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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR
15 (d) OF 
THE SECURITIES EXCHANGE ACT OF 1934

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

For the Fiscal Year Ended December 31, 2002


OR


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


For the transition period from               to


Commission File Number 0-15829


FIRST CHARTER CORPORATION


(Exact Name of Registrant as Specified in Its Charter)


|                                                                             |  |                                               
|---------------------------------------------------------------------------- |  | ----------------------------------------------
|North Carolina(State or Other Jurisdiction of
Incorporation or Organization) |  | 56-1355866(I.R.S. Employer
Identification No.)
|                                                                             |  |                                               
|10200 David Taylor Drive, Charlotte,
NC                                      |  | 28262-2373                                    
|(Address of Principal Executive
Offices)                                     |  | (Zip Code)                                    

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

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




Title of Each Class


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.
Yesx No o

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.o

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

The aggregate market value of the
voting stock held by non-affiliates of
the registrant as of February 27, 2003 was $510,335,120.

As of February 27, 2003 the
Registrant had outstanding 29,963,755 shares
of Common Stock, no par value.

Documents Incorporated by Reference




PART III: Definitive Proxy
Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
Companys 2003 Annual Meeting of Shareholders to be held on April 22, 2003.
(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 or
incorporated by reference as part of this report.)





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FIRST CHARTER CORPORATION
AND SUBSIDIARIES

FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

|         |  |                                                                                                |  |      |    | 
|-------- |  | ---------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                |  | Page
|         |  |                                                                                                |  |     
|         |  | PART I                                                                                         |  |      |    | 
|Item 1.  |  | Business                                                                                       |  |      | 3  | 
|Item 2.  |  | Properties                                                                                     |  |      | 9  | 
|Item 3.  |  | Legal Proceedings                                                                              |  |      | 10 | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                            |  |      | 10 | 
|Item 4A  |  | Executive Officers of the Registrant                                                           |  |      | 10 | 
|         |  | PART II                                                                                        |  |      |    | 
|Item 5.  |  | Market For Registrants Common Stock and Related Shareholder Matters                           |  |      | 11 | 
|Item 6.  |  | Selected Financial Data                                                                        |  |      | 11 | 
|Item 7.  |  | Managements Discussion and Analysis of Financial Conditions and Results
of Operations         |  |      | 11 | 
|Item 7A  |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  |      | 45 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                                    |  |      | 46 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure           |  |      | 82 | 
|         |  | PART III                                                                                       |  |      |    | 
|Item 10. |  | Directors and Executive Officers of the Registrant                                             |  |      | 82 | 
|Item 11. |  | Executive Compensation                                                                         |  |      | 82 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |  |      | 82 | 
|Item 13. |  | Certain Relationships and Related Transactions                                                 |  |      | 82 | 
|Item 14. |  | Controls and Procedures                                                                        |  |      | 83 | 
|         |  | PART IV                                                                                        |  |      |    | 
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  |      | 83 | 

2



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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 92 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 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 was a North Carolina
corporation and operated through its subsidiary banks and 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 converted 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 continued to operate its financial center network
franchise under the First Charter brand name.

FCB is a full service bank, which
now operates 53 financial centers, five
insurance offices and one mortgage origination office in addition to its main
office, as well as 93 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. FCB also maintains an
additional mortgage origination office in Virginia.

The Corporations primary
market area is located within North Carolina and
predominately centers around the Metro region of Charlotte, North Carolina,
including Mecklenburg County and its surrounding counties. Charlotte is the
twenty-fifth largest city in the United States and has a diverse economic base.
Primary business sectors in the Charlotte Metro region include banking and
finance, insurance, manufacturing, health care, transportation, retail,
telecommunications, government services and education. As of December 31, 2002
the unemployment rate for the Charlotte Metro region was 5.7 percent compared
to 6.4 percent for the state of North Carolina. The Corporation believes that
it is not dependent on any one or a few types of commerce due to the economic
diversity in the region.

Through its financial centers, 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

3



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Holdings, 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.

At December 31, 2002, the
Registrant and its subsidiaries had 902
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 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 Commissioner of Banks of the State of North Carolina (the
NC Commissioner) under the direction and supervision of the North Carolina
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
4

ability to make distributions. The following discussion
summarizes certain
aspects of those laws and regulations that affect the Corporation.

Gramm-Leach Bliley Financial
Modernization Act of 1999. The
Gramm-Leach-Bliley Financial Modernization Act of 1999 (the GLB Act)
eliminated certain legal barriers separating the conduct of various types of
financial service businesses, such as commercial banking, investment banking
and insurance in addition to substantially revamping the regulatory scheme
within which the Corporation operates. Under the GLB Act, bank holding
companies meeting management, capital and Community Reinvestment Act standards,
and that have elected to become a financial holding company, may 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. The GLB Act
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 GLB Act.

In addition, the GLB Act also
modifies current law related to financial
privacy and community reinvestment. The 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.

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
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. The BHCA, as amended by the GLB Act,
generally limits the activities of a bank holding company (unless the bank
holding company has elected to become a financial holding company) to
activities that are closely related to banking and a proper incident thereto.

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 five 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 five
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 NC
Commissioner. 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 Riegle-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 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
5

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. 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. The State of North Carolina elected to opt in to such legislation.
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.

The USA PATRIOT Act.After
the September 11, 2001 terrorist attacks in
New York and Washington, D.C., the United States government acted in several
ways to tighten control on activities perceived to be connected to money
laundering and terrorist funding. A series of orders were issued which identify
terrorists and terrorist organizations and require the blocking of property and
assets of, as well as prohibiting all transactions or dealings with, such
terrorists, terrorist organizations and those that assist or sponsor them. The
USA Patriot Act substantially broadens existing anti-money laundering
legislation and the extraterritorial jurisdiction of the United States, imposes
new compliance and due diligence obligations, creates new crimes and penalties,
compels the production of documents located both inside and outside the United
States, including those of foreign institutions that have a correspondent
relationship in the United States, and clarifies the safe harbor from civil
liability to customers. In addition, the United States Treasury Department
issued regulations in cooperation with the federal banking agencies, the
Securities and Exchange Commission, the Commodity Futures Trading Commission
and the Department of Justice to require customer identification and
verification, expand the money-laundering program requirement to the major
financial services sectors, including insurance and unregistered investment
companies, such as hedge funds, and facilitate and permit the sharing of
information between law enforcement and financial institutions, as well as
among financial institutions themselves. The United States Treasury Department
also has created the Treasury USA PATRIOT Act Task Force to work with other
financial regulators, the regulated community, law enforcement and consumers to
continually improve the regulations.

Sarbanes-Oxley Act of 2002.On July 30, 2002, the Sarbanes-Oxley Act was
enacted which addresses corporate governance and securities reporting
requirements. Among its requirements are changes in auditing and accounting,
executive compensation, certifications by Chief Executive Officers and Chief
Financial Officers of certain securities filings, expanded reporting of
information in current reports filed with the Securities and Exchange
Commission, more detailed reporting information in securities disclosure
documents and more timely filings of corporate information. The Nasdaq National
Market has also proposed corporate governance rules that are intended to allow
shareholders to more easily and efficiently monitor the performance of
companies and directors.

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.

6



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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 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, 2002, the Corporation and the Bank were
in compliance with the risk-based capital requirements. The Corporations Tier
1 and Total Capital Ratio at December 31, 2002 was 11.52 and 12.62,
respectively.

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. The Corporations leverage ratio at
December 31, 2002 was 7.92 percent. The Corporation meets its leverage ratio
requirement.

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 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 Nineteenof 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
7

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 in the
amendment) 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 net profits for the current year combined with the undivided profits for the
last two years, less dividends already paid. See Note Twentyof 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 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 a banks capital and other
regulatory factors. 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 BIF 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
8

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.

Available Information

The Corporations Internet
address is www.FirstCharter.com. The
Corporation makes available, free of charge, on or through its website, its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after electronically filing such material with, or
furnishing it to, the Securities Exchange Commission.

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 as well as the
operations, mortgage loan and data processing departments of FCB.

In addition to its main office, FCB
has 53 financial centers, five
insurance offices, one mortgage origination office and 93 ATMs located in 17
counties throughout North Carolina. As of December 31, 2002, the Corporation
and its subsidiaries owned 35 financial center locations, leased 18 financial
center locations and leased five insurance offices. 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.

9



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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, 2002.

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.

|                      |  |     |    |                     |  |                                         |  |                |             |               |  | 
|--------------------- |  | --- | -- | ------------------- |  | --------------------------------------- |  | -------------- | ----------- | ------------- |  | 
|                      |  |     |    |                     |  |                                         |  |                |             | Year Position
|Name                  |  | Age |    | Office and Position |  | Held                                   
|                      |  |     |    |                     |  |                                        
|Lawrence M.
Kimbrough |  |     | 62 |                     |  | President and Chief Executive
Officer   |  | 1986 - Present
|                      |  |     |    |                     |  | of the Registrant and FCB               |  |                |             |              
|                      |  |     |    |                     |  |                                         |  |                |             |               |  | 
|Robert O.
Bratton     |  |     | 54 |                     |  | Executive Vice President, Chief         |  | 1983 - Present
|                      |  |     |    |                     |  | Financial Officer, Treasurer of
the     |  |                |             |              
|                      |  |     |    |                     |  | Registrant and Executive Vice           |  |                |             |              
|                      |  |     |    |                     |  | President of FCB                        |  |                |             |              
|                      |  |     |    |                     |  | Vice President, Bank of Union (a
former |  |                |             |              
|                      |  |     |    |                     |  | subsidiary of the Registrant)           |  |                | 1996 - 1998 |              
|                      |  |     |    |                     |  |                                         |  |                |             |               |  | 
|Robert E. James,
Jr.  |  |     | 52 |                     |  | Executive Vice President of the         |  | 1999 - Present
|                      |  |     |    |                     |  | Registrant and Executive Vice           |  |                |             |              
|                      |  |     |    |                     |  | President of FCB                        |  |                |             |              
|                      |  |     |    |                     |  | Group Executive:  Market Planning
&     |  |                | 1996 - 1998 |              
|                      |  |     |    |                     |  | Customer Development, Centura Bank      |  |                |             |              
|                      |  |     |    |                     |  |                                         |  |                |             |               |  | 
|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                      |  |                |             |              

10



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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:

| |      |  |  |         |  |      |         |     |  |   |         | 
| | ---- |  |  | ------- |  | ---- | ------- | --- |  | - | ------- | 
| |      |  |  | Quarter |  | High |         | Low
| |      |  |  |         |  |      |         |    
| | 2001 |  |  | first   |  | $    | 16.0000 |     |  | $ | 13.4380 | 
| |      |  |  | second  |  |      | 18.7500 |     |  |   | 15.1250 | 
| |      |  |  | third   |  |      | 18.4500 |     |  |   | 15.4600 | 
| |      |  |  | fourth  |  |      | 18.4900 |     |  |   | 15.8500 | 
| | 2002 |  |  | first   |  |      | 19.4500 |     |  |   | 16.7500 | 
| |      |  |  | second  |  |      | 20.5700 |     |  |   | 17.3000 | 
| |      |  |  | third   |  |      | 17.9900 |     |  |   | 15.3300 | 
| |      |  |  | fourth  |  |      | 19.1900 |     |  |   | 16.0500 | 

As of February 27, 2003, there
were 7,883 record holders of the
Corporations Common Stock. During 2001 and 2002, 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:

| |      |  |  |         |  |          |       | 
| | ---- |  |  | ------- |  | -------- | ----- | 
| |      |  |  | Quarter |  | Dividend
| |      |  |  |         |  |         
| | 2001 |  |  | first   |  | $        | 0.180 | 
| |      |  |  | second  |  |          | 0.180 | 
| |      |  |  | third   |  |          | 0.180 | 
| |      |  |  | fourth  |  |          | 0.180 | 
| | 2002 |  |  | first   |  |          | 0.180 | 
| |      |  |  | second  |  |          | 0.180 | 
| |      |  |  | third   |  |          | 0.185 | 
| |      |  |  | fourth  |  |          | 0.185 | 

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.

Item 6.Selected Financial Data

See Table Onein
Item 7 for Selected Financial Data.

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.

Factors that May Affect Future Results

The following discussion contains
certain forward-looking statements about
the Corporations financial condition and results of operations, which are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect managements judgment only as of the date hereof. The
Corporation undertakes no obligation to publicly revise these forward-looking
statements to reflect events and circumstances that arise after the date
hereof.

Factors that may cause actual
results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) projected business increases in

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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) risks inherent in making loans, including
repayment risks and risks associated with collateral values, are greater than
expected; (6) changes in the interest rate environment reduce interest margins
and affect funding sources; (7) changes in market rates and prices may
adversely affect the value of financial products; (8) any inability to generate
liquidity necessary to meet loan demand or other cash needs; (9) any inability
to accurately predict the adequacy of the loan loss allowance needs; (10)
legislation or regulatory requirements or changes adversely affect the
businesses in which the company is engaged; and (11) 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 53 financial
centers, five insurance offices and one mortgage origination office located in
17 counties throughout North Carolina. FCB also maintains an additional
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 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.

During 2001, First Charters
banking subsidiary converted from a national
bank to 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
continued 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, insurance, 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. For
purposes of segment reporting, the Corporation had only one reportable segment,
First Charter Bank (commercial banking). Brokerage, insurance, mortgage and
financial management are aggregated and reported as other 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 Twoof the
consolidated financial statements. Accordingly, a substantial portion of the
discussion contained herein relates to the results of operations of First
Charter Bank.

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Merger and Acquisitions

Poolings-of-Interests.On
September 1, 2000, 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.

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.

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 HFNC, Carolina
First, and Business Insurers with those of the Corporation.

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

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.

Critical Accounting Policies

The Corporations accounting
policies are fundamental to understanding
managements discussion and analysis of financial condition and results of
operations. The Corporations significant accounting policies are discussed in
detail in Note Oneof 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.

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In addition, the Corporation also
considers its policy regarding equity
method investments 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.

The Corporations recognition
of earnings or losses from an equity method
investment is determined by the Corporations share of the investees earnings
on a quarterly basis (or, in the case of some smaller investments, on an annual
basis if there has been no significant change in values). The limited
partnerships generally provide their financial information during the quarter
after the end of a given period, and the Corporations policy is to record its
share of earnings or losses on these equity method investments in the quarter
such information was received.

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 by the management of the
limited partnerships and are reviewed by the Corporations management for
reasonableness. The assumptions in the valuation of these investments include
the viability of the business model, the ability of the company to obtain
alternative financing, the 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, 2002 and
December 31, 2001 the total book value of equity
method investments was $3.8 million and $8.7 million, respectively, and is
included in other assets on the consolidated balance sheet. Of the $3.8
million, $1.4 million represents investments in venture capital partnerships
that are Small Business Investment Companies (SBICs), which invest primarily in
equity securities. At December 31, 2002, the Corporations remaining commitment
to fund the equity method investments was $1.8 million and represented
commitments to three venture funds that are SBICs. These three venture funds
primarily make debt investments in established companies that have a minimum of
$5 million in annual revenue. These remaining commitments are callable in 2003.

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Results of Operations

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

Refer to Table Oneand Table Eightfor annual and quarterly selected
financial data, respectively.

2002 Versus 2001

The following discussion and
analysis provides a comparison of the
Corporations results of operations for the years ended December 31, 2002 and
2001. This discussion should be read in conjunction with the consolidated
financial statements and related notes on pages 46 through 82.

Net income amounted to
$39.8 million, or $1.30 per diluted common share,
for the year ended December 31, 2002, compared to $35.3 million, or $1.12 per
diluted common share, for the year ended December 31, 2001. Net income for the
years ended December 31, 2002 and 2001 includes certain other items as
described in the following paragraph. The increase in net income was primarily
due to (i) a $7.8 million increase in net interest income resulting from
decreased interest expense, increased loan growth and higher levels of
securities outstanding, (ii) an $8.9 million increase in noninterest income
resulting from growth in service charges on deposit accounts, gains on sale of
securities, increased brokerage income and growth in First Charter Insurance
Services and (iii) a $1.8 million decrease in income taxes due to a decrease in
the effective tax rate. These increases were partially offset by (i) a $3.8
million increase in the provision for loan losses due to increased loan growth
and higher levels of nonaccrual loans and (ii) a $10.2 million increase in
noninterest expense which was due to the following factors: prepayment costs
associated with refinancing $100 million in fixed-term advances, a reserve for
a contingent liability, expenses associated with the implementation of a new
computer operating system in the fourth quarter of 2001, increased occupancy
and equipment depreciation expense attributable to the First Charter Center
which was placed into service during April of 2001, additional personnel, and
increased incentive compensation based on increases in certain noninterest
income categories under established incentive plans. Net income for 2002 was
also favorably impacted by the adoption of two new accounting standards. On
January 1, 2002 the Corporation adopted Statement of Financial Accounting
Standards No. 142 (SFAS No. 142), which eliminated goodwill amortization. The
impact of goodwill amortization related to SFAS No. 142 for the year ended
December 31, 2001 was $441,000 ($417,000 or $0.01 diluted earnings per share,
after-tax). In addition, during the fourth quarter of 2002 the Corporation
adopted Statement of Financial Accounting Standards No. 147 (SFAS No. 147),
which eliminated goodwill amortization for 2002 on certain acquisition of
branches. The impact of goodwill amortization related to SFAS No. 147 for the
year ended December 31, 2001 was $955,000 ($649,000 or $0.02 diluted earnings
per share, after-tax).

Net income for the years ended
December 31, 2002 and 2001 includes certain
other items, which are set forth in Table Two. These other items are generally
considered nonrecurring in nature by management and therefore should be
considered in a year over year analysis of results of operations. For the year
ended December 31, 2002, other items primarily consisted of (i) a $0.9 million
($0.7 million, or $0.02 diluted earnings per share, after-tax) net gain
recognized on the sale of excess bank properties, (ii) an $11.5 million ($8.4
million, or $0.27 diluted earnings per share, after-tax) gain on the sale of
securities, (iii) a $5.8 million ($4.2 million, or $0.14 diluted loss per
share, after-tax) net loss on equity method investments, (iv) a $3.3 million
($2.4 million or $0.08 diluted loss per share, after-tax) prepayment penalty on
refinancing of borrowings and (v) a $0.8 million ($0.6 million or $0.02 diluted
loss per share, after-tax) reserve for a contingent liability. For the year
ended December 31, 2001, other items primarily consisted of (i) a $0.4 million
($0.3 million, or $0.01 diluted earnings per share, after-tax) net gain
recognized on the sale of excess bank properties, (ii) a $2.4 million ($1.6
million, or $0.05 diluted earnings per share, after-tax) gain on the sale of
securities, (iii) a $0.4 million ($0.3 million, or $0.01 diluted loss per
share, after-tax) net loss on equity method investments and (iv) a $0.1 million
($0.1 million, after-tax) loss associated with the write down on certain equity
securities due to other-than-temporary impairment in value.

Net income amounted to
$10.5 million, or $0.35 per diluted common share,
for the three months ended December 31, 2002, compared to $8.2 million, or
$0.26 per diluted common share, for the three

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months ended December 31, 2001,
representing an increase of $2.3 million. Net income for the three months ended
December 31, 2002 and 2001 includes certain other items as described in the
following paragraph. The increase in net income was primarily due to (i) a $1.2
million increase in net interest income resulting from decreased interest
expense, increased loan growth and higher levels of securities outstanding and
(ii) a $5.1 million increase in noninterest income due to gains on the sale of
securities, increases in mortgage loan fees, service charges on deposit
accounts, brokerage revenues, financial management income and insurance
services income. These increases to net income were partially offset by (i) a
$1.0 million increase in the provision for loan losses due to increased loan
growth and higher levels of nonaccrual loans and (ii) a $2.9 million increase
in noninterest expense primarily due to prepayment costs associated with
refinancing $100 million in fixed-term advances and a reserve for a contingent
liability.

Net income for the three months
ended December 31, 2002 and 2001 includes
certain other items, which are set forth in Table Two. These other items are
generally considered nonrecurring in nature by management and therefore should
be considered in a year over year analysis of results of operations. For the
three months ended December 31, 2002, other items primarily consisted of (i) a
$0.1 million ($0.1 million, after-tax) net loss recognized on the sale of
excess bank properties, (ii) a $5.4 million ($3.9 million, or $0.13 diluted
earnings per share, after-tax) gain on the sale of securities, (iii) a $0.3
million ($0.2 million, or $0.01 diluted loss per share, after-tax) net loss on
equity method investments, (iv) a $3.3 million ($2.4 million or $0.08 diluted
loss per share, after-tax) prepayment penalty on refinancing of borrowings and
(v) a $0.8 million ($0.6 million or $0.02 diluted loss per share, after-tax)
reserve for a contingent liability. For the three months ended December 31,
2001, other items primarily consisted of (i) a $0.3 million ($0.2 million, or
$0.01 diluted earnings per share after-tax) net gain recognized on the sale of
excess bank properties, (ii) a $1.0 million ($0.7 million, or $0.02 diluted
earnings per share, after-tax) gain on the sale of securities and (iii) a $0.5
million ($0.4 million, or $0.01 diluted loss per share, after-tax) net loss on
equity method investments.

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Table OneSelected Financial Data

|                                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|-------------------------------------- |  | ------------------------ | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                       |  | Years ended December
31,
|                                       |  |                         
|(Dollars in thousands, except          |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|per share amounts)                     |  | 2002                     |            | 2001 |  | 2000 |            | 1999 |  | 1998
|                                       |  |                          |            |      |  |      |            |      |  |     
|Income
statement                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Interest
income                        |  | $                        | 196,388    |      |  | $    | 215,276    |      |  | $    | 216,143    |   |  | $ | 194,271    |   |  | $ | 188,561    |  
|Interest
expense                       |  |                          | 83,227     |      |  |      | 109,912    |      |  |      | 108,314    |   |  |   | 90,299     |   |  |   | 92,694     |  
|                                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Net interest
income                    |  |                          | 113,161    |      |  |      | 105,364    |      |  |      | 107,829    |   |  |   | 103,972    |   |  |   | 95,867     |  
|Provision for loan
losses              |  |                          | 8,270      |      |  |      | 4,465      |      |  |      | 7,615      |   |  |   | 5,005      |   |  |   | 3,741      |  
|Noninterest
income                     |  |                          | 47,631     |      |  |      | 38,773     |      |  |      | 30,666     |   |  |   | 28,795     |   |  |   | 23,912     |  
|Noninterest
expense                    |  |                          | 97,772     |      |  |      | 87,579     |      |  |      | 92,727     |   |  |   | 75,991     |   |  |   | 86,888     |  
|                                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Income before income
taxes             |  |                          | 54,750     |      |  |      | 52,093     |      |  |      | 38,153     |   |  |   | 51,771     |   |  |   | 29,150     |  
|Income
taxes                           |  |                          | 14,947     |      |  |      | 16,768     |      |  |      | 13,312     |   |  |   | 16,480     |   |  |   | 12,859     |  
|                                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Net
income                             |  | $                        | 39,803     |      |  | $    | 35,325     |      |  | $    | 24,841     |   |  | $ | 35,291     |   |  | $ | 16,291     |  
|                                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Per common
share                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Basic net
income                       |  | $                        | 1.30       |      |  | $    | 1.12       |      |  | $    | 0.79       |   |  | $ | 1.12       |   |  | $ | 0.51       |  
|Diluted net
income                     |  |                          | 1.30       |      |  |      | 1.12       |      |  |      | 0.79       |   |  |   | 1.11       |   |  |   | 0.50       |  
|Cash dividends declared
(1)            |  |                          | 0.73       |      |  |      | 0.72       |      |  |      | 0.70       |   |  |   | 0.68       |   |  |   | 0.61       |  
|Period-end book
value                  |  |                          | 10.80      |      |  |      | 10.06      |      |  |      | 9.79       |   |  |   | 9.33       |   |  |   | 9.57       |  
|Average shares
outstanding  basic     |  |                          | 30,520,125 |      |  |      | 31,480,109 |      |  |      | 31,435,342 |   |  |   | 31,504,746 |   |  |   | 31,782,843 |  
|Average shares
outstanding  diluted   |  |                          | 30,702,107 |      |  |      | 31,660,985 |      |  |      | 31,580,328 |   |  |   | 31,772,060 |   |  |   | 32,423,533 |  
|Ratios                                 |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Return on average
shareholders equity |  |                          | 12.13      | %    |  |      | 11.03      | %    |  |      | 8.29       | % |  |   | 12.08      | % |  |   | 5.30       | %
|Return on average
assets               |  |                          | 1.13       |      |  |      | 1.14       |      |  |      | 0.90       |   |  |   | 1.37       |   |  |   | 0.67       |  
|Net interest
margin                    |  |                          | 3.52       |      |  |      | 3.72       |      |  |      | 4.26       |   |  |   | 4.43       |   |  |   | 4.29       |  
|Average loans to average
deposits      |  |                          | 94.30      |      |  |      | 95.43      |      |  |      | 110.52     |   |  |   | 104.60     |   |  |   | 113.42     |  
|Average equity to
average assets       |  |                          | 9.28       |      |  |      | 10.31      |      |  |      | 10.84      |   |  |   | 11.31      |   |  |   | 12.56      |  
|Efficiency ratio
(2)                   |  |                          | 64.74      |      |  |      | 60.97      |      |  |      | 64.09      |   |  |   | 56.85      |   |  |   | 73.04      |  
|Dividend
payout                        |  |                          | 56.31      |      |  |      | 64.29      |      |  |      | 88.61      |   |  |   | 61.26      |   |  |   | 122.00     |  
|Selected period end
balances           |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Securities available for
sale          |  | $                        | 1,129,212  |      |  | $    | 1,076,324  |      |  | $    | 441,031    |   |  |   | 486,905    |   |  | $ | 483,292    |  
|Securities held to
maturity            |  |                          |           |      |  |      |           |      |  |      |           |   |  |   | 36,082     |   |  |   | 33,307     |  
|Loans held for
sale                    |  |                          | 158,404    |      |  |      | 7,334      |      |  |      | 5,063      |   |  |   | 1,939      |   |  |   | 5,891      |  
|Loans,
net                             |  |                          | 2,045,266  |      |  |      | 1,921,718  |      |  |      | 2,123,897  |   |  |   | 1,940,891  |   |  |   | 1,870,462  |  
|Allowance for loan
losses              |  |                          | 27,204     |      |  |      | 25,843     |      |  |      | 28,447     |   |  |   | 25,002     |   |  |   | 22,278     |  
|Total
assets                           |  |                          | 3,745,949  |      |  |      | 3,332,737  |      |  |      | 2,932,199  |   |  |   | 2,679,728  |   |  |   | 2,594,940  |  
|Total
deposits                         |  |                          | 2,322,647  |      |  |      | 2,162,945  |      |  |      | 1,998,234  |   |  |   | 1,816,491  |   |  |   | 1,775,638  |  
|Borrowings                             |  |                          | 1,042,440  |      |  |      | 808,512    |      |  |      | 570,024    |   |  |   | 542,021    |   |  |   | 481,019    |  
|Total
liabilities                      |  |                          | 3,421,263  |      |  |      | 3,023,396  |      |  |      | 2,622,912  |   |  |   | 2,389,460  |   |  |   | 2,288,034  |  
|Total shareholders
equity             |  |                          | 324,686    |      |  |      | 309,341    |      |  |      | 309,287    |   |  |   | 290,268    |   |  |   | 306,175    |  
|Selected average
balances              |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  
|Loans,
net                             |  |                          | 2,122,890  |      |  |      | 1,990,406  |      |  |      | 2,074,971  |   |  |   | 1,878,509  |   |  |   | 1,783,271  |  
|Earning
assets                         |  |                          | 3,261,844  |      |  |      | 2,881,295  |      |  |      | 2,576,853  |   |  |   | 2,418,011  |   |  |   | 2,302,896  |  
|Total
assets                           |  |                          | 3,535,180  |      |  |      | 3,104,952  |      |  |      | 2,763,920  |   |  |   | 2,583,803  |   |  |   | 2,448,384  |  
|Total
deposits                         |  |                          | 2,251,256  |      |  |      | 2,085,669  |      |  |      | 1,877,426  |   |  |   | 1,795,921  |   |  |   | 1,572,262  |  
|Borrowings                             |  |                          | 906,263    |      |  |      | 652,298    |      |  |      | 556,859    |   |  |   | 447,633    |   |  |   | 443,344    |  
|Total shareholders
equity             |  |                          | 328,036    |      |  |      | 320,215    |      |  |      | 299,745    |   |  |   | 292,183    |   |  |   | 307,460    |  
|                                       |  |                          |            |      |  |      |            |      |  |      |            |   |  |   |            |   |  |   |            |  

The table above sets forth certain selected financial data
concerning the
Corporation for the five years ended December 31, 2002. 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.

17



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##### 



The following table presents a schedule of other items included
in net income for the years ended
December 31, 2002, 2001, 2000, 1999 and 1998:

Table TwoOther Items

|                                             |                                                   |      |                          |        |   |      |   |       |   |      |   |         |   |  |   |       |   |  |   |         |  
|-------------------------------------------- | ------------------------------------------------- | ---- | ------------------------ | ------ | - | ---- | - | ----- | - | ---- | - | ------- | - |  | - | ----- | - |  | - | ------- | -
|                                             |                                                   |      | Years ended December 31,
|                                             |                                                   |      |                         
|(Dollars in thousands)                       |                                                   | 2002 |                          | 2001   |   | 2000 |   | 1999  |   | 1998
|                                             |                                                   |      |                          |        |   |      |   |       |   |     
|Schedule of other items included in
earnings |                                                   |      |                          |        |   |      |   |       |   |      |   |         |   |  |   |       |   |  |   |        
|Noninterest income                          
|                                             | (Loss) gain on sale of loans                      |      | $                        |       |   |      | $ |      |   |      | $ | (99     | ) |  | $ | 1,757 |   |  | $ |        |  
|                                             | Gain on sale of merchant card
business            |      |                          |       |   |      |   |      |   |      |   |        |   |  |   |      |   |  |   | 385     |  
|                                             | Gain (loss) on sale of
securities                 |      |                          | 11,539 |   |      |   | 2,399 |   |      |   | (4,303  | ) |  |   | 919   |   |  |   | 2,490   |  
|                                             | Equity investment other than temporary write
down |      |                          | (20    | ) |      |   | (144  | ) |      |   | (1,601  | ) |  |   | (66   | ) |  |   |        |  
|                                             | Equity method (loss) income                       |      |                          | (5,801 | ) |      |   | (442  | ) |      |   | 4,580   |   |  |   | 138   |   |  |   |        |  
|                                             | Gain on sale of property                          |      |                          | 904    |   |      |   | 416   |   |      |   | 2,788   |   |  |   | 1,752 |   |  |   |        |  
|Noninterest expense                          |                                                  
|                                             | Charitable trust                                  |      |                          |       |   |      |   |      |   |      |   | (1,000  | ) |  |   |      |   |  |   |        |  
|                                             | Restructuring charges and
merger-related          |      |                          |       |   |      |   |      |   |      |   | (16,250 | ) |  |   |      |   |  |   | (20,262 | )
|                                             | Prepayment costs on borrowings                    |      |                          | (3,284 | ) |      |   |      |   |      |   |        |   |  |   |      |   |  |   |        |  
|                                             | Reserve for contigent liability                   |      |                          | (840   | ) |      |   |      |   |      |   |        |   |  |   |      |   |  |   |        |  
|                                             |                                                   |      |                          |        |   |      |   |       |   |      |   |         |   |  |   |       |   |  |   |        
|                                             | Total other items                                 |      | $                        | 2,498  |   |      | $ | 2,229 |   |      | $ | (15,885 | ) |  | $ | 4,500 |   |  | $ | (17,387 | )
|                                             |                                                   |      |                          |        |   |      |   |       |   |      |   |         |   |  |   |       |   |  |   |        
|                                             | Other items, net of tax                           |      | $                        | 1,816  |   |      | $ | 1,516 |   |      | $ | (12,024 | ) |  | $ | 2,925 |   |  | $ | (14,570 | )
|                                             |                                                   |      |                          |        |   |      |   |       |   |      |   |         |   |  |   |       |   |  |   |        

Business Segments

For the years ended December 31, 2002 and 2001 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.

The following table for First Charters reportable business
segment
compares total income for the years ended December 31, 2002 and 2001:

Table ThreeBusiness Segment Net Income (Loss)

|                         |  |                         |        |      |  |   |        |  
|------------------------ |  | ----------------------- | ------ | ---- |  | - | ------ | -
|                         |  | Years Ended December 31
|                         |  |                        
|(Dollars in thousands)   |  | 2002                    |        | 2001
|                         |  |                         |        |     
|FCB                      |  | $                       | 43,974 |      |  | $ | 34,146 |  
|Other operating segments |  |                         | (891   | )    |  |   | 1,293  |  
|Other                    |  |                         | (3,280 | )    |  |   | (114   | )
|                         |  |                         |        |      |  |   |        |  
|Total consolidated       |  | $                       | 39,803 |      |  | $ | 35,325 |  
|                         |  |                         |        |      |  |   |        |  

FCBs net income was $44.0 million for the year ended
December 31, 2002
compared to $34.2 million for the same year ago period. The increase was
primarily due to an $8.5 million increase in net interest income resulting from
decreased interest expense, increased loan growth and higher levels of
securities outstanding and increased noninterest income due to a $0.9 million
net gain recognized on the sale of excess bank properties, $9.7 million of
gains from the sale of fixed income securities available for sale and growth in
service charges on deposit accounts. These increases were partially offset by a
$3.8 million increase in the provision for loan losses due to increased loan
growth and higher levels of nonaccrual loans during 2002; a $6.0 million
increase in noninterest expense due to prepayment costs associated with
refinancing $100 million in fixed-term advances, a reserve for a contingent
liability, expenses associated with the implementation of a new computer operating system in the fourth
quarter of 2001 and increased occupancy and equipment depreciation expense
attributable to the First Charter Center which was placed into service during
April of 2001.

Other operating segments reported a net loss of
$0.9 million for the year
ended December 31, 2002 compared to net income of $1.3 million for the same
year ago period. The decrease was primarily due to decreased mortgage fee
income resulting from mortgage loans having been retained by the bank to
replace normal amortization and run-off due to refinancings and an increase in
noninterest expense due to

18



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##### 



costs associated with additional personnel and increased incentive compensation
based on increases in certain noninterest income categories under established
sales incentive plans.

Other reported a net loss of $3.3 million for the year
ended December 31,
2002 compared to net loss of $0.1 million for the same year ago period. The
decrease was primarily due to a $5.8 million net loss on equity method
investments and a $0.5 increase in interest expense due to higher levels of
borrowings. These decreases were partially offset by a $1.8 million gain from
the sale of equity securities available for sale.

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 Four. The changes in net interest income from year to year
are analyzed in Table Five.

