Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, May 18, 1995                   TAG: 9505180046
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: MAG POFF STAFF WRITER
DATELINE:                                 LENGTH: Medium

BANK ACQUIRED IN SWAP

Charter, based at Bristol, has assets of $70 million and 26 branches in Tennessee and Western Virginia.

The combined company will have the second-largest market share in Knoxville, Tenn., and the leading market share in the Tri-Cities area of eastern Tennessee, both shares at 20 percent, the companies said.

First American previously announced acquisition of Heritage Federal Bancshares, a $520 million thrift which has its headquarters in the Tri-Cities area.

Both acquisitions are scheduled to be completed in the fourth quarter of this year subject to shareholder and regulatory approvals.

First American said it plans to consolidate Charter Federal's Tennessee and Bristol, Va., branches into First American National Bank. First American said it intends to operate most Virginia branches, including those in the Roanoke Valley, in a new subsidiary, First American Savings Bank.

Robert J. Bartel, board chairman of Charter, said the directors believe that "this transaction considerably enhances the outlook for our stockholders. We are also enthused about the greater resources of First American which will enable our customers to be better served with a wider array of financial products and services."

Dennis C. Bottorff, First American chairman, said the acquisition of Charter "strengthens our presence in vitally important areas of the Tennessee trade area. With this acquisition, our market share moves to a strong No. 2 position in Knoxville and number one in the Tri-Cities area."

First American has entered into a definitive agreement to acquire all of the outstanding shares of Charter Federal in a tax-free exchange.

If the average price of First American common stock around the time of the acquisition is less than or equal to $39.75, a fixed exchange rate of 0.38 of a share of First American will be exchanged for each share of Charter stock. That would result in about 1.94 million First American shares being exchanged.

If the First American stock average is greater than $39.75 but less than or equal to $43.50, a fixed price of $15.10 will be exchanged for each share of Charter.

If the average price of First American stock is greater than $43.50, Charter may elect to terminate the transaction.

Based on the $35 stock price of First American at the close of business Tuesday, the consideration to be paid would equal $13.30 a share to the stockholders of Charter. Charter's stock closed Wednesday at $13.75 a share, up 75 cents from Tuesday. But the sale to First American was announced after the close of trading on Wednesday.

First American said it intends to repurchase in the open market up to 100 percent of its shares necessary to effect the transaction.

The purchase price equals 11.2 times Charter's last 12-month earnings ending March 31, excluding a $2.4 million gain on the sale of branch assets. The price also is 1.4 times book value.

First American said it intends to account for its previously announced Heritage acquisition as a pooling of interests and to account for Charter as a purchase. The accounting treatment for Heritage would result in a one-time charge of $4.5 million in the fourth quarter.

The bank said that it expects a cost savings of $6 million, or 45 percent of Heritage's non-interest expense, through the merger in 1996.

Charter had net income of $5.2 million for the nine months of its fiscal year ended March 31, excluding the branch sale.

First American has assets of $7.7 billion, loans of $5 billion and deposits of $5.9 billion.