina state
bank. The change was completed after a cost benefit analysis of supervisory
regulatory charges and does not represent any disagreement with the
Corporation's or the Bank's former regulators. The Bank will continue to operate
its financial center network franchise under the "First Charter" brand name.


                                       43

<PAGE>

Securities

         The Corporation classifies securities as trading, available-for-sale or
held-to-maturity based on management's intent at the date of purchase. At
December 31, 2001, substantially all of the Corporation's securities are
categorized as available-for-sale and, accordingly, are reported at fair value,
based on quoted market prices, with any unrealized gains or losses, net of
taxes, reflected as an element of accumulated other comprehensive income. The
Corporation intends to hold these available-for-sale securities for an
indefinite period of time, but may sell them prior to maturity in response to
changes in interest rates, changes in prepayment risk, changes in the liquidity
needs of the Bank, and other factors. Securities for which there is an
unrealized loss that is deemed to be other-than-temporary are written down to
fair value with the write-down treated as a component of securities available
for sale transactions, net in the consolidated statement of income. Securities
that the Corporation has the positive intent and ability to hold to maturity
would be classified as held to maturity and reported at cost. As more fully
discussed in NOTE THIRTEEN, the Corporation had a nominal amount of trading
assets at December 31, 2001, which are carried at fair value. These trading
assets are held for possible resale in the near term and changes in their fair
value are reflected in the statement of income. The fair value of trading
account assets is based on quoted market prices.

         Gains and losses on sales of securities are recognized when realized on
the trade date on a specific identification basis. Premiums and discounts are
amortized into interest income using a level yield method.

Loans

         Loans are carried at their principal amount outstanding. Interest
income is recorded as earned on an accrual basis. The determination to
discontinue the accrual of interest is based on a review of each loan.
Generally, accrual of interest is discontinued on loans 90 days past due as to
principal or interest unless in management's opinion collection of both
principal and interest is assured by way of collateralization, guarantees or
other security and the loan is in the process of collection. Loans are returned
to accrual status when management determines, based on an evaluation of the
underlying collateral together with the borrower's payment record and financial
condition, that the borrower has the ability and intent to meet the contractual
obligations of the loan agreement.

         Management considers a loan to be impaired when, based on current
information and events, it is probable that the Bank will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
Factors that influence management's judgment include, but are not limited to,
loan payment pattern, source of repayment, and value of collateral. A loan would
not be considered impaired if an insignificant delay in loan payment occurs and
management expects to collect all amounts due. The major sources for
identification of loans to be evaluated for impairment include past due and
nonaccrual reports, internally generated lists of loans of certain risk grades,
and regulatory reports of examination.

         The Corporation uses the allowance method to provide for loan losses.
Accordingly, all loan losses are charged to the allowance for loan losses and
all recoveries are credited to it. The provision for loan losses is based on
past loan loss experience and other factors, which in management's judgment,
deserve current recognition in estimating probable loan losses. Such other
factors considered by management include the growth and composition of the loan
portfolio, and current economic conditions.

         Allowances for loan losses related to loans that are identified as
impaired in accordance with the impairment policy set forth above are based on
discounted cash flows using the loans' initial interest rates or the fair value
of the collateral if the loans are collateral dependent. Large groups of
smaller-balance, homogenous loans that are collectively evaluated for impairment
(residential mortgage, consumer installment, and certain commercial loans) are
excluded from this impairment evaluation and their allowance is calculated in
accordance with the allowance for loan losses policy discussed above.

         Management considers the allowance for loan losses adequate to cover
inherent losses in the Bank's loan portfolio as of the date of the financial
statements. Management believes it has established the


                                       44

<PAGE>

allowance in consideration of the current economic environment. While management
uses the best information available to make evaluations, future additions to the
allowance may be necessary based on changes in economic and other conditions.
Additionally, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowances for loan losses.
Such agencies may require the recognition of adjustments to the allowances based
on their judgments of information available to them at the time of their
examinations.

         Mortgage loans held for sale are valued at the lower of cost or market
as determined by outstanding commitments from investors or current investor
yield requirements, calculated on an aggregate loan basis.

Derivative Instruments

         Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivatives and hedging activities. It
requires that all derivatives be recognized as assets or liabilities on the
balance sheet and that such instruments be carried at fair value through
adjustments to either other comprehensive income or current earnings or both, as
appropriate. SFAS No. 133 was originally effective for financial statements
issued for all fiscal quarters of fiscal years beginning after June 15, 1999.
The implementation date of SFAS No. 133 was delayed by Statement of Financial
Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133" to the
first fiscal quarters of fiscal years beginning after June 15, 2000.
Accordingly, the Corporation adopted SFAS No. 133 on January 1, 2001. The impact
to the Corporation upon adoption was immaterial.

         The Corporation evaluates the impact of SFAS No. 133 on all new
products introduced, contracts negotiated, and transactions contemplated to
determine whether a derivative exists and its financial impact. As of December
31, 2001, the Corporation had no derivative instruments outstanding that are
required to be accounted for in accordance with SFAS No. 133. During 2001, the
Corporation recognized $2.6 million on premiums on written over-the-counter
covered call options on fixed income securities.

Servicing Rights

         In September 2000, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 140 (SFAS No. 140),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities- a replacement of FASB Statement 125", which revises the criteria
for accounting for securitizations and other transfers of financial assets and
collateral, and introduces new disclosures. The enhanced disclosure requirements
were effective for year-end 2000. The other provisions of SFAS No. 140 apply
prospectively to transfers of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Accordingly, the Corporation adopted
SFAS No. 140 on April 1, 2001. The impact to the Corporation upon adoption was
not significant.

         Servicing rights are capitalized when mortgage loans are either
securitized or sold. The cost of servicing rights is amortized in proportion to
and over the estimated period of net servicing revenues.

         The carrying value and aggregate estimated fair value of mortgage
servicing rights at December 31, 2001 was $3.0 million and $3.2 million,
respectively, compared to a carrying value and estimated fair value of $1.7
million and $2.1 million at December 31, 2000. Servicing rights are periodically
evaluated for impairment based on their fair value. This fair value is estimated
based on market prices for similar assets and on the discounted estimated
present value of future net cash flows based on market consensus loan prepayment
estimates, historical prepayment rates, interest rates and other economic
factors. For purposes of impairment evaluation, the servicing assets are
stratified based on predominant risk characteristics of the underlying loans,
including loan type (conventional or government) and note rate. At December 31,
2001, the Corporation had a valuation allowance of $263,000 related to its
servicing rights. No valuation allowance was required at December 31, 2000 or
1999.


                                       45

<PAGE>

     The following is an analysis of capitalized mortgage servicing rights
included in other assets in the consolidated balance sheets:


<TABLE>
<CAPTION>
                                                                                    Capitalized Mortgage
                                                                                       Servicing Rights
         --------------------------------------------------------------------------------------------------------------
         (Dollars in thousands)                                          2001                2000                1999
         --------------------------------------------------------------------------------------------------------------
         <S>                                                          <C>                  <C>                  <C>
         Balance, January 1,                                          $  1,659             $  1,536             $    --
               Servicing rights capitalized                              2,472                  443               1,728
               Amortization expense                                       (840)                (320)               (192)
               Change in valuation allowance                              (263)                  --                  --
         --------------------------------------------------------------------------------------------------------------
         Balance, December 31,                                        $  3,028             $  1,659             $ 1,536
         ==============================================================================================================
</TABLE>

Loan Fees and Costs

         Nonrefundable loan fees and certain direct costs associated with
originating or acquiring loans are deferred and recognized over the contractual
life of the related loans as an adjustment to interest income.

Premises and Equipment

         Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation and amortization of premises and equipment are
computed using the straight-line method over the estimated useful lives. Useful
lives range from three to ten years for furniture and equipment, from fifteen to
fifty years for buildings and over the shorter of the estimated useful lives or
the terms of the respective leases for leasehold improvements.

Foreclosed Properties

         Foreclosed properties are included in other assets and represent real
estate acquired through foreclosure or deed in lieu thereof and are carried at
the lower of cost or fair value, less estimated costs to sell. Generally the
fair values of such properties are evaluated annually and the carrying value, if
greater than the estimated fair value less costs to sell, is adjusted with a
charge to income.

Intangible Assets

         Identifiable intangibles and goodwill arising from business/financial
center acquisitions result from the Corporation paying amounts in excess of fair
value for the net assets acquired. Through December 31, 2001, intangible assets
are amortized on a straight-line basis over periods up to 15 years.

         The Corporation adopted effective June 30, 2001, the provisions of
Statement of Financial Accounting Standards No. 141 (SFAS No. 141) "Business
Combinations" and will adopt effective January 1, 2002, Statement of Financial
Accounting Standards No. 142 (SFAS No. 142) "Goodwill and Other Intangible
Assets." SFAS 141 requires, upon adoption of SFAS 142, that the Corporation
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Corporation will be required to
reassess the useful lives and residual values of all identifiable intangible
assets acquired in purchase business combinations, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. In addition, any intangible asset classified as goodwill under SFAS
142 will be subjected to a transitional impairment test during the first six
months of 2002 based on the level of goodwill as of January 1, 2002. Any
impairment losses identified as a result of this transitional impairment test
will be recognized in the 2002 statement of income as the effect of a change in
accounting principle.

         As of December 31, 2001, the Corporation had intangible assets totaling
$19.2 million. Management has evaluated the Corporation's existing intangible
assets and goodwill and will make appropriate reclassifications on January 1,
2002, in order to conform to the new criteria in SFAS 141 for recognition apart
from goodwill, as further described below.


                                       46

<PAGE>

         The Corporation has determined that upon adoption of SFAS 142 on
January 1, 2002, the Corporation had $6.0 million of goodwill that will no
longer be amortized beginning in 2002. The amortization expense associated with
this goodwill during the years ended December 31, 2001, 2000 and 1999 was
$441,000, $363,000 and $203,000, respectively. In accordance with SFAS 142, the
Corporation will perform a transitional impairment test of this goodwill in the
first six months of 2002, and will perform an annual impairment test of the
goodwill in 2002 and thereafter.

         At December 31, 2001, the Corporation also had approximately $709,000
of identified intangible assets (primarily book of business agreements and
noncompete agreements) which will continue to be amortized over their useful
lives (which range from 3 to 15 years) in accordance with SFAS 142. The
amortization expense associated with these identified intangible assets during
the years ended December 31, 2001, 2000 and 1999 was $263,000, $277,000, and
$163,000, respectively, and is expected to be $254,000 (unaudited) for 2002.

         The remaining intangible assets, totaling $12.4 million at December 31,
2001, relate to acquisitions of branches that are being accounted for in
accordance with Statement of Financial Accounting Standards No. 72 (SFAS 72),
"Accounting for Certain Acquisitions of Banking and Thrift Institutions." SFAS
72, which was not amended by SFAS 142, requires that identified intangible
assets and unidentified intangible assets associated with certain acquisitions
of branches be amortized into expense. Accordingly, these intangible assets will
continue to be amortized over their useful lives (generally 10 to 15 years).
Management periodically reviews the useful lives of these assets and adjusts
them downward where appropriate. The amortization expense associated with these
branches was $1.2 million, $506,000, and $588,000 for the years ended December
31, 2001, 2000 and 1999, respectively, and is expected to be $1.1 million
(unaudited) for the year ending December 31, 2002.

Income Taxes

         Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Income and Expense Recognition

         Items of income and expense are recognized using the accrual basis of
accounting, except for some immaterial amounts that are recognized when received
or paid.

Cash and Cash Equivalents

         For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for one-day periods.

Equity Method Investments

         The Corporation's equity method investments represent investments in
venture capital limited partnerships which invest in early stage companies.

         The Corporation's recognition of earnings or losses from equity method
investees is determined by the Corporation's share of the investee's earnings on
a quarterly basis. The limited partnerships provide their quarterly financial
information on a quarter lag basis, so the Corporation's policy is to record its
share of earnings or losses on these equity method investments on a quarter lag
basis.


                                       47

<PAGE>

         These limited partnerships record their investments in investee
companies on a fair value basis, with changes in the underlying fair values
being reflected as an adjustment to their earnings in the period such changes
are determined. The earnings of these limited partnerships, and therefore the
amount recorded on an equity-method basis by the Corporation, are impacted
significantly by changes in the underlying value of the companies in which these
limited partnerships invest. All of the companies in which these limited
partnerships invest are privately held, and their market values are not readily
available. Estimations of these values are made quarterly by the management of
the limited partnerships, and are subject to review by the Corporation for
reasonableness. The assumptions in the valuation of these investments by the
limited partnerships include the viability of the business model, the ability of
the company to obtain alternative financing, their ability to generate revenues
in future periods and other subjective factors. Given the inherent risks
associated with this type of investment in the current economic environment,
there can be no guarantee that there will not be widely varying gains or losses
on these equity method investments in future periods.