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, 2002, net interest income amounted to $113.2
million, an increase of approximately 7.4 percent from net interest income of
$105.4 million in 2001. The increase in net interest income was driven by
decreased interest expense, increased loan growth and higher levels of
securities outstanding. The reduced interest expense for 2002 was due to the
lower cost of funding in a declining interest rate environment. The increased
securities interest income was due to the higher levels of securities
outstanding. The Corporation began to increase its securities available for
sale portfolio late in the first quarter of 2001 to offset the effects of the
dampened loan growth. As loan growth has increased during 2002, the rate of
increase in the securities available for sale portfolio has slowed as compared
to 2001.

Average interest earning assets increased approximately
$380.5 million to
$3.26 billion for the year ended December 31, 2002 compared to $2.88 billion
for the same 2001 period. This increase was partially due to a $234.9 million
increase in the Corporations average securities available for sale, excluding
the impact of the securitization of $167.0 million of mortgage loans during the
first quarter of 2001. The Corporation began to increase its securities
available for sale portfolio late in the first quarter of 2001, which continued
through the end of 2001 (as described above). Average interest earning assets
also increased due to growth in the Corporations average loan portfolio, which
increased $146.7 million, excluding the impact of the securitization of $167.0
million of mortgage loans during the first quarter of 2001. The decrease in the
average yield on interest earning assets to 6.07 percent for the year ended
December 31, 2002 compared to 7.54 percent for the 2001 period, resulted
principally from the decrease in the average prime rate during 2002 to 4.67
percent compared to 6.93 percent in 2001. The decrease in the average prime
rate is attributable to the Federal Reserves 475 basis point decrease in the
Fed Funds rate for the year ended December 31, 2001 and 50 basis point decrease
for 2002. The average yield earned on loans was 6.38 percent for the year ended
December 31, 2002, compared to 8.01 percent for the same 2001 periods.

In addition to the increase in average interest earning assets,
the
Corporation experienced an increase in average interest bearing liabilities of
$396.5 million to $2.88 billion during 2002 due to increases in deposits and
the use of Federal Home Loan Bank (FHLB) advances to fund loan growth and
securities purchases. The average rate paid on interest bearing liabilities
decreased to 2.89 percent in 2002, compared to 4.42 percent in 2001, primarily
due to a declining interest rate environment. The average rate paid on
interest-bearing deposits was 2.58 percent in 2002, down from 4.27 percent in
2001. Similarly, the rate paid on other borrowed funds decreased to 3.56
percent in 2002, compared to 4.85 percent in 2001.

The net interest margin (tax adjusted net interest income
divided by
average interest-earning assets) decreased 20 basis points to 3.52 percent in
2002, compared to 3.72 percent in 2001. The decrease reflects the impact of the
declining interest rate environment in 2001 and 2002, 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

19



---



##### 



a negative impact on the net interest margin. For additional discussion on the
Corporations management of rate sensitive assets and liabilities see
Asset-Liability Management and Interest Rate Sensitivity.

The following table includes for the years ended
December 31, 2002, 2001
and 2000 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 interest margin. Average
balances were calculated based on daily averages.

Table FourAverage Balances and Net Interest Income Analysis



|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |      |  
|---------------------------------------- | -------------------------------------------- | ------- | --------- | --------- | ------- | ---- | ---------- | ------- | ------- | ------- | ------- | ---- | ---------- | - | --------- | --------- | ------- | - | ------- | ------- |  |  | ---- | ---- | -
|                                         |                                              |         |           |           |         |      | 2002       |         |         |         |         |      |            |   |           |           | 2001    |   |         |         | 
|                                         |                                              |         |           |           |         |      |           
|                                         |                                              |         |           |           |         |      | Interest   |         | Average |         |         |      |            |   | Interest  |           | Average
|                                         |                                              |         | Average   |           | Income/ |      | Yield/Rate |         | Average |         | Income/ |      | Yield/Rate
|(Dollars in thousands)                   |                                              | Balance |           | Expense   |         | Paid |            | Balance |         | Expense |         | Paid
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |     
|Interest earning
assets:                 |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|Loans and loans held
for sale(1) (2) (3) |                                              | $       | 2,122,890 |           |         | $    | 135,514    |         |         |         | 6.38    | %    |            | $ | 1,990,406 |           |         | $ | 159,430 |         |  |  | 8.01 | %   
|Securities -
taxable                     |                                              |         | 1,044,916 |           |         |      | 57,300     |         |         |         | 5.48    |      |            |   | 788,928   |           |         |   | 51,647  |         |  |  | 6.55 |     
|Securities -
nontaxable                  |                                              |         | 81,579    |           |         |      | 5,149      |         |         |         | 6.31    |      |            |   | 88,448    |           |         |   | 5,629   |         |  |  | 6.36 |     
|Federal funds sold                       |                                              |         | 1,249     |           |         |      | 20         |         |         |         | 1.57    |      |            |   | 1,971     |           |         |   | 75      |         |  |  | 3.78 |     
|Interest bearing bank
deposits           |                                              |         | 11,210    |           |         |      | 169        |         |         |         | 1.51    |      |            |   | 11,542    |           |         |   | 399     |         |  |  | 3.46 |     
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|                                         | Total
earning assets (4)                     |         |           | 3,261,844 |         |      |            | 198,152 |         |         |         | 6.07 |            |   |           | 2,881,295 |         |   |         | 217,180 |  |  |      | 7.54 |  
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|Cash and due from banks                  |                                              |         | 83,401    |           |         |      |            |         |         |         |         |      |            |   | 67,600    |           |         |   |         |         |  |  |      |     
|Other assets                             |                                              |         | 189,935   |           |         |      |            |         |         |         |         |      |            |   | 156,057   |           |         |   |         |         |  |  |      |     
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|                                         | Total assets                                 |         | $         | 3,535,180 |         |      |            |         |         |         |         |      |            |   | $         | 3,104,952 |         |   |         |         |  |  |      |      |  
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|Interest bearing
liabilities:            |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|Demand deposits                          |                                              |         | 576,111   |           |         |      | 5,385      |         |         |         | 0.93    |      |            |   | 515,531   |           |         |   | 10,129  |         |  |  | 1.96 |     
|Savings deposits                         |                                              |         | 120,899   |           |         |      | 1,287      |         |         |         | 1.06    |      |            |   | 115,787   |           |         |   | 2,004   |         |  |  | 1.73 |     
|Other time deposits                      |                                              |         | 1,279,878 |           |         |      | 44,285     |         |         |         | 3.46    |      |            |   | 1,203,000 |           |         |   | 66,119  |         |  |  | 5.50 |     
|Other borrowings                         |                                              |         | 906,263   |           |         |      | 32,270     |         |         |         | 3.56    |      |            |   | 652,298   |           |         |   | 31,660  |         |  |  | 4.85 |     
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|                                         | Total interest bearing liabilities           |         |           | 2,883,151 |         |      |            | 83,227  |         |         |         | 2.89 |            |   |           | 2,486,616 |         |   |         | 109,912 |  |  |      | 4.42 |  
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|Noninterest bearing
sources:             |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|Noninterest bearing
deposits             |                                              |         | 274,368   |           |         |      |            |         |         |         |         |      |            |   | 251,352   |           |         |   |         |         |  |  |      |     
|Other liabilities                        |                                              |         | 49,625    |           |         |      |            |         |         |         |         |      |            |   | 46,769    |           |         |   |         |         |  |  |      |     
|Shareholders
equity                     |                                              |         | 328,036   |           |         |      |            |         |         |         |         |      |            |   | 320,215   |           |         |   |         |         |  |  |      |     
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|                                         | Total liabilities and
shareholders equity   |         | $         | 3,535,180 |         |      |            |         |         |         |         |      |            |   | $         | 3,104,952 |         |   |         |         |  |  |      |      |  
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|Net interest spread                      |                                              |         |           |           |         |      |            |         |         |         | 3.18    |      |            |   |           |           |         |   |         |         |  |  | 3.12 |     
|Impact of noninterest
bearing sources    |                                              |         |           |           |         |      |            |         |         |         | 0.34    |      |            |   |           |           |         |   |         |         |  |  | 0.60 |     
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     
|                                         | Net interest income/
yield on earning assets |         |           |           |         |      | $          | 114,925 |         |         |         | 3.52 | %          |   |           |           |         |   | $       | 107,268 |  |  |      | 3.72 | %
|                                         |                                              |         |           |           |         |      |            |         |         |         |         |      |            |   |           |           |         |   |         |         |  |  |      |     

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |      |  
|---------------------------------------- | -------------------------------------------- |  |  | ------- | ------- | ------- | --------- | --------- | ---------- | - | ------- | ------- |  |  | ---- | ---- | -
|                                         |                                              |  |  |         |         |         |           |           |            |   | 2000    |         |  |  |     
|                                         |                                              |  |  |         |         |         |           |          
|                                         |                                              |  |  |         |         |         |           |           | Interest   |   | Average
|                                         |                                              |  |  |         | Average |         | Income/   |           | Yield/Rate
|(Dollars in thousands)                   |                                              |  |  | Balance |         | Expense |           | Paid     
|                                         |                                              |  |  |         |         |         |           |          
|Interest earning
assets:                 |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|Loans and loans held
for sale(1) (2) (3) |                                              |  |  |         |         | $       | 2,074,971 |           |            | $ | 184,388 |         |  |  | 8.89 | %   
|Securities -
taxable                     |                                              |  |  |         |         |         | 400,306   |           |            |   | 27,274  |         |  |  | 6.81 |     
|Securities -
nontaxable                  |                                              |  |  |         |         |         | 93,226    |           |            |   | 5,885   |         |  |  | 6.31 |     
|Federal funds sold                       |                                              |  |  |         |         |         | 3,997     |           |            |   | 250     |         |  |  | 6.26 |     
|Interest bearing bank
deposits           |                                              |  |  |         |         |         | 4,353     |           |            |   | 224     |         |  |  | 5.15 |     
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|                                         | Total
earning assets(4)                      |  |  |         |         |         |           | 2,576,853 |            |   |         | 218,021 |  |  |      | 8.46 |  
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|Cash and due from banks                  |                                              |  |  |         |         |         | 67,836    |           |            |   |         |         |  |  |      |     
|Other assets                             |                                              |  |  |         |         |         | 119,231   |           |            |   |         |         |  |  |      |     
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|                                         | Total assets                                 |  |  |         |         |         | $         | 2,763,920 |            |   |         |         |  |  |      |      |  
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|Interest bearing
liabilities:            |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|Demand deposits                          |                                              |  |  |         |         |         | 485,230   |           |            |   | 12,454  |         |  |  | 2.57 |     
|Savings deposits                         |                                              |  |  |         |         |         | 149,812   |           |            |   | 3,765   |         |  |  | 2.51 |     
|Other time deposits                      |                                              |  |  |         |         |         | 998,866   |           |            |   | 59,044  |         |  |  | 5.91 |     
|Other borrowings                         |                                              |  |  |         |         |         | 556,859   |           |            |   | 33,051  |         |  |  | 5.94 |     
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|                                         | Total interest bearing liabilities           |  |  |         |         |         |           | 2,190,767 |            |   |         | 108,314 |  |  |      | 4.94 |  
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|Noninterest bearing
sources:             |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|Noninterest bearing
deposits             |                                              |  |  |         |         |         | 243,517   |           |            |   |         |         |  |  |      |     
|Other liabilities                        |                                              |  |  |         |         |         | 29,891    |           |            |   |         |         |  |  |      |     
|Shareholders
equity                     |                                              |  |  |         |         |         | 299,745   |           |            |   |         |         |  |  |      |     
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|                                         | Total liabilities and
shareholders equity   |  |  |         |         |         | $         | 2,763,920 |            |   |         |         |  |  |      |      |  
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|Net interest spread                      |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  | 3.52 |     
|Impact of noninterest
bearing sources    |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  | 0.74 |     
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     
|                                         | Net interest income/
yield on earning assets |  |  |         |         |         |           |           |            |   | $       | 109,707 |  |  |      | 4.26 | %
|                                         |                                              |  |  |         |         |         |           |           |            |   |         |         |  |  |      |     



---

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


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

(3)     Includes amortization of deferred loan fees of approximately $2,187, $3,807, and
$3,501, for 2002, 2001 and 2000, 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 2002, 2001 and 2000. The adjustments made to convert to a taxable-equivalent basis were $1,764,
$1,904, and $1,878 for 2002,
2001 and 2000, respectively.

20



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##### 



The following table presents the changes in net interest income
from the
years ended December 31, 2001 to December 31, 2002 and from the years ended
December 31, 2000 to December 31, 2001.

Table
FiveVolume and Rate Variance Analysis

|                               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |         |         | 
|------------------------------ | ---------------------- | ------------------- | ------- | ------------------------------------------ | ------- | ------------------------------------------ | ------- | ------- | ------ | ------- | ------ | ------ | ----- | ------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------ | ------- | ------ | ------ | ----- | - | ------- | ------- | ------- | 
|                               |                        |                     |         | From Dec. 31, 2001 to Dec. 31, 2002        |         | From Dec. 31, 2000 to Dec. 31, 2001       
|                               |                        |                     |         |                                            |         |                                           
|                               |                        |                     |         | Increase (Decrease) in Net Interest Income |         | Increase (Decrease) in Net Interest Income
|                               |                        |                     |         | Due to
Change in(1)                        |         | Due to
Change in(1)                       
|                               |                        |                     |         |                                            |         |                                           
|                               |                        |                     |         | 2001                                       |         |                                            |         |         |        |         |        |        |       | 2002    |         | 2000    |         |   |         |         |         |   |         |         |        | 2001   
|                               |                        |                     |         | Income/                                    |         |                                            |         |         |        |         |        |        |       | Income/ |         | Income/ |         |   |         |         |         |   |         |         |        | Income/
|(Dollars in thousands)         |                        | Expense             |         | Rate                                       |         | Volume                                     |         | Expense |        | Expense |        | Rate   |       | Volume  |         | Expense
|                               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |        
|Interest income:               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |        
|Loans and loans held for
sale  |                        | $                   | 159,430 |                                            |         | $                                          | (33,451 | )       |        | $       | 9,535  |        |       | $       | 135,514 |         |         | $ | 184,388 |         |         | $ | (17,814 | )       |        | $       | (7,144 | )      |       | $ | 159,430 |        
|Securities -
taxable           |                        |                     | 51,647  |                                            |         |                                            | (9,745  | )       |        |         | 15,398 |        |       |         | 57,300  |         |         |   | 27,274  |         |         |   | (1,587  | )       |        |         | 25,960 |        |       |   | 51,647  |        
|Securities -
nontaxable        |                        |                     | 5,629   |                                            |         |                                            | (44     | )       |        |         | (436   | )      |       |         | 5,149   |         |         |   | 5,885   |         |         |   | 47      |         |        |         | (303   | )      |       |   | 5,629   |        
|Federal funds sold             |                        |                     | 75      |                                            |         |                                            | (36     | )       |        |         | (19    | )      |       |         | 20      |         |         |   | 250     |         |         |   | (73     | )       |        |         | (102   | )      |       |   | 75      |        
|Interest bearing bank
deposits |                        |                     | 399     |                                            |         |                                            | (222    | )       |        |         | (8     | )      |       |         | 169     |         |         |   | 224     |         |         |   | (134    | )       |        |         | 309    |        |       |   | 399     |        
|                               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |        
|                               | Total interest
income  |                     | $       | 217,180                                    |         |                                            | $       | (43,498 | )      |         | $      | 24,470 |       |         | $       | 198,152 |         |   | $       | 218,021 |         |   | $       | (19,561 | )      |         | $      | 18,720 |       |   | $       | 217,180 |        
|                               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |        
|Interest
expense:              |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |        
|Demand deposits                |                        | $                   | 10,129  |                                            |         | $                                          | (5,623  | )       |        | $       | 879    |        |       | $       | 5,385   |         |         | $ | 12,454  |         |         | $ | (3,012  | )       |        | $       | 687    |        |       | $ | 10,129  |        
|Savings deposits               |                        |                     | 2,004   |                                            |         |                                            | (789    | )       |        |         | 72     |        |       |         | 1,287   |         |         |   | 3,765   |         |         |   | (1,039  | )       |        |         | (722   | )      |       |   | 2,004   |        
|Other time deposits            |                        |                     | 66,119  |                                            |         |                                            | (25,277 | )       |        |         | 3,443  |        |       |         | 44,285  |         |         |   | 59,044  |         |         |   | (4,568  | )       |        |         | 11,643 |        |       |   | 66,119  |        
|Other borrowings               |                        |                     | 31,660  |                                            |         |                                            | (10,075 | )       |        |         | 10,685 |        |       |         | 32,270  |         |         |   | 33,051  |         |         |   | (6,539  | )       |        |         | 5,148  |        |       |   | 31,660  |        
|                               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |        
|                               | Total interest
expense |                     |         | 109,912                                    |         |                                            |         | (41,764 | )      |         |        | 15,079 |       |         |         | 83,227  |         |   |         | 108,314 |         |   |         | (15,158 | )      |         |        | 16,756 |       |   |         | 109,912 |        
|                               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |        
|                               |                        | Net interest income |         | $                                          | 107,268 |                                            |         | $       | (1,734 | )       |        | $      | 9,391 |         |         | $       | 114,925 |   |         | $       | 109,707 |   |         | $       | (4,403 | )       |        | $      | 1,964 |   |         | $       | 107,268 | 
|                               |                        |                     |         |                                            |         |                                            |         |         |        |         |        |        |       |         |         |         |         |   |         |         |         |   |         |         |        |         |        |        |       |   |         |        

(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 is the amount charged to earnings
which is
necessary to maintain an adequate and appropriate allowance for loan losses.
Accordingly, the factors which influence changes in the allowance for loan
losses have a direct effect on the provision for loan losses. The allowance for
loan losses changes from period to period as a result of a number of factors,
the most significant of which for the Corporation include the following:
changes in the amounts of loans outstanding; changes in the mix of types of
loans; current charge-offs and recoveries of loans; changes in impaired loan
valuation allowances; changes in credit grades within the portfolio, which
arise from a deterioration or an improvement in the performance of the
borrower; and changes in historical loss percentages, which are used to
estimate current probable loan losses. In addition, the Corporation considers
other, more subjective factors which impact the credit quality of the portfolio
as a whole, and estimates allocations of allowance for loan losses for these
factors as well. These factors include loan concentrations, economic conditions
and operational risks, all of which are measured by the Corporation as a
percentage of loans outstanding. Changes in these components of the allowance
can arise from fluctuations in the underlying percentages used as related loss
estimates for these factors, as well as variations in the portfolio balances to
which they are applied. The net change in all of these components of the
allowance for loan losses results in the provision for loan losses. For a more
detailed discussion of the Corporations process for estimating the allowance
for loan losses, see Allowance for Loan Losses.

The provision for loan losses for the three months ended
December 31, 2002
amounted to $2.2 million compared to $1.2 million for the three months ended
December 31, 2001. The increase in the provision for loan losses was due to
higher levels of nonaccrual loans and loan growth.

The provision for loan losses for the year ended
December 31, 2002
amounted to $8.2 million compared to the provision for loan losses of $4.5
million for the same 2001 period. The increase in the provision for loan losses
was due to higher levels of nonaccrual loans during 2002 and $125.0 million in
gross loan growth for the year ended December 31, 2002 compared to a decrease
of $204.8 million in gross loans for the year ended December 31, 2001. The loan
growth experienced during 2002 was primarily in commercial real estate, home
equity lines and other secured retail credit.

Net charge-offs for the three months ended December 31,
2002 decreased to $2.1
million compared to $3.6 million for the three months ended December 31, 2001.
The $1.5 million decrease in net charge-

21



---



##### 



offs was due to lower commercial loan charge-offs as net charge-offs for the
three months ended December 31, 2001 were inflated due to the charge-off of two
significant commercial loans. In addition, the allowance for loan losses was
reduced by $0.3 million due to the reclassification of $130 million of mortgage
loans to loans held for sale during the fourth quarter of 2002.

Net charge-offs for the year ended December 31, 2002 were
$6.3 million or
0.29 percent of average loans compared to $6.7 million or 0.33 percent of
average loans in the same 2001 period. The decrease in net charge-offs was due
to lower commercial loan charge-offs during 2002. Management continues to
monitor the credit quality of the loan portfolio, and charge-offs are recorded
when the financial condition of the borrower and the likelihood of repayment
warrant such actions. Management anticipates that net charge-offs may increase
as the effect of the slowed economy impacts the financial condition of some
customers.

During the year ended December 31, 2002, the Corporation
made no changes
to its estimated loss percentages for economic factors. As a part of its
quarterly assessment of the allowance for loan losses, the Corporation reviews
key local, regional and national economic information, and assesses its impact
on the allowance for loan losses. Based on its review for the year ended
December 31, 2002, the Corporation noted that economic conditions continue to
be weak; however management concluded that the impact on borrowers and local
industries in the Corporations primary market area did not change
significantly during the period. Accordingly, the Corporation did not modify
its loss estimate percentage attributable to economic factors in its allowance
for loan losses model.

The Corporation also continuously reviews its portfolio for any
concentrations of loans to any one borrower or industry in the area. To analyze
its concentrations, the Corporation prepares various reports showing total
loans to borrowers by industry, as well as reports showing total loans to one
borrower. At the present time, the Corporation does not believe it is overly
concentrated to any industry or specific borrower, and therefore has made no
allocations of allowances for loan losses for this factor for any of the
periods presented.

In addition to reviewing the impact of the economy and any loan
concentrations, the Corporation also monitors the amount of operational risk
that exists in the portfolio. This would include the front-end underwriting,
documentation and closing processes associated with the lending decision.
Additional reserves have been set-aside in the allowance model for operational
risk due to the differences in underwriting methodologies underlying the loans
inherited through the mergers of the last five years. With the implementation
of one central loan policy and procedure, this risk appears to be stable. As a
result, the percent of additional allocation for the operational reserve has
not changed in recent periods.

The provision for loan losses was impacted by changes in
allocations of
allowance for loan losses to the various loan types. Higher allocations of
allowance for loan losses were required for commercial and consumer loans in
December 2002 over December 2001. Lower allocations of allowance for loan
losses were required for mortgage loans. The higher allocations of the
allowance for loan losses to commercial loans at December 31, 2002 over
December 31, 2001 was due to a decrease in credit grades for certain loans as
well as loan growth. The higher allocations of the allowance for loan losses to
consumer loans at December 31, 2002 over December 31, 2001 was due to an
increase in the loss percentage estimates used for consumer loans in the
allowance model and loan growth. The Corporation estimates loss percentages for
the allowance for loan loss model using a migration analysis of historical
charge-offs. The growth in historical net charge-offs of consumer loans noted
in Tables Thirteenand Fourteenhas therefore negatively impacted the allowance
for loan losses estimate. These changes were partially offset by a decline in
the allocation for mortgage loans due primarily to the reclassification of $130
million of mortgage loans to loans held for sale during the fourth quarter of
2002. This reclassification resulted in the transfer of approximately $0.3
million of allowance for loan losses to loans held for sale.

Other than the changes in the historical loss percentages for
consumer
loans discussed above, management did not make any significant changes in the
loss estimation methods during the year that had a significant impact on the
provision for loan losses.

22



---



##### 



Noninterest Income

As presented in Table Six, noninterest income
increased $8.9 million to
$47.6 million for the year ended December 31, 2002, compared to $38.8 million
for the same period in 2001. The increase was primarily due to (i) a $9.1
million increase in gains on sale of securities (ii) a $4.4 million increase in
service charges on deposit accounts resulting from increased overdraft fees due
to the implementation of a new automatic overdraft product in late 2001 and
increased NSF fees, (iii) a $0.5 million increase in brokerage income, (iv) a
$1.1 million increase in First Charter Insurance Services income, and (v) a
$0.5 million increase in gains on sale of property. The effects of these
increases were partially offset by $5.8 million of net losses on equity method
investments, a $0.5 million decrease in trading gains and a $0.2 million
decrease in mortgage fee income. While First Charter has experienced record
mortgage loan volume during 2002, a portion of mortgage loans originated have
been retained by the bank to replace normal amortization and run-off due to
refinancings. By placing these mortgage loans on the balance sheet, the
mortgage fee income is recognized over the life of the loan versus at the time
of sale as in prior periods. Noninterest income was also impacted by the write
down of mortgage servicing rights of $430,000 and $263,000 for the years ended
December 31, 2002 and 2001, respectively.

Premiums earned on written covered call options on fixed income
securities
account for a majority of the trading gains. At December 31, 2002, 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 Seventeenof the consolidated financial
statements for a
discussion of certain related party transactions which impacted deposit service
charges in the fourth quarter of 2001 and the entire year of 2002.

The $5.8 million net loss on equity method investments was
primarily due
to a loss of $5.8 million on one equity method investment. First Charters
equity method investments represent investments in venture capital limited
partnerships. First Charter recognizes gains or losses from an equity method
investment based upon changes in our share of the fair market value of the
limited partnerships investments. These net losses are included in the Other
segment as presented in Note Twoof the consolidated financial statements.

During 2002, a portion of the fixed income securities available
for sale
portfolio was repositioned to reduce interest rate risk. Approximately $249
million of securities with longer lives were sold and replaced with securities
having shorter lives. By reducing the average life of the securities available
for sale portfolio, management has reduced the market value risk in a possible
rising interest rate environment. In addition, the equity securities portfolio
was reduced in order to focus First Charters efforts on other activities that
could result in greater returns. Also, as part of the active management of the
fixed income securities available for sale portfolio, callable securities that
appear to be on the verge of being called at par are sold in order to realize
their gain in value. In addition, $70 million of securities were sold to fund
the purchase of bank owned life insurance. These activities combined with
normal portfolio management resulted in gains on sale of securities of $11.5
million for the year ended December 31, 2002.

23



---



##### 



Table SixNoninterest Income

|                                    |                          |      |                         |        |                     |        |        |         |  |   |        |       |  |  |          |      |  
|----------------------------------- | ------------------------ | ---- | ----------------------- | ------ | ------------------- | ------ | ------ | ------- |  | - | ------ | ----- |  |  | -------- | ---- | -
|                                    |                          |      | Years Ended December 31 |        | Increase/(Decrease)
|                                    |                          |      |                         |        |                    
|(Dollars in thousands)              |                          | 2002 |                         | 2001   |                     | Amount |        | Percent
|                                    |                          |      |                         |        |                     |        |        |        
|Service charges on deposit
accounts |                          | $    | 19,133                  |        |                     | $      | 14,736 |         |  | $ | 4,397  |       |  |  | 29.8     | %   
|Financial management
income         |                          |      | 2,396                   |        |                     |        | 2,323  |         |  |   | 73     |       |  |  | 3.1      |     
|Gain on sale of
securities          |                          |      | 11,539                  |        |                     |        | 2,399  |         |  |   | 9,140  |       |  |  | 381.0    |     
|Loss from equity method
investments |                          |      | (5,801                  | )      |                     |        | (442   | )       |  |   | (5,359 | )     |  |  | (1,212.4 | )   
|Mortgage loan fees                  |                          |      | 2,457                   |        |                     |        | 2,643  |         |  |   | (186   | )     |  |  | (7.0     | )   
|Brokerage services
income           |                          |      | 2,288                   |        |                     |        | 1,746  |         |  |   | 542    |       |  |  | 31.0     |     
|Insurance services
income           |                          |      | 8,770                   |        |                     |        | 7,681  |         |  |   | 1,089  |       |  |  | 14.2     |     
|Trading gains                       |                          |      | 2,078                   |        |                     |        | 2,592  |         |  |   | (514   | )     |  |  | (19.8    | )   
|Gain on sale of
property            |                          |      | 904                     |        |                     |        | 416    |         |  |   | 488    |       |  |  | 117.3    |     
|Other                               |                          |      | 3,867                   |        |                     |        | 4,679  |         |  |   | (812   | )     |  |  | (17.4    | )   
|                                    |                          |      |                         |        |                     |        |        |         |  |   |        |       |  |  |          |     
|                                    | Total noninterest income |      | $                       | 47,631 |                     |        | $      | 38,773  |  |   | $      | 8,858 |  |  |          | 22.8 | %
|                                    |                          |      |                         |        |                     |        |        |         |  |   |        |       |  |  |          |     

Noninterest Expense

As presented in Table Seven, noninterest expense
totaled $97.8 million for
the year ended December 31, 2002 compared to $87.6 million a year ago. The
major contributing factors to this increase were $3.3 million in prepayment
penalties associated with the refinancing of $100 million of the Corporations
fixed-term advances, a reserve for a contingent liability of $840,000,
additional personnel, increased incentive compensation based on increases in
certain noninterest income categories and increased occupancy and equipment
depreciation expense attributable to the First Charter Center which was placed
into service during April of 2001. In addition, 2002 results reflect the
depreciation and data processing costs associated with the implementation of a
new operating system placed into service during the fourth quarter of 2001.
Noninterest expense was positively impacted by $441,000 due to the adoption of
SFAS No. 142 and positively impacted by $955,000 due to the adoption of SFAS
No. 147 in 2002.

The efficiency ratio increased to 64.74 percent compared to
60.97 percent
for the year ended December 31, 2001. A significant portion of the increase in
the efficiency ratio relates to the net losses from equity method investments
and costs associated with the debt prepayment penalties. Excluding these two
items, the efficiency ratio for 2002 was 60.25 percent.

Table SevenNoninterest Expense

|                               |                           |      |                         |        |                     |        |        |         |  |   |        |        |  |  |       |      |  
|------------------------------ | ------------------------- | ---- | ----------------------- | ------ | ------------------- | ------ | ------ | ------- |  | - | ------ | ------ |  |  | ----- | ---- | -
|                               |                           |      | Years Ended December 31 |        | Increase/(Decrease)
|                               |                           |      |                         |        |                    
|(Dollars in thousands)         |                           | 2002 |                         | 2001   |                     | Amount |        | Percent
|                               |                           |      |                         |        |                     |        |        |        
|Salaries and employee
benefits |                           | $    | 50,306                  |        |                     | $      | 44,719 |         |  | $ | 5,587  |        |  |  | 12.5  | %   
|Occupancy and equipment        |                           |      | 16,032                  |        |                     |        | 14,607 |         |  |   | 1,425  |        |  |  | 9.8   |     
|Data processing                |                           |      | 2,968                   |        |                     |        | 2,120  |         |  |   | 848    |        |  |  | 40.0  |     
|Advertising                    |                           |      | 2,562                   |        |                     |        | 2,363  |         |  |   | 199    |        |  |  | 8.4   |     
|Postage and supplies           |                           |      | 4,333                   |        |                     |        | 4,820  |         |  |   | (487   | )      |  |  | (10.1 | )   
|Professional services          |                           |      | 6,615                   |        |                     |        | 6,727  |         |  |   | (112   | )      |  |  | (1.7  | )   
|Telephone                      |                           |      | 1,951                   |        |                     |        | 1,995  |         |  |   | (44    | )      |  |  | (2.2  | )   
|Amortization of
intangibles    |                           |      | 367                     |        |                     |        | 1,875  |         |  |   | (1,508 | )      |  |  | (80.4 | )   
|Prepayment cost on
borrowings  |                           |      | 3,284                   |        |                     |        |       |         |  |   | 3,284  |        |  |  | n/a   |     
|Other                          |                           |      | 9,354                   |        |                     |        | 8,353  |         |  |   | 1,001  |        |  |  | 12.0  |     
|                               |                           |      |                         |        |                     |        |        |         |  |   |        |        |  |  |       |     
|                               | Total noninterest expense |      | $                       | 97,772 |                     |        | $      | 87,579  |  |   | $      | 10,193 |  |  |       | 11.6 | %
|                               |                           |      |                         |        |                     |        |        |         |  |   |        |        |  |  |       |     

Income Tax Expense

Total income tax expense for the year ended December 31,
2002 was $14.9
million, for an effective tax rate of 27.3 percent, compared to $16.8 million
for an effective tax rate of 32.2 percent for year ended December 31, 2001. The
decrease in the tax expense for the year ended December 31, 2002, was due to
the implementation of tax-planning initiatives. Management anticipates the 2003
effective tax rate to range from 29 percent to 30 percent.

