buy Carolina First Bancshares for $260 million in stock.
The pooling-of-interest deal would create the eighth-largest banking company in North Carolina, with $2.6 billion of assets.
First Charter chairman and chief executive Lawrence M. Kimbrough called the merger deal "a key move in our company's strategic plan in that it will strengthen our presence in several attractive, high-growth markets."
The $1.8 billion-asset First Charter said it would swap 2.267 shares for each Carolina First share. At $42.50 per First Charter share, that equates to a hefty 3.87 times book value for Lincolnton-based Carolina First and 24.7 times 12-month earnings.
Carolina First's stock, which has fallen by about one-third in the last year, soared to a 52-week high on the news. Its shares climbed 28% Monday, closing at $33.25. But First Charter's price fell by 8.7%, to $17.125, out of concern that it may be overpaying for $774 million-asset Carolina First.
"The marketplace is not enamored with this transaction," said Mark Fitzgibbons, an analyst at Sandler, O'Neill & Partners in New York.
In a conference call, Mr. Kimbrough said First Charter was attracted to Carolina First's deposits.
"One of the major challenges that we have is the ability to fund the strong loan growth that we have," said Mr. Kimbrough.
First Charter also sees opportunities to sell trust, brokerage, and other services that Carolina First does not offer, added Bob Bratton, First Charter's chief financial officer.
Carolina First put itself on the block in September after a retreat for directors. Chief executive officer James E. Burt 3d, said the company faces a number of challenges -- management succession, investments in technology and real estate -- that led to the decision.
Mr. Burt is expected to stay on as chairman of First Charter's bank unit.
First Charter expects to close some overlapping branches, eliminating 50 to 75 jobs.
Matt Andrejczak contributed to this report.