         At December 31, 2001 and 2000 the total investment in equity method
investees was $8.7 million and $8.5 million, respectively, and is included in
other assets on the consolidated balance sheet. At December 31, 2001, the
Corporation's remaining commitment to fund the equity method investees was
$925,000, all of which is callable in 2002. This remaining commitment is
unrelated to the limited partnership discussed in NOTE TWENTY.

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 year.
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, restricted stock and shares issuable under
the Corporation's share repurchase agreement (see NOTE FOURTEEN) 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. The effect of potential common stock is excluded from the computation
of diluted earnings per common share in periods in which the effect would be
antidilutive. 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:

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31
                                                                 ------------------------------------------------------
                                                                       2001                2000               1999
                                                                 ------------------------------------------------------
         <S>                                                       <C>                  <C>                  <C>
         Basic net income per share denominator:
               Weighted average number of
                common shares outstanding                          31,480,109           31,435,342           31,504,746
               Dilutive effect arising from
                potential common stock                                180,876              144,986              267,314
                                                                 ------------------------------------------------------
         Diluted net income per share denominator                  31,660,985           31,580,328           31,772,060
                                                                 ======================================================
</TABLE>

Dividends Per Share

         Dividends declared by the Corporation were $0.72 per share, $0.70 per
share and $0.68 per share for the years ended December 31, 2001, 2000 and 1999,
respectively. Dividends declared by Carolina First were $0.10 per share and
$0.40 per share for the years ended December 31, 2000 and 1999, respectively.

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 pro forma impact on net income and net income per share
as if the fair value of stock-based compensation plans had been recorded as a
component of compensation expense in the consolidated financial statements as of
the date of grant of awards related to such plans, pursuant to the provisions of
the Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation, is disclosed in NOTE FOURTEEN.


                                       48
<PAGE>

NOTE TWO - BUSINESS SEGMENT INFORMATION

         For 2001, 2000, and 1999 the Corporation only had one reportable
segment, FCB. FCB provides businesses and individuals with commercial loans,
retail loans, and deposit banking services. Other operating segments include
brokerage, insurance, mortgage and financial management which provides
comprehensive financial planning, funds management, and investments.

         Business segments are determined based on the Corporation's internal
management accounting process. The internal management accounting process,
unlike financial accounting in accordance with generally accepted accounting
principles, is based on the way management views its business and is not
necessarily comparable with information disclosed by other financial
institutions. The accounting policies of the business segments differ from those
describe in NOTE ONE in that management allocations have been made for overhead
expense and transfer pricing. The results of operations and segment assets are
based upon monthly internal management reports. There are no significant
intersegment transactions and there are no significant reconciling items between
the reportable segments and consolidated amounts.

         Information regarding the reportable segment's separate results of
operations and segment assets is illustrated in the following tables:

<TABLE>
<CAPTION>
                                                                  2001
-----------------------------------------------------------------------------------------------------------------------------------
                                                                          OTHER OPERATING
(DOLLARS IN THOUSANDS)                                     FCB              SEGMENTS (1)           OTHER (2)           TOTALS
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                <C>                      <C>               <C>
TOTAL INTEREST INCOME                                  $ 214,570                $ 490                $ 216           $ 215,276
TOTAL INTEREST EXPENSE                                   109,719                    -                  193             109,912
-----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME                                      104,851                  490                   23             105,364
PROVISION FOR LOAN LOSSES                                  4,465                    -                    -               4,465
TOTAL NONINTEREST INCOME                                  23,936               15,053                 (216)             38,773
TOTAL NONINTEREST EXPENSE                                 74,010               13,593                  (24)             87,579
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAXES                            50,312                1,950                 (169)             52,093
INCOME TAXES                                              16,166                  657                  (55)             16,768
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                              $ 34,146              $ 1,293               $ (114)           $ 35,325
===================================================================================================================================

TOTAL LOANS, NET                                     $ 1,919,902              $ 9,150                  $ -         $ 1,929,052
TOTAL ASSETS                                           3,285,543               20,715               26,479           3,332,737
</TABLE>

<TABLE>
<CAPTION>
                                                                  2000
-----------------------------------------------------------------------------------------------------------------------------------
                                                                          Other Operating
(Dollars in thousands)                                     FCB              Segments (1)          Other (2)             Totals
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                <C>                     <C>                <C>
Total interest income                                  $ 214,924                $ 964                $ 255           $ 216,143
Total interest expense                                   107,763                  551                    -             108,314
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                      107,161                  413                  255             107,829
Provision for loan losses                                  7,615                    -                    -               7,615
Total noninterest income                                  14,594               12,906                3,166              30,666
Total noninterest expense                                 80,071               11,838                  818              92,727
-----------------------------------------------------------------------------------------------------------------------------------
Net income before income taxes                            34,069                1,481                2,603              38,153
Income taxes                                              12,009                  478                  825              13,312
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                              $ 22,060              $ 1,003              $ 1,778            $ 24,841
===================================================================================================================================

Total loans, net                                     $ 2,124,714              $ 4,246                  $ -         $ 2,128,960
Total assets                                           2,892,774               19,482               19,943           2,932,199
</TABLE>


                                       49
<PAGE>

<TABLE>
<CAPTION>
                                                                  1999
-----------------------------------------------------------------------------------------------------------------------------------
                                                                          Other Operating
(Dollars in thousands)                                     FCB              Segments (1)           Other (2)           Totals
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                <C>                      <C>               <C>
Total interest income                                  $ 193,602                $ 337                $ 332           $ 194,271
Total interest expense                                    90,084                  162                   53              90,299
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                      103,518                  175                  279             103,972
Provision for loan losses                                  5,005                    -                    -               5,005
Total noninterest income                                  17,135               10,598                1,062              28,795
Total noninterest expense                                 67,073                8,828                   90              75,991
-----------------------------------------------------------------------------------------------------------------------------------
Net income before income taxes                            48,575                1,945                1,251              51,771
Income taxes                                              15,592                  488                  400              16,480
-----------------------------------------------------------------------------------------------------------------------------------
Net income                                              $ 32,983              $ 1,457                $ 851            $ 35,291
===================================================================================================================================
</TABLE>

         (1)      Included in other operating segments are revenues, expenses
                  and assets of insurance services, brokerage, mortgage and
                  financial management.

         (2)      Included in "other" are revenues, expenses and assets of the
                  parent company and eliminations.

NOTE THREE - MERGERS AND ACQUISITIONS

         (a) Insurance Agencies. Since 1999, the Corporation has acquired five
insurance agencies using the purchase accounting method. The year over year
increases we have experienced in insurance services income is due to the organic
growth from our insurance agencies as well as the five insurance agencies
acquired. The five insurance agencies acquired since 1999 and the respective
date of acquisition include: Franklin Brown Company (January 31, 1999), J. L.
Suttle, Jr. and Co., Inc. (December 31, 1999), Faulkner Investments, Inc.
(January 1, 2000), Banner and Greene Agency, Inc. (April 1, 2001), and Hoffman &
Young, Inc. (July 31, 2001). Pro forma financial information reflecting the
effect of these acquisitions on periods prior to the combination are not
considered material.

         (b) Branch Purchase. On November 17, 2000, the Corporation purchased
four financial centers with total loans of $9.4 million and total deposits of
$88.3 million. Approximately $8.6 million of intangible assets were recorded as
a result of this transaction. The financial centers are located in Bryson City,
Jefferson, West Jefferson and Sparta, North Carolina.

         (c) Business Insurers of Guilford County. On September 1, 2000,
Business Insurers of Guilford County ("Business Insurers") was merged into First
Charter Insurance Services. As a result of this merger, approximately 283,000
shares of the Corporation's common stock were issued. This merger was accounted
for as a pooling of interests, and accordingly all financial results for prior
periods have been restated to include the financial results of both entities. In
connection with the Business Insurers merger, the Corporation recorded pre-tax
restructuring charges and merger-related expenses of approximately $575,000
($425,000 after-tax), all of which had been incurred at December 31, 2001.

         (d) Carolina First BancShares, Inc. On April 4, 2000, Carolina First
BancShares, Inc. ("Carolina First") was merged into the Corporation (the
"Merger"). Carolina First was a bank holding company operating 31 branch offices
principally in the greater Charlotte, North Carolina area. At April 4, 2000,
Carolina First had total consolidated assets of approximately $791.7 million,
total consolidated loans of approximately $545.9 million, total consolidated
deposits of approximately $674.8 million and total consolidated shareholders'
equity of approximately $67.5 million.

         In accordance with the terms of the Merger Agreement, each share of the
$2.50 par value common stock of Carolina First was converted into 2.267 shares
of the no par value common stock of the Corporation, resulting in the net
issuance of approximately 13.3 million common shares to the former Carolina
First shareholders. The Merger was accounted for as a pooling of interests, and
accordingly all financial results for prior periods have been restated to
include the financial results of both entities.

         In connection with this transaction, the Corporation recorded pre-tax
restructuring charges and merger-related expenses of approximately $15.7 million
($11.9 million after-tax), which consisted of approximately $4.8 million in
employee related costs, $4.1 million of equipment expenses, $3.9 million of


                                       50
<PAGE>

professional costs, $0.9 million of lease buyouts, $0.7 million of conversion
costs and $1.3 million of other merger costs. At December 31, 2001,
substantially all of the Carolina First restructuring charges and merger-related
expenses have been incurred.

NOTE FOUR - COMPREHENSIVE INCOME

         Comprehensive income includes net income and all non-owner changes to
the Corporation's equity. 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 years ended
December 31, 2001, 2000 and 1999 was $39.1 million, $34.3 million and $21.4
million, respectively. Information concerning the Corporation's other
comprehensive income for the year ended December 31, 2001, 2000 and 1999 is as
follows:

<TABLE>
<CAPTION>
                                             2001                            2000                              1999
                             -----------------------------------------------------------------------------------------------------
                                Before Tax    Tax   After Tax  Before Tax    Tax     After Tax   Before Tax     Tax     After Tax
(Dollars in thousands)            Amount    Effect    Amount     Amount     Effect     Amount      Amount      Effect    Amount
----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>     <C>        <C>         <C>       <C>         <C>          <C>       <C>
Unrealized gains/(losses)
 on securities:
 Unrealized gains (losses)
   arising during period          $8,630    $3,366    $5,264    $ 11,146   $ 4,347    $ 6,799    $(22,233)    $(8,866)  $(13,367)
 Less:  Reclassification for
   realized gains (losses)         2,399       936     1,463      (4,303)   (1,678)    (2,625)        919         366        553
----------------------------------------------------------------------------------------------------------------------------------
 Unrealized gains (losses),
   net of reclassification        $6,231    $2,430    $3,801    $ 15,449   $ 6,025    $ 9,424    $(23,152)    $(9,232)  $(13,920)
----------------------------------------------------------------------------------------------------------------------------------

 Other comprehensive
   income (loss)                  $6,231    $2,430    $3,801    $ 15,449   $ 6,025    $ 9,424    $(23,152)    $(9,232)  $(13,920)
==================================================================================================================================
</TABLE>

NOTE FIVE - SECURITIES AVAILABLE FOR SALE

         Securities available for sale at December 31, 2001 and 2000 are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                            2001
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                  GROSS             GROSS
                                                             AMORTIZED         UNREALIZED         UNREALIZED               FAIR
(Dollars in thousands)                                         COST               GAINS             LOSSES                VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>                <C>                <C>
US government agency obligations                          $    284,504          $   4,723          $    974          $    288,253
Mortgage-backed securities                                     652,260              9,513             6,083               655,690
State, county, and municipal obligations                        86,339              1,614               405                87,548
Equity securities                                               44,684              1,232                42                45,874
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                     $  1,067,787          $  17,082          $  7,504          $  1,077,365
===================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                            2000
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                  GROSS             GROSS
                                                             AMORTIZED         UNREALIZED         UNREALIZED               FAIR
(Dollars in thousands)                                         COST               GAINS             LOSSES                VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>                <C>                 <C>

US government agency obligations                          $  157,760            $  1,491           $  1,023           $  158,228
Mortgage-backed securities                                   151,097               2,387                208              153,276
State, county, and municipal obligations                      93,797                 900                673               94,024
Equity securities                                             35,030                 903                430               35,503
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL                                                     $  437,684            $  5,681           $  2,334           $  441,031
===================================================================================================================================
</TABLE>


                                       51
<PAGE>

         The expected maturity distribution and yields (computed on a
taxable-equivalent basis assuming a 35 percent federal tax rate) of the
Corporation's securities portfolio at December 31, 2001 are summarized below.
Actual maturities may differ from contractual maturities since borrowers may
have the right to pre-pay these obligations without pre-payment penalties.