24



---



##### 



Table EightSelected Quarterly Financial Data



|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |        |   | 
|-------------------------------------------- | --------------------------------- | ------------------------------- | ---------- | ------------- | ------ | ------ | ---------- | ------ | - | - | ---------- | ----- | - | - | ---------- | ------ | - | 
|                                             |                                   |                                 |            | 2002 Quarters
|                                             |                                   |                                 |            |              
|(Dollars in thousands, except                |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|per share amounts)                           |                                   | Fourth                          |            | Third         |        | Second |            | First 
|                                             |                                   |                                 |            |               |        |        |            |       
|Income statement                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Total interest income                        |                                   | $                               | 48,133     |               |        | $      | 49,782     |        |   | $ | 49,433     |       |   | $ | 49,040     |       
|Total interest expense                       |                                   |                                 | 20,095     |               |        |        | 20,817     |        |   |   | 20,825     |       |   |   | 21,490     |       
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Net interest income                          |                                   |                                 | 28,038     |               |        |        | 28,965     |        |   |   | 28,608     |       |   |   | 27,550     |       
|Provision for loan
losses                    |                                   |                                 | 2,175      |               |        |        | 1,750      |        |   |   | 2,240      |       |   |   | 2,105      |       
|Total noninterest
income                     |                                   |                                 | 16,279     |               |        |        | 8,730      |        |   |   | 11,694     |       |   |   | 10,928     |       
|Total noninterest
expense                    |                                   |                                 | 27,631     |               |        |        | 21,740     |        |   |   | 24,084     |       |   |   | 24,317     |       
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Net income before
income taxes               |                                   |                                 | 14,511     |               |        |        | 14,205     |        |   |   | 13,978     |       |   |   | 12,056     |       
|Income taxes                                 |                                   |                                 | 3,962      |               |        |        | 3,878      |        |   |   | 3,816      |       |   |   | 3,291      |       
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Net income                                   |                                   | $                               | 10,549     |               |        | $      | 10,327     |        |   | $ | 10,162     |       |   | $ | 8,765      |       
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Per share data:                              |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Basic income                                 |                                   | $                               | 0.35       |               |        | $      | 0.34       |        |   | $ | 0.33       |       |   | $ | 0.28       |       
|Diluted income                               |                                   |                                 | 0.35       |               |        |        | 0.34       |        |   |   | 0.33       |       |   |   | 0.28       |       
|Cash dividends declared                      |                                   |                                 | 0.185      |               |        |        | 0.185      |        |   |   | 0.180      |       |   |   | 0.180      |       
|Period-end book value                        |                                   |                                 | 10.80      |               |        |        | 10.78      |        |   |   | 10.52      |       |   |   | 9.87       |       
|Average shares
outstanding - basic           |                                   |                                 | 30,081,995 |               |        |        | 30,379,838 |        |   |   | 30,829,356 |       |   |   | 30,798,728 |       
|Average shares
outstanding - diluted         |                                   |                                 | 30,220,254 |               |        |        | 30,506,426 |        |   |   | 31,098,379 |       |   |   | 30,993,981 |       
|Ratios                                       |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Return on average
shareholders equity(1)    |                                   |                                 | 12.57      | %             |        |        | 12.30      | %      |   |   | 12.64      | %     |   |   | 11.04      | %     
|Return on average assets
(1)                 |                                   |                                 | 1.14       |               |        |        | 1.14       |        |   |   | 1.17       |       |   |   | 1.05       |       
|Net interest margin(1)                       |                                   |                                 | 3.32       |               |        |        | 3.54       |        |   |   | 3.61       |       |   |   | 3.64       |       
|Average loans to
average deposits            |                                   |                                 | 97.55      |               |        |        | 95.27      |        |   |   | 93.26      |       |   |   | 90.82      |       
|Average equity to
average assets             |                                   |                                 | 9.05       |               |        |        | 9.29       |        |   |   | 9.24       |       |   |   | 9.53       |       
|Efficiency ratio(2)                          |                                   |                                 | 70.17      |               |        |        | 59.21      |        |   |   | 60.58      |       |   |   | 69.14      |       
|Selected period end
balances                 |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Securities available for
sale                |                                   | $                               | 1,129,212  |               |        | $      | 1,212,742  |        |   | $ | 1,104,995  |       |   | $ | 1,107,939  |       
|Loans held for sale                          |                                   |                                 | 158,404    |               |        |        | 14,532     |        |   |   | 1,486      |       |   |   | 5,400      |       
|Loans, net                                   |                                   |                                 | 2,045,266  |               |        |        | 2,199,727  |        |   |   | 2,096,866  |       |   |   | 1,997,484  |       
|Allowance for loan
losses                    |                                   |                                 | 27,204     |               |        |        | 27,411     |        |   |   | 27,213     |       |   |   | 26,576     |       
|Total assets                                 |                                   |                                 | 3,745,949  |               |        |        | 3,700,929  |        |   |   | 3,490,732  |       |   |   | 3,405,858  |       
|Total deposits                               |                                   |                                 | 2,322,647  |               |        |        | 2,313,788  |        |   |   | 2,262,959  |       |   |   | 2,210,308  |       
|Borrowings                                   |                                   |                                 | 1,042,440  |               |        |        | 1,004,836  |        |   |   | 847,752    |       |   |   | 836,769    |       
|Total liabilities                            |                                   |                                 | 3,421,263  |               |        |        | 3,376,174  |        |   |   | 3,166,334  |       |   |   | 3,101,940  |       
|Total shareholders
equity                   |                                   |                                 | 324,686    |               |        |        | 324,755    |        |   |   | 324,398    |       |   |   | 303,918    |       
|Selected average
balances                    |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Loans, net                                   |                                   |                                 | 2,253,317  |               |        |        | 2,170,961  |        |   |   | 2,080,227  |       |   |   | 1,983,455  |       
|Earning assets                               |                                   |                                 | 3,418,176  |               |        |        | 3,311,707  |        |   |   | 3,219,752  |       |   |   | 3,093,516  |       
|Total assets                                 |                                   |                                 | 3,678,945  |               |        |        | 3,586,969  |        |   |   | 3,491,868  |       |   |   | 3,377,791  |       
|Total deposits                               |                                   |                                 | 2,309,971  |               |        |        | 2,278,758  |        |   |   | 2,230,620  |       |   |   | 2,183,990  |       
|Borrowings                                   |                                   |                                 | 984,350    |               |        |        | 923,570    |        |   |   | 888,826    |       |   |   | 826,381    |       
|Total shareholders
equity                   |                                   |                                 | 332,998    |               |        |        | 333,165    |        |   |   | 322,508    |       |   |   | 321,966    |       
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Schedule of other items
included in earnings |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Noninterest income                           |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|                                             | Gain on sale of
securities        |                                 | $          | 5,371         |        |        | $          | 1,416  |   |   | $          | 989   |   |   | $          | 3,763  |  
|                                             | Equity investment write
down      |                                 |            |              |        |        |            |       |   |   |            |      |   |   |            | (20    | )
|                                             | Equity method
(loss) income       |                                 |            | (340          | )      |        |            | (2,525 | ) |   |            | 23    |   |   |            | (2,959 | )
|                                             | (Loss) gain on sale of
properties |                                 |            | (109          | )      |        |            |       |   |   |            | 1,013 |   |   |            |       |  
|Noninterest expense                          |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|                                             |                                   | Prepayment costs on borrowings  |            |               | (3,284 | )      |            |        |  |   |            |       |  |   |            |        |  | 
|                                             |                                   | Reserve for contigent liability |            |               | (840   | )      |            |        |  |   |            |       |  |   |            |        |  | 
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Total other items                            |                                   |                                 | 798        |               |        |        | (1,109     | )      |   |   | 2,025      |       |   |   | 784        |       
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       
|Other items, net of tax                      |                                   | $                               | 580        |               |        | $      | (806       | )      |   | $ | 1,472      |       |   | $ | 570        |       
|                                             |                                   |                                 |            |               |        |        |            |        |   |   |            |       |   |   |            |       

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                             |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |      |   | 
|-------------------------------------------- | --------------------------------- | ------------------------------- | ---------- | ----- | - | ------ | ---------- | ----- | - | - | ---------- | ---- | - | - | ---------- | ---- | - | 
|                                             |                                   | 2001 Quarters                  
|(Dollars in thousands, except                |                                   |                                
|per share amounts)                           |                                   | Fourth                          |            | Third |   | Second |            | First
|                                             |                                   |                                 |            |       |   |        |            |      
|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 before
income taxes               |                                   |                                 | 12,031     |       |   |        | 13,962     |       |   |   | 13,094     |      |   |   | 13,006     |     
|Income taxes                                 |                                   |                                 | 3,881      |       |   |        | 4,502      |       |   |   | 4,223      |      |   |   | 4,162      |     
|                                             |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Net income                                   |                                   | $                               | 8,150      |       |   | $      | 9,460      |       |   | $ | 8,871      |      |   | $ | 8,844      |     
|                                             |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Per share data:                              |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Basic income                                 |                                   | $                               | 0.26       |       |   | $      | 0.30       |       |   | $ | 0.28       |      |   | $ | 0.28       |     
|Diluted income                               |                                   |                                 | 0.26       |       |   |        | 0.30       |       |   |   | 0.28       |      |   |   | 0.28       |     
|Cash dividends declared                      |                                   |                                 | 0.180      |       |   |        | 0.180      |       |   |   | 0.180      |      |   |   | 0.180      |     
|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 |      |   |   | 31,896,764 |     
|Average shares
outstanding - diluted         |                                   |                                 | 31,364,373 |       |   |        | 31,314,550 |       |   |   | 31,906,706 |      |   |   | 31,833,564 |     
|Ratios                                       |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Return on average
shareholders equity(1)    |                                   |                                 | 9.88       | %     |   |        | 11.72      | %     |   |   | 11.12      | %    |   |   | 11.46      | %   
|Return on average assets
(1)                 |                                   |                                 | 1.00       |       |   |        | 1.18       |       |   |   | 1.15       |      |   |   | 1.24       |     
|Net
interest margin(1)                       |                                   |                                 | 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(2)                          |                                   |                                 | 66.16      |       |   |        | 59.45      |       |   |   | 59.05      |      |   |   | 58.90      |     
|Selected period end
balances                 |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Securities available for
sale                |                                   | $                               | 1,076,324  |       |   | $      | 1,133,333  |       |   | $ | 938,951    |      |   | $ | 875,946    |     
|Loans held for sale                          |                                   |                                 | 7,334      |       |   |        | 9,868      |       |   |   | 13,754     |      |   |   | 11,166     |     
|Loans, net                                   |                                   |                                 | 1,921,718  |       |   |        | 1,949,081  |       |   |   | 1,927,862  |      |   |   | 1,947,270  |     
|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                                   |                                   |                                 | 703,640    |       |   |        | 682,498    |       |   |   | 670,248    |      |   |   | 550,797    |     
|Total shareholders
equity                   |                                   |                                 | 327,410    |       |   |        | 320,242    |       |   |   | 319,968    |      |   |   | 313,081    |     
|                                             |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Schedule of other items
included in earnings |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Noninterest income                           |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|                                             | Gain on sale of
securities        |                                 | $          | 1,026 |   |        | $          | 824   |   |   | $          | 282  |   |   | $          | 267  |  
|                                             | Equity investment write
down      |                                 |            |      |   |        |            |      |   |   |            |     |   |   |            | (144 | )
|                                             | Equity method
(loss) income       |                                 |            | (524  | ) |        |            | 73    |   |   |            | (102 | ) |   |            | 111  |  
|                                             | (Loss) gain on sale of
properties |                                 |            | 287   |   |        |            | 129   |   |   |            |     |   |   |            |     |  
|Noninterest expense                          |                                   |                                 |           |       |   |        |           |       |   |   |           |      |   |   |           |     
|                                             |                                   | Prepayment costs on
borrowings  |            |       |   |        |            |       |   |   |            |      |   |   |            |      |   | 
|                                             |                                   | Reserve for contigent liability |            |       |  |        |            |       |  |   |            |      |  |   |            |      |  | 
|                                             |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Total other items                            |                                   |                                 | 789        |       |   |        | 1,026      |       |   |   | 180        |      |   |   | 234        |     
|                                             |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     
|Other items, net of tax                      |                                   | $                               | 537        |       |   | $      | 698        |       |   | $ | 122        |      |   | $ | 159        |     
|                                             |                                   |                                 |            |       |   |        |            |       |   |   |            |      |   |   |            |     



---

|(1)  
Annualized                                                                                                                                                                                                                                                                                                                         
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                         
|(2)  
Noninterest expense divided by the sum of taxable equivalent net interest income plus
noninterest income less gain on sale of securities.                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                         
|(3)  
Balances for 2002 have been restated to reflect the adoption of SFAS No. 147. The
restatement resulted in the reversal of approximately $239,000 ($173,000 net of
tax) of goodwill amortization expense for each the three months ended March 31, 2002, June 30, 2002 and
September 30, 2002. Goodwill is included in other assets.

25



---



##### 



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 46 through 81.

Overview

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 was primarily attributable to
restructuring charges and merger-related expenses 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 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 by
certain other items, which are set forth 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 Interest Income

For the year ended December 31, 2001, net interest income
was $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 had a negative impact
on the net interest margin as variable rate assets repriced faster than variable rate liabilities. Reduced loan demand,
several large loan payoffs and our increased selectivity in seeking new
opportunities during 2001 as a result of the economic environment 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 was 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.

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.

26



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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 repricing opportunities resulting from the acquisition of
Carolina First. In addition, the declining rate environment increased mortgage
origination volume. This resulted in additional loan sales to the secondary
market and correspondingly greater fee income. Active management of the
securities portfolio resulted in the recognition of $2.4 million in gains on
security sales during 2001, compared to losses of $4.3 million in 2000. Of the
$4.3 million loss in 2000, $3.9 million was attributable 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.

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 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.

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Financial Condition

Summary

Total assets at December 31, 2002 amounted to
$3.75 billion compared to
$3.33 billion at December 31, 2001. The increase in assets was primarily due to
a $52.9 million increase in securities available for sale and loan growth
(including loans held for sale) of $276.0 million. During the fourth quarter of
2002, the Corporation purchased $70 million in Bank Owned Life Insurance to
mitigate rising employee benefit costs. This investment is classified as an
other asset on the balance sheet. Total deposits increased $159.7 million, or
7.4 percent, since December 31, 2001 to $2.32 billion at December 31, 2002 and
other borrowings increased $233.9 million, or 28.9 percent, since December 31,
2001 to $1.04 billion at December 31, 2002. The increase in other borrowings
was primarily due to increases in FHLB advances principally used to fund loan
growth and security purchases.

Investment Portfolio

The securities portfolio, all of which is classified as
available for
sale, is a component of the Corporations asset-liability management strategy.
The decision to purchase or sell securities is based upon liquidity needs,
changes in interest rates, changes in prepayment risk, and other factors.
Securities available for sale are accounted for at fair value, with unrealized
gains and losses recorded net of tax as a component of other comprehensive
income.

At December 31, 2002, securities available for sale were
$1.13 billion or
30.1 percent of total assets, compared to $1.08 billion, or 32.3 percent of
total assets, at December 31, 2001. During 2002, a portion of the fixed income
securities available for sale portfolio was repositioned to reduce interest
rate risk. Approximately $249 million of securities with longer average lives
were sold and replaced with securities having shorter average lives. By
reducing the average life of the securities available for sale portfolio,
management has reduced the market value risk in a possible rising interest rate
environment. In addition, the equity securities portfolio was reduced in order
to focus First Charters efforts on other activities that could result in
greater returns. As part of the active management of the fixed income
securities available for sale portfolio, callable securities which appear to be
on the verge of being called at par are sold in order to realize their gain in
value. In addition, in order to offset increasing employee benefit costs and
improve earnings, the Corporation sold $70 million in bonds, recognized gains
and reinvested the proceeds into Bank Owned Life Insurance. This investment is
classified as an other asset on the balance sheet and the income is recognized
as other noninterest income. Management estimates that this transaction will
have a $2 million positive impact to earnings in 2003.

The carrying value of securities available for sale was
approximately
$26.1 million above their amortized cost at December 31, 2002 and $9.6 million
above their amortized cost at December 31, 2001. The weighted average life of
the portfolio decreased to 3.01 years at December 31, 2002 compared to 4.77
years at December 31, 2001.

The following table shows, as of December 31, 2002, 2001,
and 2000, 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 NineInvestment Portfolio

|                                         |       |      |              |           |  |      |         |           |  |   |         |         | 
|---------------------------------------- | ----- | ---- | ------------ | --------- |  | ---- | ------- | --------- |  | - | ------- | ------- | 
|                                         |       |      | December 31,
|                                         |       |      |             
|(Dollars in thousands)                   |       | 2002 |              | 2001      |  | 2000
|                                         |       |      |              |           |  |     
|Securities Available for
Sale            |       |      |              |           |  |      |         |           |  |   |         |        
|US government
obligations                |       | $    | 65,777       |           |  | $    |        |           |  | $ |        |        
|US government agency
obligations         |       |      | 408,362      |           |  |      | 288,253 |           |  |   | 158,228 |        
|Mortgage-backed
securities               |       |      | 529,694      |           |  |      | 655,690 |           |  |   | 153,276 |        
|State, county, and municipal
obligations |       |      | 82,964       |           |  |      | 87,548  |           |  |   | 94,024  |        
|Equity securities                        |       |      | 42,415       |           |  |      | 44,833  |           |  |   | 35,503  |        
|                                         |       |      |              |           |  |      |         |           |  |   |         |        
|                                         | Total |      | $            | 1,129,212 |  |      | $       | 1,076,324 |  |   | $       | 441,031 | 
|                                         |       |      |              |           |  |      |         |           |  |   |         |        

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Loan Portfolio

The Corporations loan portfolio at December 31, 2001
consisted of four
major categories: Commercial, financial and agricultural; Real estate

construction; Real estate  mortgage; and installment. During 2002, the
Corporation changed the presentation of these loan categories to more
accurately reflect how the Corporation manages the loan portfolio. The new loan
portfolio categories are as follows: Commercial Non Real Estate, Commercial
Real Estate, Construction, Mortgage, Consumer, and Home Equity. Within these
six segments the Corporation targets customers in its footprint, works within
most business segments and focuses on a relationship based business model.
Pricing is driven by quality, loan size, the Corporations relationship with
the customer and by competition. The Corporation is primarily a secured lender
in all these loan categories. The Corporations loans are generally five years
or less in duration with the exception of home equity lines and residential
mortgages.

Commercial Non Real Estate

The Corporations commercial non real estate lending
program is generally
targeted to serve small-to-middle market businesses with sales of $50 million
or less in the Corporations geographic area. Commercial lending includes
commercial, financial, agricultural and industrial loans. In addition, the
Corporation has a small loan participation program known as the Strategic
Partners program through which loans are purchased and sold (commercial real
estate, commercial non real estate and construction loans) with other community
banks. The Corporation does not usually participate in syndicated loans.
Pricing on commercial non real estate loans, driven largely by the
Corporations relationship with the customer and by competition, is usually
tied to market indexes, such as the prime rate, the London Interbank Offer Rate
(LIBOR) or rates on US Treasury securities.


Commercial Real Estate

Similar to commercial non real estate lending, the
Corporations
commercial real estate lending program is generally targeted to serve
small-to-middle market business with sales of $50 million or less in the
Corporations geographic area. The real estate loans are both owner occupied
and project related. As with commercial non real estate loans, pricing on
commercial real estate loans, driven largely by the Corporations relationship
with the customer and by competition, is usually tied to market indexes, such
as the prime rate, LIBOR or rates on US Treasury securities.


Construction

Real Estate Construction loans include both commercial and
residential
construction/permanent loans, which are intended to convert to permanent 1-4
family residential mortgage loans upon completion of the construction. Loans
for commercial construction are usually to in-market developers, builders,
businesses, individuals or real estate investors for the construction of
commercial structures in the Corporations market area. Loans are made for
purposes including, but not limited to, the construction of industrial
facilities, apartments, shopping centers, office buildings, homes and
warehouses. The properties may be constructed for sale, lease or
owner-occupancy.


Mortgage

The Corporation originates 1-4 family residential mortgage loans
throughout the Corporations footprint and in Reston, Virginia which is a Loan
Production Office. The Corporation offers a full line of products including
conventional, conforming, and jumbo fixed rate and adjustable rate mortgages
which are originated and sold into the secondary market, however, from time to
time a portion of this production is retained.


Consumer

The Corporation offers a wide variety of consumer loan products.
Various
types of secured and unsecured loans are marketed to qualifying existing
customers and to other creditworthy candidates in the Corporations market
area. Unsecured loans, including revolving credits (e.g. credit cards, checking
account overdraft protection and personal lines of credit) are provided and
various installment loan products such as vehicle loans are offered. All consumer lending is centrally
decisioned and documented.


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Home Equity

Home Equity loans and lines are secured by first and second
deeds of trust
on the borrowers principal dwelling. As with all consumer lending, home equity
loans are centrally decisioned and documented to ensure the underwriting
conforms to the corporate lending policy.


Loan Administration and Underwriting

The Corporations credit risk policy and procedures are
centralized for
every loan type. In addition, all mortgage and consumer loans are centrally
decisioned. All loans flow through an independent closing unit to ensure proper
documentation. Lastly, all known collection or problem loans are centrally
managed by experienced workout personnel. To monitor the effectiveness of
policies and procedures, Management maintains a set of asset quality standards
for past dues, nonaccrual and watch list loans and monitors the trends of these
standards over time. These standards are approved by the Board of Directors and
reviewed quarterly for compliance.


The Banks Chief Credit Officer is responsible for the
continuous
assessment of the Banks risk profile as well as making any necessary
adjustments to policies and procedures. Commercial loans less than $500,000 may
be approved by experienced loan officers, within their loan authority.
Commercial and commercial real estate loans are approved by signature authority
requiring at least two experienced lenders for any relationships greater than
$500,000 and an independent Risk Manager whenever the relationship is greater
than $1 million. All relationships greater than $1.5 million receive a
comprehensive annual review by the senior lending officers of the Bank, which
is then reviewed by the independent Risk Management Officers and the Banks
Loan Committees. Commitments over $3.5 million are further reviewed by senior
lending officers of the Bank, the Chief Credit Officer and both an Executive
Loan Committee comprised of executive management and a Board of Directors Loan
Committee. These oversight committees provide policy, process, product and
specific relationship direction to the lending personnel. The Corporation has a
general target lending limit to one borrower of $10 million, however, at times
some loans may exceed that limit.

As described above, the Corporations loan portfolio
consists of loans
made for a variety of commercial and consumer purposes. Because commercial
loans are made based to a great extent on the Corporations assessment of
borrowers income, cash flow, character and ability to repay, such loans are
viewed as involving a higher degree of credit risk than is the case with
residential mortgage loans or consumer loans. To manage this risk, the
Corporations commercial loan portfolio is managed under a defined process
which includes underwriting standards and risk assessment, procedures for loan
approvals, loan grading, ongoing identification and management of credit
deterioration and portfolio reviews to assess loss exposure and to ascertain
compliance with the Corporations credit policies and procedures.

In general, consumer loans (including mortgage and home equity)
are deemed
less risky than commercial loans. Commercial loans (including commercial real
estate, commercial non real estate and construction loans) are generally larger
in size and more complex than consumer loans. Commercial real estate loans are
deemed less risky than commercial non real estate and construction loans, as
the collateral value of real estate generally maintains its value better than
non real estate or construction collateral. Consumer loans being smaller in
size provides risk diversity across the portfolio. As mortgage loans are
secured by first liens on the consumers primary residence, they are the
Corporations least risky loan type. Home equity loans are deemed less risky
than unsecured consumer loans as home equity loans and lines are secured by
first or second deeds of trust on the borrowers principal dwelling. A
centralized decisioning process is in place to control the risk of the
consumer, home equity and mortgage loan portfolio. This process is detailed in
the underwriting guidelines which covers each retail loan product type from
underwriting, servicing, compliance issues and closing procedures.

Loan review has been and is currently outsourced to a consulting
group
which performs loan quality and process examinations. This function is
currently transitioning to an in-house function in 2003.

Loans increased 6 percent to $2.07 billion at
December 31, 2002 compared
to $1.95 billion at December 31, 2001. During the fourth quarter of 2002, $130
million of mortgage loans were reclassified to

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loans held for sale. These loans were securitized during the first quarter of
2003. Loan growth experienced during 2002 was primarily in commercial real
estate, home equity lines and other secured retail credit.

The Corporations primary market area includes the state of
North Carolina
but predominately centers around the Metro region of Charlotte. At December 31,
2002, 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 Metro region. An economic downturn in our primary market
area could adversely affect our business. 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, 2002, the unused portion of preapproved
lines of credit totaled $348.8 million, unfunded loan commitments totaled
$277.8 million and standby letters of credit aggregated $10.9 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. Management expects that these commitments can be funded through
normal operations.

The table below summarizes loans in the classifications
indicated as of
December 31, 2002, 2001, 2000, 1999, and 1998. As previously stated, loan
categories have been changed to more accurately reflect how the Corporation
manages the loan portfolio.

Table TenLoan Portfolio Composition

|                                 |             |      |              |           |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |           | 
|-------------------------------- | ----------- | ---- | ------------ | --------- |  | ---- | ------- | --------- |  | ---- | ------- | --------- |  | - | ------- | --------- |  | - | ------- | --------- | 
|                                 |             |      | December 31,
|                                 |             |      |             
|(Dollars in thousands)           |             | 2002 |              | 2001      |  | 2000 |         | 1999      |  | 1998
|                                 |             |      |              |           |  |      |         |           |  |     
|Commercial real estate           |             | $    | 798,664      |           |  | $    | 631,814 |           |  | $    | 723,644 |           |  | $ | 638,522 |           |  | $ | 421,590 |          
|Commercial non real
estate       |             |      | 223,178      |           |  |      | 222,497 |           |  |      | 297,728 |           |  |   | 201,639 |           |  |   | 133,134 |          
|Construction                     |             |      | 215,859      |           |  |      | 321,716 |           |  |      | 246,136 |           |  |   | 316,794 |           |  |   | 234,916 |          
|Mortgage                         |             |      | 237,085      |           |  |      | 289,953 |           |  |      | 496,892 |           |  |   | 562,942 |           |  |   | 912,447 |          
|Consumer                         |             |      | 280,201      |           |  |      | 253,603 |           |  |      | 209,131 |           |  |   | 109,630 |           |  |   | 81,276  |          
|Home equity                      |             |      | 317,730      |           |  |      | 228,169 |           |  |      | 179,028 |           |  |   | 136,569 |           |  |   | 110,098 |          
|                                 |             |      |              |           |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |          
|                                 | Total loans |      |              | 2,072,717 |  |      |         | 1,947,752 |  |      |         | 2,152,559 |  |   |         | 1,966,096 |  |   |         | 1,893,461 | 
|                                 |             |      |              |           |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |          
|Less - allowance for loan
losses |             |      | (27,204      | )         |  |      | (25,843 | )         |  |      | (28,447 | )         |  |   | (25,002 | )         |  |   | (22,278 | )        
|Unearned income                  |             |      | (247         | )         |  |      | (191    | )         |  |      | (215    | )         |  |   | (203    | )         |  |   | (721    | )        
|                                 |             |      |              |           |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |          
|                                 | Loans, net  |      | $            | 2,045,266 |  |      | $       | 1,921,718 |  |      | $       | 2,123,897 |  |   | $       | 1,940,891 |  |   | $       | 1,870,462 | 
|                                 |             |      |              |           |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |          

Maturities and Sensitivities of Loans to Change in Interest Rates

Table Elevenpresents the contractual maturity
distribution and interest
sensitivity of selected loan categories at December 31, 2002. This table
excludes non-accrual loans.

Table ElevenMaturity and Sensitivity to Changes in Interest Rates

|                       |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |         |           | 
|---------------------- | ------------------- | -------------------- | ------- | ----------------- | ------- | ------------ | ------ | ---------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | --------- | 
|                       |                     |                      |         | December 31, 2002
|                       |                     |                      |         |                  
|                       |                     |                      |         |                   |         |              |        | Commercial |         |   |         |         |         |   |         |        
|                       |                     |                      |         | Commercial        |         | Non Real     |        |            |         |   |        
|(Dollars in thousands) |                     | Real Estate          |         | Estate            |         | Construction |        | Total     
|                       |                     |                      |         |                   |         |              |        |           
|Fixed rate:            |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |        
|1 year or less         |                     | $                    | 30,783  |                   |         | $            | 8,301  |            |         | $ | 23,037  |         |         | $ | 62,121  |        
|1-5 years              |                     |                      | 194,516 |                   |         |              | 50,550 |            |         |   | 13,744  |         |         |   | 258,810 |        
|After 5 years          |                     |                      | 77,974  |                   |         |              | 18,477 |            |         |   | 1,273   |         |         |   | 97,724  |        
|                       |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |        
|                       | Total fixed rate    |                      |         | 303,273           |         |              |        | 77,328     |         |   |         | 38,054  |         |   |         | 418,655 |          
|                       |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |        
|Variable rate:         |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |        
|1 year or less         |                     |                      | 121,805 |                   |         |              | 66,023 |            |         |   | 106,579 |         |         |   | 294,407 |        
|1-5 years              |                     |                      | 268,469 |                   |         |              | 67,189 |            |         |   | 61,450  |         |         |   | 397,108 |        
|After 5 years          |                     |                      | 89,639  |                   |         |              | 8,306  |            |         |   | 8,440   |         |         |   | 106,385 |        
|                       |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |        
|                       | Total variable
rate |                      |         | 479,913           |         |              |        | 141,518    |         |   |         | 176,469 |         |   |         | 797,900 |          
|                       |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |        
|                       |                     | Total selected loans |         | $                 | 783,186 |              |        | $          | 218,846 |   |         | $       | 214,523 |   |         | $       | 1,216,555 | 
|                       |                     |                      |         |                   |         |              |        |            |         |   |         |         |         |   |         |        

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Nonperforming Assets

Nonaccrual loans at December 31, 2002 increased to
$26.5 million from
$24.4 million at September 30, 2002. The increase in nonaccrual loans was
primarily due to the addition of one large real estate loan to nonaccrual
status during the fourth quarter of 2002. Other real estate, received through
loan foreclosure, increased to $10.3 million from $9.7 million at September 30,
2002 primarily due to the foreclosure on two commercial properties during the
quarter. Total nonperforming assets (includes nonaccrual loans and other real
estate) and loans 90 days or more past due and still accruing increased to
$36.7 million at December 31, 2002 compared to $34.1 million at September 30,
2002. As a percentage of total assets, nonperforming assets increased to 0.98
percent at December 31, 2002 compared to 0.92 percent at September 30, 2002.

Nonaccrual loans at December 31, 2002 increased to
$26.5 million compared
to $23.8 million at December 31, 2001. The increase was primarily due to the
addition of several commercial loans to nonaccrual status. This increase was
partially offset by the sale of $3.1 million of residential nonaccrual loans
during the third quarter of 2002 and the transfer of one commercial loan from
nonaccrual status to other real estate. Other real estate, received through
loan foreclosure, increased to $10.3 million from $8.0 million at December 31,
2001. The increase in other real estate was primarily due to the foreclosure on
several commercial relationships during 2002. This increase was partially
offset by the sale of $0.2 million of residential other real estate during the
third quarter of 2002. Total nonperforming assets (includes nonaccrual loans
and other real estate) and loans 90 days or more past due and still accruing
interest at December 31, 2002 were $36.7 million or 1.76 percent of total loans
and other real estate, compared to $32.0 million or 1.62 percent of total loans
and other real estate at December 31, 2001. Interest income that would have
been recorded on nonaccrual loans and restructured loans for the years ended
December 31, 2002, 2001 and 2000, had they performed in accordance with their
original terms, amounted to approximately $2.5 million, $2.2 million, and $2.3
million, respectively. Interest income on all such loans included in the
results of operations for 2002, 2001 and 2000 amounted to approximately $0.5
million, $1.0 million, and $1.3 million, respectively.

Nonaccrual loans at December 31, 2002 were not concentrated
in any one
industry and primarily consisted of several large credits secured by real
estate. Management anticipates that nonaccrual loans may increase in the near
term as some customers continue to experience difficulties in this current
economic environment. As discussed elsewhere herein, management has taken
current economic conditions into consideration when estimating the allowance
for loan losses.

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 interest appears probable. If such
collectibility is not probable, the loans are placed on nonaccrual status.
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.

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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 TwelveNonperforming and Problem Assets

|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |        |  
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | ---- | ------------ | ------ | - | - | ------ | ------ | - | - | ----- | ------ | -
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      | December 31, |        |   |   |        |        |   |   |      
|                                                           |                                                                                           |      |       
|(Dollars in thousands)                                     |                                                                                           | 2002 |        | 2001   |   | 2000 |        | 1999   |   | 1998
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |     
|Nonaccrual loans                                           |                                                                                           | $    | 26,467 |        |   | $    | 23,824 |        |   | $    | 26,587       |        |   | $ | 10,353 |        |   | $ | 7,190 |       
|Restructured loans                                         |                                                                                           |      |       |        |   |      |       |        |   |      |             |        |   |   | 37     |        |   |   | 577   |       
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       
|                                                           | Total nonperforming loans                                                                 |      |        | 26,467 |   |      |        | 23,824 |   |      |              | 26,587 |   |   |        | 10,390 |   |   |       | 7,767  |  
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       
|Other real estate                                          |                                                                                           |      | 10,278 |        |   |      | 8,049  |        |   |      | 2,989        |        |   |   | 2,262  |        |   |   | 3,863 |       
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       
|                                                           | Total nonperforming assets                                                                |      |        | 36,745 |   |      |        | 31,873 |   |      |              | 29,576 |   |   |        | 12,652 |   |   |       | 11,630 |  
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       
|Loans 90 days or more past due and
still accruing interest |                                                                                           |      |       |        |   |      | 152    |        |   |      | 430          |        |   |   | 3,638  |        |   |   | 2,381 |       
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       
|                                                           | Total nonperforming assets and loans 90 days
or
more past due and still accruing interest |      | $      | 36,745 |   |      | $      | 32,025 |   |      | $            | 30,006 |   |   | $      | 16,290 |   |   | $     | 14,011 |  
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       
|Nonperforming assets as a percentage
of:                   |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       
|                                                           | Total assets                                                                              |      |        | 0.98   | % |      |        | 0.96   | % |      |              | 1.01   | % |   |        | 0.47   | % |   |       | 0.45   | %
|                                                           | Loans and other real estate                                                               |      |        | 1.76   | % |      |        | 1.63   | % |      |              | 1.37   | % |   |        | 0.64   | % |   |       | 0.61   | %
|Ratio of allowance for loan losses to
nonperforming loans  |                                                                                           |      | 1.03   | x      |   |      | 1.08   | x      |   |      | 1.07         | x      |   |   | 2.41   | x      |   |   | 2.87  | x     
|                                                           |                                                                                           |      |        |        |   |      |        |        |   |      |              |        |   |   |        |        |   |   |       |       

Summary of Loan Loss and Recovery Experience

The table below presents certain data for the years ended
December 31,
2002, 2001, 2000, 1999, and 1998, 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. The categories of charge-offs and recoveries presented in Table
Thirteenare similar to the categories presented in prior years.

Table ThirteenAllowance For Credit Losses

|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       |       | 
|---------------------------------------------------------------------- | ------------------------------------------------ | --------------- | --------- | ------------------------ | ----- | ---- | --------- | ----- | ----- | ---- | --------- | ----- | ----- | - | --------- | ----- | ----- | - | --------- | ----- | ----- | 
|                                                                       |                                                  |                 |           | Years Ended December 31,
|                                                                       |                                                  |                 |           |                         
|(Dollars in thousands)                                                 |                                                  | 2002            |           | 2001                     |       | 2000 |           | 1999  |       | 1998
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |     
|Balance, January
1                                                     |                                                  | $               | 25,843    |                          |       | $    | 28,447    |       |       | $    | 25,002    |       |       | $ | 22,278    |       |       | $ | 21,100    |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|Loan
charge-offs:                                                      |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|Commercial, financial and
agricultural                                 |                                                  |                 | 3,056     |                          |       |      | 4,280     |       |       |      | 2,532     |       |       |   | 951       |       |       |   | 870       |      
|Real
estate -
construction                                             |                                                  |                 | 641       |                          |       |      | 50        |       |       |      | 351       |       |       |   | 36        |       |       |   | 390       |      
|Real estate -
mortgage                                                 |                                                  |                 | 304       |                          |       |      | 564       |       |       |      | 519       |       |       |   | 138       |       |       |   | 173       |      
|Installment                                                            |                                                  |                 | 2,989     |                          |       |      | 2,512     |       |       |      | 1,661     |       |       |   | 1,648     |       |       |   | 1,984     |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|                                                                       | Total loans charged-off                          |                 |           | 6,990                    |       |      |           | 7,406 |       |      |           | 5,063 |       |   |           | 2,773 |       |   |           | 3,417 |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|Recoveries of loans previously
charged-off:                            |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|Commercial, financial and
agricultural                                 |                                                  |                 | 223       |                          |       |      | 243       |       |       |      | 623       |       |       |   | 295       |       |       |   | 305       |      
|Real estate -
construction                                             |                                                  |                 |          |                          |       |      |          |       |       |      |          |       |       |   |          |       |       |   | 76        |      
|Real estate -
mortgage                                                 |                                                  |                 | 36        |                          |       |      | 169       |       |       |      | 49        |       |       |   | 72        |       |       |   | 51        |      
|Installment                                                            |                                                  |                 | 337       |                          |       |      | 285       |       |       |      | 334       |       |       |   | 494       |       |       |   | 422       |      
|Other                                                                  |                                                  |                 | 132       |                          |       |      | 57        |       |       |      |          |       |       |   |          |       |       |   |          |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|                                                                       | Total recoveries of loans previously
charged-off |                 |           | 728                      |       |      |           | 754   |       |      |           | 1,006 |       |   |           | 861   |       |   |           | 854   |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|                                                                       |                                                  | Net charge-offs |           |                          | 6,262 |      |           |       | 6,652 |      |           |       | 4,057 |   |           |       | 1,912 |   |           |       | 2,563 | 
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|Provision for loan
losses                                              |                                                  |                 | 8,270     |                          |       |      | 4,465     |       |       |      | 7,615     |       |       |   | 5,005     |       |       |   | 3,741     |      
|Adjustment for loans sold, securitized or
transferred to held for sale |                                                  |                 | (647      | )                        |       |      | (417      | )     |       |      | (113      | )     |       |   | (369      | )     |       |   |          |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|Balance, December
31                                                   |                                                  | $               | 27,204    |                          |       | $    | 25,843    |       |       | $    | 28,447    |       |       | $ | 25,002    |       |       | $ | 22,278    |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      
|Average loans, net                                                     |                                                  | $               | 2,122,890 |                          |       | $    | 1,990,406 |       |       | $    | 2,074,971 |       |       | $ | 1,878,509 |       |       | $ | 1,783,271 |      
|Net charge-offs to average
loans                                       |                                                  |                 | 0.29      | %                        |       |      | 0.33      | %     |       |      | 0.20      | %     |       |   | 0.10      | %     |       |   | 0.14      | %    
|Allowance for loan losses to
gross loans at year-end                   |                                                  |                 | 1.31      |                          |       |      | 1.33      |       |       |      | 1.32      |       |       |   | 1.27      |       |       |   | 1.18      |      
|                                                                       |                                                  |                 |           |                          |       |      |           |       |       |      |           |       |       |   |           |       |       |   |           |      

33



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##### 



Table Fourteenpresents the categories of
charge-offs and recoveries for
the years ended December 31, 2002 and 2001 and are based upon the new loan
categories discussed in the Loan Portfoliosection. Due to the restatement of
historical financial information for the years ended December 31, 2000, 1999
and 1998, as the result of poolings-of-interests mergers, it is not possible
to provide information for these years in the categories of loans used below.

Table FourteenAllowance For Credit Losses

|                                                                       |                                                  |                 |           |                          |       |   |           |       |       | 
|---------------------------------------------------------------------- | ------------------------------------------------ | --------------- | --------- | ------------------------ | ----- | - | --------- | ----- | ----- | 
|                                                                       |                                                  |                 |           | Years Ended December 31,
|                                                                       |                                                  |                 |           |                         
|(Dollars in thousands)                                                 |                                                  | 2002            |           | 2001                    
|                                                                       |                                                  |                 |           |                         
|Balance, January
1                                                     |                                                  | $               | 25,843    |                          |       | $ | 28,447    |      
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|Loan
charge-offs:                                                      |                                                  |                 |           |                          |       |   |           |      
|Commercial non real
estate                                             |                                                  |                 | 2,397     |                          |       |   | 2,387     |      
|Commercial real estate                                                 |                                                  |                 | 659       |                          |       |   | 1,892     |      
|Construction                                                           |                                                  |                 | 641       |                          |       |   | 50        |      
|Mortgage                                                               |                                                  |                 | 111       |                          |       |   | 125       |      
|Consumer                                                               |                                                  |                 | 2,989     |                          |       |   | 2,513     |      
|Home equity                                                            |                                                  |                 | 193       |                          |       |   | 439       |      
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|                                                                       | Total loans charged-off                          |                 |           | 6,990                    |       |   |           | 7,406 |      
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|Recoveries of loans previously
charged-off:                            |                                                  |                 |           |                          |       |   |           |      
|Commercial non real
estate                                             |                                                  |                 | 20        |                          |       |   | 227       |      
|Commercial real estate                                                 |                                                  |                 | 228       |                          |       |   | 181       |      
|Construction                                                           |                                                  |                 |          |                          |       |   |          |      
|Mortgage                                                               |                                                  |                 | 11        |                          |       |   |          |      
|Consumer                                                               |                                                  |                 | 337       |                          |       |   | 289       |      
|Home equity                                                            |                                                  |                 |          |                          |       |   |          |      
|Other                                                                  |                                                  |                 | 132       |                          |       |   | 57        |      
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|                                                                       | Total recoveries of loans previously
charged-off |                 |           | 728                      |       |   |           | 754   |      
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|                                                                       |                                                  | Net charge-offs |           |                          | 6,262 |   |           |       | 6,652 | 
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|Provision for loan
losses                                              |                                                  |                 | 8,270     |                          |       |   | 4,465     |      
|Adjustment for loans sold, securitized or
transferred to held for sale |                                                  |                 | (647      | )                        |       |   | (417      | )    
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|Balance, December
31                                                   |                                                  | $               | 27,204    |                          |       | $ | 25,843    |      
|                                                                       |                                                  |                 |           |                          |       |   |           |      
|Average loans, net                                                     |                                                  | $               | 2,122,890 |                          |       | $ | 1,990,406 |      
|Net charge-offs to average
loans                                       |                                                  |                 | 0.29      | %                        |       |   | 0.33      | %    
|Allowance for loan losses to
gross loans at year-end                   |                                                  |                 | 1.31      |                          |       |   | 1.33      |      
|                                                                       |                                                  |                 |           |                          |       |   |           |      

Allowance for Loan Losses

The Corporations allowance for loan losses consists of
three components:
(1) valuation allowances computed on impaired loans in accordance with SFAS No.
114; (2) valuation allowances determined by applying historical loss rates to
those loans not considered impaired; and (3) valuation allowances for factors
which management believes are not reflected in the historical loss rates or
that otherwise need to be considered when estimating the allowance for loan
losses. These three components are estimated quarterly by Credit Risk
Management, and along with a narrative analysis, comprise the Corporations
allowance for loan losses model. The resulting estimate is used to determine if
the allowance for loan losses recorded by management is adequate and
appropriate for each period.

The first component of the allowance for loan losses, the
valuation
allowance for impaired loans, is computed based on documented reviews performed
by the Corporations Credit Risk Management on individual impaired commercial
loans greater than $150,000. Credit Risk Management typically estimates these
valuation allowances by considering the fair value of the underlying collateral
for each impaired loan using current appraisals or estimates of values. The
results of these estimates are shared with the Special Asset Committee of FCB,
and are then subject to review by the Loan Committee of the Board of Directors
of the Bank. These estimates are updated periodically as circumstances change.
Changes in the dollar amount of impaired loans or in the estimates of the fair
value of the underlying collateral can impact the valuation allowance on
impaired loans and, therefore, the overall allowance for loan losses.

34



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##### 



The second component of the allowance for loan losses, the portion
attributable to all other loans not considered impaired, is determined by
applying historical loss rates to the outstanding balance of loans. For
purposes of computing these estimates, the portfolio is segmented as follows:
commercial loans (by credit risk grade) and consumer loans, which include
mortgage, general consumer, consumer real estate, home equity and consumer
unsecured. Commercial loans are segmented further by credit grade, so that
separate loss factors are applied to each pool of commercial loans. The
historical loss factors applied to the various segments are determined using a
migration analysis tool that computes current loss estimates by loan type (or,
in the case of commercial loans, by credit grade) using a trailing loss history
database. Since the migration analysis is based on trailing data, the
percentage loss estimates can change based on actual losses in that trailing
period. Changes in commercial loan credit grades or in the mix of the portfolio
can also impact this component of the allowance for loan losses from period to
period.

The third component of the allowance for loan losses is intended to
capture the various risk elements of the loan portfolio which are not
sufficiently captured in the historical loss rates. These factors currently
include economic risk, operational risk and concentration risk. Economic risk
relates to the impact of current economic conditions on the Corporations
borrower base, the effects of which may not be realized by the Corporation in
the form of charge-offs for several periods. The Corporation monitors and
documents various local, regional and national economic data, and makes
subjective estimates of the impact of changes in economic conditions on the
allowance for loan losses. Operational risk includes factors such as the
likelihood of loss on a loan because of inadequate underwriting. In recent
periods, the Corporation has made loss estimates for certain types of loans
that were either acquired from other institutions in mergers or were
underwritten using policies that are no longer in effect at the Corporation.
These identified loans are considered to have higher risk of loss than
currently reflected in historical loss rates of the Corporation, so additional
estimates of loss are made by management. Concentration risk includes the risk
of loss due to extensions of credit to a particular industry, loan type or
borrower that may be troubled. The Corporation monitors its portfolio for any
excessive concentrations of loans during each period, and if any excessive
concentrations are noted, estimates of loss would be made. Losses for all of
these factors are estimates since certain loans will generally respond
differently to changes in these factors. Accordingly, changes in the allowance
for loan losses for these subjective factors can arise from changes in the
balance and types of outstanding loans, as well as changes in the underlying
conditions which drive a change in the percentage used. As more fully discussed
below, the Corporation continually monitors the portfolio in an effort to
identify any other factors which may have an impact on loss estimates within
the portfolio.

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 $1.5 million are reviewed by the
Banks Loan Committees, and any issues regarding risk assessments of those
credits are addressed by the Banks Senior Risk Managers and factored into
future lending decisions. Commitments over $3.5 million are further reviewed by
senior lending officers of the Bank, the Chief Credit Officer and both an
Executive Loan Committee comprised of executive management and a Board of
Directors Loan Committee. The Corporation also continues to employ an
independent third party risk assessment group to review the underwriting,
documentation and risk grading process. 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 Board of
Directors Loan and Audit Committees. This function is currently transitioning
to an in-house function in 2003.

35



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##### 



At December 31, 2002 the allowance for loan losses was $27.2 million or
1.31 percent of gross loans compared to $25.8 million or 1.33 percent at
December 31, 2001 and $28.4 million, or 1.32 percent at December 31, 2000. The
allowance model was influenced throughout 2002 by loan growth, charge-off
behavior and deteriorating asset quality. While higher allocations of allowance
for loan losses were required for commercial and consumer loans in December
2002 over December 2001, lower allocations of allowance for loan losses were
required for mortgage loans. The higher allocations of the allowance for loan
losses to commercial loans at December 31, 2002 over December 31, 2001 was due
to a decrease in credit grades for certain loans as well as loan growth. The
higher allocations of the allowance for loan losses to consumer loans at
December 31, 2002 over December 31, 2001 was due to an increase in the loss
percentage estimates used for consumer loans in the allowance model and loan
growth. The Corporation estimates loss percentages for the allowance for loan
loss model using a migration analysis of historical charge-offs. The growth in
historical net charge-offs of consumer loans noted in Tables Thirteenand
Fourteenhas therefore negatively impacted the allowance for loan losses
estimate. These changes were partially offset by a decline in the allocation
for mortgage loans due primarily to the reclassification of $130 million of
mortgage loans to loans held for sale during the fourth quarter of 2002. This
reclassification resulted in the transfer of approximately $0.3 million of
allowance for loan losses to loans held for sale.

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 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 and the percentage of the loans in
each category to total loans as of December 31, 2002, 2001, 2000, 1999 and
1998.

Table FifteenAllocation of the Allowance for Loan Losses(1)

|                           |       |        |              |             |      |        |       |             |      |        |       |             |       |        |    |             |   |        |        |             |  |  |    |     |       |   |        |        |  |  |       |     |   |   |       |        |  |  |    |     |  
|-------------------------- | ----- | ------ | ------------ | ----------- | ---- | ------ | ----- | ----------- | ---- | ------ | ----- | ----------- | ----- | ------ | -- | ----------- | - | ------ | ------ | ----------- |  |  | -- | --- | ----- | - | ------ | ------ |  |  | ----- | --- | - | - | ----- | ------ |  |  | -- | --- | -
|                           |       |        | December 31,
|                           |       |        |             
|                           |       |        | 2002         |             | 2001 |        | 2000  |             | 1999 |        | 1998 
|                           |       |        |              |             |      |        |       |             |      |        |      
|                           |       |        |              |             |      |        | Loan/ |             |      |        |       |             | Loan/ |        |    |             |   |        | Loan/  |             |  |  |    |     | Loan/ |   |        |        |  |  | Loan/
|(Dollars in thousands)     |       | Amount |              | Total Loans |      | Amount |       | Total Loans |      | Amount |       | Total Loans |       | Amount |    | Total Loans |   | Amount |        | Total Loans
|                           |       |        |              |             |      |        |       |             |      |        |       |             |       |        |    |             |   |        |        |            
|Commercial real estate     |       | $      | 12,166       |             |      |        | 39    | %           |      | $      | 9,532 |             |       |        | 32 | %           |   | $      | 11,637 |             |  |  | 34 | %   |       | $ | 10,210 |        |  |  | 32    | %   |   | $ | 9,097 |        |  |  | 23 | %  
|Commercial non real estate |       |        | 4,529        |             |      |        | 11    |             |      |        | 4,779 |             |       |        | 11 |             |   |        | 7,372  |             |  |  | 14 |     |       |   | 5,089  |        |  |  | 10    |     |   |   | 4,534 |        |  |  | 7  |    
|Construction               |       |        | 3,384        |             |      |        | 10    |             |      |        | 4,608 |             |       |        | 17 |             |   |        | 3,749  |             |  |  | 11 |     |       |   | 3,621  |        |  |  | 16    |     |   |   | 3,226 |        |  |  | 12 |    
|Mortgage                   |       |        | 845          |             |      |        | 11    |             |      |        | 1,420 |             |       |        | 15 |             |   |        | 2,049  |             |  |  | 23 |     |       |   | 1,317  |        |  |  | 29    |     |   |   | 1,173 |        |  |  | 48 |    
|Consumer                   |       |        | 4,560        |             |      |        | 14    |             |      |        | 4,124 |             |       |        | 13 |             |   |        | 2,661  |             |  |  | 10 |     |       |   | 3,506  |        |  |  | 6     |     |   |   | 3,124 |        |  |  | 4  |    
|Home equity                |       |        | 1,720        |             |      |        | 15    |             |      |        | 1,380 |             |       |        | 12 |             |   |        | 979    |             |  |  | 8  |     |       |   | 1,259  |        |  |  | 7     |     |   |   | 1,122 |        |  |  | 6  |    
|                           |       |        |              |             |      |        |       |             |      |        |       |             |       |        |    |             |   |        |        |             |  |  |    |     |       |   |        |        |  |  |       |     |   |   |       |        |  |  |    |    
|                           | Total |        | $            | 27,204      |      |        |       | 100         | %    |        | $     | 25,843      |       |        |    | 100         | % |        | $      | 28,447      |  |  |    | 100 | %     |   | $      | 25,002 |  |  |       | 100 | % |   | $     | 22,276 |  |  |    | 100 | %
|                           |       |        |              |             |      |        |       |             |      |        |       |             |       |        |    |             |   |        |        |             |  |  |    |     |       |   |        |        |  |  |       |     |   |   |       |        |  |  |    |    

(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 Fourprovides information on the average amounts of deposits and the
rates paid by deposit category. Total deposits at December 31, 2002 were $2.32
billion, a 7.4 percent increase from December 31, 2001. Deposit growth has
occurred across every major category. Increases in money market and demand
deposit were due to marketing campaigns directed toward packaging and promoting
these accounts more effectively. Increases in certificates of deposit were due
to the purchase of $93.2 million of brokered certificates of deposits used as a
funding source.

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During the fourth quarter of 2002, the Corporation introduced the Checking
Account Marketing Program (CHAMP). The emphasis of this program is to develop
new customer relationships, generate additional fee income opportunities, and
to shift the funding mix towards lower cost funding sources. As a result, 7,400
new checking accounts were opened during the fourth quarter of 2002, a 300
percent increase over the fourth quarter of 2001. See Note Elevenof the
consolidated financial statements for further details on deposits.

Other Borrowings

Other borrowings increased $233.9 million during the year, to $1.04
billion at December 31, 2002, from $808.5 million at December 31, 2001. The
increase was primarily due to an increase of $190.9 million in federal funds
purchased and securities sold under agreements to repurchase and an increase of
$43.0 million in FHLB advances. These borrowings were principally used to fund
loan growth and securities purchases. During the fourth quarter of 2002, the
Corporation incurred $3.3 million in prepayment penalties associated with the
refinancing of $100 million in fixed-term advances.

The following is a schedule of other borrowings which consists of the
following categories: securities sold under repurchase agreements, federal
funds purchased and FHLB borrowings for the years ended December 31, 2002, 2001
and 2000.

Table SixteenOther Borrowings

|                                                                                                    |                                      |      |   |           |   |      |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------- | ------------------------------------ | ---- | - | --------- | - | ---- | - | ------- | - |  | - | ------- | -
|(Dollars in thousands)                                                                              |                                      | 2002 |   | 2001      |   | 2000
|                                                                                                    |                                      |      |   |           |   |     
|Federal funds purchased, securities
sold under agreements to repurchase,
FHLB and other borrowings: |                                      |      |   |           |   |      |   |         |   |  |   |        
|                                                                                                    | Balance as of December 31            |      | $ | 1,042,440 |   |      | $ | 808,512 |   |  | $ | 570,024 |  
|                                                                                                    | Average balance                      |      |   | 906,263   |   |      |   | 652,298 |   |  |   | 556,859 |  
|                                                                                                    | Maximum outstanding at
any month end |      |   | 1,042,440 |   |      |   | 808,512 |   |  |   | 627,916 |  
|                                                                                                    | Interest rate as of December 31      |      |   | 2.99      | % |      |   | 3.84    | % |  |   | 5.98    | %
|                                                                                                    | Average interest rate                |      |   | 3.56      | % |      |   | 4.85    | % |  |   | 5.94    | %
|                                                                                                    |                                      |      |   |           |   |      |   |         |   |  |   |         |  

At December 31, 2001, FCB had one available line of credit with the FHLB
totaling $855.9 million with approximately $682.3 million outstanding. The
outstanding amounts consisted of $254.0 million maturing in 2003, $50.0 million
maturing in 2004, $40.0 million maturing in 2006, $51.0 million maturing in
2009, $107.0 million maturing in 2010 and $180.3 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
qualifying 1-4 family residential mortgage loans, qualifying commercial loans
and securities pledged to FHLB.

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 retail
deposits, by current earnings, and by a strong capital base that enables the
Corporation 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,
other borrowings, 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,
2002, the Bank had an available line of credit with the FHLB totaling $855.9
million with $682.3 million outstanding. At December 31, 2002, the Bank also
had federal funds back-up lines of credit totaling $65.0 million, of which
there were no amounts

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outstanding. At December 31, 2002, the Corporation had lines of credit with
SunTrust Bank totaling $25.0 million with $15.0 million outstanding and
commercial paper outstandings of $18.4 million.

During 2002, the Corporation incurred $3.3 million in prepayment penalties
associated with the refinancing of $100 million in fixed-term FHLB advances.

Another source of liquidity is the securities available for sale
portfolio. See Investment Portfoliofor 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 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 2003, any contractual obligations that are due in less than
one year.

Table SeventeenContractual Obligations
As of December 31, 2002

|                                |                                    |        |                        |           |  |           |         |              |  |       |        |         |  |   |         |         |  |   |           |           | 
|------------------------------- | ---------------------------------- | ------ | ---------------------- | --------- |  | --------- | ------- | ------------ |  | ----- | ------ | ------- |  | - | ------- | ------- |  | - | --------- | --------- | 
|                                |                                    |        | Payments Due by Period
|                                |                                    |        |                       
|                                |                                    |        | Less than              |           |  |           |         |              |  |       |        |         |  |   |         |         |  |   |          
|(Dollars in thousands)          |                                    | 1 year |                        | 1-3 Years |  | 4-5 Years |         | Over 5 Years |  | Total
|                                |                                    |        |                        |           |  |           |         |              |  |      
|Other borrowings                |                                    | $      | 614,110                |           |  | $         | 50,000  |              |  | $     | 40,000 |         |  | $ | 338,330 |         |  | $ | 1,042,440 |          
|Lease obligations               |                                    |        | 1,920                  |           |  |           | 3,038   |              |  |       | 1,796  |         |  |   | 950     |         |  |   | 7,704     |          
|Equity method investees funding |                                    |        | 1,800                  |           |  |           |        |              |  |       |       |         |  |   |        |         |  |   | 1,800     |          
|Deposits(1)                     |                                    |        | 1,978,415              |           |  |           | 272,850 |              |  |       | 71,382 |         |  |   |        |         |  |   | 2,322,647 |          
|                                |                                    |        |                        |           |  |           |         |              |  |       |        |         |  |   |         |         |  |   |           |          
|                                | Total Contractual Cash Obligations |        | $                      | 2,596,245 |  |           | $       | 325,888      |  |       | $      | 113,178 |  |   | $       | 339,280 |  |   | $         | 3,374,591 | 
|                                |                                    |        |                        |           |  |           |         |              |  |       |        |         |  |   |         |         |  |   |           |          

(1)  Deposits with no stated maturity (demand, money market, and savings deposits) are presented in the less than one year category.

Asset-Liability Management and Interest Rate Sensitivity

The primary objective of the Corporations asset-liability management
strategy is to enhance earnings through balance sheet growth while reducing or
minimizing the risk caused by interest rate changes. 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. Management believes this
method more accurately measures interest rate risk. This model is updated
monthly and is based on a range of interest rate shock 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. 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 1.86 percent of net interest income at
December 31, 2002. Assuming a 125 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 0.40
percent of net interest income at December 31, 2002. Although the Corporations
policy for interest shock scenarios is an increase or decrease of 300 basis
points, in the current low interest rate environment the decreased interest
rate shock scenario is equal to the Fed Funds rate of 125 basis points. Both of
the rate shock scenarios are within Managements acceptable range.

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,
2002, the Corporation had no such derivative financial instruments. Refer to
Notes One and Sevenof the consolidated financial statements and Results of
Operationsfor a discussion of the Corporations use of written
over-the-counter covered call options during 2002. The Corporation does not
have any special purpose entities or off-balance sheet financing arrangements.

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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. Refer to Note Sixteenof the consolidated financial statements
for further discussion of commitments.

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

Table EighteenCommitments
As of December 31, 2002

|                          |                   |        |                                            |           |  |           |        |              |  |           |        |        |  |   |         |         |               |   |         |         | 
|------------------------- | ----------------- | ------ | ------------------------------------------ | --------- |  | --------- | ------ | ------------ |  | --------- | ------ | ------ |  | - | ------- | ------- | ------------- | - | ------- | ------- | 
|                          |                   |        | 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
|                          |                   |        |                                            |           |  |           |        |              |  |          
|Lines of Credit           |                   | $      | 95,734                                     |           |  | $         | 1,576  |              |  | $         | 5,199  |        |  | $ | 246,331 |         |               | $ | 348,840 |        
|Standby Letters of Credit |                   |        | 10,652                                     |           |  |           | 244    |              |  |           |       |        |  |   |        |         |               |   | 10,896  |        
|Loan Commitments          |                   |        | 203,793                                    |           |  |           | 51,168 |              |  |           | 16,649 |        |  |   | 6,166   |         |               |   | 277,776 |        
|                          |                   |        |                                            |           |  |           |        |              |  |           |        |        |  |   |         |         |               |   |         |        
|                          | Total Commitments |        | $                                          | 310,179   |  |           | $      | 52,988       |  |           | $      | 21,848 |  |   | $       | 252,497 |               |   | $       | 637,512 | 
|                          |                   |        |                                            |           |  |           |        |              |  |           |        |        |  |   |         |         |               |   |         |        

Table Nineteensummarizes the expected maturities and weighted average
effective yields and rates associated with certain of the Corporations
significant non-trading financial instruments. Cash and cash equivalents,
federal funds sold and interest bearing bank deposits, are excluded from Table
Nineteenas their respective carrying values approximate fair values. These
financial instruments generally expose the Corporation to insignificant market
risk as they have either no stated maturities or an average maturity of less
than 30 days and interest rates that approximate market rates. However, these
financial instruments could expose the Corporation to interest rate risk by
requiring more or less reliance on alternative funding sources, such as
long-term debt. For further information on the fair value of financial
instruments, see Note Eighteenof the consolidated financial statements. 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, 2002. Demand deposits, money market accounts and certain savings
deposits are presented in the earliest maturity window because they have no
stated maturity.

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Table NineteenMarket Risk

December 31, 2002


|                              |                                  |       |   |           |   |      | Expected Maturity
|----------------------------- | -------------------------------- | ----- | - | --------- | - | ---- | -----------------
|                              |                                  |       |   |           |   |      |                  
|                              |                                  |       |   |           |   |      |                  
|(Dollars in thousands)        |                                  | Total |   | 2003      |   | 2004 |                  
|                              |                                  |       |   |           |   |      |                  
|Assets                        |                                  |       |   |           |   |      |                  
|Debt securities               |                                  |       |   |           |   |      |                  
|                              | Fixed rate                       |       |   |           |   |      |                  
|                              | Book value                       |       | $ | 1,061,868 |   |      | $                
|                              | Weighted average effective yield |       |   | 4.85      | % |      |                  
|                              | Fair value                       |       | $ | 1,086,797 |   |      |                  
|Loans and loans held for sale |                                  |       |   |           |   |      |                  
|                              | Fixed rate                       |       |   |           |   |      |                  
|                              | Book value                       |       | $ | 907,836   |   |      |                  
|                              | Weighted average effective yield |       |   | 7.23      | % |      |                  
|                              | Fair value                       |       | $ | 985,747   |   |      |                  
|                              | Variable rate                    |       |   |           |   |      |                  
|                              | Book value                       |       | $ | 1,295,834 |   |      |                  
|                              | Weighted average effective yield |       |   | 4.83      | % |      |                  
|                              | Fair value                       |       | $ | 1,290,077 |   |      |                  
|Liabilities                   |                                  |       |   |           |   |      |                  
|Deposits                      |                                  |       |   |           |   |      |                  
|                              | Fixed rate                       |       |   |           |   |      |                  
|                              | Book value                       |       | $ | 1,295,188 |   |      |                  
|                              | Weighted average effective yield |       |   | 3.02      | % |      |                  
|                              | Fair value                       |       | $ | 1,306,949 |   |      |                  
|                              | Variable rate                    |       |   |           |   |      |                  
|                              | Book value                       |       | $ | 721,535   |   |      |                  
|                              | Weighted average effective yield |       |   | 0.74      | % |      |                  
|                              | Fair value                       |       | $ | 721,580   |   |      |                  
|Other borrowings              |                                  |       |   |           |   |      |                  
|                              | Fixed rate                       |       |   |           |   |      |                  
|                              | Book value                       |       | $ | 428,330   |   |      |                  
|                              | Weighted average effective yield |       |   | 4.77      | % |      |                  
|                              | Fair value                       |       | $ | 474,298   |   |      |                  
|                              | Variable rate                    |       |   |           |   |      |                  
|                              | Book value                       |       | $ | 614,110   |   |      |                  
|                              | Weighted average effective yield |       |   | 1.42      | % |      |                  
|                              | Fair value                       |       | $ | 614,148   |   |      |                  
|                              |                                  |       |   |           |   |      |                  

Capital Resources


At December 31, 2002, total shareholders equity was $324.7 million,
representing a book value of $10.80 per share, compared to $309.3 million or a
book value of $10.06 per share at December 31, 2001. The increase was primarily
due to the recognition of $10.1 million in after-tax unrealized gains on
available for sale securities combined with net earnings (net income less
dividends) of $17.6 million and the receipt of $1.6 million from the sale of
approximately 136,215 shares of common stock issued for stock options. The
increase was partially offset by the payment of $13.7 million for the purchase
and retirement of 809,600 shares of common stock and the payment of $0.2
million for the settlement of the December 31, 2001 share repurchase agreement
as described in Note Fourteenon page 60 of the Corporations Annual Report on
Form 10-K for the year ended December 31, 2001. The securities available for
sale portfolio had an unrealized net gain of $15.9 million (net of tax) at
December 31, 2002, compared to an unrealized net gain of $5.8 million (net of
tax) at December 31, 2001. The increase in the unrealized gain was due to a
decline in the yield curve.

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

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Bank if they determine that such payment would constitute an unsafe or unsound
practice. See Note Nineteenof 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 standards of the Federal Reserve Board, 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 Federal
Reserve standards.

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
Federal Reserve Board. See Note Twentyof notes to consolidated financial
statements for additional discussion of requirements.

At December 31, 2002, the Corporation and the Bank were in compliance with
all existing capital requirements. The most recent notifications from the
Corporations and the Banks various regulators categorized the Corporation and
the Bank as well capitalized under the regulatory framework for prompt
corrective action. In the judgment of management, there have been no events or
conditions since those notifications that would change the well capitalized
status of the Corporation or the Bank. The Corporations capital requirements
are summarized in the table below:

Table TwentyCapital Ratios

|                       |  |                  |         |                |  |               |      |                |  |                    |         |                |  |  |       |   |  |   |         |  |  |  |       |  
|---------------------- |  | ---------------- | ------- | -------------- |  | ------------- | ---- | -------------- |  | ------------------ | ------- | -------------- |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                       |  |                  |         |                |  |               |      |                |  | Risk-Based Capital
|                       |  |                  |         |                |  |               |      |                |  |                   
|                       |  | Leverage Capital |         | Tier 1 Capital |  | Total Capital
|                       |  |                  |         |                |  |              
|(Dollars in thousands) |  | Amount           |         | Percentage (1) |  | Amount        |      | Percentage (2) |  | Amount             |         | Percentage (2)
|                       |  |                  |         |                |  |               |      |                |  |                    |         |               
|Actual                 |  | $                | 290,031 |                |  |               | 7.92 | %              |  | $                  | 290,031 |                |  |  | 11.52 | % |  | $ | 317,700 |  |  |  | 12.62 | %
|Required               |  |                  | 146,404 |                |  |               | 4.00 |                |  |                    | 100,712 |                |  |  | 4.00  |   |  |   | 201,424 |  |  |  | 8.00  |  
|Excess                 |  |                  | 143,627 |                |  |               | 3.92 |                |  |                    | 189,319 |                |  |  | 7.52  |   |  |   | 116,276 |  |  |  | 4.62  |  



| |     |  |                                                                                                                                                                                                                                                                                                
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.                                                                                                                                                                                                                                                            

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.

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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. SFAS No.
137 was amended by Statement of Financial Accounting Standard No. 138
Accounting for Certain Derivative Instruments and Certain Hedging Activities 
an amendment of FASB Statement No. 133. Accordingly, the Corporation adopted
SFAS No. 133, SFAS No. 137 and SFAS No. 138 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 the December 31, 2000 year-end. 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 requires 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 also requires
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. SFAS No. 121 was subsequently superseded by Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Corporation adopted the provisions of SFAS
No. 141 as of June 30, 2001 and fully adopted SFAS No. 142 as of January 1,
2002. Accordingly, goodwill acquired in business combinations initiated after
July 1, 2001 are not amortized, and all other goodwill ceased being amortized
on January 1, 2002.

SFAS No. 141 requires, upon adoption of SFAS No. 142, that the Corporation
evaluate its existing intangible assets and goodwill that were acquired in
prior purchase business combinations, and to make any necessary
reclassifications in order to conform with the new criteria in SFAS No. 141 for
recognition apart from goodwill. Upon adoption of SFAS No. 142, the Corporation
reassessed the useful lives and residual values of all identifiable intangible
assets acquired in purchase business combinations, and as a result was not
required to make any necessary amortization period adjustments. In addition,
any intangible assets classified as goodwill under SFAS No. 142 were subjected
to a transitional impairment test during the first six months of 2002 based on
the level of goodwill as of January 1, 2002. Goodwill as of January 1, 2002 was
tested during the first six months of 2002. As a result of this testing, no
impairment charges were recorded.

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

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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 June 15, 2002. The
Corporation does not expect adoption of this statement to have a material
effect on its consolidated financial statements.

In October 2001, the 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.
Accordingly, the Corporation adopted SFAS No. 144 on January 1, 2002, with no
material impact on its consolidated financial statements.

In May 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, (SFAS No. 145) Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. This Statement
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No.
44, Accounting for Intangible Assets of Motor Carriers and amends SFAS No.
13, Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. This
statement is effective for fiscal years beginning after May 15, 2002, with
early application encouraged. The Corporation early adopted the provisions of
SFAS No. 145 on October 1, 2002. As a result, the prepayment costs of $3.3
million associated with the refinancing of $100 million in fixed-term advances
was classified in the operating section of the income statement rather than as
an extraordinary item, as previously required by SFAS No. 4.

In August 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 (SFAS No. 146), Accounting for Costs Associated with Exit or
Disposal Activities, which addresses financial accounting and reporting costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Under EITF Issue No. 94-3, an entity
recognized a liability for an exit cost on the date that the entity committed
itself to an exit plan. In SFAS No. 146, the FASB acknowledges that an entitys
commitment to a plan does not, by itself, create a present obligation to other
parties that meets the definition of a liability. An obligation becomes a
present obligation when a transaction or event occurs that leaves an entity
little or no discretion to avoid the future transfer or use of assets to settle
the liability. SFAS No. 146 also establishes that fair value is the objective
for the initial measurement of the liability. SFAS No. 146 will be effective
for exit or disposal activities that are initiated after December 31, 2002.
There was no impact to the Corporation upon adoption.