<TABLE>
<CAPTION>
                                                       Due after 1           Due after 5
                                Due in 1 year           through 5             through 10         Due after
                                  or less                 years                  years            10 years             Total
                            -------------------------------------------------------------------------------------------------------
(Dollars in thousands)        Amount    Yield       Amount      Yield      Amount     Yield   Amount    Yield      Amount    Yield
-----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>       <C>         <C>         <C>      <C>          <C>     <C>       <C>      <C>         <C>
FAIR VALUE OF SECURITIES
AVAILABLE FOR SALE
U.S. government
 agency obligations           $    --      --%    $ 140,069     5.53%    $ 142,163    5.70%  $  6,021    6.72%   $  288,253   5.64%
Mortgage-backed
 securities (1)                 5,438    6.25       394,630     6.77       255,622    5.83         --      --       655,690   6.38
State and municipal
 obligations                    7,367    7.95        34,560     6.72        32,254    6.87     13,367    6.87        87,548   6.90
Equity securities (2)              --      --            --       --            --      --     45,874    5.89        45,874   5.99
-----------------------------------------------------------------------------------------------------------------------------------
Total                         $12,805    7.23%    $ 569,259     6.46%    $ 430,039    5.86%  $ 65,262    6.17%   $1,077,365   6.21%
-----------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST OF SECURITIES
AVAILABLE FOR SALE            $12,636             $ 558,155              $ 432,748           $ 64,248            $1,067,787
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Maturities estimated based on average life of security.
(2)      Although equity securities have no stated maturity, they are presented
         for illustrative purposes only.

         Securities with an aggregate carrying value of $730.9 million at
December 31, 2001 were pledged to secure public deposits, securities sold under
agreements to repurchase and Federal Home Loan Bank ("FHLB") borrowings.
Proceeds from the sale of securities available for sale were $549.4 million in
2001, $212.1 million in 2000, and $68.0 million in 1999. Gross gains of $2.7
million and gross losses of $0.3 million were realized in 2001. Gross gains of
$2.6 million and gross losses of $6.9 million were realized in 2000. Gross gains
of $2.0 million and gross losses of $1.0 million were realized in 1999.

         At December 31, 2001 and 2000, the Bank owned stock in the Federal Home
Loan Bank of Atlanta with a cost basis (par value) of $32.4 million and $22.8
million, respectively, which is included in equity securities. While these
securities have no quoted fair value, they are generally redeemable at par value
from the FHLB.

         Other-than-temporary declines in the fair value of certain equity
securities held in the Corporation's available for sale portfolio resulted in
write downs of $144,000, $1.6 million and $66,000 in 2001, 2000 and 1999,
respectively.

         Due to changes in interest rates during 2001, and the resulting impact
on the Corporation's interest rate risk, the Corporation securitized $167.0
million of mortgage loans in 2001 which are now classified as mortgage-backed
securities in our available for sale portfolio. In connection with the
securitization, the Corporation recorded mortgage servicing rights of $2.5
million and recorded a corresponding discount on the basis of the related
mortgage-backed securities.

         In connection with the merger with Carolina First in 2000, FCB
transferred Carolina First's securities held to maturity of $35.3 million to
securities available for sale due to the impact of these securities on the
Corporation's interest rate risk as compared to corporate policy.

         As of December 31, 2001, there were no issues of securities available
for sale (excluding U.S. government agency obligations) which had carrying
values that exceeded 10 percent of shareholders' equity of the Corporation.

         As of December 31, 2001 and 2000, there were no securities classified
as held to maturity.


                                       52
<PAGE>

NOTE SIX - TRADING ACTIVITY

         During 2001, the Corporation engaged in writing over-the-counter
covered call options on specific fixed income securities in the available for
sale portfolio in order to enhance returns. Under these agreements the
Corporation agrees to sell, upon election by the optionholder, a fixed income
security at a fixed price. The Corporation receives a premium from the
optionholder in exchange for writing the option contract. For the year ended
December 31, 2001, the Corporation recognized income of $2.6 million from
writing covered call options. There were no written covered call options
outstanding at December 31, 2001, and there were no such contracts written
during 2000 or 1999.

NOTE SEVEN - LOANS

         The Corporation's primary market area includes North Carolina, and
predominately centers around the Metro region of Charlotte, North Carolina. At
December 31, 2001, the majority of the total loan portfolio, as well as a
substantial portion of the commercial and real estate loan portfolios, were 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 December 31, 2001 and 2000 were:

<TABLE>
<CAPTION>
                                                                                 2001                2000
                                                                             --------------     -------------
(Dollars in thousands)                                                           AMOUNT             Amount
-------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
Commercial, financial and
 agricultural                                                                 $   213,578        $   216,515
Real estate - construction and development                                        338,705            332,474
Real estate - commercial                                                          547,069            577,580
Real estate - mortgage                                                            729,113            922,038
Installment                                                                       126,621            109,015
-------------------------------------------------------------------------------------------------------------
TOTAL                                                                         $ 1,955,086        $ 2,157,622
=============================================================================================================

Nonaccrual loans                                                              $    23,824        $    26,587
Restructured loans                                                                     --                 --
-------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING LOANS                                                          23,824             26,587
-------------------------------------------------------------------------------------------------------------
Other real estate                                                                   8,049              2,989
-------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS                                                         31,873             29,576
-------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due and still accruing                                     152                430
-------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS AND LOANS 90 DAYS
OR MORE PAST DUE AND STILL ACCRUING                                           $    32,025        $    30,006
=============================================================================================================
</TABLE>

         Mortgage loans held for sale are included in real estate mortgage loans
and are carried at the lower of aggregate cost or market. Mortgage loans held
for sale were $7.3 million and $5.1 million at December 31, 2001 and 2000,
respectively.

         Due to changes in interest rates during 2001, and the resulting impact
on the Corporation's interest rate risk, the Corporation securitized $167.0
million of mortgage loans in 2001 which are now classified as mortgage backed
securities in our available for sale portfolio. The Corporation recorded $2.5
million in mortgage servicing rights and a corresponding discount on the basis
of the related mortgage-backed securities.

         Due to changes in interest rates during 2000, and the resulting impact
on the Corporation's interest rate risk, the Corporation classified $45.3
million in lower-yielding mortgage loans as held for sale during 2000. The Bank
entered into agreements for the sale of these loans, with the sales closing in
May of 2000. The loans were sold with servicing rights retained. The Corporation
recognized a loss of approximately $99,000 on the sales transaction and recorded
$0.4 million in servicing rights.


                                       53
<PAGE>

         Residential real estate loans are presented net of loans serviced for
others totaling $274.4 million and $182.9 million at December 31, 2001 and 2000,
respectively.

         Interest income that would have been recorded on nonaccrual loans and
restructured loans for the years ended December 31, 2001, 2000, and 1999, had
they performed in accordance with their original terms, amounted to
approximately $2.2 million, $2.3 million, and $1.0 million, respectively.
Interest income on all such loans included in the results of operations for
2001, 2000 and 1999 amounted to approximately $1.0 million, $1.3 million, and
$0.4 million, respectively.

         The recorded investment in individually impaired loans was $14.2
million (of which $11.9 million was on nonaccrual status) and $17.7 million (all
of which was on nonaccrual status) at December 31, 2001 and 2000, respectively.
The related allowance for loan losses on these loans was $1.8 million and $4.7
million at December 31, 2001 and 2000, respectively. The average recorded
investment in individually impaired loans for 2001 was $17.1 million, and the
income recognized during 2001 was $0.2 million, all of which was recognized
using the cash method of income recognition. The average recorded investment in
individually impaired loans for 2000 was $16.7 million, and the income
recognized during 2000 was $0.3 million, all of which was recognized using the
cash method of income recognition. The average recorded investment in
individually impaired loans for 1999 was $8.9 million, and the income recognized
during 1999 was $0.4 million, all of which was recognized using the cash method
of income recognition.

         The following is a reconciliation of loans outstanding to executive
officers, directors and their associates for the year ended December 31, 2001:

<TABLE>
<CAPTION>
                                                            (Dollars in thousands)
         <S>                                                <C>
         Balance at December 31, 2000                              $ 13,759
         New loans                                                      235
         Principal repayments                                       (10,231)
         -------------------------------------------------------------------
         Balance at December 31, 2001                               $ 3,763
         ===================================================================
</TABLE>

         In the opinion of management, these loans were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other borrowers. Such loans, in the
opinion of management, do not involve more than the normal risks of
collectibility.

NOTE EIGHT - ALLOWANCE FOR LOAN LOSSES

         The following is a summary of the changes in the allowance for loan
losses for each of the years in the three-year period ended December 31, 2001,
2000 and 1999:

<TABLE>
<CAPTION>
         (Dollars in thousands)                                       2001              2000          1999
         ---------------------------------------------------------------------------------------------------
         <S>                                                        <C>              <C>           <C>
         Beginning balance                                          $28,447          $ 25,002      $ 22,278
         Provision for loan losses                                    4,465             7,615         5,005
         Allowance related to loans sold and securitized               (417)             (113)         (369)
         Charge-offs                                                  7,406             5,063         2,773
         Recoveries                                                     754             1,006           861
         ---------------------------------------------------------------------------------------------------
         Net loan charge-offs                                         6,652             4,057         1,912
         ---------------------------------------------------------------------------------------------------
         ENDING BALANCE                                             $25,843          $ 28,447      $ 25,002
         ===================================================================================================
</TABLE>


                                       54
<PAGE>

NOTE NINE - PREMISES AND EQUIPMENT

         Premises and equipment at December 31, 2001 and 2000 are summarized as
follows:

<TABLE>
<CAPTION>
         ----------------------------------------------------------------------------------------------------------------------
         (Dollars in thousands)                                                                2001                2000
         ----------------------------------------------------------------------------------------------------------------------
         <S>                                                                               <C>                 <C>
         Land                                                                              $   21,896          $   10,339
         Buildings                                                                             65,980              25,157
         Furniture and equipment                                                               45,305              36,409
         Leasehold improvements                                                                 2,156               2,318
         Construction in progress                                                                   4              37,249
         ----------------------------------------------------------------------------------------------------------------------
           TOTAL PREMISES AND EQUIPMENT                                                       135,340             111,472
         ----------------------------------------------------------------------------------------------------------------------
         Less accumulated depreciation and amortization                                        38,364              34,806
         ----------------------------------------------------------------------------------------------------------------------
           PREMISES AND EQUIPMENT, NET                                                     $   96,976          $   76,666
         ======================================================================================================================
</TABLE>

NOTE TEN - DEPOSITS

         A summary of deposit balances at December 31, 2001 and 2000 is as
follows:

<TABLE>
<CAPTION>
         (Dollars in thousands)                                             2001                  2000
         ---------------------------------------------------------------------------------------------------
         <S>                                                           <C>                   <C>
         Noninterest bearing demand                                    $    276,698          $    242,983
         Interest bearing demand                                            266,667               254,867
         Money market accounts                                              286,653               244,343
         Savings deposits                                                   111,674               122,190
         Certificates of deposit                                          1,221,252             1,133,851
         ---------------------------------------------------------------------------------------------------
           TOTAL DEPOSITS                                              $  2,162,945          $  1,998,234
         ===================================================================================================
</TABLE>

         At December 31, 2001, the aggregate amount of certificates of deposit
with denominations greater than $100,000 was $619.3 million, with $181.8 million
maturing within three months, $125.3 million maturing within three to six
months, $208.5 million maturing within six to twelve months and $103.7 million
maturing after twelve months.