In October 2002, the FASB issued Statement of Financial Accounting
Standards No. 147 (SFAS No. 147), Acquisitions of Certain Financial
Institutions, which addresses the financial accounting and reporting for the
acquisition of all or part of a financial institution. This standard removes
certain

43



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##### 



acquisitions of financial institutions from the scope of Statement of
Financial Accounting Standards No. 72 (SFAS No. 72). This statement requires
financial institutions to reclassify goodwill, which was created from a
qualified business acquisition, from SFAS No. 72 goodwill to goodwill subject
to the provisions of SFAS No. 142. The reclassified goodwill will no longer be
amortized but will be subject to an annual impairment test, pursuant to SFAS
No. 142. SFAS No. 147 requires the Corporation to retroactively restate its
previously issued 2002 interim financial statements, to reverse SFAS No. 72
goodwill amortization expense recorded in the first three quarters of the 2002
fiscal year, the year in which the Corporation adopted SFAS No. 142. The
Corporation adopted SFAS No. 147 on October 1, 2002. The Corporation had $12.1
million of SFAS No. 72 goodwill which was reclassified and will no longer be
amortized. This resulted in the reversal of $716,000 ($520,000 or $0.02 diluted
earnings per share, after-tax) of amortization expense for the nine months
ended September 30, 2002. The impact of SFAS No. 147 on fourth quarter 2002
earnings was approximately $239,000 ($173,000 or $0.01 diluted earnings per
share, after-tax). In accordance SFAS No. 147, the Corporation performed a
transitional impairment test of this goodwill in the fourth quarter of 2002. As
a result of this testing, no impairment charges were recorded. The Corporation
will perform an annual impairment test of the goodwill in 2003 and thereafter.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS No. 148), Accounting for Stock-Based Compensation 
Transition and Disclosure an amendment of FASB Statement No. 123. This
Statement amends SFAS No. 123, to provide alternative methods of transition for
an entity that voluntarily changes to the fair value method of accounting for
stock-based employee compensation. It also amends the disclosures provisions of
that Statement to require prominent disclosure about the effects on reported
net income of an entitys accounting policy with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No. 28 (APB
No. 28), Interim Financial Reporting, to require disclosure about those
effects in interim financial information. The Corporation currently has no
plans to change its accounting for stock-based employee compensation. The
disclosure provisions of this statement, except for the amendment of APB No.
28, are effective for financial statements for fiscal years ending after
December 15, 2002 and are presented in the notes to the consolidated financial
statements. The provisions of this statement related to the amendment of APB
Opinion No. 28 are effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002. The
Corporation expects to make disclosures pursuant to this portion of the
interpretation in its interim consolidated financial statements beginning in
2003.

In October 2002, the FASB issued Financial Accounting Standards Board
Interpretation No. 45, (FASB Interpretation No. 45), Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which establishes disclosure standards for a guarantor
about its obligations under certain guarantees that it has issued. Under FASB
Interpretation No. 45 a guarantor is required to disclose the nature of the
guarantee, including the approximate term of the guarantee, how the guarantee
arose, and the events or circumstances that would require the guarantor to
perform under the guarantee. The guarantor is also required to disclose the
maximum potential amount of future payments under the guarantee, the carrying
amount of the liability, if any, for the guarantors obligations under the
guarantee, and the nature and extent of any recourse provisions or available
collateral that would enable the guarantor to recover the amounts paid under
the guarantee. The initial recognition and measurement provisions of FASB
Interpretation No. 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. Accordingly, the Corporation plans
to adopt these provisions of FASB Interpretation No. 45 on January 1, 2003. The
impact to the Corporation has yet to be determined. The disclosure requirements
in FASB Interpretation No. 45 are effective for financial statements of interim
or annual periods ending after December 15, 2002. Accordingly, the Corporation
adopted the disclosure provisions in 2002, and has made the relevant
disclosures in its accompanying consolidated financial statements.

In January 2003, the FASB issued Financial Accounting Standards Board
Interpretation No. 46, (FASB Interpretation No. 46), Consolidation of Variable
Interest Entities, which addresses consolidation of variable interest entities
by business enterprises. Variable interest entities are equity interests that
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. An enterprise
shall consolidate a variable interest entity if that enterprise has a variable
interest (or

44



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combination of variable interests) that will absorb a majority of expected
losses if they occur, receive a majority of the entitys residual returns if
they occur, or both. The enterprise that consolidates the variable interest
entity is called the primary beneficiary of that entity. Under FASB
Interpretation No. 46 an enterprise that holds significant variable interests
in a variable interest entity but is not the primary beneficiary is required to
disclose the nature, purpose, size, and activities of the variable interest
entity, its exposure to loss as a result of the variable interest holders
involvement with the entity, and the nature of its involvement with the entity
and date when the involvement began. The primary beneficiary of a variable
interest entity is required to disclose the nature, purpose, size, and
activities of the variable interest entity, the carrying amount and
classification of consolidated assets that are collateral for the variable
interest entitys obligations, and any lack of recourse by creditors (or
beneficial interest holders) of a consolidated variable interest entity to the
general credit of the primary beneficiary. FASB Interpretation No. 46 will be
effective for the Corporation beginning July 1, 2003. The Corporation does not
currently expect adoption of this interpretation 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.

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 Sensitivityon page 38 and
is incorporated herein by reference.

45



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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 Corporation) as of December 31, 2002 and
2001, 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, 2002. These consolidated financial statements are the responsibility of the
Corporation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, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note One to the Consolidated Financial Statements, on January
1, 2002, the Corporation adopted Statement of Financial Accounting Standards
No. 142 Goodwill and Other Intangible Assets, and on October 1, 2002, the
Corporation adopted Statement of Financial Accounting Standards No. 145 
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections and Statement of Financial Accounting
Standards No. 147 Acquisitions of Certain Financial Institutions.

Charlotte, North Carolina
January 14, 2003

46



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|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |           |           |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | -------------------------- | ------------------------- | --------- | ----------- | ------- | ----------- | --------- | --------- | ------- | -
|                                                                                                                                                                                  |                                                        |                            |                           |           | December 31 |         | December 31
|                                                                                                                                                                                  |                                                        |                            |                           |           | 2002        |         | 2001       
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |            
|(Dollars in thousands, except share data)                                                                                                                                         |                                                        |                            |                           |          
|Assets:                                                                                                                                                                           |                                                        |                            |                           |           |             |         |             |          
|Cash and due from banks                                                                                                                                                           |                                                        | $                          | 162,087                   |           |             | $       | 134,084     |          
|Federal funds sold                                                                                                                                                                |                                                        |                            | 1,154                     |           |             |         | 1,161       |          
|Interest bearing bank deposits                                                                                                                                                    |                                                        |                            | 6,609                     |           |             |         | 6,220       |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  | Cash and cash equivalents                              |                            |                           | 169,850   |             |         |             | 141,465   |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|Securities available for sale (cost of $1,103,107 at December 31, 2002 and
$1,066,746 at December 31, 2001; carrying amount of pledged collateral
at December 31, 2002, $735,208) |                                                        |                            | 1,129,212                 |           |             |         | 1,076,324   |          
|Loans held for sale                                                                                                                                                               |                                                        |                            | 158,404                   |           |             |         | 7,334       |          
|Loans                                                                                                                                                                             |                                                        |                            | 2,072,717                 |           |             |         | 1,947,752   |          
|                                                                                                                                                                                  | Less: Unearned income                                  |                            |                           | (247      | )           |         |             | (191      | )        
|                                                                                                                                                                                  |                                                        |                            | Allowance for loan losses |           |             | (27,204 | )           |           |           | (25,843 | )
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  | Loans, net                                             |                            |                           | 2,045,266 |             |         |             | 1,921,718 |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|Premises and equipment, net                                                                                                                                                       |                                                        |                            | 94,647                    |           |             |         | 96,976      |          
|Other assets                                                                                                                                                                      |                                                        |                            | 148,570                   |           |             |         | 88,920      |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  |                                                        | Total assets               |                           | $         | 3,745,949   |         |             | $         | 3,332,737 |        
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|Liabilities:                                                                                                                                                                      |                                                        |                            |                           |           |             |         |             |          
|Deposits, domestic:                                                                                                                                                               |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  | Noninterest bearing demand                             |                            | $                         | 305,924   |             |         | $           | 276,699   |          
|                                                                                                                                                                                  | Interest bearing                                       |                            |                           | 2,016,723 |             |         |             | 1,886,246 |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  |                                                        | Total deposits             |                           |           | 2,322,647   |         |             |           | 2,162,945 |        
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|Other borrowings                                                                                                                                                                  |                                                        |                            | 1,042,440                 |           |             |         | 808,512     |          
|Other liabilities                                                                                                                                                                 |                                                        |                            | 56,176                    |           |             |         | 51,939      |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  |                                                        | Total liabilities          |                           |           | 3,421,263   |         |             |           | 3,023,396 |        
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|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 30,069,147 and 30,742,532 shares                                                                |                                                        |                            | 122,870                   |           |             |         | 135,167     |          
|Common stock held in Rabbi Trust for deferred compensation                                                                                                                        |                                                        |                            | (476                      | )         |             |         | (388        | )        
|Deferred compensation payable in common stock                                                                                                                                     |                                                        |                            | 476                       |           |             |         | 388         |          
|Retained earnings                                                                                                                                                                 |                                                        |                            | 185,900                   |           |             |         | 168,334     |          
|Accumulated other comprehensive income:                                                                                                                                           |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  | Unrealized gains on securities available for sale, net |                            |                           | 15,916    |             |         |             | 5,840     |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|                                                                                                                                                                                  |                                                        | Total shareholders equity |                           |           | 324,686     |         |             |           | 309,341   |        
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          
|Total liabilities and shareholders equity                                                                                                                                        |                                                        | $                          | 3,745,949                 |           |             | $       | 3,332,737   |          
|                                                                                                                                                                                  |                                                        |                            |                           |           |             |         |             |          

See accompanying notes to consolidated financial statements.

47



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First Charter Corporation and Subsidiaries
Consolidated Statements of Income

|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |            | 
|-------------------------------------------------------------------------- | ------------------------- | ---- | ----------------------- | ---------- |  | ---- | ------- | ---------- |  | - | ------- | ---------- | 
|                                                                           |                           |      | Years Ended December 31
|                                                                           |                           |      |                        
|(Dollars in thousands, except share and per share data)                    |                           | 2002 |                         | 2001       |  | 2000
|                                                                           |                           |      |                         |            |  |     
|Interest income:                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Loans                                                                      |                           | $    | 135,085                 |            |  | $    | 158,985 |            |  | $ | 184,035 |           
|Federal funds sold                                                         |                           |      | 20                      |            |  |      | 75      |            |  |   | 250     |           
|Interest bearing bank deposits                                             |                           |      | 169                     |            |  |      | 399     |            |  |   | 224     |           
|Securities                                                                 |                           |      | 61,114                  |            |  |      | 55,817  |            |  |   | 31,634  |           
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|                                                                           | Total interest income     |      |                         | 196,388    |  |      |         | 215,276    |  |   |         | 216,143    | 
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Interest expense:                                                          |                           |      |                         |            |  |      |         |            |  |   |         |           
|Deposits                                                                   |                           |      | 50,957                  |            |  |      | 78,252  |            |  |   | 75,263  |           
|Federal funds purchased and securities
sold under agreements to repurchase |                           |      | 3,148                   |            |  |      | 5,034   |            |  |   | 6,620   |           
|Federal Home Loan Bank and other borrowings                                |                           |      | 29,122                  |            |  |      | 26,626  |            |  |   | 26,431  |           
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|                                                                           | Total interest expense    |      |                         | 83,227     |  |      |         | 109,912    |  |   |         | 108,314    | 
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Net interest income                                                        |                           |      | 113,161                 |            |  |      | 105,364 |            |  |   | 107,829 |           
|Provision for loan losses                                                  |                           |      | 8,270                   |            |  |      | 4,465   |            |  |   | 7,615   |           
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Net interest income after provision for loan losses                        |                           |      | 104,891                 |            |  |      | 100,899 |            |  |   | 100,214 |           
|Noninterest income:                                                        |                           |      |                         |            |  |      |         |            |  |   |         |           
|Service charges on deposit accounts                                        |                           |      | 19,133                  |            |  |      | 14,736  |            |  |   | 11,187  |           
|Financial management income                                                |                           |      | 2,396                   |            |  |      | 2,323   |            |  |   | 2,819   |           
|Gain (loss) on sale of securities                                          |                           |      | 11,539                  |            |  |      | 2,399   |            |  |   | (4,303  | )         
|Loss on sale of loans                                                      |                           |      |                        |            |  |      |        |            |  |   | (99     | )         
|(Loss) income from equity method investees                                 |                           |      | (5,801                  | )          |  |      | (442    | )          |  |   | 4,580   |           
|Mortgage loan fees                                                         |                           |      | 2,457                   |            |  |      | 2,643   |            |  |   | 1,001   |           
|Brokerage services income                                                  |                           |      | 2,288                   |            |  |      | 1,746   |            |  |   | 1,543   |           
|Insurance services income                                                  |                           |      | 8,770                   |            |  |      | 7,681   |            |  |   | 6,805   |           
|Trading gains                                                              |                           |      | 2,078                   |            |  |      | 2,592   |            |  |   |        |           
|Gain on sale of property                                                   |                           |      | 904                     |            |  |      | 416     |            |  |   | 2,788   |           
|Other                                                                      |                           |      | 3,867                   |            |  |      | 4,679   |            |  |   | 4,345   |           
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|                                                                           | Total noninterest income  |      |                         | 47,631     |  |      |         | 38,773     |  |   |         | 30,666     | 
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Noninterest expense:                                                       |                           |      |                         |            |  |      |         |            |  |   |         |           
|Salaries and employee benefits                                             |                           |      | 50,306                  |            |  |      | 44,719  |            |  |   | 40,942  |           
|Occupancy and equipment                                                    |                           |      | 16,032                  |            |  |      | 14,607  |            |  |   | 12,342  |           
|Data processing                                                            |                           |      | 2,968                   |            |  |      | 2,120   |            |  |   | 2,380   |           
|Advertising                                                                |                           |      | 2,562                   |            |  |      | 2,363   |            |  |   | 3,390   |           
|Postage and supplies                                                       |                           |      | 4,333                   |            |  |      | 4,820   |            |  |   | 4,379   |           
|Professional services                                                      |                           |      | 6,615                   |            |  |      | 6,727   |            |  |   | 3,760   |           
|Telephone                                                                  |                           |      | 1,951                   |            |  |      | 1,995   |            |  |   | 1,425   |           
|Amortization of intangibles                                                |                           |      | 367                     |            |  |      | 1,875   |            |  |   | 1,196   |           
|Prepayment cost on borrowings                                              |                           |      | 3,284                   |            |  |      |        |            |  |   |        |           
|Restructuring charges and merger-related                                   |                           |      |                        |            |  |      |        |            |  |   | 16,250  |           
|Other                                                                      |                           |      | 9,354                   |            |  |      | 8,353   |            |  |   | 6,663   |           
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|                                                                           | Total noninterest expense |      |                         | 97,772     |  |      |         | 87,579     |  |   |         | 92,727     | 
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Income before income taxes                                                 |                           |      | 54,750                  |            |  |      | 52,093  |            |  |   | 38,153  |           
|Income taxes                                                               |                           |      | 14,947                  |            |  |      | 16,768  |            |  |   | 13,312  |           
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Net income                                                                 |                           | $    | 39,803                  |            |  | $    | 35,325  |            |  | $ | 24,841  |           
|                                                                           |                           |      |                         |            |  |      |         |            |  |   |         |           
|Net income per share:                                                      |                           |      |                         |            |  |      |         |            |  |   |         |           
|                                                                           | Basic                     |      | $                       | 1.30       |  |      | $       | 1.12       |  |   | $       | 0.79       | 
|                                                                           | Diluted                   |      | $                       | 1.30       |  |      | $       | 1.12       |  |   | $       | 0.79       | 
|Weighted average shares:                                                   |                           |      |                         |            |  |      |         |            |  |   |         |           
|                                                                           | Basic                     |      |                         | 30,520,125 |  |      |         | 31,480,109 |  |   |         | 31,435,342 | 
|                                                                           | Diluted                   |      |                         | 30,702,107 |  |      |         | 31,660,985 |  |   |         | 31,580,328 | 

See accompanying notes to consolidated financial statements.

48



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First Charter Corporation and Subsidiaries
Consolidated Statements of Shareholders Equity

|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |        |        | 
|------------------------------------------------------------------- | ----------------------------------------------------- | -------------------------- | ---------- | ------------ |  | ------------ | ------- | ------------ |  | -------- | ---- | ------------- |  | -------- | --- | - |  | - | ------- | ----------- |  | - | ------ | ------ |  | - | ------- | ------ | ------ | 
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      | Common Stock  |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      | held in Rabbi |  | Deferred |     |   |  |   |         | Accumulated |  |   |        |       
|                                                                    |                                                       |                            |            | Common Stock |  | Trust for    |         | Compensation |  |          |      |               |  | Other    |     |   |  |  
|                                                                    |                                                       |                            |            |              |  | Deferred     |         | Payable in   |  | Retained |      | Comprehensive |  |          |     |  
|(Dollars in thousands, except share data)                           |                                                       | Shares                     |            | Amount       |  | Compensation |         | Common Stock |  | Earnings |      | Income (Loss) |  | Total   
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |         
|Balance, December 31, 1999                                          |                                                       |                            | 31,100,310 |              |  | $            | 146,438 |              |  | $        |     |               |  | $        |    |   |  | $ | 151,215 |             |  | $ | (7,385 | )      |  | $ | 290,268 |       
|Comprehensive income:                                               |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|                                                                    | Net income                                            |                            |            |             |  |              |         |             |  |          |      |              |  |          |     |  |  |   |         | 24,841      |  |   |        |       |  |   |         | 24,841 |       
|                                                                    | Unrealized gain on securities available
for sale, net |                            |            |             |  |              |         |             |  |          |      |              |  |          |     |  |  |   |         |            |  |   |        | 9,424  |  |   |         | 9,424  |       
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|                                                                    |                                                       | Total comprehensive income |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |        | 34,265 | 
|Cash dividends                                                      |                                                       |                            |           |              |  |              |        |              |  |          |     |               |  |          |    |   |  |   | (20,294 | )           |  |   |       |        |  |   | (20,294 | )     
|Stock options exercised and Dividend
Reinvestment Plan stock issued |                                                       |                            | 380,680    |              |  |              | 3,050   |              |  |          |     |               |  |          |    |   |  |   |        |             |  |   |       |        |  |   | 3,050   |       
|Shares issued in connection with
business acquisition               |                                                       |                            | 122,263    |              |  |              | 2,025   |              |  |          |     |               |  |          |    |   |  |   |        |             |  |   |       |        |  |   | 2,025   |       
|Purchase and retirement of common stock                             |                                                       |                            | (1,990     | )            |  |              | (27     | )            |  |          |     |               |  |          |    |   |  |   |        |             |  |   |       |        |  |   | (27     | )     
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|Balance, December 31, 2000                                          |                                                       |                            | 31,601,263 |              |  |              | 151,486 |              |  |          |     |               |  |          |    |   |  |   | 155,762 |             |  |   | 2,039  |        |  |   | 309,287 |       
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|Comprehensive income:                                               |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|                                                                    | Net income                                            |                            |            |             |  |              |         |             |  |          |      |              |  |          |     |  |  |   |         | 35,325      |  |   |        |       |  |   |         | 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 | )             |  |          |    |   |  |   |        |             |  |   |       |        |  |   | (388    | )     
|Deferred compensation payable
in common stock                       |                                                       |                            |           |              |  |              |        |              |  |          |     |               |  |          | 388 |   |  |   |        |             |  |   |       |        |  |   | 388     |       
|Cash dividends                                                      |                                                       |                            |           |              |  |              |        |              |  |          |     |               |  |          |    |   |  |   | (22,753 | )           |  |   |       |        |  |   | (22,753 | )     
|Stock options exercised and Dividend
Reinvestment Plan stock issued |                                                       |                            | 141,269    |              |  |              | 1,643   |              |  |          |     |               |  |          |    |   |  |   |        |             |  |   |       |        |  |   | 1,643   |       
|Purchase and retirement of common stock                             |                                                       |                            | (1,000,000 | )            |  |              | (17,962 | )            |  |          |     |               |  |          |    |   |  |   |        |             |  |   |       |        |  |   | (17,962 | )     
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|Balance, December 31, 2001                                          |                                                       |                            | 30,742,532 |              |  |              | 135,167 |              |  |          | (388 | )             |  |          | 388 |   |  |   | 168,334 |             |  |   | 5,840  |        |  |   | 309,341 |       
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|Comprehensive income:                                               |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|                                                                    | Net income                                            |                            |            |             |  |              |         |             |  |          |      |              |  |          |     |  |  |   |         | 39,803      |  |   |        |       |  |   |         | 39,803 |       
|                                                                    | Unrealized gain on securities available
for sale, net |                            |            |             |  |              |         |             |  |          |      |              |  |          |     |  |  |   |         |            |  |   |        | 10,076 |  |   |         | 10,076 |       
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|                                                                    |                                                       | Total comprehensive income |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |        | 49,879 | 
|Common stock purchased by Rabbi Trust
for deferred compensation     |                                                       |                            |           |              |  |              |        |              |  |          | (88  | )             |  |          |    |   |  |   |        |             |  |   |       |        |  |   | (88     | )     
|Deferred compensation payable
in common stock                       |                                                       |                            |           |              |  |              |        |              |  |          |     |               |  |          | 88  |   |  |   |        |             |  |   |       |        |  |   | 88      |       
|Cash dividends                                                      |                                                       |                            |           |              |  |              |        |              |  |          |     |               |  |          |    |   |  |   | (22,237 | )           |  |   |       |        |  |   | (22,237 | )     
|Stock options exercised and Dividend
Reinvestment Plan stock issued |                                                       |                            | 136,215    |              |  |              | 1,596   |              |  |          |     |               |  |          |    |   |  |   |        |             |  |   |       |        |  |   | 1,596   |       
|Purchase and retirement of common stock                             |                                                       |                            | (809,600   | )            |  |              | (13,894 | )            |  |          |     |               |  |          |    |   |  |   |        |             |  |   |       |        |  |   | (13,894 | )     
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       
|Balance, December 31, 2002                                          |                                                       | $                          | 30,069,147 |              |  | $            | 122,870 |              |  | $        | (476 | )             |  | $        | 476 |   |  | $ | 185,900 |             |  | $ | 15,916 |        |  | $ | 324,686 |       
|                                                                    |                                                       |                            |            |              |  |              |         |              |  |          |      |               |  |          |     |   |  |   |         |             |  |   |        |        |  |   |         |       

See accompanying notes to consolidated financial statements.

49



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##### 



First Charter Corporation and Subsidiaries
Consolidated Statements of Cash Flows

|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | --------------------------------------------------- | ---------- | ----------------------- | -------- | ---- | ---------- | -------- | -------- | - | -------- | ------- | ------- | -
|                                                                                                                                                                       |                                                               |                                                     |            | Years Ended December 31
|                                                                                                                                                                       |                                                               |                                                     |            |                        
|(Dollars in thousands)                                                                                                                                                 |                                                               | 2002                                                |            | 2001                    |          | 2000
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |     
|Cash flows from operating activities:                                                                                                                                  |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Net income                                                                                                                                                             |                                                               | $                                                   | 39,803     |                         |          | $    | 35,325     |          |          | $ | 24,841   |        
|Adjustments to reconcile net income to net cash (used in) provided by operating activities:                                                                            |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|                                                                                                                                                                       | Provision for loan losses                                     |                                                     |            | 8,270                   |          |      |            | 4,465    |          |   |          | 7,615   |        
|                                                                                                                                                                       | Depreciation                                                  |                                                     |            | 9,535                   |          |      |            | 8,025    |          |   |          | 6,407   |        
|                                                                                                                                                                       | Amortization of intangibles                                   |                                                     |            | 367                     |          |      |            | 1,875    |          |   |          | 1,196   |        
|                                                                                                                                                                       | Premium amortization and discount accretion, net              |                                                     |            | 1,466                   |          |      |            | (615     | )        |   |          | (17     | )      
|                                                                                                                                                                       | Net (gain) loss on securities available for sale transactions |                                                     |            | (11,539                 | )        |      |            | (2,399   | )        |   |          | 4,303   |        
|                                                                                                                                                                       | Net loss (gain) on sale of foreclosed assets                  |                                                     |            | 211                     |          |      |            | (10      | )        |   |          | 87      |        
|                                                                                                                                                                       | Net loss (income) from equity method investees                |                                                     |            | 5,801                   |          |      |            | 442      |          |   |          | (4,580  | )      
|                                                                                                                                                                       | Net gain on sale of property                                  |                                                     |            | (904                    | )        |      |            | (416     | )        |   |          | (2,788  | )      
|                                                                                                                                                                       | Net loss on sale of mortgage loans                            |                                                     |            |                        |          |      |            |         |          |   |          | 99      |        
|                                                                                                                                                                       | Net gain on sale of premises and equipment                    |                                                     |            | (39                     | )        |      |            | (11      | )        |   |          | (17     | )      
|                                                                                                                                                                       | Origination of mortgage loans held for sale                   |                                                     |            | (159,049                | )        |      |            | (203,231 | )        |   |          | (44,351 | )      
|                                                                                                                                                                       | Proceeds from sale of mortgage loans held for sale            |                                                     |            | 137,736                 |          |      |            | 200,961  |          |   |          | 85,476  |        
|                                                                                                                                                                       | Decrease (increase) in other assets                           |                                                     |            | 865                     |          |      |            | 2,218    |          |   |          | (17,948 | )      
|                                                                                                                                                                       | Increase (decrease) in other liabilities                      |                                                     |            | 4,238                   |          |      |            | (1,654   | )        |   |          | 23,217  |        
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|                                                                                                                                                                       |                                                               | Net cash (used in) provided by operating activities |            |                         | 36,761   |      |            |          | 44,975   |   |          |         | 83,540  |  
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Cash flows from investing activities:                                                                                                                                  |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Proceeds from sales of securities available for sale                                                                                                                   |                                                               |                                                     | 746,886    |                         |          |      | 549,402    |          |          |   | 212,086  |        
|Proceeds from maturities of securities available for sale                                                                                                              |                                                               |                                                     | 275,298    |                         |          |      | 245,081    |          |          |   | 71,927   |        
|Purchase of securities available for sale                                                                                                                              |                                                               |                                                     | (1,048,473 | )                       |          |      | (1,254,580 | )        |          |   | (190,716 | )      
|Proceeds from issuer calls and maturities of securities held to maturity                                                                                               |                                                               |                                                     |           |                         |          |      |           |          |          |   | 758      |        
|Purchase of bank owned life insurance                                                                                                                                  |                                                               |                                                     | (70,000    | )                       |          |      |           |          |          |   |         |        
|Net (increase) decrease in loans and loans held for sale                                                                                                               |                                                               |                                                     | (267,168   | )                       |          |      | 22,466     |          |          |   | (229,914 | )      
|Proceeds from sales of other real estate                                                                                                                               |                                                               |                                                     | 3,153      |                         |          |      | 3,205      |          |          |   | 2,402    |        
|Net purchases of premises and equipment                                                                                                                                |                                                               |                                                     | (7,166     | )                       |          |      | (28,323    | )        |          |   | (27,654  | )      
|Acquisition of businesses, net of cash paid                                                                                                                            |                                                               |                                                     |           |                         |          |      | 439        |          |          |   | 70,429   |        
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|                                                                                                                                                                       |                                                               | Net cash used in investing activities               |            |                         | (367,470 | )    |            |          | (462,310 | ) |          |         | (90,682 | )
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Cash flows from financing activities:                                                                                                                                  |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Net increase (decrease) in demand, money market and savings accounts                                                                                                   |                                                               |                                                     | 85,765     |                         |          |      | 77,311     |          |          |   | (132,185 | )      
|Net increase in certificates of deposit                                                                                                                                |                                                               |                                                     | 73,936     |                         |          |      | 87,400     |          |          |   | 225,599  |        
|Net increase in securities sold under repurchase
agreements and other borrowings                                                                                       |                                                               |                                                     | 233,928    |                         |          |      | 238,489    |          |          |   | 28,003   |        
|Purchase and retirement of common stock                                                                                                                                |                                                               |                                                     | (13,894    | )                       |          |      | (17,962    | )        |          |   | (27      | )      
|Proceeds from issuance of common stock                                                                                                                                 |                                                               |                                                     | 1,596      |                         |          |      | 1,643      |          |          |   | 3,050    |        
|Dividends paid                                                                                                                                                         |                                                               |                                                     | (22,237    | )                       |          |      | (22,753    | )        |          |   | (20,294  | )      
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|                                                                                                                                                                       |                                                               | Net cash provided by financing activities           |            |                         | 359,094  |      |            |          | 364,128  |   |          |         | 104,146 |  
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Net increase (decrease) in cash and cash equivalents                                                                                                                   |                                                               |                                                     | 28,385     |                         |          |      | (53,207    | )        |          |   | 97,004   |        
|Cash and cash equivalents at beginning of period                                                                                                                       |                                                               |                                                     | 141,465    |                         |          |      | 194,672    |          |          |   | 97,668   |        
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Cash and cash equivalents at end of period                                                                                                                             |                                                               | $                                                   | 169,850    |                         |          | $    | 141,465    |          |          | $ | 194,672  |        
|                                                                                                                                                                       |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Supplemental disclosures of cash flow information:                                                                                                                     |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Cash paid for interest                                                                                                                                                 |                                                               | $                                                   | 85,070     |                         |          | $    | 110,860    |          |          | $ | 104,180  |        
|Cash paid for income taxes                                                                                                                                             |                                                               |                                                     | 4,352      |                         |          |      | 4,254      |          |          |   | 4,455    |        
|Supplemental disclosure of non-cash transactions:                                                                                                                      |                                                               |                                                     |            |                         |          |      |            |          |          |   |          |        
|Transfer of loans and premises and equipment to other real estate owned                                                                                                |                                                               |                                                     | 5,593      |                         |          |      | 8,255      |          |          |   | 4,516    |        
|Unrealized gain on securities available for sale
(net of tax effect of $6,451, $2,430, and $6,025 for the years ended
December 31, 2002, 2001, and 2000, respectively) |                                                               |                                                     | 10,076     |                         |          |      | 3,801      |          |          |   | 9,424    |        
|Issuance of common stock for business acquisitions                                                                                                                     |                                                               |                                                     |           |                         |          |      |           |          |          |   | 2,025    |        
|Loans securitized and retained in the available for sale portfolio                                                                                                     |                                                               |                                                     |           |                         |          |      | 166,992    |          |          |   |         |        
|Transfer of loans in portfolio to held for sale                                                                                                                        |                                                               |                                                     | 130,084    |                         |          |      |           |          |          |   | 45,252   |        
|Transfer of securities held to maturity to available for sale in connection
with business combination                                                                  |                                                               |                                                     |           |                         |          |      |           |          |          |   | 35,324   |        

See accompanying notes to consolidated financial statements.

50



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##### 



First Charter Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000

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 Holdings, 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 2002. 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 53 financial centers, five insurance
offices, one mortgage origination office and 93 ATMs located in 17 counties
throughout North Carolina. FCB also maintains an additional mortgage
origination office in Virginia.

During 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.

51



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##### 



Recently Adopted Accounting Pronouncements

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. SFAS No.
137 was amended by Statement of Financial Accounting Standard No. 138
Accounting for Certain Derivative Instruments and Certain Hedging Activities 
an amendment of FASB Statement No. 133. Accordingly, the Corporation adopted
SFAS No. 133, SFAS No. 137 and SFAS No. 138 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 the December 31, 2000 year-end. 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 requires 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 also requires
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. SFAS No. 121 was subsequently superseded by Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Corporation adopted the provisions of SFAS
No. 141 as of June 30, 2001 and fully adopted SFAS No. 142 as of January 1,
2002. Accordingly, goodwill acquired in business combinations initiated after
July 1, 2001 are not amortized, and all other goodwill ceased being amortized
on January 1, 2002.

SFAS No. 141 requires, upon adoption of SFAS No. 142, that the Corporation
evaluate its existing intangible assets and goodwill that were acquired in
prior purchase business combinations, and to make any necessary
reclassifications in order to conform with the new criteria in SFAS No. 141 for
recognition apart from goodwill. Upon adoption of SFAS No. 142, the Corporation
reassessed the useful lives and residual values of all identifiable intangible
assets acquired in purchase business combinations, and as a result was not
required to make any necessary amortization period adjustments. In addition,
any intangible assets classified as goodwill under SFAS No. 142 were subjected
to a transitional impairment test during the first six months of 2002 based on
the level of goodwill as of January 1, 2002. Goodwill as of January 1, 2002 was
tested during the first six months of 2002. As a result of this testing, no
impairment charges were recorded.

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
52

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
June 15, 2002. The Corporation does not expect adoption of this statement to
have a material effect on its consolidated financial statements.

In October 2001, the 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.
Accordingly, the Corporation adopted SFAS No. 144 on January 1, 2002, with no
material impact on its consolidated financial statements.

In May 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, (SFAS No. 145) Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. This Statement
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No.
44, Accounting for Intangible Assets of Motor Carriers and amends SFAS No.
13, Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. This
statement is effective for fiscal years beginning after May 15, 2002, with
early application encouraged. The Corporation early adopted the provisions of
SFAS No. 145 on October 1, 2002. As a result, the prepayment costs of $3.3
million associated with the refinancing of $100 million in fixed-term advances
was classified in the operating section of the income statement rather than as
an extraordinary item, as previously required by SFAS No. 4.

In August 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 (SFAS No. 146), Accounting for Costs Associated with Exit or
Disposal Activities, which addresses financial accounting and reporting costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Under EITF Issue No. 94-3, an entity
recognized a liability for an exit cost on the date that the entity committed
itself to an exit plan. In SFAS No. 146, the FASB acknowledges that an entitys
commitment to a plan does not, by itself, create a present obligation to other
parties that meets the definition of a liability. An obligation becomes a
present obligation when a transaction or event occurs that leaves an entity
little or no discretion to avoid the future transfer or use of assets to settle
the liability. SFAS No. 146 also establishes that fair value is the objective
for the initial measurement of the liability. SFAS No. 146 will be effective
for exit or disposal activities that are initiated after December 31, 2002.
There was no impact to the Corporation upon adoption.

In October 2002, the FASB issued Statement of Financial Accounting
Standards No. 147 (SFAS No. 147), Acquisitions of Certain Financial
Institutions, which addresses the financial accounting and
reporting for the acquisition of all or part of a financial institution.
This standard removes certain

53



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acquisitions of financial institutions from the
scope of Statement of Financial Accounting Standards No. 72 (SFAS No. 72). This
statement requires financial institutions to reclassify goodwill, which was
created from a qualified business acquisition, from SFAS No. 72 goodwill to
goodwill subject to the provisions of SFAS No. 142. The reclassified goodwill
will no longer be amortized but will be subject to an annual impairment test,
pursuant to SFAS No. 142. SFAS No. 147 requires the Corporation to
retroactively restate its previously issued 2002 interim financial statements,
to reverse SFAS No. 72 goodwill amortization expense recorded in the first
three quarters of the 2002 fiscal year, the year in which the Corporation
adopted SFAS No. 142. The Corporation adopted SFAS No. 147 on October 1, 2002.
The Corporation had $12.1 million of SFAS No. 72 goodwill which was
reclassified and will no longer be amortized. This resulted in the reversal of
$716,000 ($520,000 or $0.02 diluted earnings per share, after-tax) of
amortization expense for the nine months ended September 30, 2002. The impact
of SFAS No. 147 on fourth quarter 2002 earnings was approximately $239,000
($173,000 or $0.01 diluted earnings per share, after-tax). In accordance SFAS
No. 147, the Corporation performed a transitional impairment test of this
goodwill in the fourth quarter of 2002. As a result of this testing, no
impairment charges were recorded. The Corporation will perform an annual
impairment test of the goodwill in 2003 and thereafter.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS No. 148), Accounting for Stock-Based Compensation 
Transition and Disclosure an amendment of FASB Statement No. 123. This
Statement amends SFAS No. 123, to provide alternative methods of transition for
an entity that voluntarily changes to the fair value method of accounting for
stock-based employee compensation. It also amends the disclosures provisions of
that Statement to require prominent disclosure about the effects on reported
net income of an entitys accounting policy with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No. 28 (APB
No. 28), Interim Financial Reporting, to require disclosure about those
effects in interim financial information. The Corporation currently has no
plans to change its accounting for stock-based employee compensation. The
disclosure provisions of this statement, except for the amendment of APB No.
28, are effective for financial statements for fiscal years ending after
December 15, 2002 and are presented in the notes to the consolidated financial
statements. The provisions of this statement related to the amendment of APB
Opinion No. 28 are effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002. The
Corporation expects to make disclosures pursuant to this portion of the
interpretation in its interim consolidated financial statements beginning in
2003.