         At December 31, 2001, the scheduled maturities of all certificates of
deposit are as follows:

<TABLE>
<CAPTION>
         (Dollars in thousands)
         <S>                                        <C>
         2002                                      $   1,012,566
         2003                                            130,048
         2004                                             39,897
         2005                                              8,897
         2006                                             28,726
         2007 and after                                    1,118
         -------------------------------------------------------
           TOTAL                                   $   1,221,252
         ==========================================================
</TABLE>


                                       55
<PAGE>

NOTE ELEVEN - OTHER BORROWINGS

         The following is a schedule of other borrowings:

<TABLE>
<CAPTION>
                                                                         Interest                                     Maximum
                                                           Balance         Rate                         Average     Outstanding
                                                           as of          as of          Average       Interest        at Any
(Dollars in thousands)                                  December 31,   December 31,      Balance         Rate         Month-end
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>             <C>             <C>          <C>
                  2001
Federal funds purchased and securities
  sold under agreements
  to repurchase                                          $  137,282        2.43%       $  130,863        3.85%       $  151,291
FHLB borrowings                                             639,370        4.34           514,991        5.13           665,380
Other                                                        31,860        1.87             6,444        3.04            31,860
-----------------------------------------------------------------------------------------------------------------------------------
  TOTAL                                                  $  808,512                      $652,298                    $  848,531
===================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                         Interest                                     Maximum
                                                           Balance         Rate                         Average     Outstanding
                                                           as of          as of          Average       Interest        at Any
(Dollars in thousands)                                  December 31,   December 31,      Balance         Rate         Month-end
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>             <C>             <C>          <C>
                  2000
Federal funds purchased and securities
 sold under agreements
 to repurchase                                           $  114,328        5.65%       $  112,625        5.86%       $  141,650
FHLB borrowings                                             455,696        6.06           443,918        5.95           497,604
Other                                                            --          --               316        7.26               837
-----------------------------------------------------------------------------------------------------------------------------------
 TOTAL                                                   $  570,024                    $  556,859                    $  640,091
===================================================================================================================================
</TABLE>

         Federal funds purchased represent unsecured overnight borrowings from
other financial institutions by the Bank. Securities sold under agreements to
repurchase represent short-term borrowings by the Bank with maturities ranging
from 1 to 89 days collateralized by a portion of the Corporation's securities of
the United States government or its agencies, which have been delivered to a
third party custodian for safekeeping.

         At December 31, 2001, FCB had one available line of credit with the
FHLB totaling $736.8 million with approximately $639.4 million outstanding. The
outstanding amounts consisted of $156.0 million maturing in 2002, $30.0 million
maturing in 2003, $25.0 million maturing in 2004, $65.0 million in 2006, $76.0
million maturing in 2009, $107.0 million maturing in 2010 and $180.4 million
maturing in 2011. In addition, the FHLB requires banks to pledge collateral to
secure the advances as described in the line of credit agreement. The collateral
consists of FHLB stock and qualifying 1-4 family residential mortgage loans.

         At December 31, 2001, FCB also had federal funds back-up lines of
credit totaling $50.0 million, of which there were no amounts outstanding.

         At December 31, 2001, the Corporation had lines of credit with SunTrust
Bank totaling $25.0 million with $15.0 million outstanding and commercial paper
outstandings of $16.9 million.


                                       56
<PAGE>

NOTE TWELVE - INCOME TAX

         Total income taxes for the years ended December 31, 2001, 2000 and 1999
were allocated as follows:

<TABLE>
<CAPTION>
                                                                                        Years ended December 31,
         ----------------------------------------------------------------------------------------------------------------------
         (Dollars in thousands)                                                2001               2000              1999
         ----------------------------------------------------------------------------------------------------------------------
         <S>                                                                <C>                <C>                <C>
         Net income                                                         $  16,768          $  13,312          $  16,480
         Shareholders' equity, for unrealized gains
           (losses) on securities available for sale                            2,430              6,025             (9,232)
         ----------------------------------------------------------------------------------------------------------------------
             TOTAL                                                          $  19,198          $  19,337          $   7,248
         ======================================================================================================================
</TABLE>

         Income tax expense (benefit) attributable to income consists of:

<TABLE>
<CAPTION>
                                                                                         Years ended December 31,
         ----------------------------------------------------------------------------------------------------------------------
         (Dollars in thousands)                                                 2001              2000                1999
         ----------------------------------------------------------------------------------------------------------------------
         <S>                                                                <C>                <C>                 <C>
         CURRENT:
         Federal                                                            $  14,679          $  13,774           $  16,285
         State                                                                    125               (113)                197
         ----------------------------------------------------------------------------------------------------------------------
           TOTAL CURRENT                                                    $  14,804          $  13,661           $  16,482
         ----------------------------------------------------------------------------------------------------------------------

         DEFERRED:
         Federal                                                            $   1,704          $    (251)          $     (46)
         State                                                                    260                (98)                 44
         ----------------------------------------------------------------------------------------------------------------------
           TOTAL DEFERRED                                                   $   1,964          $    (349)          $      (2)
         ----------------------------------------------------------------------------------------------------------------------

         TOTAL INCOME TAXES:
         Federal                                                            $  16,383          $  13,523           $  16,239
         State                                                                    385               (211)                241
         ----------------------------------------------------------------------------------------------------------------------
            TOTAL INCOME TAXES                                              $  16,768          $  13,312           $  16,480
         ======================================================================================================================
</TABLE>

         Income tax expense attributable to net income was $16.8 million, $13.3
million and $16.5 million for the years ended December 31, 2001, 2000 and 1999,
respectively, and differed from the amounts computed by applying the U.S.
federal income tax rate of 35 percent to pretax income as a result of the
following:

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
         -------------------------------------------------------------------------------------------------------------------------
         (Dollars in thousands)                              2001                       2000                        1999
         -------------------------------------------------------------------------------------------------------------------------
         <S>                                        <C>            <C>         <C>            <C>         <C>             <C>
         Computed "expected" tax expense            $ 18,233      35.00 %      $  13,354       35.00 %     $  18,120       35.00 %
         Increase (reduction) in income taxes
           resulting from:
           Tax exempt income                          (1,526)     (2.93)          (1,594)      (4.17)         (1,709)      (3.30)
           Nondeductible merger expenses                  --         --            1,733        4.54              --          --
           State income tax, net of
             federal benefits                            241       0.46             (137)      (0.36)            157        0.30
           Other, net                                   (180)     (0.34)             (44)      (0.12)            (88)      (0.17)
         -------------------------------------------------------------------------------------------------------------------------
             Total                                  $ 16,768      32.19 %      $  13,312       34.89 %     $  16,480       31.83 %
         =========================================================================================================================
</TABLE>


                                       57
<PAGE>

         The significant components of deferred income tax expense for the years
ended December 31, 2001, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                       Years ended December 31,
         --------------------------------------------------------------------------------------------------------------------------
         (Dollars in thousands)                                                2001               2000               1999
         --------------------------------------------------------------------------------------------------------------------------
         <S>                                                                <C>                <C>                <C>
         Net income                                                         $  16,768          $  13,312          $  16,480
         Shareholders' equity, for unrealized gains
           (losses) on securities available for sale                            2,430              6,025             (9,232)
         --------------------------------------------------------------------------------------------------------------------------
             TOTAL                                                          $  19,198          $  19,337          $   7,248
         ==========================================================================================================================
</TABLE>

         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2001 and 2000 are presented below.

<TABLE>
         --------------------------------------------------------------------------------------------------------------------------
         (Dollars in thousands)                                                                     2001               2000
         --------------------------------------------------------------------------------------------------------------------------
         <S>                                                                                    <C>                 <C>
         DEFERRED TAX ASSETS:
           Allowance for loan loss                                                              $  10,217           $  11,232
           Accrued expenses deductible when paid for tax purposes                                     105               4,734
           Deferred compensation                                                                    3,106                 873
           Intangibles                                                                                333                 210
           Other                                                                                    1,038                 579
         --------------------------------------------------------------------------------------------------------------------------
             TOTAL GROSS DEFERRED TAX ASSETS                                                       14,799              17,628
         --------------------------------------------------------------------------------------------------------------------------
           Less valuation allowance                                                                    --                  --
         --------------------------------------------------------------------------------------------------------------------------
             NET DEFERRED TAX ASSETS                                                               14,799              17,628
         --------------------------------------------------------------------------------------------------------------------------
         DEFERRED TAX LIABILITIES:
           Unrealized gains on securities available for sale                                       (3,879)             (1,449)
           Depreciable basis of fixed assets                                                         (342)               (637)
           Federal Home Loan Bank of Atlanta stock                                                 (1,052)             (1,054)
           Bad debt reserve recapture, tax accounting adjustment                                       --                (131)
           Market adjustment for investment in partnership interest                                (1,216)             (1,808)
           Other                                                                                     (316)               (161)
         --------------------------------------------------------------------------------------------------------------------------
             Total gross deferred tax liabilities                                                  (6,805)             (5,240)
         --------------------------------------------------------------------------------------------------------------------------
             NET DEFERRED TAX ASSETS                                                            $   7,994           $  12,388
         ==========================================================================================================================
</TABLE>

         The valuation allowance for deferred tax assets was $0 as of both
January 1, 2001 and 2000. There was no change in the total valuation allowance
during 2001 and 2000. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset, the Company will
need to generate future taxable income prior to the expiration of the deferred
tax assets governed by the tax code. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at December 31, 2001. The amount of the
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.

         At December 31, 2001, the Company did not have any operating loss
carryforwards for federal income tax purposes.

         Tax returns for 1998 and subsequent years are subject to examination by
taxing authorities.

         Retained income at December 31, 2001 and 2000 includes approximately
$7.2 million (tax effect) representing pre-1988 tax bad debt reserve base year
reserve amount for which no deferred income tax liability has been provided
since these reserves are not expected to reverse and may never reverse.


                                       58
<PAGE>

Circumstances that would require an accrual of a portion or all of this
unrecorded tax liability are a reduction in qualifying loan levels relative to
the end of 1987, failure to meet the definition of a bank, dividend payments in
excess of current year or accumulated tax earnings and profits, or other
distributions in dissolution, liquidation or redemption of the Corporation's
stock.

NOTE THIRTEEN - EMPLOYEE BENEFIT PLANS

         401(k) Plan and Money Purchase Pension Plan. The Corporation has a
qualified Retirement Savings Plan (401(k) Plan) for all eligible employees of
the Corporation. Pursuant to the Savings Plan, an eligible employee may elect to
defer between 1 percent and 10 percent of compensation and invest those in a
variety of investment options, including the Corporation's stock. At the
discretion of the Board of Directors, the Corporation may contribute an amount
necessary to match all or a portion of a participant's elective deferrals,
utilizing the same investment options chosen by the employee, in an amount to be
determined by the Board of Directors from time to time, up to a maximum of 6
percent of a participant's compensation. In addition, the Corporation may
contribute an additional amount to each participant's Savings Plan account as
determined at the discretion of the Board of Directors. The Corporation adopted
a qualified Money Purchase Pension Plan effective January 1, 1997 for all
eligible employees of the Corporation. Pursuant to the Money Purchase Pension
Plan, the Corporation contributes annually to each participant's Plan account an
amount equal to 3 percent of the participant's compensation. Prior to 1997, such
contributions were made to the Savings Plan. The Corporation's aggregate
contributions to the Savings Plan and Money Purchase Pension Plan amounted to
$2.6 million, $2.0 million and $1.2 million for 2001, 2000 and 1999,
respectively. Effective December 31, 2001 the 401(k) Plan and the Money Purchase
Pension Plan were merged into one plan.

         First Charter Option Plan Trust. Effective December 1, 2000, the
Corporation approved and adopted a non-qualified compensation deferral
arrangement called the First Charter Option Plan Trust (the "OPT Plan"). The OPT
Plan is a tax-deferred capital accumulation plan. Under the OPT Plan, qualified
participants may elect to defer up to 50 percent of their base salary and
receive salary options on mutual fund investments. In addition, the Corporation
may grant participants bonus options in lieu of cash bonuses. Participants are
offered the opportunity to direct an administrative committee to invest in
separate investment funds with distinct investment objectives and risk
tolerances. Eligible employees for the OPT Plan include executive management as
well as key members of senior management. Deferrals of compensation obligation
pursuant to this plan was $192,000 at December 31, 2001 and was insignificant in
2000. Plan assets, which are held in a Rabbi Trust, totaled $192,000 at December
31, 2001, and are classified as trading assets.

         First Charter Directors' Option Deferral Plan. Effective May 1, 2001
the Corporation approved and adopted a non-qualified compensation deferral
arrangement called the First Charter Corporation Directors' Option Deferral Plan
(the "Plan"). Under the Plan, eligible directors may elect to defer all of their
director's fees and receive option grants on mutual fund investments.
Participants are offered the opportunity to direct an administrative committee
to invest in separate investment funds with distinct investment objectives and
risk tolerances. Deferrals of compensation pursuant to this plan amounted to
$9,000 for 2001. Plan assets, which are held in a Rabbi Trust, totaled $9,000 at
December 31, 2001, and are classified as trading assets.


                                       59
<PAGE>

NOTE FOURTEEN - SHAREHOLDERS' EQUITY, STOCK PLANS AND STOCK AWARDS

         Stock Repurchase Programs. On April 27, 2001, the Corporation's Board
of Directors authorized the repurchase of up to 1 million shares of the
Corporation's common stock. Through December 31, 2001, the Corporation had
repurchased all shares of its common stock authorized in open market
transactions at an average per-share price of approximately $17.96, which
reduced shareholders' equity by $18.0 million.

         On December 21, 2001, the Corporation entered into a share repurchase
agreement with a third party for 493,000 shares of its common stock. The
transaction will be settled with the counterparty during the second quarter of
2002 based on the average of the Corporation's stock price during the term of
the agreement. The Corporation has structured the agreement so as to account for
the repurchase as equity in accordance with Emerging Issues Task Force (EITF)
00-19. Fluctuations in the value of the Corporation's common stock will not be
recognized in the Corporation's consolidated financial statements. The earnings
per share calculation assumes that this transaction will settle in shares, so
the diluted earnings per share calculations include the potential common shares
that would be issued pursuant to this agreement.

         On January 23, 2002, the Corporation's Board of Directors authorized
the repurchase of up to 1.5 million additional shares of the Corporation's
common stock.

         Deferred Compensation for Non-Employee Directors. Effective May 1,
2001, the Corporation amended and restated the First Charter Corporation 1994
Deferred Compensation Plan for Non-Employee Directors. Under the Deferred
Compensation Plan, eligible directors may elect to defer all or part of their
director's fees for a calendar year, in exchange for common stock of the
Corporation. The amount deferred, if any, shall be in multiples of 25% of their
total director's fees. Each participant is fully vested in his account balance
under the plan. The plan generally provides for fixed payments or a lump sum
payment, or a combination of both, in shares of common stock of the Corporation
after the participant ceases to serve as a director for any reason.

         The common stock purchased by the Corporation for this deferred
compensation plan is maintained in The First Charter Corporation Directors'
Deferred Compensation Trust, a rabbi trust (the "Trust"), on behalf of the
participants. The assets of the Trust are subject to the claims of general
creditors of the Corporation. Dividends payable on the common shares held by the
Trust will be reinvested in additional shares of common stock of the Corporation
on behalf of the participants. Since the deferred compensation plan does not
provide for diversification of the Trust's assets and can only be settled with a
fixed number of shares of the Corporation's common stock, the deferred
compensation obligation is classified as a component of shareholders' equity and
the common stock held by the Trust is classified as a reduction of shareholders'
equity. Subsequent changes in the fair value of the common stock are not
reflected in earnings or shareholders' equity of the Corporation. The
obligations of the Corporation under the deferred compensation plan and the
shares held by the Trust have no net effect on net income per share.

         Shareholders' Rights Plan. On July 19, 2000 the Board of Directors
adopted a Shareholder Protection Rights Plan. In connection with the adoption of
the plan, the Board declared a dividend of one share purchase right ("Right") on
each outstanding share of common stock. Issuances of the Corporation's common
stock after August 9, 2000 include Share Purchase Rights. Generally, the Rights
will be exercisable only if a person or group acquires 15 percent or more of
Corporation's common stock or announces a tender offer. Each Right will entitle
stockholders to buy 1/1000 of a share of a new series of junior participating
preferred stock of the Company at an exercise price of $80. Prior to the time
they become exercisable, the Rights are redeemable for one cent per Right at the
option of the Board of Directors.

         If the Corporation is acquired after a person has acquired 15 percent
or more of its common stock, each Right will entitle its holder to purchase, at
the Right's then-current exercise price, a number of shares of the acquiring
company's common stock having a market value of twice such price. Additionally,
if the Corporation is not acquired, a Rights holder (other than the person or
group acquiring 15 percent or more)


                                       60
<PAGE>

will be entitled to purchase, at the Right's then-current exercise price, a
number of shares of the Corporation's common stock having a market value of
twice such price.

         Following the acquisition of 15 percent or more of the common stock,
but less than 50 percent by any Person or Group, the Board may exchange the
Rights (other than Rights owned by such person or group) at an exchange ratio of
one share of common stock for each Right.

         The Rights were distributed on August 9, 2000, to stockholders of
record as of the close of business on such date. The Rights will expire on July
19, 2010.

         Dividend Reinvestment and Stock Purchase Plan. The Corporation
maintains the Dividend Reinvestment and Stock Purchase Plan (the "DRIP"),
pursuant to which 1,000,000 shares of common stock of the Corporation have been
reserved for issuance. Shareholders may elect to participate in the DRIP and
have dividends on shares of common stock reinvested and may make optional cash
payments of up to $3,000 per calendar quarter to be invested in common stock of
the Corporation. Pursuant to the terms of the DRIP, upon reinvestment of the
dividends and optional cash payments, the Corporation can either issue new
shares valued at the then current market value of the common stock or the
administrator of the DRIP can purchase shares of common stock in the open
market. During 2001, the Corporation issued 67,648 shares and the administrator
of the DRIP purchased 162,007 shares in the open market.

         Restricted Stock Award Program. In April 1995, the shareholders
approved the First Charter Corporation Restricted Stock Award Program (the
"Restricted Stock Plan"). Awards of restricted stock may be made under the
Restricted Stock Plan at the discretion of the Compensation Committee of the
Board of Directors of the Corporation, which shall determine the key
participants, the number of shares awarded to participants, and the vesting
terms and conditions applicable to such awards. A maximum of 360,000 shares of
common stock are reserved for issuance under the Restricted Stock Plan.
Compensation expense of approximately $87,000 and $77,000 was recognized during
2001 and 2000, respectively, in connection with the Restricted Stock Plan. The
following table presents the status of the Restricted Stock Plan as of December
31, 2001 and 2000 and changes during the years then ended:

<TABLE>
<CAPTION>
                                                                                                                 Weighted Average
                                                                                                   Shares          Grant Price
         --------------------------------------------------------------------------------------------------------------------------
         <S>                                                                                       <C>           <C>
         Outstanding at December 31, 1999                                                          15,513           $  20.1780
         Granted                                                                                    5,000              13.4375
         Vested                                                                                    (5,170)             19.1816
         Forfeited                                                                                     --                   --
                                                                                                  -------
         Outstanding at December 31, 2000                                                          15,343              18.3171
                                                                                                  =======
         Granted                                                                                       --                   --
         Vested                                                                                    (5,170)             19.1816
         Forfeited                                                                                     --                   --
                                                                                                  -------
         Outstanding at December 31, 2001                                                          10,173           $  17.8778
                                                                                                  =======
</TABLE>

         First Charter Comprehensive Stock Option Plan. Under the terms of the
First Charter Corporation Comprehensive Stock Option Plan (the "Comprehensive
Stock Option Plan"), stock options (which can be incentive stock options or
non-qualified stock options) may be periodically granted to key employees of the
Corporation or its subsidiaries. The terms and vesting schedules of options
granted under the Comprehensive Plan generally shall be determined by the
Compensation Committee of the Board of Directors of the Corporation (the
"Compensation Committee"). However, no options may be exercisable prior to six
months following the grant date, and certain additional restrictions, including
the term and exercise price, apply with respect to any incentive stock options.

         First Charter Corporation Stock Option Plan for Non-Employee Directors.
In April 1997, the shareholders approved the First Charter Corporation Stock
Option Plan for Non-Employee Directors (the "Director Plan"). Under the Director
Plan, non-statutory stock options may be granted to non-employee Directors of
the Corporation and its subsidiaries. The terms and vesting schedules of any
options granted under the Director Plan generally shall be determined by the
Compensation Committee. The exercise price for each option granted, however,
shall be the fair value of the common stock as of the date of grant.


                                       61
<PAGE>

A maximum of 180,000 shares are reserved for issuance under the Director Plan.
As of December 31, 2001, approximately 129,000 shares have been granted under
the Director Plan.

         2000 Omnibus Stock Option and Award Plan. In June 2000, the
shareholders approved the First Charter Corporation 2000 Omnibus Stock Option
and Award Plan (the "2000 Omnibus Plan"). Under the 2000 Omnibus Plan, 2,000,000
shares of common stock are reserved for issuance. Stock options (which can be
incentive stock options or non-qualified stock options) and other stock-based
awards may be periodically granted to key employees of First Charter and its
Directors. The terms and vesting schedules of options granted under the 2000
Omnibus Plan shall be determined by the Compensation Committee. However, no
options may be exercisable prior to six months following the grant date, and
certain additional restrictions, including the term and exercise price, apply
with respect to any incentive stock options.

         Employee Stock Purchase Plans. The Corporation previously adopted an
Employee Stock Purchase Plan (the "ESPP") in 1998 and 1996, pursuant to which
stock options were granted to employees, based on their eligibility and
compensation, at a price of 85% to 90% of the fair market value of the shares at
the date of grant. The option and vesting period was generally for a term of two
years. A maximum of 180,000 shares are reserved for issuance under the 1996 ESPP
and 180,000 shares are reserved for issuance under the 1998 ESPP, which was
approved by the shareholders of the Corporation in April 1997.

         The Board of Directors of the Corporation determined that it was in the
best interest of the Corporation to implement a new employee stock purchase plan
that can continue beyond a two-year period, to allow more flexibility with the
timing of the grant of, and the exercise periods for, options granted to
employees. The 1999 ESPP described below allows for multiple grants of options
thereunder and is designed to remain in effect as long as there are shares
available under the 1999 ESPP to be granted. Pursuant to the terms of the 1999
ESPP, a maximum of 300,000 shares of the Corporation's Common Stock may be
issued to employees under the 1999 ESPP, subject to adjustment generally to
protect against dilution in the event of changes in the capitalization of the
Corporation.

         The 1999 ESPP is administered by the Compensation Committee. The
Compensation Committee is able to prescribe rules and regulations for such
administration and to decide questions with respect to the interpretation or
application of the 1999 ESPP.

         The Corporation intends that options granted under the 1999 ESPP will
satisfy the requirements of Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder. The 1999 ESPP, however, is
not qualified under the provisions of Section 401(a) of the Code and is not
subject to any of the provisions of the Employee Retirement Income Security Act
of 1974, as amended.

         Summary of Stock Option and Employee Stock Purchase Plan Programs. The
following is a summary of activity under the Comprehensive Plan, the Director
Plan, the 2000 Omnibus Plan and the 1999, 1998 and 1996 ESPP's during the
periods indicated.

<TABLE>
<CAPTION>
                                                             Option             Option Price             Weighted Average
                                                             Shares               Per Share               Exercise Price
         --------------------------------------------------------------------------------------------------------------------------
         <S>                                                <C>               <C>                        <C>
         Outstanding at December 31, 1998                   1,687,164         $   1.65 - 26.75               $  17.19
         Granted                                              338,586             9.04 - 24.88                  17.32
         Exercised                                            195,593             1.65 - 18.85                   3.79
         Forfeited                                             33,740             3.86 - 26.75                  14.88
                                                          -----------
         Outstanding at December 31, 1999                   1,796,417             1.89 - 26.75                  18.78
         Granted                                              340,079            13.00 - 16.81                  14.51
         Exercised                                            223,546             1.65 - 13.83                   4.71
         Forfeited                                             60,550             1.85 - 26.38                  11.91
                                                          -----------
         Outstanding at December 31, 2000                   1,852,400             1.85 - 26.75                  19.68
         Granted                                              536,379            11.21 - 18.19                  15.39
         Exercised                                             73,621             1.85 - 15.75                   8.79
         Forfeited                                            105,426            13.55 - 26.75                  16.07
                                                          -----------
         Outstanding at December 31, 2001                   2,209,732             1.85 - 26.75                  19.18
                                                          -----------
         Shares exercisable at December 31, 2001           1,574,4868        $    1.85 - 26.75               $  20.39
                                                          ===========
</TABLE>


                                       62
<PAGE>

        The weighted average remaining contractual lives of stock options were
5.5 years at December 31, 2001.