In October 2002, the FASB issued Financial Accounting Standards Board
Interpretation No. 45, (FASB Interpretation No. 45), Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which establishes disclosure standards for a guarantor
about its obligations under certain guarantees that it has issued. Under FASB
Interpretation No. 45 a guarantor is required to disclose the nature of the
guarantee, including the approximate term of the guarantee, how the guarantee
arose, and the events or circumstances that would require the guarantor to
perform under the guarantee. The guarantor is also required to disclose the
maximum potential amount of future payments under the guarantee, the carrying
amount of the liability, if any, for the guarantors obligations under the
guarantee, and the nature and extent of any recourse provisions or available
collateral that would enable the guarantor to recover the amounts paid under
the guarantee. The initial recognition and measurement of FASB Interpretation
No. 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002. Accordingly, the Corporation plans to adopt these
provisions of FASB Interpretation No. 45 on January 1, 2003. The impact to the
Corporation has yet to be determined. The disclosure requirements in FASB
Interpretation No. 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002. Accordingly, the Corporation
adopted the disclosure provisions in 2002, and has made the relevant
disclosures in its accompanying 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.

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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, 2002, 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 Fourteen, the Corporation had a nominal amount of trading
assets at December 31, 2002, 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 and Loans Held for Sale

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
allowance in consideration of the current economic environment. While
management uses the best

55



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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.
Market value is determined by outstanding commitments from investors or current
investor yield requirements.

Derivative Instruments

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, 2002,
the Corporation had no derivative instruments outstanding that are required to
be accounted for in accordance with SFAS No. 133. During 2002 and 2001, the
Corporation recognized income of $2.1 million and $2.6 million, respectively,
on premiums on written over-the-counter covered call options on fixed income
securities.

Servicing Rights

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, 2002 was $1.5 million and $1.8 million,
respectively, compared to a carrying value and estimated fair value of $3.0
million and $3.2 million at December 31, 2001. 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. The Corporation had a valuation allowance related to its servicing rights
of $693,000 for the year ended December 31, 2002, and $263,000 for the year
ended December 31, 2001. No valuation allowance was required at December 31,
2000.

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

|                       |                               |      |                      |        |   |      |       |       |   |   |       |      |  
|---------------------- | ----------------------------- | ---- | -------------------- | ------ | - | ---- | ----- | ----- | - | - | ----- | ---- | -
|                       |                               |      | Capitalized Mortgage
|                       |                               |      | Servicing Rights    
|                       |                               |      |                     
|(Dollars in thousands) |                               | 2002 |                      | 2001   |   | 2000
|                       |                               |      |                      |        |   |     
|Balance, January 1,    |                               | $    | 3,028                |        |   | $    | 1,659 |       |   | $ | 1,536 |     
|                       | Servicing rights capitalized  |      |                      |       |   |      |       | 2,472 |   |   |       | 443  |  
|                       | Amortization expense          |      |                      | (1,120 | ) |      |       | (840  | ) |   |       | (320 | )
|                       | Change in valuation allowance |      |                      | (430   | ) |      |       | (263  | ) |   |       |     |  
|                       |                               |      |                      |        |   |      |       |       |   |   |       |      |  
|Balance, December 31,  |                               | $    | 1,478                |        |   | $    | 3,028 |       |   | $ | 1,659 |     
|                       |                               |      |                      |        |   |      |       |       |   |   |       |     

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.

56



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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 generally
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 result from the Corporation paying amounts in
excess of fair value for the net assets acquired and are amortized on a
straight-line basis over periods up to 15 years. See Recently Adopted
Accounting Pronouncementsbeginning on page 52 for information related to
changes in accounting for goodwill and other intangibles, which were effective
January 1, 2002 and October 1, 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.

The Corporations recognition of earnings or losses from an equity method
investment is determined by the Corporations share of the investees earnings
on a quarterly basis (or, in the case of some smaller investments, on an annual
basis if there has been no significant change in values). The limited
partnerships generally provide their financial information during the quarter
after the end of a given period, and the Corporations policy is to record its
share of earnings or losses on these equity method investments in the quarter
such financial information is received.

57



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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 by the management of the
limited partnerships and are reviewed by the Corporations management for
reasonableness. The assumptions in the valuation of these investments include
the viability of the business model, the ability of the company to obtain
alternative financing, the 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, 2002 and December 31, 2001 the total book value of equity
method investments was $3.8 million and $8.7 million, respectively, and is
included in other assets on the consolidated balance sheet. Of the $3.8
million, $1.4 million represents investments in venture capital partnerships
that are Small Business Investment Companies (SBICs), which invest primarily in
equity securities. At December 31, 2002, the Corporations remaining commitment
to fund the equity method investments was $1.8 million and represented
commitments to three venture funds that are SBICs. These three venture funds
primarily make debt investments in established companies that have a minimum of
$5 million in annual revenue. The remaining commitments are callable in 2003.

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 Fifteen) 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:

|                                         |                                                      |  |                         |            |      |  |            |            |  |  |            |            |  |  |  |  | 
|---------------------------------------- | ---------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---------- | ---------- |  |  | ---------- | ---------- |  |  |  |  | 
|                                         |                                                      |  | Years Ended December 31
|                                         |                                                      |  |                        
|                                         |                                                      |  | 2002                    |            | 2001 |  | 2000      
|                                         |                                                      |  |                         |            |      |  |            |            |  |  |           
|Basic net income per share denominator:  |                                                      |  |                         |            |      |  |            |            |  |  |            |           
|                                         | Weighted average number of
common shares outstanding |  |                         | 30,520,125 |      |  |            | 31,480,109 |  |  |            | 31,435,342 | 
|                                         | Dilutive effect arising from
potential common stock  |  |                         | 181,982    |      |  |            | 180,876    |  |  |            | 144,986    | 
|                                         |                                                      |  |                         |            |      |  |            |            |  |  |            |           
|Diluted net income per share denominator |                                                      |  | 30,702,107              |            |      |  | 31,660,985 |            |  |  | 31,580,328 |           
|                                         |                                                      |  |                         |            |      |  |            |            |  |  |            |           

Dividends Per Share

Dividends declared by the Corporation were $0.73 per share, $0.72 per
share and $0.70 per share for the years ended December 31, 2002, 2001 and 2000,
respectively. Dividends declared by Carolina First were $0.10 per share for the
year ended December 31, 2000.

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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 and Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure an amendment of FASB Statement No. 123, is disclosed as follows and
in Note Fifteen.

|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ---- | ------------------------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                            |                     |      | Years Ended December 31,
|                                                                                                                                            |                     |      |                         
|(Dollars in thousands, except per share data)                                                                                               |                     | 2002 |                          | 2001 |  | 2000
|                                                                                                                                            |                     |      |                          |      |  |     
|Net income, as reported                                                                                                                     |                     | $    | 39,803                   |      |  | $    | 35,325 |      |  | $ | 24,841 |     
|Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects |                     |      | (2,755                   | )    |  |      | (2,193 | )    |  |   | (1,856 | )   
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|Pro forma net income                                                                                                                        |                     | $    | 37,048                   |      |  | $    | 33,132 |      |  | $ | 22,985 |     
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|Earnings per share:                                                                                                                         |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Basic-as reported   |      | $                        | 1.30 |  |      | $      | 1.12 |  |   | $      | 0.79 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Basic-pro forma     |      | $                        | 1.21 |  |      | $      | 1.05 |  |   | $      | 0.73 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Diluted-as reported |      | $                        | 1.30 |  |      | $      | 1.12 |  |   | $      | 0.79 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Diluted-pro forma   |      | $                        | 1.21 |  |      | $      | 1.05 |  |   | $      | 0.73 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     

Note Two - Business Segment Information

For 2002, 2001, and 2000 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 described in Note Onein that management allocations have been made for
overhead expenses. 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.

59



---



##### 



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

|                                      |  |      |           |              |  |                 |         |        |  |   |        |   |  |   |           | 
|------------------------------------- |  | ---- | --------- | ------------ |  | --------------- | ------- | ------ |  | - | ------ | - |  | - | --------- | 
|                                      |  | 2002
|                                      |  |     
|                                      |  |      |           |              |  | Other Operating |         |        |  |   |        |   |  |  
|(Dollars in thousands)                |  | FCB  |           | Segments (1) |  | Other (2)       |         | Totals
|                                      |  |      |           |              |  |                 |         |       
|Total interest income                 |  | $    | 195,919   |              |  | $               | 297     |        |  | $ | 172    |   |  | $ | 196,388   | 
|Total interest expense                |  |      | 82,543    |              |  |                 |        |        |  |   | 684    |   |  |   | 83,227    | 
|                                      |  |      |           |              |  |                 |         |        |  |   |        |   |  |   |           | 
|Net interest income                   |  |      | 113,376   |              |  |                 | 297     |        |  |   | (512   | ) |  |   | 113,161   | 
|Provision for loan losses             |  |      | 8,270     |              |  |                 |        |        |  |   |       |   |  |   | 8,270     | 
|Total noninterest income              |  |      | 35,419    |              |  |                 | 16,126  |        |  |   | (3,914 | ) |  |   | 47,631    | 
|Total noninterest expense             |  |      | 80,036    |              |  |                 | 17,650  |        |  |   | 86     |   |  |   | 97,772    | 
|                                      |  |      |           |              |  |                 |         |        |  |   |        |   |  |   |           | 
|Net income (loss) before income taxes |  |      | 60,489    |              |  |                 | (1,227  | )      |  |   | (4,512 | ) |  |   | 54,750    | 
|Income tax expense (benefit)          |  |      | 16,515    |              |  |                 | (336    | )      |  |   | (1,232 | ) |  |   | 14,947    | 
|                                      |  |      |           |              |  |                 |         |        |  |   |        |   |  |   |           | 
|Net income (loss)                     |  | $    | 43,974    |              |  | $               | (891    | )      |  | $ | (3,280 | ) |  | $ | 39,803    | 
|                                      |  |      |           |              |  |                 |         |        |  |   |        |   |  |   |           | 
|Total loans, net                      |  | $    | 1,884,652 |              |  | $               | 160,614 |        |  | $ |       |   |  | $ | 2,045,266 | 
|Total assets                          |  |      | 3,546,893 |              |  |                 | 172,833 |        |  |   | 26,223 |   |  |   | 3,745,949 | 

|                                      |  |      |           |              |  |                 |        |        |  |   |        |   |  |   |           | 
|------------------------------------- |  | ---- | --------- | ------------ |  | --------------- | ------ | ------ |  | - | ------ | - |  | - | --------- | 
|                                      |  | 2001
|                                      |  |     
|                                      |  |      |           |              |  | Other Operating |        |        |  |   |        |   |  |  
|(Dollars in thousands)                |  | FCB  |           | Segments (1) |  | Other (2)       |        | Totals
|                                      |  |      |           |              |  |                 |        |       
|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 (loss) before income taxes |  |      | 50,312    |              |  |                 | 1,950  |        |  |   | (169   | ) |  |   | 52,093    | 
|Income tax expense (benefit)          |  |      | 16,166    |              |  |                 | 657    |        |  |   | (55    | ) |  |   | 16,768    | 
|                                      |  |      |           |              |  |                 |        |        |  |   |        |   |  |   |           | 
|Net income (loss)                     |  | $    | 34,146    |              |  | $               | 1,293  |        |  | $ | (114   | ) |  | $ | 35,325    | 
|                                      |  |      |           |              |  |                 |        |        |  |   |        |   |  |   |           | 
|Total loans, net                      |  | $    | 1,912,568 |              |  | $               | 9,150  |        |  | $ |       |   |  | $ | 1,921,718 | 
|Total assets                          |  |      | 3,285,543 |              |  |                 | 20,715 |        |  |   | 26,479 |   |  |   | 3,332,737 | 

|                               |  |      |         |              |  |                 |        |        |  |   |       |  |  |   |         | 
|------------------------------ |  | ---- | ------- | ------------ |  | --------------- | ------ | ------ |  | - | ----- |  |  | - | ------- | 
|                               |  | 2000
|                               |  |     
|                               |  |      |         |              |  | Other Operating |        |        |  |   |       |  |  |  
|(Dollars in thousands)         |  | FCB  |         | Segments (1) |  | Other (2)       |        | Totals
|                               |  |      |         |              |  |                 |        |       
|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  | 
|                               |  |      |         |              |  |                 |        |        |  |   |       |  |  |   |         | 



---

|(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.                                              

60



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##### 



Note Three - Mergers and Acquisitions

(a)  Insurance Agencies. Since 2000, the Corporation has acquired one
insurance agency using the purchase accounting method and the customer lists of
two insurance agencies. The year over year increases in insurance services
income is due to the organic growth from our insurance agencies as well as the
insurance agencies and customer lists acquired. The one insurance agency
acquired since 2000 was Hoffman & Young, Inc. (July 31, 2001). The two
insurance agencies customer lists acquired since 2000 and the respective dates
of acquisition include: Faulkner Investments, Inc. (January 1, 2000) and Banner
and Greene Agency, Inc. (April 1, 2001). Pro forma financial information
reflecting the effect of these acquisitions on periods prior to the combination
are not considered material.

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.

(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. The financial centers are located in Bryson City, Jefferson, West
Jefferson and Sparta, North Carolina. Approximately $8.6 million of intangible
assets were recorded as a result of this transaction. At December 31, 2001, the
net carrying value of the intangible assets was $8.0 million. Under the
provisions of SFAS No. 142 and SFAS No. 147, the $8.0 million of intangible
assets were reclassified to goodwill and amortization was discontinued in 2002.

(c)  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 were 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 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, 2002,
substantially all of the Carolina First restructuring charges and
merger-related expenses have been incurred.

61



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##### 



Note Four - Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated
amortization of amortized intangible assets and the carrying amount of
unamortized intangible assets as of December 31, 2002 and December 31, 2001:

|                               |                               |        |   |                |       |             |   |       |       |        |  |                |  |             |   |        |        |  |   |       |       |  |  |  |  | 
|------------------------------ | ----------------------------- | ------ | - | -------------- | ----- | ----------- | - | ----- | ----- | ------ |  | -------------- |  | ----------- | - | ------ | ------ |  | - | ----- | ----- |  |  |  |  | 
|                               |                               |        |   | December 31    |       | December 31
|                               |                               |        |   | 2002           |       | 2001       
|                               |                               |        |   |                |       |            
|                               |                               |        |   | Gross Carrying |       | Accumulated |   |       |       |        |  | Gross Carrying |  | Accumulated |   |        |        | 
|(Dollars in thousands)         |                               | Amount |   | Amortization   |       |             |   |       |       | Amount |  | Amortization   |  |             |   |       
|                               |                               |        |   |                |       |             |   |       |       |        |  |                |  |             |   |       
|Amortized intangible assets:   |                               |        |   |                |       |             |   |       |       |        |  |                |  |             |   |        |        |  |   |      
|                               | Noncompete agreements(1)      |        | $ | 946            |       |             | $ | 744   |       |        |  |                |  |             | $ | 946    |        |  | $ | 575   |      
|                               | Customer lists (1)            |        |   | 417            |       |             |   | 106   |       |        |  |                |  |             |   | 417    |        |  |   | 79    |      
|                               | Mortgage servicing rights (1) |        |   | 4,643          |       |             |   | 3,165 |       |        |  |                |  |             |   | 4,643  |        |  |   | 1,615 |      
|                               | Branch acquisitions(2) (4)    |        |   | 1,110          |       |             |   | 925   |       |        |  |                |  |             |   | 14,739 |        |  |   | 2,308 |      
|                               |                               |        |   |                |       |             |   |       |       |        |  |                |  |             |   |        |        |  |   |      
|                               |                               | Total  |   | $              | 7,116 |             |   | $     | 4,940 |        |  |                |  |             |   | $      | 20,745 |  |   | $     | 4,577 | 
|                               |                               |        |   |                |       |             |   |       |       |        |  |                |  |             |   |        |        |  |   |      
|Unamortized intangible assets: |                               |        |   |                |       |             |   |       |       |        |  |                |  |             |   |        |        |  |   |      
|                               | Goodwill(3) (4)               |        | $ | 20,690         |       |             | $ | 2,597 |       |        |  |                |  |             | $ | 7,061  |        |  | $ | 1,043 |      
|                               |                               |        |   |                |       |             |   |       |       |        |  |                |  |             |   |        |        |  |   |      



---

|(1)                                             |  | Noncompete agreements, customer lists and mortgage servicing rights intangible assets are recorded in the Other
Operating Segments as
|----------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|defined in the 2002 Annual Report on Form 10-K.
|                                               
|(2)                                             |  | Branch acquisition intangible assets are recorded in the FCB segment as defined in the 2002 Annual Report on Form 10-K.              
|                                               
|(3)                                             |  | Goodwill is recorded in the Other Operating Segments as defined in the 2002 Annual Report on Form 10-K.                              
|                                               
|(4)                                             |  | Under the provisions of SFAS No. 147, $13.6 million of branch acquisition intangible assets were reclassified
to unamortized goodwill
|effective January 1, 2002.                     

The gross carrying amount of goodwill increased to $20.7 million at
December 31, 2002 from $7.1 million at December 31, 2001 due to the
reclassification of certain branch acquisition intangible assets that qualify
for classification as goodwill under the provisions of SFAS No. 147.

Amortization expense, excluding amortization of mortgage servicing rights,
totaled $367,000 and $1.9 million for the years ended December 31, 2002 and
2001, respectively.

The following table presents the estimated amortization expense for
intangible assets before the adoption of SFAS No. 147 and after the adoption of
SFAS No. 147, excluding amortization of mortgage servicing rights, for the
years ended December 31, 2002, 2003, 2004, 2005, 2006 and 2007 and thereafter:

|                       |                |                 |      |                 |                       |       |                      |     |       |     | 
|---------------------- | -------------- | --------------- | ---- | --------------- | --------------------- | ----- | -------------------- | --- | ----- | --- | 
|                       |                |                 |      |                 | Estimated             |       | Estimated           
|                       |                |                 |      |                 | Amortization Expense  |       | Amortization Expense
|                       |                |                 |      |                 | Prior to the Adoption |       | After the Adoption  
|(Dollars in thousands) |                | of SFAS No. 147 |      | of SFAS No. 147
|                       |                |                 |      |                
|                       |                |                 | 2002 |                 | $                     | 1,322 |                      |     | $     | 368 | 
|                       |                |                 | 2003 |                 |                       | 1,271 |                      |     |       | 317 | 
|                       |                |                 | 2004 |                 |                       | 998   |                      |     |       | 127 | 
|                       |                |                 | 2005 |                 |                       | 891   |                      |     |       | 28  | 
|                       |                |                 | 2006 |                 |                       | 891   |                      |     |       | 28  | 
|                       |                |                 | 2007 |                 |                       | 891   |                      |     |       | 28  | 
|                       | 2008 and after |                 |      | 6,876           |                       |       |                      | 170 |      
|                       |                |                 |      |                 |                       |       |                      |    
|                       |                | Total           |      | $               | 13,140                |       |                      | $   | 1,066 |    
|                       |                |                 |      |                 |                       |       |                      |    

62



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##### 



The following table presents the adjusted effect of goodwill amortization
on net income and on basic and diluted earnings per share for years ended
December 31, 2002, 2001 and 2000:

|                              |                                 |                                 |   |        |        |      |   |        |        |  |   |        |        | 
|----------------------------- | ------------------------------- | ------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                              |                                 | For the Years Ended December 31
|(Dollars in
thousands, except |                                 |                                
|earnings per share amounts)   |                                 | 2002                            |   | 2001   |        | 2000
|                              |                                 |                                 |   |        |        |     
|                              | Net income                      |                                 | $ | 39,803 |        |      | $ | 35,325 |        |  | $ | 24,841 |       
|                              | Add back: Goodwill amortization |                                 |   |       |        |      |   | 1,065  |        |  |   | 647    |       
|                              |                                 |                                 |   |        |        |      |   |        |        |  |   |        |       
|                              |                                 | Adjusted net income             |   | $      | 39,803 |      |   | $      | 36,390 |  |   | $      | 25,488 | 
|                              |                                 |                                 |   |        |        |      |   |        |        |  |   |        |       
|Basic earnings per share:     |                                 |                                 |   |        |        |      |   |        |        |  |   |       
|                              | As reported                     |                                 | $ | 1.30   |        |      | $ | 1.12   |        |  | $ | 0.79   |       
|                              | Goodwill amortization           |                                 |   |       |        |      |   | 0.04   |        |  |   | 0.02   |       
|                              |                                 |                                 |   |        |        |      |   |        |        |  |   |        |       
|                              |                                 | Adjusted net income             |   | $      | 1.30   |      |   | $      | 1.16   |  |   | $      | 0.81   | 
|                              |                                 |                                 |   |        |        |      |   |        |        |  |   |        |       
|Diluted earnings per share:   |                                 |                                 |   |        |        |      |   |        |        |  |   |       
|                              | As reported                     |                                 | $ | 1.30   |        |      | $ | 1.12   |        |  | $ | 0.79   |       
|                              | Goodwill amortization           |                                 |   |       |        |      |   | 0.03   |        |  |   | 0.02   |       
|                              |                                 |                                 |   |        |        |      |   |        |        |  |   |        |       
|                              |                                 | Adjusted net income             |   | $      | 1.30   |      |   | $      | 1.15   |  |   | $      | 0.81   | 
|                              |                                 |                                 |   |        |        |      |   |        |        |  |   |        |       

Note Five - 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, 2002, 2001 and 2000 was $49.9 million, $39.1 million and $34.3 million,
respectively. Information concerning the Corporations other comprehensive
income for the years ended December 31, 2002, 2001 and 2000 is as follows:



|                                |                                                    |        |            |            |      |        |   |        |           |            |            |        |  |  |   |       |           |  |   |       |  |  |   |       | 
|------------------------------- | -------------------------------------------------- | ------ | ---------- | ---------- | ---- | ------ | - | ------ | --------- | ---------- | ---------- | ------ |  |  | - | ----- | --------- |  | - | ----- |  |  | - | ----- | 
|                                |                                                    |        | 2002       |            | 2001
|                                |                                                    |        |            |            |     
|                                |                                                    |        | Before Tax |            |      |        |   |        | After Tax |            | Before Tax |        |  |  |   |       | After Tax
|(Dollars
in thousands)          |                                                    | Amount |            | Tax Effect |      | Amount |   | Amount |           | Tax Effect |            | Amount
|                                |                                                    |        |            |            |      |        |   |        |           |            |            |       
|Unrealized gains
on securities: |                                                    |        |            |            |      |        |   |        |           |            |            |        |  |  |   |       |           |  |   |       |  |  |   |      
|                                | Unrealized gains
arising during period             |        | $          | 28,066     |      |        | $ | 10,951 |           |            | $          | 17,115 |  |  | $ | 8,630 |           |  | $ | 3,366 |  |  | $ | 5,264 | 
|                                | Less: Reclassification for
realized gains (losses) |        |            | 11,539     |      |        |   | 4,500  |           |            |            | 7,039  |  |  |   | 2,399 |           |  |   | 936   |  |  |   | 1,463 | 
|                                |                                                    |        |            |            |      |        |   |        |           |            |            |        |  |  |   |       |           |  |   |       |  |  |   |       | 
|                                | Unrealized gains,
net of reclassification          |        | $          | 16,527     |      |        | $ | 6,451  |           |            | $          | 10,076 |  |  | $ | 6,231 |           |  | $ | 2,430 |  |  | $ | 3,801 | 
|                                |                                                    |        |            |            |      |        |   |        |           |            |            |        |  |  |   |       |           |  |   |       |  |  |   |       | 
|                                | Other comprehensive
income                         |        | $          | 16,527     |      |        | $ | 6,451  |           |            | $          | 10,076 |  |  | $ | 6,231 |           |  | $ | 2,430 |  |  | $ | 3,801 | 
|                                |                                                    |        |            |            |      |        |   |        |           |            |            |        |  |  |   |       |           |  |   |       |  |  |   |       | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                |                                                    |        |            |            |   |        |   |        |           |  |   |        |  
|------------------------------- | -------------------------------------------------- | ------ | ---------- | ---------- | - | ------ | - | ------ | --------- |  | - | ------ | -
|                                |                                                    |        | 2000      
|                                |                                                    |        |           
|                                |                                                    |        | Before Tax |            |   |        |   |        | After Tax
|(Dollars
in thousands)          |                                                    | Amount |            | Tax Effect |   | Amount
|                                |                                                    |        |            |            |   |       
|Unrealized gains
on securities: |                                                    |        |            |            |   |        |   |        |           |  |   |       
|                                | Unrealized gains
arising during period             |        | $          | 11,146     |   |        | $ | 4,347  |           |  | $ | 6,799  |  
|                                | Less: Reclassification for
realized gains (losses) |        |            | (4,303     | ) |        |   | (1,678 | )         |  |   | (2,625 | )
|                                |                                                    |        |            |            |   |        |   |        |           |  |   |        |  
|                                | Unrealized gains,
net of reclassification          |        | $          | 15,449     |   |        | $ | 6,025  |           |  | $ | 9,424  |  
|                                |                                                    |        |            |            |   |        |   |        |           |  |   |        |  
|                                | Other comprehensive
income                         |        | $          | 15,449     |   |        | $ | 6,025  |           |  | $ | 9,424  |  
|                                |                                                    |        |            |            |   |        |   |        |           |  |   |        |  

63



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##### 



Note Six - Securities Available for Sale

Securities available for sale at December 31, 2002 and 2001 are summarized
as follows:

|                                         |       |      |           |           |            |        |            |        |       |   |     |     |  |  |         |           | 
|---------------------------------------- | ----- | ---- | --------- | --------- | ---------- | ------ | ---------- | ------ | ----- | - | --- | --- |  |  | ------- | --------- | 
|                                         |       |      | 2002     
|                                         |       |      |          
|                                         |       |      |           |           |            |        | Gross      |        | Gross |   |     |     | 
|                                         |       |      | Amortized |           | Unrealized |        | Unrealized |        | Fair 
|(Dollars in
thousands)                   |       | Cost |           | Gains     |            | Losses |            | Value 
|                                         |       |      |           |           |            |        |            |       
|US government obligations                |       | $    | 64,253    |           |            | $      | 1,528      |        |       | $ | 4   |     |  |  | 65,777  |          
|US government agency obligations         |       |      | 399,648   |           |            |        | 8,715      |        |       |   | 1   |     |  |  | 408,362 |          
|Mortgage-backed securities               |       |      | 518,969   |           |            |        | 10,922     |        |       |   | 197 |     |  |  | 529,694 |          
|State, county, and municipal obligations |       |      | 78,998    |           |            |        | 3,966      |        |       |   |    |     |  |  | 82,964  |          
|Equity securities                        |       |      | 41,239    |           |            |        | 1,197      |        |       |   | 21  |     |  |  | 42,415  |          
|                                         |       |      |           |           |            |        |            |        |       |   |     |     |  |  |         |          
|                                         | Total |      | $         | 1,103,107 |            |        | $          | 26,328 |       |   | $   | 223 |  |  | $       | 1,129,212 | 
|                                         |       |      |           |           |            |        |            |        |       |   |     |     |  |  |         |          

|                                         |       |      |           |           |            |        |            |        |       |   |       |       |  |   |         |           | 
|---------------------------------------- | ----- | ---- | --------- | --------- | ---------- | ------ | ---------- | ------ | ----- | - | ----- | ----- |  | - | ------- | --------- | 
|                                         |       |      | 2001     
|                                         |       |      |          
|                                         |       |      |           |           |            |        | Gross      |        | Gross |   |       |       | 
|                                         |       |      | Amortized |           | Unrealized |        | Unrealized |        | Fair 
|(Dollars in
thousands)                   |       | Cost |           | Gains     |            | Losses |            | Value 
|                                         |       |      |           |           |            |        |            |       
|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                        |       |      | 43,643    |           |            |        | 1,232      |        |       |   | 42    |       |  |   | 44,833  |          
|                                         |       |      |           |           |            |        |            |        |       |   |       |       |  |   |         |          
|                                         | Total |      | $         | 1,066,746 |            |        | $          | 17,082 |       |   | $     | 7,504 |  |   | $       | 1,076,324 | 
|                                         |       |      |           |           |            |        |            |        |       |   |       |       |  |   |         |          

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, 2002 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.

|                                                |       |        |               |        |           |        |            |       |           |        |             |         |             |        |      |       |   |        |         |         |  |  |      |      |   |   |        |        |  |  |      |      |   |   |           |           |  |  |      |      |  
|----------------------------------------------- | ----- | ------ | ------------- | ------ | --------- | ------ | ---------- | ----- | --------- | ------ | ----------- | ------- | ----------- | ------ | ---- | ----- | - | ------ | ------- | ------- |  |  | ---- | ---- | - | - | ------ | ------ |  |  | ---- | ---- | - | - | --------- | --------- |  |  | ---- | ---- | -
|                                                |       |        |               |        |           |        |            |       |           |        | 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  
|                                                |       |        |               |        |           |        |            |       |           |        |             |         |             |        |      |       |   |        |         |        
|Fair value
of securities available for sale     |       |        |               |        |           |        |            |       |           |        |             |         |             |        |      |       |   |        |         |         |  |  |      |      |   |   |        |        |  |  |      |      |   |   |           |           |  |  |      |     
|U.S. government
obligations                     |       | $      | 10,200        |        |           |        | 3.05       | %     |           | $      | 55,577      |         |             |        | 3.52 | %     |   | $      |        |         |  |  |     | %    |   | $ |       |        |  |  |     | %    |   | $ | 65,777    |           |  |  | 3.45 | %   
|U.S. government
agency obligations              |       |        | 30,553        |        |           |        | 4.97       |       |           |        | 357,771     |         |             |        | 4.33 |       |   |        | 20,038  |         |  |  | 6.09 |      |   |   |       |        |  |  |     |      |   |   | 408,362   |           |  |  | 4.46 |     
|Mortgage-backed
securities (1)                  |       |        | 36,733        |        |           |        | 6.16       |       |           |        | 386,786     |         |             |        | 5.26 |       |   |        | 106,175 |         |  |  | 5.46 |      |   |   |       |        |  |  |     |      |   |   | 529,694   |           |  |  | 5.36 |     
|State and municipal
obligations                 |       |        | 7,221         |        |           |        | 6.72       |       |           |        | 38,080      |         |             |        | 6.72 |       |   |        | 26,296  |         |  |  | 6.87 |      |   |   | 11,367 |        |  |  | 6.95 |      |   |   | 82,964    |           |  |  | 6.80 |     
|Equity securities (2)                           |       |        |              |        |           |        |           |       |           |        |            |         |             |        |     |       |   |        |        |         |  |  |     |      |   |   | 42,415 |        |  |  | 5.33 |      |   |   | 42,415    |           |  |  | 5.33 |     
|                                                |       |        |               |        |           |        |            |       |           |        |             |         |             |        |      |       |   |        |         |         |  |  |      |      |   |   |        |        |  |  |      |      |   |   |           |           |  |  |      |     
|                                                | Total |        | $             | 84,707 |           |        |            | 5.40  | %         |        | $           | 838,214 |             |        |      | 4.80  | % |        | $       | 152,509 |  |  |      | 5.78 | % |   | $      | 53,782 |  |  |      | 5.67 | % |   | $         | 1,129,212 |  |  |      | 5.03 | %
|                                                |       |        |               |        |           |        |            |       |           |        |             |         |             |        |      |       |   |        |         |         |  |  |      |      |   |   |        |        |  |  |      |      |   |   |           |           |  |  |      |     
|Amortized cost of securities
available for sale |       | $      | 83,223        |        |           |        |            |       |           | $      | 818,285     |         |             |        |      |       |   | $      | 149,509 |         |  |  |      |      |   | $ | 52,090 |        |  |  |      |      |   | $ | 1,103,107 |           |  |  |      |     
|                                                |       |        |               |        |           |        |            |       |           |        |             |         |             |        |      |       |   |        |         |         |  |  |      |      |   |   |        |        |  |  |      |      |   |   |           |           |  |  |      |     



|(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 $735.2 million at December
31, 2002 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 $746.9 million in
2002, $549.4 million in 2001, and $212.1 million in 2000. Gross gains of $15.0
million and gross losses of $3.5 million were realized in 2002. 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.

64



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##### 



At December 31, 2002 and 2001, the Bank owned stock in the Federal Home
Loan Bank of Atlanta with a cost basis (par value) of $34.1 million and $32.4
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
no write downs for 2002 and $144,000 and $1.6 million in 2001 and 2000,
respectively.

During the fourth quarter of 2002 $130 million of mortgage loans were
reclassified to loans held for sale. These loans were securitized during the
first quarter of 2003 and will be classified as mortgage-backed securities in
our available for sale portfolio.

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 were then 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, 2002, 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, 2002 and 2001, there were no securities classified
as held to maturity.

Note Seven - Trading Activity

During 2002 and 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. The Corporation
recognized income of $2.1 million and $2.6 million from writing covered call
options in 2002 and 2001, respectively. There were no written covered call
options outstanding at December 31, 2002 and at December 31, 2001. There were
no such contracts written during 2000.

Note Eight - Loans

The Corporations primary market area includes North Carolina, and
predominately centers around the Metro region of Charlotte, North Carolina. At
December 31, 2002, 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.