         The following table summarizes information about stock options
outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                                                        Outstanding Options                             Options Exercisable
                                   ------------------------------------------------------------------------------------------------
                                          Number         Weighted Average                           Number
      Range of                         Outstanding          Remaining       Weighted Average      Outstanding    Weighted Average
  Exercise Prices                    at December 31      Contractual Life    Exercise Price     at December 31    Exercise Price
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                 <C>                <C>                 <C>              <C>
$1.8500 - $2.6750                         17,247            1.4 years          $   1.8998           17,247          $   1.8998
$2.6751 - $5.3500                         43,002            2.6 years              4.3479           43,002              4.3479
$5.3501 - $8.0250                          6,235            5.3 years              6.8198            6,235              6.8198
$8.0251 - $10.7000                        32,856            4.8 years              9.3278           32,856              9.3278
$10.7001 - $13.3750                      119,008            2.8 years             11.6021          117,408             11.5830
$13.3751 - $16.0500                      649,482            8.7 years             15.2612          170,541             15.0600
$16.0501 - $18.7250                      330,729            6.7 years             17.9821          203,402             18.0047
$18.7251 - $21.4000                       24,360            5.8 years             19.0721           18,960             18.9661
$21.4001 - $24.0750                      724,617            3.3 years             23.9253          709,639             23.9463
$24.0751 - $26.7500                      262,196            4.4 years             25.8034          255,196             25.8082
-----------------------------------------------------------------------------------------------------------------------------------
  Total                                2,209,732            5.5 years          $  19.1767        1,574,486          $  20.3865
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Pro-Forma Impact of Stock Compensation Programs. At December 31, 2001,
as described above, the Corporation has various stock-based compensation plans.
The Corporation adopted SFAS 123, "Accounting for Stock-Based Compensation" on
January 1, 1996, and elected to continue to measure compensation cost relative
to these plans using APB 25. The disclosure of the pro forma net income and
earnings per share as if the fair value based accounting method of SFAS 123 had
been used to account for stock-based compensation is required only for awards
granted after December 31, 1994, and is provided below. Consequently, the
effects of applying SFAS 123 pro forma disclosures during the initial phase-in
period may not be representative of the effects on reported net income in future
years.

         The following table presents the pro forma effect on net income and on
basic and diluted income per share of applying the fair value provisions of SFAS
No. 123 discussed above:

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                  ---------------------------------------------------
         (Dollars in thousands, except per share data)                  2001              2000               1999
         ------------------------------------------------------------------------------------------------------------
         <S>                                                        <C>                <C>                <C>
         Net income:
           As reported                                              $  35,325          $  24,841          $  35,291
           Pro forma                                                   33,508             23,548             33,983

         Basic income per share:
           As reported                                                   1.12               0.79               1.12
           Pro forma                                                     1.06               0.75               1.08
         Diluted income per share:
           As reported                                                   1.12               0.79               1.11
           Pro forma                                                     1.06               0.75               1.07
</TABLE>


                                       63
<PAGE>

        The fair value of each option granted during 2001, 2000 and 1999 was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:

<TABLE>
<CAPTION>
                                                                                         Years Ended December 31,
                                                                    --------------------------------------------------------------
                                                                               2001               2000                1999
         -------------------------------------------------------------------------------------------------------------------------
         <S>                                                             <C>                 <C>                 <C>
         2000 OMNIBUS STOCK OPTION AND AWARD PLAN
         Dividend yield                                                          4.26%               4.71%               None
         Risk free interest rates                                        4.73 to 5.35%       5.53 to 6.79%               None
         Expected lives                                                      10 years            10 years                None
         Volatility                                                                41%                 47%               None

         COMPREHENSIVE STOCK OPTION PLAN
         Dividend yield                                                          None                None                4.57%
         Risk free interest rates                                                None                None        4.66 to 6.06%
         Expected lives                                                          None                None             6 years
         Volatility                                                              None                None                  38%

         DIRECTOR PLAN
         Dividend yield                                                          4.26%               4.71%               4.57%
         Risk free interest rates                                                5.19%               6.79%               6.17%
         Expected lives                                                      10 years            10 years             6 years
         Volatility                                                                41%                 47%                 38%

         1999 EMPLOYEE STOCK PURCHASE PLAN
         Dividend yield                                                          4.26%               4.71%               4.57%
         Risk free interest rates                                                4.92%               6.58%               6.04%
         Expected lives                                                        1 year              1 year             6 years
         Volatility                                                                41%                 47%                 38%
</TABLE>

NOTE FIFTEEN - 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. 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 December 31, 2001, the Corporation's exposure to credit risk was
represented by preapproved but unused lines of credit totaling $276.1 million,
loan commitments totaling $250.1 million and standby letters of credit
aggregating $18.4 million. Of the $276.1 million of preapproved unused lines of
credit, $78.0 million were at fixed rates and $198.1 million were at floating
rates. Of the $250.1 million of loan commitments, $67.1 million were at fixed
rates and $183.0 million were at floating rates. 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 may not be limited to, accounts receivable, inventory and
commercial and residential real estate.

         The Bank primarily makes commercial and installment loans to customers
throughout its market area. The Corporation's primary market area includes the
state of North Carolina, and predominately centers on the Metro region of
Charlotte, North Carolina. The real estate loan portfolio can be affected by the
condition of the local real estate markets.

         Minimum operating lease payments due in each of the five years
subsequent to December 31, 2001 are as follows: 2002, $1.8 million; 2003, $1.5
million; 2004, 1.4 million; 2005, $1.2 million; 2006, $1.0


                                       64
<PAGE>

million and subsequent years $1.4 million. Rental expense for all operating
leases for the three years ended December 31, 2001, 2000 and 1999 was $1.8
million, $1.7 million and $1.7 million, respectively.

         Average daily Federal Reserve balance requirements for the year ended
December 31, 2001 amounted to $3.9 million.

         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.

NOTE SIXTEEN - 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. See also NOTE SEVEN.

         During 2001, the Corporation decided to upgrade its service offerings
to include 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 will receive a fee from the
Corporation equal to 15% 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 will receive
commissions from Impact based on fees earned by Impact. The Corporation received
revenues of $500,000 from this new product during 2001. 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 during 2001. There can be no
assurance regarding the level of future sales of the new product; however, the
Corporation estimates that it will receive revenues of approximately $2.4
million (unaudited) during 2002 which would result in fees of $360,000
(unaudited) to Impact and result in Impact paying commissions to GFA and Mr.
Godbold of $252,000 (unaudited).


                                       65
<PAGE>

NOTE SEVENTEEN - FAIR VALUE OF FINANCIAL INSTRUMENTS

         Fair value estimates of financial instruments are made at a specific
point in time, based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Corporation's entire
holdings of a particular financial instrument. Because no market exists for a
significant portion of the Corporation's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Where information regarding the fair value of a financial
instrument is available, those values are used, as is the case with investment
securities and residential mortgage loans. In these cases, an open market exists
in which those financial instruments are actively traded.

         Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, FCB has a substantial trust department that
contributes net fee income annually. The trust department is not considered a
financial instrument, and its value has not been incorporated into the fair
value estimates. Other significant assets and liabilities that are not
considered financial assets or liabilities include the mortgage broker and
insurance agency operations and premises and equipment. In addition, tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates.

         The Corporation's fair value methods and assumptions are as follows:

                  Cash and due from banks, federal funds sold, interest bearing
                  bank deposits - the carrying value is a reasonable estimate of
                  fair value due to the short term nature of these financial
                  instruments.

                  Securities available for sale - fair value is based on
                  available quoted market prices or quoted market prices for
                  similar securities if a quoted market price is not available.

                  Loans - the carrying value for variable rate loans is a
                  reasonable estimate of fair value due to contractual interest
                  rates being based on current indices. Fair value for fixed
                  rate loans is estimated based upon discounted future cash
                  flows using discount rates comparable to rates currently
                  offered for such loans.

                  Deposit accounts - the fair value of certificates of deposit
                  is estimated using rates currently offered for deposits of
                  similar remaining maturities. The fair value of all other
                  deposit account types is the amount payable on demand at
                  year-end.

                  Other borrowings - the carrying value for shorter-term
                  borrowings is a reasonable estimate of fair value because
                  these instruments are generally payable in 90 days or less.
                  The fair value for borrowings with maturities greater than 90
                  days is estimated based upon discounted future cash flows
                  using a discount rate comparable to the current market rate
                  for such borrowings.

                  Commitments to extend credit and standby letters of credit -
                  the large majority of commitments to extend credit and standby
                  letters of credit are at variable rates and/or have relatively
                  short terms to maturity. Therefore, the fair value of these
                  financial instruments is considered to approximate their
                  carrying value.


                                       66
<PAGE>

         Based on the limitations, methods, and assumptions noted above, the
following table presents the carrying amounts and fair values of the
Corporation's financial instruments at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                -----------------------------------------------------------------------------------
                                                                    2001                                    2000
                                                -----------------------------------------------------------------------------------
                                                                           Estimated                                   Estimated
                                                      Carrying                Fair               Carrying                 Fair
(Dollars in thousands)                                 Amount                Value                Amount                 Value
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                   <C>                   <C>                   <C>
Financial assets:
  Cash and due from banks                          $    134,084          $    134,084          $     71,196          $     71,196
  Federal funds sold                                      1,161                 1,161                 1,015                 1,015
  Interest bearing bank deposits                          6,220                 6,220               122,461               122,461
  Securities available for sale                       1,077,365             1,077,365               441,031               441,031
  Loans, net of allowance for loan losses             1,929,052             1,960,532             2,128,960             2,153,307
Financial liabilities:
  Deposits                                            2,162,945             2,169,124             1,998,234             2,004,386
  Other borrowings                                      808,512               819,935               570,024               579,633
</TABLE>

NOTE EIGHTEEN - REGULATORY MATTERS

         The Corporation and the Bank are subject to various regulatory capital
requirements administered by bank regulatory agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly discretionary
- actions by regulators that, if undertaken, could have a direct material effect
on the Corporation's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Corporation and the
Bank must meet specific capital guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of Total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to adjusted average assets (as defined). Management believes, as of
December 31, 2001, that the Corporation and the Bank meet all capital adequacy
requirements to which they are subject.

         As of December 31, 2001, the most recent notifications from the
Corporation's various regulators categorized FCB as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, FCB must maintain minimum Total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed any of the
institution's categories.

<PAGE>
         The Corporation's and the Bank's actual capital amounts and ratios are
presented in the table below:

<TABLE>
<CAPTION>
                                                                                                       To Be Well Capitalized
                                                                              For Capital                Under Current Prompt
                                                                           Adequacy Purposes         Corrective Action Provisions
                                                     Actual             ----------------------     --------------------------------
                                              ---------------------                   Minimum                           Minimum
(Dollars in thousands)                          Amount       Ratio        Amount       Ratio        Amount               Ratio
----------------------                        ---------     -------     ---------     --------     --------             -------
<S>                                           <C>           <C>         <C>           <C>          <C>                  <C>
At December 31, 2001:
Total Capital (to Risk Weighted Assets)
      First Charter Corporation               $  310,485     13.99 %    $  177,546      8.00 %            None            None
      First Charter Bank                         303,150     13.77         176,120      8.00        $  220,150           10.00 %


Tier I Capital (to Risk Weighted Assets)
      First Charter Corporation               $  284,107     12.80 %    $   88,773      4.00 %            None            None
      First Charter Bank                         277,307     12.60          88,060      4.00        $  132,090            6.00 %

Tier I Capital (to Adjusted Average Assets)
      First Charter Corporation               $  284,107      8.80 %    $  129,096      4.00 %            None            None
      First Charter Bank                         277,307      8.68         127,849      4.00        $  159,812            5.00 %

At December 31, 2000:
Total Capital (to Risk Weighted Assets)
      First Charter Corporation               $  316,077     14.17 %    $  178,421      8.00 %            None            None
      First Charter Bank                         294,806     13.51         174,621      8.00        $  218,277           10.00 %

Tier I Capital (to Risk Weighted Assets)
      First Charter Corporation               $  288,192     12.92 %    $   89,211      4.00 %            None            None
      First Charter Bank                         267,507     12.26          87,311      4.00        $  130,966            6.00 %

Tier I Capital (to Adjusted Average Assets)
      First Charter Corporation               $  288,192     10.27 %    $  112,278      4.00 %            None            None
      First Charter Bank                         267,507      9.60         111,469      4.00        $  139,337            5.00 %

</TABLE>


NOTE NINETEEN - FIRST CHARTER CORPORATION (PARENT COMPANY)

         The principal assets of the Parent Company are its investment in the
Bank, and its principal source of income is dividends from the Bank. Certain
regulatory and other requirements restrict the lending of funds by the Bank to
the Parent Company and the amount of dividends that can be paid to the Parent
Company. In addition, certain regulatory agencies may prohibit the payment of
dividends by the Bank if they determine that such payment would constitute an
unsafe or unsound practice. At December 31, 2001, the Parent Company's $301.8
million investment in subsidiaries is restricted as to transfer to the Parent
Company without obtaining prior regulatory approval.