65



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##### 



Loans at December 31, 2002 and 2001 were:

|                           |       |        |         |           |      |        |      |         |   |   |         |           |  |  |      |       |  
|-------------------------- | ----- | ------ | ------- | --------- | ---- | ------ | ---- | ------- | - | - | ------- | --------- |  |  | ---- | ----- | -
|                           |       |        | 2002    |           | 2001
|                           |       |        |         |           |     
|(Dollars
in thousands)     |       | Amount |         | Percent   |      | Amount |      | Percent
|                           |       |        |         |           |      |        |      |        
|Commercial real estate     |       | $      | 798,664 |           |      |        | 38.6 | %       |   | $ | 631,814 |           |  |  | 32.5 | %    
|Commercial non real estate |       |        | 223,178 |           |      |        | 10.8 |         |   |   | 222,497 |           |  |  | 11.4 |      
|Construction               |       |        | 215,859 |           |      |        | 10.4 |         |   |   | 321,716 |           |  |  | 16.5 |      
|Mortgage                   |       |        | 237,085 |           |      |        | 11.4 |         |   |   | 289,953 |           |  |  | 14.9 |      
|Consumer                   |       |        | 280,201 |           |      |        | 13.5 |         |   |   | 253,603 |           |  |  | 13.0 |      
|Home Equity                |       |        | 317,730 |           |      |        | 15.3 |         |   |   | 228,169 |           |  |  | 11.7 |      
|                           |       |        |         |           |      |        |      |         |   |   |         |           |  |  |      |      
|                           | Total |        | $       | 2,072,717 |      |        |      | 100.0   | % |   | $       | 1,947,752 |  |  |      | 100.0 | %
|                           |       |        |         |           |      |        |      |         |   |   |         |           |  |  |      |      

Mortgage loans held for sale are carried at the lower of aggregate cost
or market. Mortgage loans held for sale were $158.4 million and $7.3 million
at December 31, 2002 and 2001, respectively.

During the fourth quarter of 2002, $130 million of mortgage loans were
reclassified to loans held for sale. These loans were securitized during the
first quarter of 2003 and will be classified as mortgage backed securities in
the available for sale portfolio.

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 were then classified as mortgage
backed securities in the 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.

Residential real estate loans are presented net of loans serviced for
others totaling $178.1 million and $274.4 million at December 31, 2002 and
2001, respectively.

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.

|                                                  |                                                                                  |      |        |        |  |   |        |        | 
|------------------------------------------------- | -------------------------------------------------------------------------------- | ---- | ------ | ------ |  | - | ------ | ------ | 
|(Dollars
in thousands)                            |                                                                                  | 2002 |        | 2001  
|                                                  |                                                                                  |      |        |       
|Nonaccrual loans                                  |                                                                                  | $    | 26,467 |        |  | $ | 23,824 |       
|Restructured loans                                |                                                                                  |      |       |        |  |   |       |       
|                                                  |                                                                                  |      |        |        |  |   |        |       
|                                                  | Total nonperforming loans                                                        |      |        | 26,467 |  |   |        | 23,824 | 
|                                                  |                                                                                  |      |        |        |  |   |        |       
|Other real estate                                 |                                                                                  |      | 10,278 |        |  |   | 8,049  |       
|                                                  |                                                                                  |      |        |        |  |   |        |       
|                                                  | Total nonperforming assets                                                       |      |        | 36,745 |  |   |        | 31,873 | 
|                                                  |                                                                                  |      |        |        |  |   |        |       
|Loans 90 days or more past due and still accruing |                                                                                  |      |       |        |  |   | 152    |       
|                                                  |                                                                                  |      |        |        |  |   |        |       
|                                                  | Total nonperforming assets and loans 90 days
or more past due and still accruing |      | $      | 36,745 |  |   | $      | 32,025 | 
|                                                  |                                                                                  |      |        |        |  |   |        |       

Interest income that would have been recorded on nonaccrual loans and
restructured loans for the years ended December 31, 2002, 2001, and 2000, had
they performed in accordance with their original terms, amounted to
approximately $2.5 million, $2.2 million, and $2.3 million, respectively.
Interest income on all such loans included in the results of operations for
2002, 2001 and 2000 amounted to approximately $0.5 million, $1.0 million, and
$1.3 million, respectively.

The recorded investment in individually impaired loans was $17.9 million
(all of which were on nonaccrual status) and $14.2 million (of which $11.9
million was on nonaccrual status) at December 31, 2002 and 2001, respectively.
The related allowance for loan losses on these loans was $4.8 million and $1.8
million at December 31, 2002 and 2001, respectively. The average recorded
investment in individually impaired loans for 2002 was $18.7 million, and the
income recognized during 2002 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 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.

66



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The following is a reconciliation of loans outstanding to executive
officers, directors and their associates for the year ended December 31, 2002:

|                             |  |                        |        |  
|---------------------------- |  | ---------------------- | ------ | -
|                             |  | (Dollars in
thousands)
|                            
|Balance at December 31, 2001 |  | $                      | 4,300  |  
|New loans                    |  |                        | 1,573  |  
|Principal repayments         |  |                        | (3,376 | )
|                             |  |                        |        |  
|Balance at December 31, 2002 |  | $                      | 2,497  |  
|                             |  |                        |        |  

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 Nine - 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, 2002, 2001
and 2000:

|                                                                             |                      |      |        |       |  |      |        |       |  |   |        |       | 
|---------------------------------------------------------------------------- | -------------------- | ---- | ------ | ----- |  | ---- | ------ | ----- |  | - | ------ | ----- | 
|(Dollars
in thousands)                                                       |                      | 2002 |        | 2001  |  | 2000
|                                                                             |                      |      |        |       |  |     
|Beginning balance                                                            |                      | $    | 25,843 |       |  | $    | 28,447 |       |  | $ | 25,002 |      
|Provision for loan losses                                                    |                      |      | 8,270  |       |  |      | 4,465  |       |  |   | 7,615  |      
|Allowance related to loans sold, securitized
or transferred to held for sale |                      |      | (647   | )     |  |      | (417   | )     |  |   | (113   | )    
|Charge-offs                                                                  |                      |      | 6,990  |       |  |      | 7,406  |       |  |   | 5,063  |      
|Recoveries                                                                   |                      |      | 728    |       |  |      | 754    |       |  |   | 1,006  |      
|                                                                             |                      |      |        |       |  |      |        |       |  |   |        |       | 
|                                                                             | Net loan charge-offs |      |        | 6,262 |  |      |        | 6,652 |  |   |        | 4,057 | 
|                                                                             |                      |      |        |       |  |      |        |       |  |   |        |      
|Ending balance                                                               |                      | $    | 27,204 |       |  | $    | 25,843 |       |  | $ | 28,447 |      
|                                                                             |                      |      |        |       |  |      |        |       |  |   |        |      

Note Ten - Premises and Equipment

Premises and equipment at December 31, 2002 and 2001 are summarized as
follows:

|                                               |                              |      |        |         |  |   |        |         | 
|---------------------------------------------- | ---------------------------- | ---- | ------ | ------- |  | - | ------ | ------- | 
|(Dollars in thousands)                         |                              | 2002 |        | 2001   
|                                               |                              |      |        |        
|Land                                           |                              | $    | 22,831 |         |  | $ | 21,896 |        
|Buildings                                      |                              |      | 66,459 |         |  |   | 65,979 |        
|Furniture and equipment                        |                              |      | 47,734 |         |  |   | 45,305 |        
|Leasehold improvements                         |                              |      | 2,345  |         |  |   | 2,156  |        
|Construction in progress                       |                              |      | 336    |         |  |   | 4      |        
|                                               |                              |      |        |         |  |   |        |        
|                                               | Total premises and equipment |      |        | 139,705 |  |   |        | 135,340 | 
|                                               |                              |      |        |         |  |   |        |        
|Less accumulated depreciation and amortization |                              |      | 45,058 |         |  |   | 38,364 |        
|                                               |                              |      |        |         |  |   |        |        
|                                               | Premises and equipment, net  |      | $      | 94,647  |  |   | $      | 96,976  | 
|                                               |                              |      |        |         |  |   |        |        

Note Eleven - Deposits

A summary of deposit balances at December 31, 2002 and 2001 is as follows:

|                           |                |      |           |           |  |   |           |           | 
|-------------------------- | -------------- | ---- | --------- | --------- |  | - | --------- | --------- | 
|(Dollars in thousands)     |                | 2002 |           | 2001     
|                           |                |      |           |          
|Noninterest bearing demand |                | $    | 305,924   |           |  | $ | 276,699   |          
|Interest bearing demand    |                |      | 301,329   |           |  |   | 266,667   |          
|Money market accounts      |                |      | 305,530   |           |  |   | 286,653   |          
|Savings deposits           |                |      | 114,676   |           |  |   | 111,674   |          
|Certificates of deposit    |                |      | 1,295,188 |           |  |   | 1,221,252 |          
|                           |                |      |           |           |  |   |           |          
|                           | Total deposits |      | $         | 2,322,647 |  |   | $         | 2,162,945 | 
|                           |                |      |           |           |  |   |           |          

67



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##### 



At December 31, 2002, the aggregate amount of certificates of deposit with
denominations of $100,000 or more was $725.7 million, with $189.5 million
maturing within three months, $135.2 million maturing within three to six
months, $227.9 million maturing within six to twelve months and $173.1 million
maturing after twelve months.

At December 31, 2002, the scheduled maturities of all certificates of
deposit are as follows:

|                       |       |   |         |           | 
|---------------------- | ----- | - | ------- | --------- | 
|(Dollars in thousands) |       |   |         |          
|                       |       |   |         |          
|2003                   |       | $ | 955,759 |          
|2004                   |       |   | 148,398 |          
|2005                   |       |   | 119,649 |          
|2006                   |       |   | 71,382  |          
|2007                   |       |   |        |          
|2008 and after         |       |   |        |          
|                       |       |   |         |          
|                       | Total |   | $       | 1,295,188 | 
|                       |       |   |         |          

Note Twelve - Other Borrowings

The following is a schedule of other borrowings:

|                                                                           |       |              |         |              |  |         |      |          |  |          |           |         |        |  |             |   |  |  |         |   |         |          
|-------------------------------------------------------------------------- | ----- | ------------ | ------- | ------------ |  | ------- | ---- | -------- |  | -------- | --------- | ------- | ------ |  | ----------- | - |  |  | ------- | - | ------- | ---------
|                                                                           |       |              |         |              |  |         |      | 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
|                                                                           |       |              |         |              |  |         |      |          |  |          |          
|2002                                                                       |       |              |         |              |  |         |      |          |  |          |           |         |        |  |             |   |  |  |         |   |        
|Federal funds purchased and securities
sold under agreements
to repurchase |       | $            | 326,745 |              |  |         | 1.21 | %        |  | $        | 151,572   |         |        |  | 1.62        | % |  |  |         | $ | 326,745
|FHLB borrowings                                                            |       |              | 682,330 |              |  |         | 3.60 |          |  |          | 726,016   |         |        |  | 4.01        |   |  |  |         |   | 833,340
|Other                                                                      |       |              | 33,365  |              |  |         | 1.89 |          |  |          | 28,675    |         |        |  | 2.39        |   |  |  |         |   | 40,604 
|                                                                           |       |              |         |              |  |         |      |          |  |          |           |         |        |  |             |   |  |  |         |   |        
|                                                                           | Total |              | $       | 1,042,440    |  |         |      |          |  |          | $         | 906,263 |        |  |             |   |  |  |         |   | $       | 1,200,689
|                                                                           |       |              |         |              |  |         |      |          |  |          |           |         |        |  |             |   |  |  |         |   |        

|                                                                           |       |              |         |              |  |         |      |          |  |           |         |         |  |             |      |   |  |         |         |         | 
|-------------------------------------------------------------------------- | ----- | ------------ | ------- | ------------ |  | ------- | ---- | -------- |  | --------- | ------- | ------- |  | ----------- | ---- | - |  | ------- | ------- | ------- | 
|                                                                           |       |              |         |              |  |         |      | 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
|                                                                           |       |              |         |              |  |         |      |          |  |          
|2001                                                                       |       |              |         |              |  |         |      |          |  |           |         |         |  |             |      |   |  |         |        
|Federal funds purchased and securities
sold under agreements
to repurchase |       | $            | 137,282 |              |  |         | 1.87 | %        |  | $         | 130,863 |         |  |             | 3.85 | % |  | $       | 151,291
|FHLB borrowings                                                            |       |              | 639,370 |              |  |         | 4.34 |          |  |           | 514,991 |         |  |             | 5.13 |   |  |         | 665,380
|Other                                                                      |       |              | 31,860  |              |  |         | 2.43 |          |  |           | 6,444   |         |  |             | 3.04 |   |  |         | 31,860 
|                                                                           |       |              |         |              |  |         |      |          |  |           |         |         |  |             |      |   |  |         |        
|                                                                           | Total |              | $       | 808,512      |  |         |      |          |  |           | $       | 652,298 |  |             |      |   |  |         | $       | 848,531
|                                                                           |       |              |         |              |  |         |      |          |  |           |         |         |  |             |      |   |  |         |        

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 less
than one year 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, 2002, FCB had one available line of credit with the FHLB
totaling $855.9 million with approximately $682.3 million outstanding. The
outstanding amounts consisted of $254.0 million maturing in 2003, $50.0 million
maturing in 2004, $40.0 million maturing in 2006, $51.0 million maturing in
2009, $107.0 million maturing in 2010, and $180.3 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
qualifying 1-4 family residential mortgage loans, qualifying commercial loans
and securities pledged to FHLB.

At December 31, 2002, FCB also had federal funds back-up lines of credit
totaling $65.0 million, of which there were no amounts outstanding.

68



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##### 



At December 31, 2002, the Corporation had lines of credit totaling $25.0
million with $15.0 million outstanding and commercial paper outstandings of
$18.4 million.

Note Thirteen - Income Tax

Total income taxes for the years ended December 31, 2002, 2001 and 2000
were allocated as follows:

|                                                                            |       |      |                          |        |  |      |        |        |  |   |        |        | 
|--------------------------------------------------------------------------- | ----- | ---- | ------------------------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                                            |       |      | Years ended December 31,
|                                                                            |       |      |                         
|(Dollars in thousands)                                                      |       | 2002 |                          | 2001   |  | 2000
|                                                                            |       |      |                          |        |  |     
|Net income                                                                  |       | $    | 14,947                   |        |  | $    | 16,768 |        |  | $ | 13,312 |       
|Shareholders equity, for unrealized gains
on securities available for sale |       |      | 6,442                    |        |  |      | 2,430  |        |  |   | 6,025  |       
|                                                                            |       |      |                          |        |  |      |        |        |  |   |        |       
|                                                                            | Total |      | $                        | 21,389 |  |      | $      | 19,198 |  |   | $      | 19,337 | 
|                                                                            |       |      |                          |        |  |      |        |        |  |   |        |       

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

|                       |  |                    |        |                          |         |      |        |   |        |   |        |   |        |  
|---------------------- |  | ------------------ | ------ | ------------------------ | ------- | ---- | ------ | - | ------ | - | ------ | - | ------ | -
|                       |  |                    |        | Years ended December 31,
|                       |  |                    |        |                         
|(Dollars in thousands) |  | 2002               |        | 2001                     |         | 2000
|                       |  |                    |        |                          |         |     
|Current:               |  |                    |        |                          |         |      |        |   |        |   |        |  
|Federal                |  | $                  | 24,621 |                          |         | $    | 14,679 |   |        | $ | 13,774 |  
|State                  |  |                    | 440    |                          |         |      | 125    |   |        |   | (113   | )
|                       |  |                    |        |                          |         |      |        |   |        |   |        |  
|                       |  | Total current      |        | $                        | 25,061  |      |        | $ | 14,804 |   |        | $ | 13,661 |  
|                       |  |                    |        |                          |         |      |        |   |        |   |        |  
|Deferred:              |  |                    |        |                          |         |      |        |   |        |   |        |  
|Federal                |  | $                  | (9,566 | )                        |         | $    | 1,704  |   |        | $ | (251   | )
|State                  |  |                    | (548   | )                        |         |      | 260    |   |        |   | (98    | )
|                       |  |                    |        |                          |         |      |        |   |        |   |        |  
|                       |  | Total deferred     |        | $                        | (10,114 | )    |        | $ | 1,964  |   |        | $ | (349   | )
|                       |  |                    |        |                          |         |      |        |   |        |   |        |  
|Total income taxes:    |  |                    |        |                          |         |      |        |   |        |   |        |  
|Federal                |  | $                  | 15,055 |                          |         | $    | 16,383 |   |        | $ | 13,523 |  
|State                  |  |                    | (108   | )                        |         |      | 385    |   |        |   | (211   | )
|                       |  |                    |        |                          |         |      |        |   |        |   |        |  
|                       |  | Total income taxes |        | $                        | 14,947  |      |        | $ | 16,768 |   |        | $ | 13,312 |  
|                       |  |                    |        |                          |         |      |        |   |        |   |        |  

Income tax expense attributable to net income was $14.9 million, $16.8
million and $13.3 million for the years ended December 31, 2002, 2001 and 2000,
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:

|                                                     |                                                   |       |        |                          |        |      |       |       |       |   |        |        |        |  |       |       |       |   |        |        |        |  |       |       |       |  
|---------------------------------------------------- | ------------------------------------------------- | ----- | ------ | ------------------------ | ------ | ---- | ----- | ----- | ----- | - | ------ | ------ | ------ |  | ----- | ----- | ----- | - | ------ | ------ | ------ |  | ----- | ----- | ----- | -
|                                                     |                                                   |       |        | Years ended December 31,
|                                                     |                                                   |       |        |                         
|(Dollars in thousands)                               |                                                   | 2002  |        | 2001                     |        | 2000
|                                                     |                                                   |       |        |                          |        |     
|Computed expected tax expense                      |                                                   | $     | 19,163 |                          |        |      | 35.00 | %     |       | $ | 18,233 |        |        |  | 35.00 | %     |       | $ | 13,354 |        |        |  | 35.00 | %    
|Increase (reduction) in income taxes
resulting from: |                                                   |       |        |                          |        |      |       |       |       |   |        |        |        |  |       |       |       |   |        |        |        |  |      
|                                                     | Tax exempt income                                 |       |        | (1,483                   | )      |      |       | (2.71 | )     |   |        | (1,526 | )      |  |       | (2.93 | )     |   |        | (1,594 | )      |  |       | (4.17 | )    
|                                                     | Nondeductible merger expenses                     |       |        |                         |        |      |       |      |       |   |        |       |        |  |       |      |       |   |        | 1,733  |        |  |       | 4.54  |      
|                                                     | State income tax, net of
federal benefits         |       |        | (71                      | )      |      |       | (0.12 | )     |   |        | 250    |        |  |       | 0.46  |       |   |        | (137   | )      |  |       | (0.36 | )    
|                                                     | Subsidiary stock, recognition of
basis difference |       |        | (3,313                   | )      |      |       | (6.05 | )     |   |        |       |        |  |       |      |       |   |        |       |        |  |       |      |      
|                                                     | Change in valuation allowance                     |       |        | 773                      |        |      |       | 1.41  |       |   |        |       |        |  |       |      |       |   |        |       |        |  |       |      |      
|                                                     | Other, net                                        |       |        | (122                     | )      |      |       | (0.22 | )     |   |        | (189   | )      |  |       | (0.34 | )     |   |        | (44    | )      |  |       | (0.12 | )    
|                                                     |                                                   |       |        |                          |        |      |       |       |       |   |        |        |        |  |       |       |       |   |        |        |        |  |       |      
|                                                     |                                                   | Total |        | $                        | 14,947 |      |       |       | 27.31 | % |        | $      | 16,768 |  |       |       | 32.19 | % |        | $      | 13,312 |  |       |       | 34.89 | %
|                                                     |                                                   |       |        |                          |        |      |       |       |       |   |        |        |        |  |       |       |       |   |        |        |        |  |       |      

69



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The significant components of deferred income tax expense for the years
ended December 31, 2002, 2001 and 2000 are as follows:

|                                                                                     |       |      |         |        |   |      |       |       |  |   |       |       | 
|------------------------------------------------------------------------------------ | ----- | ---- | ------- | ------ | - | ---- | ----- | ----- |  | - | ----- | ----- | 
|(Dollars in thousands)                                                               |       | 2002 |         | 2001   |   | 2000
|                                                                                     |       |      |         |        |   |     
|Deferred tax expense (benefit) (exclusive of the
effects of other components below)  |       | $    | (10,114 | )      |   | $    | 1,964 |       |  | $ | (349  | )    
|Shareholders equity, for unrealized gains
(losses) on securities available for sale |       |      | 6,442   |        |   |      | 2,430 |       |  |   | 6,025 |      
|                                                                                     |       |      |         |        |   |      |       |       |  |   |       |      
|                                                                                     | Total |      | $       | (3,672 | ) |      | $     | 4,394 |  |   | $     | 5,676 | 
|                                                                                     |       |      |         |        |   |      |       |       |  |   |       |      

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 2002 and 2001 are presented below.

|                          |                                                          |                                      |   |         |         |   |   |        |        |  
|------------------------- | -------------------------------------------------------- | ------------------------------------ | - | ------- | ------- | - | - | ------ | ------ | -
|(Dollars in thousands)    |                                                          | 2002                                 |   | 2001   
|                          |                                                          |                                      |   |        
|Deferred tax assets:      |                                                          |                                      |   |         |         |   |   |       
|                          | Allowance for loan loss                                  |                                      | $ | 10,786  |         |   | $ | 10,217 |       
|                          | Accrued expenses deductible when paid for tax purposes   |                                      |   |        |         |   |   | 105    |       
|                          | Deferred compensation                                    |                                      |   | 2,817   |         |   |   | 3,106  |       
|                          | Intangibles                                              |                                      |   |        |         |   |   | 333    |       
|                          | Market adjustment for investments                        |                                      |   | 872     |         |   |   |       |       
|                          | Basis difference in depreciable assets                   |                                      |   | 9,305   |         |   |   | (342   | )     
|                          | Other                                                    |                                      |   | 809     |         |   |   | 1,038  |       
|                          |                                                          |                                      |   |         |         |   |   |        |       
|                          |                                                          | Total gross deferred tax assets      |   |         | 24,589  |   |   |        | 14,457 |  
|                          |                                                          |                                      |   |         |         |   |   |        |       
|                          | Less valuation allowance                                 |                                      |   | 773     |         |   |   |       |       
|                          |                                                          |                                      |   |         |         |   |   |        |       
|                          |                                                          | Net deferred tax assets              |   |         | 23,816  |   |   |        | 14,457 |  
|                          |                                                          |                                      |   |         |         |   |   |        |       
|Deferred tax liabilities: |                                                          |                                      |   |         |         |   |   |       
|                          | Unrealized gains on securities available for sale        |                                      |   | (10,321 | )       |   |   | (3,879 | )     
|                          | Federal Home Loan Bank of Atlanta stock                  |                                      |   | (1,052  | )       |   |   | (1,052 | )     
|                          | Market adjustment for investment in partnership interest |                                      |   |        |         |   |   | (1,216 | )     
|                          | Intangibles                                              |                                      |   | (20     | )       |   |   |       |       
|                          | Other                                                    |                                      |   | (757    | )       |   |   | (316   | )     
|                          |                                                          |                                      |   |         |         |   |   |        |       
|                          |                                                          | Total gross deferred tax liabilities |   |         | (12,150 | ) |   |        | (6,463 | )
|                          |                                                          |                                      |   |         |         |   |   |        |       
|                          |                                                          | Net deferred tax assets              |   | $       | 11,666  |   |   | $      | 7,994  |  
|                          |                                                          |                                      |   |         |         |   |   |        |       

The valuation allowance for deferred tax assets was $0 as of both January
1, 2002 and 2001. The total valuation allowance relative to capital loss
carryforwards increased $773,000 during 2002. There was no change in the total
valuation allowance during 2001. 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, 2002. 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, 2002, the Company did not have any operating loss
carryforwards for federal income tax purposes.

Tax returns for 1999 and subsequent years are subject to examination by
taxing authorities.

70



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Retained income
at December 31, 2002 and 2001 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. 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 Fourteen - Employee Benefit Plans

First Charter Retirement Savings Plan.The Corporation has a qualified
Retirement Savings Plan (the Savings Plan) for all eligible employees of the
Corporation. Pursuant to the Savings Plan, an eligible employee may elect to
defer between 1 percent and 15 percent of compensation. 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 in an amount to be
determined by the Board of Directors from time to time, up to a maximum of six
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. Participants may
invest their Savings Plan account in a variety of investment options, including
the Corporations stock. Effective March 1, 2002 the portion of the Savings
Plan consisting of the Company Stock Fund (ESOP) was designated as an employee
stock ownership plan under Code section 4975(e)(7) and that fund is designed to
invest primarily in the Corporations stock. 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 contributed annually to each participants Plan account
an amount equal to three percent of the participants compensation. Effective
December 31, 2001 the Corporation merged the Money Purchase Pension Plan into
the Savings Plan. The Corporations aggregate contributions to the Savings Plan
and the Money Purchase Pension Plan amounted to $2.5 million, $2.6 million and
$2.0 million for 2002, 2001 and 2000, respectively.

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,
eligible participants may elect to defer all of their base salary and bonus and
receive 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 amounted to $485,000 at December 31, 2002. Plan assets,
which are held in a Rabbi Trust, totaled $401,000 and $192,000 at December 31,
2002 and 2001, respectively, and are classified as trading assets, which is
included in other assets on the consolidated balance sheet.

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 obligation pursuant to the Plan
amounted to $580,000 at December 31, 2002. Plan assets, which are held in a
Rabbi Trust, totaled $551,000 and $9,000 at December 31, 2002 and 2001,
respectively, and are classified as trading assets, which is included in other
assets on the consolidated balance sheet.

71



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##### 



Note Fifteen - 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 was settled with the counterparty during the second quarter of 2002
at an average per-share price of $18.09 or $8.9 million.

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. During 2002, the Corporation repurchased 809,600 shares of its common
stock at an average per-share price of $16.83, which reduced shareholders
equity by $13.7 million.

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 percent
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) 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.

72



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##### 



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 2002, the Corporation issued no shares and the administrator of
the DRIP purchased 197,719 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
$75,000 and $87,000 was recognized during 2002 and 2001, respectively, in
connection with the Restricted Stock Plan. The following table presents the
status of the Restricted Stock Plan as of December 31, 2002 and 2001 and
changes during the years then ended:

|                                 |  |        |        |             |  |                  |         | 
|-------------------------------- |  | ------ | ------ | ----------- |  | ---------------- | ------- | 
|                                 |  |        |        |             |  | Weighted Average
|                                 |  | Shares |        | Grant Price
|                                 |  |        |        |            
|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 | 
|                                 |  |        |        |             |  |                  |         | 
|Granted                          |  |        |       |             |  |                  |        | 
|Vested                           |  |        | (4,173 | )           |  |                  | 19.1099 | 
|Forfeited                        |  |        | (2,000 | )           |  |                  | 19.5000 | 
|                                 |  |        |        |             |  |                  |         | 
|Outstanding at December 31, 2002 |  |        | 4,000  |             |  | $                | 15.7813 | 
|                                 |  |        |        |             |  |                  |         | 

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. A maximum of 180,000 shares are reserved for issuance under the Director
Plan. As of December 31, 2002, approximately 163,000 shares have been granted
under the Director Plan.

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##### 



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, 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 percent to 90 percent 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.

|                                                               |  |        |           |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |       | 
|-------------------------------------------------------------- |  | ------ | --------- | ----- |  | --------- | ----- | ----- |  | ------ | --------- | --------- |  | - | ----- |  |  | --------- | --------- | - |  | - | ----- | 
|                                                               |  | 2002   |           | 2001  |  | 2000     
|                                                               |  |        |           |       |  |          
|                                                               |  |        |           |       |  | Weighted- |       |       |  |        |           | Weighted- |  |   |       |  |  | Weighted-
|                                                               |  |        |           |       |  | Average   |       |       |  |        |           | Average   |  |   |       |  |  | Average  
|                                                               |  |        |           |       |  | Exercise  |       |       |  |        |           | Exercise  |  |   |       |  |  | Exercise 
|                                                               |  |        |           |       |  | (Option)  |       |       |  |        |           | (Option)  |  |   |       |  |  | (Option) 
|                                                               |  | Shares |           | Price |  | Shares    |       | Price |  | Shares |           | Price    
|                                                               |  |        |           |       |  |           |       |       |  |        |           |          
|Outstanding at January 1                                       |  |        | 2,199,559 |       |  | $         | 19.19 |       |  |        | 1,837,057 |           |  | $ | 19.68 |  |  |           | 1,780,904 |   |  | $ | 18.78 | 
|Granted                                                        |  |        | 549,120   |       |  |           | 17.12 |       |  |        | 536,379   |           |  |   | 15.39 |  |  |           | 335,079   |   |  |   | 14.51 | 
|Exercised                                                      |  |        | (137,607  | )     |  |           | 11.75 |       |  |        | (68,451   | )         |  |   | 8.79  |  |  |           | (218,376  | ) |  |   | 4.71  | 
|Forfeited                                                      |  |        | (71,221   | )     |  |           | 15.30 |       |  |        | (105,426  | )         |  |   | 16.07 |  |  |           | (60,550   | ) |  |   | 11.91 | 
|                                                               |  |        |           |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |       | 
|Outstanding at December 31                                     |  |        | 2,539,851 |       |  |           | 19.25 |       |  |        | 2,199,559 |           |  |   | 19.19 |  |  |           | 1,837,057 |   |  |   | 19.68 | 
|                                                               |  |        |           |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |       | 
|Options exercisable at December 31                             |  |        | 1,749,894 |       |  |           | 20.44 |       |  |        | 1,574,486 |           |  |   | 20.39 |  |  |           | 1,398,818 |   |  |   | 20.71 | 
|                                                               |  |        |           |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |       | 
|Weighted-average fair value of options
granted during the year |  |        |           |       |  | $         | 5.38  |       |  |        |           |           |  | $ | 5.00  |  |  |           |           |   |  | $ | 5.59  | 
|                                                               |  |        |           |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |       | 

74



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##### 



The weighted average remaining contractual lives of stock options were 5.5
years at December 31, 2002.

The following table summarizes information about stock options outstanding
at December 31, 2002:

|                    |       |                |                     |                  |                     |                  |           |                |         |                  |        |  |         |           |  |   |         |         |  |  | 
|------------------- | ----- | -------------- | ------------------- | ---------------- | ------------------- | ---------------- | --------- | -------------- | ------- | ---------------- | ------ |  | ------- | --------- |  | - | ------- | ------- |  |  | 
|                    |       |                | 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  
|                    |       |                |                     |                  |                     |                  |           |                |         |                 
|$0.0000 - $2.6750   |       |                | 3,375               |                  |                     | 0.4 years        |           | $              | 1.8500  |                  |        |  | 3,375   |           |  | $ | 1.8500  |        
|$2.6751- $5.3500    |       |                | 38,876              |                  |                     | 1.7 years        |           |                | 4.2598  |                  |        |  | 38,876  |           |  |   | 4.2598  |        
|$5.3501 - $8.0250   |       |                | 6,235               |                  |                     | 4.3 years        |           |                | 6.8198  |                  |        |  | 6,235   |           |  |   | 6.8198  |        
|$8.0251 - $10.7000  |       |                | 21,560              |                  |                     | 3.3 years        |           |                | 9.1650  |                  |        |  | 21,560  |           |  |   | 9.1650  |        
|$10.7001 - $13.3750 |       |                | 57,966              |                  |                     | 4.4 years        |           |                | 11.9667 |                  |        |  | 56,766  |           |  |   | 11.9447 |        
|$13.3751 - $16.0500 |       |                | 605,232             |                  |                     | 7.6 years        |           |                | 15.2385 |                  |        |  | 279,297 |           |  |   | 15.1240 |        
|$16.0501 - $18.7250 |       |                | 794,574             |                  |                     | 7.7 years        |           |                | 17.6099 |                  |        |  | 343,571 |           |  |   | 17.8411 |        
|$18.7251 - $21.4000 |       |                | 25,460              |                  |                     | 5.1 years        |           |                | 19.0604 |                  |        |  | 20,980  |           |  |   | 19.0054 |        
|$21.4001 - $24.0750 |       |                | 724,517             |                  |                     | 2.5 years        |           |                | 23.9256 |                  |        |  | 717,278 |           |  |   | 23.9354 |        
|$24.0751 - $26.7500 |       |                | 262,056             |                  |                     | 3.4 years        |           |                | 25.8039 |                  |        |  | 261,956 |           |  |   | 25.8045 |        
|                    |       |                |                     |                  |                     |                  |           |                |         |                  |        |  |         |           |  |   |         |        
|                    | Total |                |                     | 2,539,851        |                     |                  | 5.5 years |                | $       | 19.2540          |        |  |         | 1,749,894 |  |   | $       | 20.4415 | 
|                    |       |                |                     |                  |                     |                  |           |                |         |                  |        |  |         |           |  |   |         |        

Pro-Forma Impact of Stock Compensation Programs.At December 31, 2002, as
described above, the Corporation has various stock-based compensation plans.
The Corporation accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected
in net income. The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.

|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ---- | ------------------------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                                            |                     |      | Years Ended December 31,
|                                                                                                                                            |                     |      |                         
|(Dollars in thousands, except per share data)                                                                                               |                     | 2002 |                          | 2001 |  | 2000
|                                                                                                                                            |                     |      |                          |      |  |     
|Net income, as reported                                                                                                                     |                     | $    | 39,803                   |      |  | $    | 35,325 |      |  | $ | 24,841 |     
|Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects |                     |      | (2,755                   | )    |  |      | (2,193 | )    |  |   | (1,856 | )   
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|Pro forma net income                                                                                                                        |                     | $    | 37,048                   |      |  | $    | 33,132 |      |  | $ | 22,985 |     
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|Earnings per share:                                                                                                                         |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Basic-as reported   |      | $                        | 1.30 |  |      | $      | 1.12 |  |   | $      | 0.79 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Basic-pro forma     |      | $                        | 1.21 |  |      | $      | 1.05 |  |   | $      | 0.73 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Diluted-as reported |      | $                        | 1.30 |  |      | $      | 1.12 |  |   | $      | 0.79 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     
|                                                                                                                                            | Diluted-pro forma   |      | $                        | 1.21 |  |      | $      | 1.05 |  |   | $      | 0.73 | 
|                                                                                                                                            |                     |      |                          |      |  |      |        |      |  |   |        |     

75



---



##### 



The fair value of each option granted during 2002, 2001 and 2000 was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:

|                                         |  |  |  |  |  |                          |      |      |              |      |      |              |   |  |      |  
|---------------------------------------- |  |  |  |  |  | ------------------------ | ---- | ---- | ------------ | ---- | ---- | ------------ | - |  | ---- | -
|                                         |  |  |  |  |  | Years Ended December 31,
|                                         |  |  |  |  |  |                         
|                                         |  |  |  |  |  | 2002                     |      | 2001 |              | 2000
|                                         |  |  |  |  |  |                          |      |      |              |     
|2000 Omnibus Stock Option and Award Plan |  |  |  |  |  |                          |      |      |              |      |      |              |   |  |      |  
|Dividend yield                           |  |  |  |  |  |                          | 4.03 | %    |              |      | 4.26 | %            |   |  | 4.71 | %
|Risk free interest rates                 |  |  |  |  |  | 3.84 to 5.44             | %    |      | 4.73 to 5.35 | %    |      | 5.53 to 6.79 | %
|Expected lives                           |  |  |  |  |  | 10 years                 |      |      | 10 years     |      |      | 10 years     |  
|Volatility                               |  |  |  |  |  |                          | 38   | %    |              |      | 41   | %            |   |  | 47   | %
|Director Plan                            |  |  |  |  |  |                          |      |      |              |      |      |              |   |  |      |  
|Dividend yield                           |  |  |  |  |  |                          | 4.03 | %    |              |      | 4.26 | %            |   |  | 4.71 | %
|Risk free interest rates                 |  |  |  |  |  |                          | 4.88 | %    |              |      | 5.19 | %            |   |  | 6.79 | %
|Expected lives                           |  |  |  |  |  | 10 years                 |      |      | 10 years     |      |      | 10 years     |  
|Volatility                               |  |  |  |  |  |                          | 38   | %    |              |      | 41   | %            |   |  | 47   | %
|1999 Employee Stock Purchase Plan        |  |  |  |  |  |                          |      |      |              |      |      |              |   |  |      |  
|Dividend yield                           |  |  |  |  |  |                          | 4.03 | %    |              |      | 4.26 | %            |   |  | 4.71 | %
|Risk free interest rates                 |  |  |  |  |  |                          | 5.20 | %    |              |      | 4.92 | %            |   |  | 6.58 | %
|Expected lives                           |  |  |  |  |  | 1 year                   |      |      | 1 year       |      |      | 1 year       |  
|Volatility                               |  |  |  |  |  |                          | 38   | %    |              |      | 41   | %            |   |  | 47   | %

Note Sixteen - Commitments, Contingencies and Off-Balance Sheet Risk

Commitments and Off-Balance Sheet Risk.The Corporation is party to
various financial instruments with off-balance-sheet risk in the normal course
of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit,
and involve, to varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the consolidated financial statements.
Commitments to extend credit are agreements to lend to a customer so long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates and may require collateral from the
borrower if deemed necessary by the Corporation. Standby letters of credit are
conditional commitments issued by the Corporation to guarantee the performance
of a customer to a third party up to a stipulated amount and with specified
terms and conditions. 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. 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, 2002, the Corporations exposure to credit risk was
represented by preapproved but unused lines of credit totaling $348.8 million,
loan commitments totaling $277.8 million and standby letters of credit
aggregating $10.9 million. Of the $348.8 million of preapproved unused lines of
credit, $34.5 million were at fixed rates and $314.3 million were at floating
rates. Of the $277.8 million of loan commitments, $52.6 million were at fixed
rates and $225.2 million were at floating rates. Of the $10.9 million of
standby letters of credit, $10.7 million expire in 2003 and $0.2 million expire
in 2004 and 2005. The maximum amount of credit loss of standby letters of
credit is represented by the contract amount of the instruments. Management
expects that these commitments can be funded through normal operations. The
amount of collateral obtained if deemed necessary by the Corporation upon
extension of credit is based on managements credit evaluation of the borrower
at that time. The Corporation generally extends
credit on a secured basis. Collateral obtained may include, but 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.