                                       68
<PAGE>



         The Parent Company's balance sheet data as of December 31, 2001 and
2000 and related statements of income and cash flow data for each of the years
in the three-year period ended December 31, 2001 are as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
(Dollars in thousands)                                             2001          2000
---------------------------------------------------------------------------------------
<S>                                                            <C>             <C>
BALANCE SHEET DATA:
Cash                                                           $ 18,478        $  6,713
Securities available for sale                                     7,990           7,829
Investment in subsidiaries                                      301,816         288,318
Receivable from subsidiaries                                      8,000              --
Premises and equipment                                               95              95
Other assets                                                     10,394          12,019
---------------------------------------------------------------------------------------
TOTAL ASSETS                                                   $346,773        $314,974
---------------------------------------------------------------------------------------
Accrued liabilities                                            $  5,572        $  5,687
Borrowed funds                                                   31,860              --
Shareholders' equity                                            309,341         309,287
---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $346,773        $314,974
---------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
(Dollars in thousands)                                             2001            2000            1999
--------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>            <C>
INCOME STATEMENT DATA:
  Dividends from subsidiaries                                  $ 17,300         $ 9,200        $ 45,000
  Other operating income (expense)                                 (114)          1,778          (1,238)
--------------------------------------------------------------------------------------------------------
  Income before equity in undistributed (excess of
    dividends over) net income of subsidiaries                   17,186          10,978          43,762
--------------------------------------------------------------------------------------------------------
  Equity in undistributed (excess of dividends over)
  net income of subsidiaries                                     18,139          13,863          (8,471)
--------------------------------------------------------------------------------------------------------
    Net income                                                 $ 35,325         $24,841        $ 35,291
--------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
 (Dollars in thousands)                                            2001             2000           1999
--------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>            <C>
CASH FLOW STATEMENT DATA:
  CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                 $ 35,325         $ 24,841       $ 35,291
    Net (loss) gain on securities available for sale               (124)           1,478           (897)
    (Decrease) increase in accrued liabilities                     (115)           1,694            454
    Decrease (increase) in other assets                           1,342           (5,955)         6,183
    (Increase) decrease in receivable from subsidiaries          (8,000)           4,682          2,995
    (Equity in undistributed) excess of dividends paid
    over net income of subsidiaries                             (10,139)         (13,863)         8,471
--------------------------------------------------------------------------------------------------------
    Net cash provided by operating activities                    18,289           12,877         52,497
--------------------------------------------------------------------------------------------------------
  CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of securities available for sale                       (27)              --         (4,841)
    Proceeds from sale of securities available for sale             715            1,101          2,535
    Proceeds from sale of property                                   --              221             --
--------------------------------------------------------------------------------------------------------
    Net cash provided by (used in) investing activities             688            1,322         (2,306)
--------------------------------------------------------------------------------------------------------
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Purchase and retirement of common stock                     (17,962)             (27)       (24,780)
    Proceeds from issuance of common stock                        1,643            3,050          1,041
    Net increase in other borrowings                             31,860               --             --
    Repayment of note payable                                        --               --         (2,590)
    Dividends paid                                              (22,753)         (20,294)       (14,812)
--------------------------------------------------------------------------------------------------------
    Net cash used in financing activities                        (7,212)         (17,271)       (41,141)
--------------------------------------------------------------------------------------------------------
      Net increase (decrease) in cash                            11,765           (3,072)         9,050
    Cash at beginning of year                                     6,713            9,785            735
--------------------------------------------------------------------------------------------------------
    CASH AT END OF YEAR                                        $ 18,478         $  6,713       $  9,785
--------------------------------------------------------------------------------------------------------

</TABLE>


                                       69
<PAGE>

NOTE TWENTY - SUBSEQUENT EVENT

         During the first quarter of 2002, the Corporation was notified by the
management of one of the venture capital limited partnerships (referred to in
NOTE ONE) that they were in the process of revaluing one of their investments
and that they expected that the value would decrease for the limited
partnership's fourth quarter 2001 valuation. As a result, the Corporation
expects to record losses on equity method investments in the first quarter of
2002. Based on preliminary estimates by the management of the limited
partnership, the Corporation believes its share of the loss on this equity
method investment could be between $3.0 million and $4.0 million (unaudited).
These losses would represent elimination of a portion of previously recorded
unrealized gains on this investee company, and would not represent a loss of the
original principal invested in this company. Nevertheless, given the inherent
risks associated with this type of investment in the current economic
environment, there can be no guarantee that there will not be additional losses
on these equity method investments in future periods.


                                       70
<PAGE>

ITEM     9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None

                                    PART III

ITEM     10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information called for by Item 10 with respect to directors and
Section 16 matters is set forth in the Registrant's Proxy Statement for its 2002
Annual Meeting of Shareholders under the captions "Election of Directors", and
"Section 16(a) Beneficial Ownership Reporting Compliance," respectively, and is
hereby incorporated by reference. The information called for by Item 10 with
respect to executive officers is set forth in Part I, Item 4A hereof.

ITEM     11. EXECUTIVE COMPENSATION

         The information called for by Item 11 is set forth in the Registrant's
Proxy Statement for its 2002 Annual Meeting of Shareholders under the captions
"Election of Directors - Compensation of Directors", "Executive Compensation"
and "Compensation Committee Interlocks and Insider Participation in Compensation
Decisions," respectively, and is hereby incorporated by reference.

ITEM     12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information called for by Item 12 is set forth in the Registrant's
Proxy Statement for its 2002 Annual Meeting of Shareholders under the captions
"Ownership of Common Stock", and is hereby incorporated by reference.

ITEM     13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information called for by Item 13 is set forth in the Registrant's
Proxy Statement for its 2002 Annual Meeting of Shareholders under the caption
"Certain Relationships and Related Transactions" and is hereby incorporated by
reference.

                                     PART IV

ITEM     14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

a.       The following documents are filed as part of this report:

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
<S>                                                                                 <C>

(1)  Financial Statements:

         Independent Auditors' Report                                                38

         Consolidated Balance Sheets, December 31, 2001 and 2000                     39

         Consolidated Statements of Income for the years ended December 31,
           2001, 2000 and 1999                                                       40

         Consolidated Statements of Shareholders' Equity for the years ended
           December 31, 2001, 2000 and 1999                                          41

         Consolidated Statements of Cash Flows for the years ended December 31,
           2001, 2000 and 1999                                                       42

         Notes to Consolidated Financial Statements                                  43

(2)      Financial Statement Schedules:

         None

</TABLE>


                                       71
<PAGE>


(3)      Exhibits.

<TABLE>
<CAPTION>
Exhibit No.
(per Exhibit
Table in
Item 601 of
Regulation S-K)            Description of Exhibits
---------------            -----------------------
<S>                        <C>
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 year ended December 31, 2001 (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 year
                           ended December 31, 1995 (Commission File No.
                           0-15829).

*10.1                      Comprehensive Stock Option Plan, incorporated herein
                           by reference to Exhibit 10.1 of the Registrant's
                           Annual Report on Form 10-K for the fiscal year ended
                           December 31, 1992 (Commission File No. 0-15829).

10.2                       Dividend Reinvestment and Stock Purchase Plan,
                           incorporated herein by reference to Exhibit 28.1 of
                           the Registrant's Registration Statement No.
                           333-60641, dated August 8, 1998.

*10.3                      Executive Incentive Bonus Plan, incorporated herein
                           by reference to Exhibit 10.7 of the Registrant's
                           Annual Report on Form 10-K for the year ended
                           December 31, 1998 (Commission File No. 0-15829.)

*10.4                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Lawrence M. Kimbrough.

*10.5                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Robert O. Bratton.

*10.6                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Robert E. James.

*10.7                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Carl T. McFarland.

*10.8                      Amended and Restated Supplemental Agreement dated
                           December 19, 2001 for Lawrence M. Kimbrough.

*10.9                      Amended and Restated Supplemental Agreement dated
                           December 19, 2001 for Robert O. Bratton.

*10.10                     Amended and Restated Supplemental Agreement dated
                           December 19, 2001 for Robert E. James.

*10.11                     Change in Control Agreement dated November 16, 1994
                           for Robert G. Fox, Jr. incorporated herein by
                           reference to Exhibit 10.7 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           1994 (Commission File No. 0-15829.)

</TABLE>


                                       72
<PAGE>

<TABLE>

<S>                        <C>
*10.12                     Amended and Restated Employment Agreement between
                           First Charter National Bank and John J. Godbold, Jr.
                           dated as of December 22, 1997, incorporated herein by
                           reference to Exhibit 10.8 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           1997 (Commission File No. 0-15829.)

*10.13                     Restricted Stock Award Program, incorporated herein
                           by reference to Exhibit 99.1 of the Registrant's
                           Registration Statement No. 333-60949, dated July 10,
                           1995.

10.14                      The 1999 Employee Stock Purchase Plan, incorporated
                           herein by reference to the Registrant's Registration
                           Statement No. 333-54019, dated May 29, 1998.

*10.15                     The First Charter Corporation Comprehensive Stock
                           Option Plan, incorporated herein by reference to the
                           Registrant's Registration Statement No. 333-54021,
                           dated May 29, 1998.

*10.16                     The Stock Option Plan for Non-employee Directors,
                           incorporated herein by reference to the Registrant's
                           Registration Statement No. 333-54023, dated May 29,
                           1998.

*10.17                     The Home Federal Savings and Loan Employee Stock
                           Ownership Plan, incorporated herein by reference to
                           the Registrant's Registration Statement No.
                           333-71495, dated January 29, 1999.

*10.18                     The HFNC Financial Corp. Stock Option Plan,
                           incorporated herein by reference to the Registrant's
                           Registration Statement No. 333-71497, dated February
                           1, 1999.

10.19                      Agreement and Plan of Merger by and between the
                           Registrant and Carolina First Bancshares, Inc. dated
                           as of November 7, 1999, incorporated herein by
                           reference to Appendix A of the Registrant's
                           Registration Statement No. 333-95003 filed January
                           20, 1999.

10.20                      Stock Option Agreement between the Registrant and
                           Carolina State Bank dated June 30, 1997, incorporated
                           herein by reference to Exhibit 99.2 of the
                           Registrant's Current Report on Form 8-K filed July 2,
                           1997 (Commission File No. 0-15829).

*10.21                     Employment Agreement dated as of January 20, 1993, as
                           amended as of August 31, 1995, between Bank of Union
                           and H. Clark Goodwin, incorporated herein by
                           reference to Exhibit 10.12 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           1995 (Commission File No. 0-15829).

*10.22                     Amended and Restated Employment Agreement dated
                           December 19, 2001 for Stephen M. Rownd.

10.23                      1998 Employee Stock Purchase Plan, incorporated
                           herein by reference to Exhibit 99.1 of the
                           Registrant's Registration Statement No. 333-43617
                           filed December 31, 1997.

*10.24                     Amended and Restated Salary Continuation Agreement
                           between First Charter National Bank and John J.
                           Godbold, Jr. dated as of December 22, 1997,
                           incorporated herein by reference to Exhibit 10.16 of
                           the Registrant's Annual Report on Form 10-K for the
                           year ended December 31, 1997 (Commission File No.
                           0-15829.)

*10.25                     The First Charter Corporation 2000 Omnibus Stock
                           Option and Award Plan, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual

</TABLE>

                                       73
<PAGE>

<TABLE>

<S>                        <C>
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.26                     The First Charter 1994 Deferred Compensation Plan for
                           Non-Employee Directors, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.27                     The First Charter Option Plan Trust, incorporated
                           herein by reference to Exhibit 10.22 of the
                           Registrant's Annual Report on Form 10-K for the year
                           ended December 31, 2000 (Commission File No.
                           0-15829).

*10.28                     The Carolina First BancShares, Inc. Amended 1990
                           Stock Option Plan, incorporated herein by reference
                           to Exhibit 10.22 of the Registrant's Annual Report on
                           Form 10-K for the year ended December 31, 2000
                           (Commission File No. 0-15829).

*10.29                     The Carolina First BancShares, Inc 1999 Long-Term
                           Incentive Plan, incorporated herein by reference to
                           Exhibit 10.22 of the Registrant's Annual Report on
                           Form 10-K for the year ended December 31, 2000
                           (Commission File No. 0-15829).

*10.30                     Deferred Compensation Agreement dated as of February
                           18, 1993 by and between Cabarrus Bank of North
                           Carolina and Ronald D. Smith, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.31                     Deferred Compensation Agreement dated as of December
                           31, 1996 by and between Carolina First BancShares,
                           Inc. and James E. Burt, III, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.32                     Separation and Consulting Agreement between First
                           Charter Corporation and James E. Burt, III dated June
                           29, 2000, incorporated herein by reference to Exhibit
                           10.22 of the Registrant's Annual Report on Form 10-K
                           for the year ended December 31, 2000 (Commission File
                           No. 0-15829).