76



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##### 



Minimum operating lease payments due in each of the five years subsequent
to December 31, 2002 are as follows: 2003, $1.9 million; 2004, $1.6 million;
2005, $1.4 million; 2006, $1.2 million; 2007, $0.6 million and subsequent years
$1.0 million. Rental expense for all operating leases for the three years ended
December 31, 2002, 2001 and 2000 was $1.7 million, $1.8 million and $1.7
million, respectively.

Average daily Federal Reserve balance requirements for the year ended
December 31, 2002 amounted to $12.9 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 Seventeen - 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.

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 percent of the incremental income from this new product
for a twenty-four month period commencing the fourth full month after the
Corporation began to offer the product. John Godbold, a director of the
Corporation, is the president and owner of Godbold Financial Associates, Inc.
(GFA), which acts as an independent sales representative for Impact for
Maryland, North Carolina, South Carolina and Virginia, and as such GFA and Mr.
Godbold will receive commissions from Impact based on fees earned by Impact.
Management believes that the transaction is at arms-length. Pursuant to the
Corporations conflict of interest policy for directors and executive officers,
the members of the Corporations Board of Directors who did not have a direct
or indirect interest in the related party transaction, reviewed this related
party transaction and determined that it was fair to the Corporation and
subsequently approved and ratified the transaction. As described above, no fees
were required to be paid to Impact until the fourth full month following
introduction of the new product, therefore, no fees were payable to Impact and
no commissions were payable to GFA and Mr. Godbold until March 2002. For the
years ended December 31, 2002 and December 31, 2001, the Corporation received
revenues of approximately $4.9 million and $500,000, respectively, which
resulted in fees of $627,000 and $0, respectively, to Impact and resulted in
Impact paying commissions to GFA and Mr. Godbold of $439,000 and $0,
respectively.

77



---



##### 



Note Eighteen - 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 held for sale- mortgage loans held for sale are valued at the
lower of cost or market. Market value is determined by outstanding
commitments from investors or current investor yield requirements.



| |                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

78



---



##### 



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, 2002 and 2001:

|                       |                                         |        |              |           |      |  |  |       |      |  |           |           |  |        |          |       |      |  |   |           |           |  |   |           |  |  |  |  | 
|---------------------- | --------------------------------------- | ------ | ------------ | --------- | ---- |  |  | ----- | ---- |  | --------- | --------- |  | ------ | -------- | ----- | ---- |  | - | --------- | --------- |  | - | --------- |  |  |  |  | 
|                       |                                         |        | December 31,
|                       |                                         |        |              |           |      |  | 
|                       |                                         |        | 2002         |           | 2001
|                       |                                         |        |              |           |      |  |  |       |      |  |           |           | 
|                       |                                         |        |              |           |      |  |  |       |      |  | Estimated |           |  |        |          |       |      |  |   |           | Estimated |  |   |           | 
|                       |                                         |        | Carrying     |           |      |  |  |       | Fair |  |           |           |  |        | Carrying |       | Fair |  |   |           |          
|(Dollars
in thousands) |                                         | Amount |              |           |      |  |  | Value |      |  |           |           |  | Amount |          | Value |      |  |   |          
|                       |                                         |        |              |           |      |  |  |       |      |  |           |           |  |        |          |       |      |  |   |          
|Financial assets:      |                                         |        |              |           |      |  |  |       |      |  |           |           |  |        |          |       |      |  |   |           |           |  |   |          
|                       | Cash and due from banks                 |        | $            | 162,087   |      |  |  |       |      |  | $         | 162,087   |  |        |          |       |      |  | $ | 134,084   |           |  | $ | 134,084   | 
|                       | Federal funds sold                      |        |              | 1,154     |      |  |  |       |      |  |           | 1,154     |  |        |          |       |      |  |   | 1,161     |           |  |   | 1,161     | 
|                       | Interest bearing bank deposits          |        |              | 6,609     |      |  |  |       |      |  |           | 6,609     |  |        |          |       |      |  |   | 6,220     |           |  |   | 6,220     | 
|                       | Securities available for sale           |        |              | 1,129,212 |      |  |  |       |      |  |           | 1,129,212 |  |        |          |       |      |  |   | 1,077,365 |           |  |   | 1,077,365 | 
|                       | Loans held for sale                     |        |              | 158,404   |      |  |  |       |      |  |           | 163,463   |  |        |          |       |      |  |   | 7,334     |           |  |   | 7,334     | 
|                       | Loans, net of allowance for loan losses |        |              | 2,045,266 |      |  |  |       |      |  |           | 2,112,361 |  |        |          |       |      |  |   | 1,921,718 |           |  |   | 1,953,198 | 
|Financial liabilities: |                                         |        |              |           |      |  |  |       |      |  |           |           |  |        |          |       |      |  |   |           |           |  |   |          
|                       | Deposits                                |        |              | 2,322,647 |      |  |  |       |      |  |           | 2,334,453 |  |        |          |       |      |  |   | 2,162,945 |           |  |   | 2,169,124 | 
|                       | Other borrowings                        |        |              | 1,042,440 |      |  |  |       |      |  |           | 1,088,446 |  |        |          |       |      |  |   | 808,512   |           |  |   | 819,935   | 

Note Nineteen - 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, 2002, that the Corporation and the Bank meet all capital adequacy
requirements to which they are subject.

As of December 31, 2002, the most recent notifications from the
Corporations various regulators categorized the Corporation and 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. In the
judgment of management, there have been no events or conditions since those
notifications that would change the well capitalized status of the
Corporation or the Bank.

79



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##### 



The Corporations and the Banks actual capital amounts and ratios are
presented in the table below:

|                                            |                           |        |        |         |  |        |  |       |         |        |                   |         |                              |  |         |      |   |  |                        |         |      |      |  |       |  
|------------------------------------------- | ------------------------- | ------ | ------ | ------- |  | ------ |  | ----- | ------- | ------ | ----------------- | ------- | ---------------------------- |  | ------- | ---- | - |  | ---------------------- | ------- | ---- | ---- |  | ----- | -
|                                            |                           |        |        |         |  |        |  |       |         |        |                   |         |                              |  |         |      |   |  | 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  
|                                            |                           |        |        |         |  |        |  |       |         |        |                   |        
|At December 31, 2002:                       |                           |        |        |         |  |        |  |       |         |        |                   |         |                              |  |         |      |   |  |                        |         |      |      |  |      
|Total Capital (to Risk Weighted Assets)     |                           |        |        |         |  |        |  |       |         |        |                   |         |                              |  |         |      |   |  |                        |         |      |      |  |      
|                                            | First Charter Corporation |        | $      | 317,700 |  |        |  | 12.62 | %       |        | $                 | 201,424 |                              |  |         | 8.00 | % |  | None                   |         |      | None | 
|                                            | First Charter Bank        |        |        | 306,202 |  |        |  | 12.25 |         |        |                   | 199,938 |                              |  |         | 8.00 |   |  | $                      | 249,923 |      |      |  | 10.00 | %
|Tier I Capital (to Risk Weighted Assets)    |                           |        |        |         |  |        |  |       |         |        |                   |         |                              |  |         |      |   |  |                        |         |      |      |  |      
|                                            | First Charter Corporation |        | $      | 290,031 |  |        |  | 11.52 | %       |        | $                 | 100,712 |                              |  |         | 4.00 | % |  | None                   |         |      | None | 
|                                            | First Charter Bank        |        |        | 278,998 |  |        |  | 11.16 |         |        |                   | 99,969  |                              |  |         | 4.00 |   |  | $                      | 149,954 |      |      |  | 6.00  | %
|Tier I Capital (to Adjusted Average Assets) |                           |        |        |         |  |        |  |       |         |        |                   |         |                              |  |         |      |   |  |                        |         |      |      |  |      
|                                            | First Charter Corporation |        | $      | 290,031 |  |        |  | 7.92  | %       |        | $                 | 146,404 |                              |  |         | 4.00 | % |  | None                   |         |      | None | 
|                                            | First Charter Bank        |        |        | 278,998 |  |        |  | 7.72  |         |        |                   | 144,552 |                              |  |         | 4.00 |   |  | $                      | 180,690 |      |      |  | 5.00  | %
|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  | %

Note Twenty - 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, 2002, the Parent Companys bank subsidiary had available
retained earnings of $39.4 million for the payment of dividends to the Parent
Company without regulatory or other restrictions. Subsidiary net assets of
$322.9 million were restricted from being transferred to the Parent Company at
December 31, 2002, under regulatory or other restrictions.

80



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The Parent Companys condensed balance sheet data as of December 31, 2002
and 2001 and related condensed statements of income and cash flow data for each
of the years in the three-year period ended December 31, 2002 are as follows:

|                              |                                            |      |         |         |  |   |         |         | 
|----------------------------- | ------------------------------------------ | ---- | ------- | ------- |  | - | ------- | ------- | 
|(Dollars in thousands)        |                                            | 2002 |         | 2001   
|                              |                                            |      |         |        
|Balance sheet data:           |                                            |      |         |         |  |   |         |        
|Cash                          |                                            | $    | 24,246  |         |  | $ | 18,478  |        
|Securities available for sale |                                            |      | 3,848   |         |  |   | 7,990   |        
|Investment in subsidiaries    |                                            |      | 322,893 |         |  |   | 301,816 |        
|Receivable from subsidiaries  |                                            |      | 7,000   |         |  |   | 8,000   |        
|Premises and equipment        |                                            |      |        |         |  |   | 95      |        
|Other assets                  |                                            |      | 5,414   |         |  |   | 10,394  |        
|                              |                                            |      |         |         |  |   |         |        
|                              | Total assets                               |      | $       | 363,401 |  |   | $       | 346,773 | 
|                              |                                            |      |         |         |  |   |         |        
|Accrued liabilities           |                                            | $    | 5,350   |         |  | $ | 5,572   |        
|Borrowed funds                |                                            |      | 33,365  |         |  |   | 31,860  |        
|Shareholders equity          |                                            |      | 324,686 |         |  |   | 309,341 |        
|                              |                                            |      |         |         |  |   |         |        
|                              | Total liabilities and shareholders equity |      | $       | 363,401 |  |   | $       | 346,773 | 
|                              |                                            |      |         |         |  |   |         |        

|                       |                                                                                             |            |   |        |        |      |   |        |        |  |   |        |        | 
|---------------------- | ------------------------------------------------------------------------------------------- | ---------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|(Dollars in thousands) |                                                                                             | 2002       |   | 2001   |        | 2000
|                       |                                                                                             |            |   |        |        |     
|Income statement data: |                                                                                             |            |   |        |        |      |   |        |        |  |   |       
|                       | Dividends from subsidiaries                                                                 |            | $ | 33,083 |        |      | $ | 17,300 |        |  | $ | 9,200  |       
|                       | Other operating expense                                                                     |            |   | (3,280 | )      |      |   | (114   | )      |  |   | 1,778  |       
|                       |                                                                                             |            |   |        |        |      |   |        |        |  |   |       
|                       | Income before equity in undistributed (excess of
dividends over) net income of subsidiaries |            |   | 29,803 |        |      |   | 17,186 |        |  |   | 10,978 |       
|                       |                                                                                             |            |   |        |        |      |   |        |        |  |   |       
|                       | Equity in undistributed (excess of dividends over)
net income of subsidiaries               |            |   | 10,000 |        |      |   | 18,139 |        |  |   | 13,863 |       
|                       |                                                                                             |            |   |        |        |      |   |        |        |  |   |       
|                       |                                                                                             | Net income |   | $      | 39,803 |      |   | $      | 35,325 |  |   | $      | 24,841 | 
|                       |                                                                                             |            |   |        |        |      |   |        |        |  |   |       

|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |   |         |        |  
|------------------------- | ------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------- | ---- | ------- | ----- |  | - | ------- | ------ |  | - | ------- | ------ | -
|(Dollars in thousands)    |                                       | 2002                                                                               |                                 | 2001 |         | 2000 
|                          |                                       |                                                                                    |                                 |      |         |      
|Cash flow statement data: |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          | Cash flows from operating activities: |                                                                                    |                                 |      |         |       |  |   |         |        |  |   |        
|                          |                                       | Net income                                                                         |                                 | $    | 39,803  |       |  | $ | 35,325  |        |  | $ | 24,841  |       
|                          |                                       | Net (loss) gain on securities available for sale                                   |                                 |      | (1,806  | )     |  |   | (124    | )      |  |   | 1,478   |       
|                          |                                       | (Decrease) increase in accrued liabilities                                         |                                 |      | (222    | )     |  |   | (115    | )      |  |   | 1,694   |       
|                          |                                       | Decrease (increase) in other assets                                                |                                 |      | 4,980   |       |  |   | 1,342   |        |  |   | (5,955  | )     
|                          |                                       | Decrease (increase) in receivable from subsidiaries                                |                                 |      | 1,000   |       |  |   | (8,000  | )      |  |   | 4,682   |       
|                          |                                       | (Equity in undistributed) excess of dividends paid
over net income of subsidiaries |                                 |      | (11,000 | )     |  |   | (10,139 | )      |  |   | (13,863 | )     
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          |                                       | Net cash provided by operating activities                                          |                                 |      | 32,755  |       |  |   | 18,289  |        |  |   | 12,877  |       
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          | Cash flows from investing activities: |                                                                                    |                                 |      |         |       |  |   |         |        |  |   |        
|                          |                                       | Purchase of securities available for sale                                          |                                 |      | (6      | )     |  |   | (27     | )      |  |   |        |       
|                          |                                       | Proceeds from sale of securities available for sale                                |                                 |      | 5,954   |       |  |   | 715     |        |  |   | 1,101   |       
|                          |                                       | Proceeds from sale of property                                                     |                                 |      | 95      |       |  |   |        |        |  |   | 221     |       
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          |                                       | Net cash provided by investing activities                                          |                                 |      | 6,043   |       |  |   | 688     |        |  |   | 1,322   |       
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          | Cash flows from financing activities: |                                                                                    |                                 |      |         |       |  |   |         |        |  |   |        
|                          |                                       | Purchase and retirement of common stock                                            |                                 |      | (13,894 | )     |  |   | (17,962 | )      |  |   | (27     | )     
|                          |                                       | Proceeds from issuance of common stock                                             |                                 |      | 1,596   |       |  |   | 1,643   |        |  |   | 3,050   |       
|                          |                                       | Net increase in other borrowings                                                   |                                 |      | 1,505   |       |  |   | 31,860  |        |  |   |        |       
|                          |                                       | Dividends paid                                                                     |                                 |      | (22,237 | )     |  |   | (22,753 | )      |  |   | (20,294 | )     
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          |                                       | Net cash used in financing activities                                              |                                 |      | (33,030 | )     |  |   | (7,212  | )      |  |   | (17,271 | )     
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          |                                       |                                                                                    | Net increase (decrease) in cash |      |         | 5,768 |  |   |         | 11,765 |  |   |         | (3,072 | )
|                          |                                       | Cash at beginning of year                                                          |                                 |      | 18,478  |       |  |   | 6,713   |        |  |   | 9,785   |       
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |  
|                          |                                       | Cash at end of year                                                                |                                 | $    | 24,246  |       |  | $ | 18,478  |        |  | $ | 6,713   |       
|                          |                                       |                                                                                    |                                 |      |         |       |  |   |         |        |  |   |         |       

81



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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
2003 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 2003 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
and Related Stockholder Matters

The following table provides information as of December 31, 2002 regarding
the number of shares of Common Stock that may be issued under the Corporations
equity compensation plans.

|                                                           |       |                         |                         |                              |                           |                     |                      |       |  |  |           |           | 
|---------------------------------------------------------- | ----- | ----------------------- | ----------------------- | ---------------------------- | ------------------------- | ------------------- | -------------------- | ----- |  |  | --------- | --------- | 
|                                                           |       |                         | Number of securities to |                              |                           |                     |                      |       |  |  |          
|                                                           |       |                         | be issued upon exercise |                              | Weighted average exercise |                     | Number of securities
|                                                           |       |                         | of outstanding options, |                              | price of outstanding      |                     | remaining available 
|Plan category:                                             |       | warrants and rights (1) |                         | options, warrants and rights |                           | for future issuance
|                                                           |       |                         |                         |                              |                           |                    
|Equity compensation plans
approved by security holders (2) |       |                         | 1,564,191               |                              |                           | $                   | 16.96                |       |  |  | 1,719,317 |          
|Equity compensation plans not
approved by security holders |       |                         |                        |                              |                           |                     |                     |       |  |  |          |          
|                                                           |       |                         |                         |                              |                           |                     |                      |       |  |  |           |          
|                                                           | Total |                         |                         | 1,564,191                    |                           |                     | $                    | 16.96 |  |  |           | 1,719,317 | 
|                                                           |       |                         |                         |                              |                           |                     |                      |       |  |  |           |          



|(1) |  | The table does not include outstanding options to purchase 979,660 shares of Common Stock assumed
through various mergers and acquisitions. As of December 31, 2002 these assumed options had a
weighted average exercise price of $22.84 per share.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The table includes 4,000 restricted shares of Common Stock which are not yet vested and were granted
pursuant to the Restricted Stock Plan, which was approved by shareholders. 334,147 shares remain
available for grant pursuant to such plan.    

In addition, the information in the Registrants Proxy Statement for its
2003 Annual Meeting of Shareholders under the caption Ownership of Common
Stock 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 2003 Annual Meeting of Shareholders under the captions
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions and Certain Relationships and Related Transactions and is hereby
incorporated by reference.

82



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##### 



Item 14.Controls and Procedures

The Registrants Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated the Registrants disclosure controls and procedures
within 90 days of the filing of this report, and have concluded that the
Registrants disclosure controls and procedures were adequate and effective to
ensure that information required to be disclosed is recorded, processed,
summarized, and reported in a timely manner.

There were no significant changes in the Registrants internal controls
or in other factors that could significantly affect these controls subsequent
to the date of the Chief Executive Officer and Chief Financial Officers
evaluation, nor were there any significant deficiencies or material weaknesses
in the controls which required corrective action.

PART IV

Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

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

|                                   |                                                                                                      |  |      |    | 
|---------------------------------- | ---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                   |                                                                                                      |  | Page
|                                   |                                                                                                      |  |     
|(1) Financial Statements:          |                                                                                                      |  |      |   
|                                   | Independent Auditors Report                                                                         |  |      | 46 | 
|                                   | Consolidated Balance Sheets, December 31, 2002 and 2001                                              |  |      | 47 | 
|                                   | Consolidated Statements of Income for the years ended December 31,
2002, 2001 and 2000               |  |      | 48 | 
|                                   | Consolidated Statements of Shareholders Equity for the years ended
December 31, 2002, 2001 and 2000 |  |      | 49 | 
|                                   | Consolidated Statements of Cash Flows for the years ended December
31, 2002, 2001 and 2000           |  |      | 50 | 
|                                   | Notes to Consolidated Financial Statements                                                           |  |      | 51 | 
|(2) Financial Statement Schedules: |                                                                                                      |  |      |   
|                                   | None                                                                                                 |  |      |    | 

83



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##### 



(3)  Exhibits.



|                                                              |                         |                                                                                                                                                                                                                                                                   
|------------------------------------------------------------- | ----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.
(per Exhibit
Table in
Item 601 of Regulation S-K) | Description of Exhibits
|                                                              |                        
|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, 2000 (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 99.1 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 10.3 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, incorporated herein by reference to
Exhibit 10.4 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 (Commission File No. 0-15829).  
|                                                              |                         |                                                                                                                                                                                                                                                                   
|*10.5                                                         |                         | Amended and Restated Employment Agreement dated December 19, 2001
for Robert O. Bratton, incorporated herein by reference to Exhibit
10.5 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).      
|                                                              |                         |                                                                                                                                                                                                                                                                   
|*10.6                                                         |                         | Amended and Restated Employment Agreement dated December 19, 2001
for Robert E. James, incorporated herein by reference to Exhibit
10.6 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).        
|                                                              |                         |                                                                                                                                                                                                                                                                   
|*10.7                                                         |                         | Amended and Restated Employment Agreement dated December 19, 2001
for Carl T. McFarland, incorporated herein by reference to Exhibit
10.7 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).      
|                                                              |                         |                                                                                                                                                                                                                                                                   
|*10.8                                                         |                         | Amended and Restated Supplemental Agreement dated December 19, 2001
for Lawrence M. Kimbrough, incorporated herein by reference to
Exhibit 10.8 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 (Commission File No. 0-15829).

84



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##### 



|       |  |                                                                                                                                                                                                                                                                                                                    
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.9  |  | Amended and Restated Supplemental Agreement dated December 19, 2001
for Robert O. Bratton, incorporated herein by reference to Exhibit
10.9 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).                                                     
|       |  |                                                                                                                                                                                                                                                                                                                    
|*10.10 |  | Amended and Restated Supplemental Agreement dated December 19, 2001
for Robert E. James, incorporated herein by reference to Exhibit
10.10 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).                                                      
|       |  |                                                                                                                                                                                                                                                                                                                    
|*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.)                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                    
|*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 Exhibit 99.1 of 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 Exhibit 24.2 of 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 |  | Amended and Restated Employment Agreement dated December 19, 2001
for Stephen M. Rownd, incorporated herein by reference to Exhibit
10.22 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).                                                       
|       |  |                                                                                                                                                                                                                                                                                                                    
|*10.21 |  | 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.)

85



---



##### 



|       |  |                                                                                                                                                                                                                                                                                                          
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.22 |  | The First Charter Corporation 2000 Omnibus Stock Option and Award
Plan, incorporated herein by reference to Exhibit 10.25 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                             
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.23 |  | The First Charter 1994 Deferred Compensation Plan for Non-Employee
Directors, incorporated herein by reference to Exhibit 10.26 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                       
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.24 |  | The First Charter Option Plan Trust, incorporated herein by
reference to Exhibit 10.27 of the Registrants Annual Report on
Form 10-K for the year ended December 31, 2000 (Commission File No.
0-15829).                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.25 |  | The Carolina First BancShares, Inc. Amended 1990 Stock Option Plan,
incorporated herein by reference to Exhibit 10.28 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                                 
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.26 |  | The Carolina First BancShares, Inc 1999 Long-Term Incentive Plan,
incorporated herein by reference to Exhibit 10.29 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                                   
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.27 |  | 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 10.30 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).   
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.28 |  | 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 10.31 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.29 |  | Separation and Consulting Agreement between First Charter
Corporation and James E. Burt, III dated June 29, 2000,
incorporated herein by reference to Exhibit 10.32 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                   
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.30 |  | Carolina First BancShares, Inc. Amended and Restated Directors
Deferred Compensation Plan, incorporated herein by reference to
Exhibit 10.33 of the Registrants Annual Report on Form 10-K for
the year ended December 31, 2000 (Commission File No. 0-15829).                                         
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.31 |  | 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).                                                        
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.32 |  | First Charter Corporation Directors Option Deferral Plan,
incorporated herein by reference to Exhibit 10.35 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2001 (Commission File No. 0-15829).                                                                          
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.33 |  | Supplemental Agreement dated December 19, 2001 for Carl T.
McFarland, incorporated herein by reference to Exhibit 10.36 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2001 (Commission File No. 0-15829).                                                               

86



---



##### 



|       |  |                                                                                                                                                                                                                                          
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.34 |  | Supplemental Agreement dated December 19, 2001 for Stephen M.
Rownd, incorporated herein by reference to Exhibit 10.37 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2001 (Commission File No. 0-15829).
|       |  |                                                                                                                                                                                                                                          
|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.                                                                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                          
|99.1   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                  
|       |  |                                                                                                                                                                                                                                          
|99.2   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                  



|* |  | 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, 2002:
|-- |  | ----------------------------------------------------------------------------------------------------------



| |  | Current Report on Form 8-K dated October 29, 2002 and filed October 29,
2002, Item 5 and 7.
| |  | -------------------------------------------------------------------------------------------
|
| |  | Current Report on Form 8-K dated October 30, 2002 and filed October 30,
2002, Item 7 and 9.

87



---



##### 



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 6, 2003                   

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:

|                                                     |  |                                                                                 |  |              
|---------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -------------
|Signature                                            |  | Title                                                                           |  | Date         
|                                                     |  |                                                                                 |  |              
|                                                     |  |                                                                                 |  |              
|/s/  Lawrence M. Kimbrough
(Lawrence M. Kimbrough)   |  | President and Director
(Principal Executive
Officer)                            |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  J. Roy Davis, Jr.
(J. Roy Davis, Jr.)           |  | Chairman of the Board
and Director                                              |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  Michael R. Coltrane
(Michael R. Coltrane)       |  | Vice Chairman of the
Board and Director                                         |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  Robert O. Bratton
(Robert O. Bratton)           |  | Executive Vice President
(Principal Financial and
Principal Accounting Officer) |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  Harold D. Alexander
(Harold D. Alexander)       |  | Director                                                                        |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  William R. Black
(William R. Black)             |  | Director                                                                        |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  James E. Burt, III
(James E. Burt, III)         |  | Director                                                                        |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  John J. Godbold, Jr.
(John J. Godbold, Jr.)     |  | Director                                                                        |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  Frank H. Hawfield, Jr.
(Frank H. Hawfield, Jr.) |  | Director                                                                        |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  Charles A. James
(Charles A. James)             |  | Director                                                                        |  | March 6, 2003
|                                                     |  |                                                                                 |  |              
|/s/  Walter H. Jones, Jr
(Walter H. Jones, Jr.)      |  | Director                                                                        |  | March 6, 2003

88



---



##### 

\

|                                               |  |          |  |              
|---------------------------------------------- |  | -------- |  | -------------
|Signature                                      |  | Title    |  | Date         
|                                               |  |          |  |              
|                                              
|/s/  Samuel C. King, Jr.
(Samuel C. King, Jr.) |  | Director |  | March 6, 2003
|                                              
|/s/  Jerry E. McGee
(Jerry E. McGee)           |  | Director |  | March 6, 2003
|                                              
|/s/  Hugh H. Morrison
(Hugh H. Morrison)       |  | Director |  | March 6, 2003
|                                              
|/s/  Thomas R. Revels
(Thomas R. Revels)       |  | Director |  | March 6, 2003
|                                              
|/s/  L. D. Warlick, Jr.
(L. D. Warlick, Jr.)   |  | Director |  | March 6, 2003
|                                              
|/s/  William W. Waters
(William W. Waters)     |  | Director |  | March 6, 2003

89



---



##### 



I, Lawrence M. Kimbrough, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of First Charter
Corporation;                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | (a) |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |                                                                                      
|------------------- |  | -------------------------------------------------------------------------------------
|Date: March 6, 2003 |  | /s/ Lawrence M. Kimbrough
Lawrence M. Kimbrough
President and Chief Executive Officer

90



---



##### 



I, Robert O. Bratton, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of First Charter
Corporation;                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | (a) |  | Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | (c) |  | Presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |                                                                                                        
|------------------- |  | -------------------------------------------------------------------------------------------------------
|Date: March 6, 2003 |  | /s/ Robert O. Bratton
Robert O. Bratton
Executive Vice President,
Chief Financial Officer and Treasurer

91



---



##### 





|                                                             |                         |                                                                                                                                                                                                                                                                   
|------------------------------------------------------------ | ----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.
(per Exhibit
Table in
Item 601 ofRegulation S-K) | Description of Exhibits
|                                                             |                        
|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, 2000 (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 99.1 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 10.3 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, incorporated herein by reference to
Exhibit 10.4 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 (Commission File No. 0-15829).  
|                                                             |                         |                                                                                                                                                                                                                                                                   
|*10.5                                                        |                         | Amended and Restated Employment Agreement dated December 19, 2001
for Robert O. Bratton, incorporated herein by reference to Exhibit
10.5 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).      
|                                                             |                         |                                                                                                                                                                                                                                                                   
|*10.6                                                        |                         | Amended and Restated Employment Agreement dated December 19, 2001
for Robert E. James, incorporated herein by reference to Exhibit
10.6 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).        
|                                                             |                         |                                                                                                                                                                                                                                                                   
|*10.7                                                        |                         | Amended and Restated Employment Agreement dated December 19, 2001
for Carl T. McFarland, incorporated herein by reference to Exhibit
10.7 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).      
|                                                             |                         |                                                                                                                                                                                                                                                                   
|*10.8                                                        |                         | Amended and Restated Supplemental Agreement dated December 19, 2001
for Lawrence M. Kimbrough, incorporated herein by reference to
Exhibit 10.8 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2001 (Commission File No. 0-15829).

92



---



##### 



|       |  |                                                                                                                                                                                                                                                                                                                    
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.9  |  | Amended and Restated Supplemental Agreement dated December 19, 2001
for Robert O. Bratton, incorporated herein by reference to Exhibit
10.9 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).                                                     
|       |  |                                                                                                                                                                                                                                                                                                                    
|*10.10 |  | Amended and Restated Supplemental Agreement dated December 19, 2001
for Robert E. James, incorporated herein by reference to Exhibit
10.10 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).                                                      
|       |  |                                                                                                                                                                                                                                                                                                                    
|*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.)                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                    
|*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 Exhibit 99.1 of 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 Exhibit 24.2 of 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 |  | Amended and Restated Employment Agreement dated December 19, 2001
for Stephen M. Rownd, incorporated herein by reference to Exhibit
10.22 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001 (Commission File No. 0-15829).                                                       
|       |  |                                                                                                                                                                                                                                                                                                                    
|*10.21 |  | 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.)

93



---



##### 



|       |  |                                                                                                                                                                                                                                                                                                          
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.22 |  | The First Charter Corporation 2000 Omnibus Stock Option and Award
Plan, incorporated herein by reference to Exhibit 10.25 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                             
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.23 |  | The First Charter 1994 Deferred Compensation Plan for Non-Employee
Directors, incorporated herein by reference to Exhibit 10.26 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                       
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.24 |  | The First Charter Option Plan Trust, incorporated herein by
reference to Exhibit 10.27 of the Registrants Annual Report on
Form 10-K for the year ended December 31, 2000 (Commission File No.
0-15829).                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.25 |  | The Carolina First BancShares, Inc. Amended 1990 Stock Option Plan,
incorporated herein by reference to Exhibit 10.28 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                                 
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.26 |  | The Carolina First BancShares, Inc 1999 Long-Term Incentive Plan,
incorporated herein by reference to Exhibit 10.29 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                                                                   
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.27 |  | 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 10.30 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).   
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.28 |  | 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 10.31 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.29 |  | Separation and Consulting Agreement between First Charter
Corporation and James E. Burt, III dated June 29, 2000,
incorporated herein by reference to Exhibit 10.32 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2000 (Commission File No. 0-15829).                   
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.30 |  | Carolina First BancShares, Inc. Amended and Restated Directors
Deferred Compensation Plan, incorporated herein by reference to
Exhibit 10.33 of the Registrants Annual Report on Form 10-K for
the year ended December 31, 2000 (Commission File No. 0-15829).                                         
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.31 |  | 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).                                                        
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.32 |  | First Charter Corporation Directors Option Deferral Plan,
incorporated herein by reference to Exhibit 10.35 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2001 (Commission File No. 0-15829).                                                                          
|       |  |                                                                                                                                                                                                                                                                                                          
|*10.33 |  | Supplemental Agreement dated December 19, 2001 for Carl T.
McFarland, incorporated herein by reference to Exhibit 10.36 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2001 (Commission File No. 0-15829).                                                               

94



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##### 



|       |  |                                                                                                                                                                                                                                          
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.34 |  | Supplemental Agreement dated December 19, 2001 for Stephen M.
Rownd, incorporated herein by reference to Exhibit 10.37 of the
Registrants Annual Report on Form 10-K for the year ended December
31, 2001 (Commission File No. 0-15829).
|       |  |                                                                                                                                                                                                                                          
|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.                                                                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                          
|99.1   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                  
|       |  |                                                                                                                                                                                                                                          
|99.2   |  | Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                  



|* |  | Indicates a management contract or compensatory plan
|- |  | ----------------------------------------------------

95