*10.33                     Carolina First BancShares, Inc. Amended and Restated
                           Directors' Deferred Compensation Plan, incorporated
                           herein by reference to Exhibit 10.22 of the
                           Registrant's Annual Report on Form 10-K for the year
                           ended December 31, 2000 (Commission File No.
                           0-15829).

*10.34                     Amended and Restated Deferred Compensation Plan for
                           Non-Employee Directors, incorporated herein by
                           reference to Exhibit 10.1 of the Registrant's
                           Quarterly Report on Form 10-Q for the quarter ended
                           June 30, 2001 (Commission File No. 0-15829).

*10.35                     First Charter Corporation Directors' Option Deferral
                           Plan.

*10.36                     Supplemental Agreement dated December 19, 2001 for
                           Carl T. McFarland.

*10.37                     Supplemental Agreement dated December 19, 2001 for
                           Stephen M. Rownd.

11.1                       Statement regarding computation of per share
                           earnings, incorporated herein by reference to
                           Footnote 1 of the Consolidated Financial Statements.

21.1                       List of subsidiaries of the Registrant.

</TABLE>


                                       74
<PAGE>
23.1     Consent of KPMG LLP.

*        Indicates a management contract or compensatory plan

b.       The following reports on Form 8-K were filed by the registrant during
         the quarter ended December 31, 2001:

         Current Report on Form 8-K dated October 9, 2001 and filed October 9,
         2001, Item 5 and 7.

         Current Report on Form 8-K dated October 10, 2001 and filed October 10,
         2001, Item 7 and 9.


                                       75
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or Section 15(d) 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/   Lawrence M. Kimbrough
                                        ---------------------------------------
                                            Lawrence M. Kimbrough, President

                                        Date:  March 15, 2002

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
           Signature                                   Title                                  Date
           ---------                                   -----                                  ----
<S>                                          <C>                                         <C>

    /s/  Lawrence M. Kimbrough               President and Director                      March 15, 2002
----------------------------------------     (Principal Executive
        (Lawrence M. Kimbrough)              Officer)


           /s/  J. Roy Davis, Jr.            Chairman of the Board                       March 15, 2002
----------------------------------------     and Director
           (J. Roy Davis, Jr.)

         /s/  Michael R. Coltrane            Vice Chairman of the                        March 15, 2002
----------------------------------------     Board and Director
             (Michael R. Coltrane)

          /s/  Robert O. Bratton             Executive Vice President                    March 15, 2002
----------------------------------------     (Principal Financial and
             (Robert O. Bratton)             Principal Accounting Officer)

         /s/  Harold D. Alexander            Director                                    March 15, 2002
----------------------------------------
             (Harold D. Alexander)

            /s/  William R. Black            Director                                    March 15, 2002
----------------------------------------
                (William R. Black)

           /s/  James E. Burt, III           Director                                    March 15, 2002
----------------------------------------
               (James E. Burt, III)

          /s/  John J. Godbold, Jr.          Director                                    March 15, 2002
----------------------------------------
              (John J. Godbold, Jr.)

           /s/  Charles F. Harry, III        Director                                    March 15, 2002
----------------------------------------
               (Charles F. Harry, III)

           /s/  Frank H. Hawfield, Jr.       Director                                    March 15, 2002
----------------------------------------
               (Frank H. Hawfield, Jr.)

           /s/  Charles A. James             Director                                    March 15, 2002
----------------------------------------
              (Charles A. James)

</TABLE>


                                       76
<PAGE>

<TABLE>

<CAPTION>
           Signature                                   Title                                  Date
           ---------                                   -----                                  ----
<S>                                          <C>                                         <C>

         /s/  Walter H. Jones, Jr            Director                                    March 15, 2002
----------------------------------------
             (Walter H. Jones, Jr.)

         /s/  Samuel C. King, Jr.            Director                                    March 15, 2002
----------------------------------------
             (Samuel C. King, Jr.)

            /s/  Jerry E. McGee              Director                                    March 15, 2002
----------------------------------------
                (Jerry E. McGee)

          /s/  Hugh H. Morrison              Director                                    March 15, 2002
----------------------------------------
              (Hugh H. Morrison)

          /s/  Thomas R. Revels              Director                                    March 15, 2002
----------------------------------------
              (Thomas R. Revels)

            /s/  L. D. Warlick, Jr.          Director                                    March 15, 2002
----------------------------------------
                (L. D. Warlick, Jr.)

           /s/  William W. Waters            Director                                    March 15, 2002
----------------------------------------
               (William W. Waters)
</TABLE>


                                       77
<PAGE>


<TABLE>
<CAPTION>
Exhibit No.
(per Exhibit
Table in
Item 601 of
Regulation S-K)            Description of Exhibits
---------------            -----------------------
<S>                        <C>
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 year ended December 31, 2001 (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 year
                           ended December 31, 1995 (Commission File No.
                           0-15829).

*10.1                      Comprehensive Stock Option Plan, incorporated herein
                           by reference to Exhibit 10.1 of the Registrant's
                           Annual Report on Form 10-K for the fiscal year ended
                           December 31, 1992 (Commission File No. 0-15829).

10.2                       Dividend Reinvestment and Stock Purchase Plan,
                           incorporated herein by reference to Exhibit 28.1 of
                           the Registrant's Registration Statement No.
                           333-60641, dated August 8, 1998.

*10.3                      Executive Incentive Bonus Plan, incorporated herein
                           by reference to Exhibit 10.7 of the Registrant's
                           Annual Report on Form 10-K for the year ended
                           December 31, 1998 (Commission File No. 0-15829.)

*10.4                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Lawrence M. Kimbrough.

*10.5                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Robert O. Bratton.

*10.6                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Robert E. James.

*10.7                      Amended and Restated Employment Agreement dated
                           December 19, 2001 for Carl T. McFarland.

*10.8                      Amended and Restated Supplemental Agreement dated
                           December 19, 2001 for Lawrence M. Kimbrough.

*10.9                      Amended and Restated Supplemental Agreement dated
                           December 19, 2001 for Robert O. Bratton.

*10.10                     Amended and Restated Supplemental Agreement dated
                           December 19, 2001 for Robert E. James.

*10.11                     Change in Control Agreement dated November 16, 1994
                           for Robert G. Fox, Jr. incorporated herein by
                           reference to Exhibit 10.7 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           1994 (Commission File No. 0-15829.)

</TABLE>

<PAGE>

<TABLE>

<S>                        <C>
*10.12                     Amended and Restated Employment Agreement between
                           First Charter National Bank and John J. Godbold, Jr.
                           dated as of December 22, 1997, incorporated herein by
                           reference to Exhibit 10.8 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           1997 (Commission File No. 0-15829.)

*10.13                     Restricted Stock Award Program, incorporated herein
                           by reference to Exhibit 99.1 of the Registrant's
                           Registration Statement No. 333-60949, dated July 10,
                           1995.

10.14                      The 1999 Employee Stock Purchase Plan, incorporated
                           herein by reference to the Registrant's Registration
                           Statement No. 333-54019, dated May 29, 1998.

*10.15                     The First Charter Corporation Comprehensive Stock
                           Option Plan, incorporated herein by reference to the
                           Registrant's Registration Statement No. 333-54021,
                           dated May 29, 1998.

*10.16                     The Stock Option Plan for Non-employee Directors,
                           incorporated herein by reference to the Registrant's
                           Registration Statement No. 333-54023, dated May 29,
                           1998.

*10.17                     The Home Federal Savings and Loan Employee Stock
                           Ownership Plan, incorporated herein by reference to
                           the Registrant's Registration Statement No.
                           333-71495, dated January 29, 1999.

*10.18                     The HFNC Financial Corp. Stock Option Plan,
                           incorporated herein by reference to the Registrant's
                           Registration Statement No. 333-71497, dated February
                           1, 1999.

10.19                      Agreement and Plan of Merger by and between the
                           Registrant and Carolina First Bancshares, Inc. dated
                           as of November 7, 1999, incorporated herein by
                           reference to Appendix A of the Registrant's
                           Registration Statement No. 333-95003 filed January
                           20, 1999.

10.20                      Stock Option Agreement between the Registrant and
                           Carolina State Bank dated June 30, 1997, incorporated
                           herein by reference to Exhibit 99.2 of the
                           Registrant's Current Report on Form 8-K filed July 2,
                           1997 (Commission File No. 0-15829).

*10.21                     Employment Agreement dated as of January 20, 1993, as
                           amended as of August 31, 1995, between Bank of Union
                           and H. Clark Goodwin, incorporated herein by
                           reference to Exhibit 10.12 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           1995 (Commission File No. 0-15829).

*10.22                     Amended and Restated Employment Agreement dated
                           December 19, 2001 for Stephen M. Rownd.

10.23                      1998 Employee Stock Purchase Plan, incorporated
                           herein by reference to Exhibit 99.1 of the
                           Registrant's Registration Statement No. 333-43617
                           filed December 31, 1997.

*10.24                     Amended and Restated Salary Continuation Agreement
                           between First Charter National Bank and John J.
                           Godbold, Jr. dated as of December 22, 1997,
                           incorporated herein by reference to Exhibit 10.16 of
                           the Registrant's Annual Report on Form 10-K for the
                           year ended December 31, 1997 (Commission File No.
                           0-15829.)

*10.25                     The First Charter Corporation 2000 Omnibus Stock
                           Option and Award Plan, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual

</TABLE>

<PAGE>

<TABLE>

<S>                        <C>
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.26                     The First Charter 1994 Deferred Compensation Plan for
                           Non-Employee Directors, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.27                     The First Charter Option Plan Trust, incorporated
                           herein by reference to Exhibit 10.22 of the
                           Registrant's Annual Report on Form 10-K for the year
                           ended December 31, 2000 (Commission File No.
                           0-15829).

*10.28                     The Carolina First BancShares, Inc. Amended 1990
                           Stock Option Plan, incorporated herein by reference
                           to Exhibit 10.22 of the Registrant's Annual Report on
                           Form 10-K for the year ended December 31, 2000
                           (Commission File No. 0-15829).

*10.29                     The Carolina First BancShares, Inc 1999 Long-Term
                           Incentive Plan, incorporated herein by reference to
                           Exhibit 10.22 of the Registrant's Annual Report on
                           Form 10-K for the year ended December 31, 2000
                           (Commission File No. 0-15829).

*10.30                     Deferred Compensation Agreement dated as of February
                           18, 1993 by and between Cabarrus Bank of North
                           Carolina and Ronald D. Smith, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.31                     Deferred Compensation Agreement dated as of December
                           31, 1996 by and between Carolina First BancShares,
                           Inc. and James E. Burt, III, incorporated herein by
                           reference to Exhibit 10.22 of the Registrant's Annual
                           Report on Form 10-K for the year ended December 31,
                           2000 (Commission File No. 0-15829).

*10.32                     Separation and Consulting Agreement between First
                           Charter Corporation and James E. Burt, III dated June
                           29, 2000, incorporated herein by reference to Exhibit
                           10.22 of the Registrant's Annual Report on Form 10-K
                           for the year ended December 31, 2000 (Commission File
                           No. 0-15829).

*10.33                     Carolina First BancShares, Inc. Amended and Restated
                           Directors' Deferred Compensation Plan, incorporated
                           herein by reference to Exhibit 10.22 of the
                           Registrant's Annual Report on Form 10-K for the year
                           ended December 31, 2000 (Commission File No.
                           0-15829).

*10.34                     Amended and Restated Deferred Compensation Plan for
                           Non-Employee Directors, incorporated herein by
                           reference to Exhibit 10.1 of the Registrant's
                           Quarterly Report on Form 10-Q for the quarter ended
                           June 30, 2001 (Commission File No. 0-15829).

*10.35                     First Charter Corporation Directors' Option Deferral
                           Plan.

*10.36                     Supplemental Agreement dated December 19, 2001 for
                           Carl T. McFarland.

*10.37                     Supplemental Agreement dated December 19, 2001 for
                           Stephen M. Rownd.

11.1                       Statement regarding computation of per share
                           earnings, incorporated herein by reference to
                           Footnote 1 of the Consolidated Financial Statements.

21.1                       List of subsidiaries of the Registrant.

23.1                       Consent of KPMG LLP.

*indicates a management contract or compensatory plan

</TABLE>