UNITED STATES SECURITITES AND EXCHANGE COMMISSION
Washington, D.C. 29549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURTIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to _______________
Commission File Number: 000-30515
Weststar Financial Services Corporation
---------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-2181423
-------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
79 Woodfin Place, Asheville NC 28801
-----------------------------------------
(Address of principal executive offices)
828-252-1735
(Registrant's telephone number, including area code)
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $1.00 par value - 633,298 shares outstanding as of November 10,
2000.
<PAGE>
INDEX Page
Part I - FINANCIAL INFORMATION
Financial Statements:
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999 4
and Nine Months Ended September 30, 2000 and 1999
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2000 and 1999 5
and Nine Months Ended September 30, 2000 and 1999
Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended September 30, 2000 6
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis
Financial Condition and Results of Operations 10
Part II - OTHER INFORMATION
Exhibit Index 14
Signatures 15
<PAGE>
Weststar Financial Services Corporation & Subsidiary
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 4,978,116 $ 1,892,403
Interest-bearing deposits 7,973 2,784
Federal funds sold 0 2,110,000
------------ ------------
Total cash and cash equivalents 4,986,089 4,005,187
------------ ------------
Investment securities -
Available for sale, at fair value (amortized cost of
$2,015,807 and $2,508,339, respectively) 2,017,016 2,502,411
------------ ------------
Loans 55,989,415 34,460,724
Allowance for loan losses (824,145) (528,808)
------------ ------------
Net loans 55,165,270 33,931,916
Premises and equipment, net 2,354,391 2,455,507
Accrued interest receivable 421,082 220,151
Federal Home Loan Bank stock, at cost 145,600 58,100
Deferred income taxes 537,572 133,688
Other assets 95,533 61,137
------------ ------------
TOTAL $ 65,722,553 $ 43,368,097
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 11,128,694 $ 4,780,881
NOW accounts 7,037,113 3,154,225
Money market accounts 11,997,449 10,623,376
Savings 785,062 583,797
Time deposits of $100,000 or more 6,552,697 5,620,684
Other time deposits 20,054,136 13,158,017
------------ ------------
Total deposits 57,555,151 37,920,980
Federal Funds Purchased 1,760,000 09
Accrued interest payable 226,411 159,1499
Other liabilities 193,803 119,569
------------ ------------
Total liabilities 59,735,365 38,199,698
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock; authorized $1,000,000; issued and outstanding - none 0 0
Common stock, $1 par value, authorized - 9,000,000
shares; issued and outstanding - 633,298 and 633,298, respectively 633,298 633,298
Additional paid-in capital 6,129,636 6,129,636
Accumulated deficit (776,487) (1,590,896)
Accumulated other comprehensive income 741 (3,639)
------------ ------------
Total shareholders' equity 5,987,188 5,168,399
------------ ------------
TOTAL $ 65,722,553 $ 43,368,097
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Weststar Financial Services Corporation & Subsidiary
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,386,333 $ 713,500 $ 3,467,835 $ 1,652,746
Federal funds sold 9,967 20,907 50,749 118,974
Interest-bearing deposits with other banks 114 7 230 1,165
Investments:
U.S Treasuries 11,969 5,408 32,643 20,908
U.S. Government agencies 20,392 26,735 66,849 68,206
Other 2,806 2,173 5,153 2,698
----------- ----------- ----------- -----------
Total interest income 1,431,581 768,730 3,623,459 1,864,697
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 96,272 48,660 263,268 125,555
Other time and savings deposits 468,075 246,270 1,167,418 640,620
Federal funds purchased 16,884 0 20,211 0
Other interest expense 0 59 41 59
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Total interest expense 581,231 294,989 1,450,938 766,234
----------- ----------- ----------- -----------
NET INTEREST INCOME 850,350 473,741 2,172,521 1,098,463
PROVISION FOR LOAN LOSSES 160,260 61,170 317,460 265,455
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 690,090 412,571 1,855,061 833,008
----------- ----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 89,255 73,345 258,297 187,890
Other service fees and commissions 44,995 49,588 101,755 87,781
Other 1,768 3,153 8,951 7,374
----------- ----------- ----------- -----------
Total other income 136,018 126,086 369,003 283,045
----------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and wages 255,339 252,432 770,877 680,600
Employee benefits 37,117 27,340 115,933 65,771
Occupancy expense, net 35,790 21,955 98,843 58,870
Equipment rentals, depreciation and
Maintenance 53,862 54,792 167,383 147,683
Supplies 36,852 29,886 97,546 82,689
Professional fees 143,691 86,867 416,631 242,605
Marketing 44,312 32,242 113,604 102,304
Other 16,379 26,109 32,465 55,126
----------- ----------- ----------- -----------
Total other expenses 623,342 531,623 1,813,282 1,435,648
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE AND INCOME TAXES 202,766 7,034 410,782 (319,595)
INCOME TAX PROVISION (BENEFIT) 70,049 0 (403,627) 0
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE 132,717 7,034 814,409 (319,595)
----------- ----------- ----------- -----------
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX
BENEFIT OF $44,877 0 0 0 (71,326)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 132,717 $ 7,034 $ 814,409 $ (390,921)
=========== =========== =========== ===========
PER SHARE AMOUNTS:
Basic and diluted income (loss) before cumulative
Effect of a change in accounting principle $ 0.21 $ 0.02 $ 1.29 $ (0.52)
Cumulative effect of a change in accounting
Principle 0 0 0 (0.12)
----------- ----------- ----------- -----------
Basic and diluted net income (loss) $ 0.21 $ 0.02 $ 1.29 $ (0.64)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
WESTSTAR FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $132,717 $ 7,034 $814,409 $(390,921)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) on securities
available for sale, net of taxes 2,908 385 4,380 (3,291)
-------- --------- -------- ---------
COMPREHENSIVE INCOME (LOSS) $135,625 $ 7,419 $818,789 $(394,212)
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 and 2000 (unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
---------------------- Paid-In Accumulated Comprehensive Shareholders'
Shares Amount Capital Deficit Income (Loss) Equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 607,557 $ 607,557 $ 5,897,957 $(1,341,243) $ (1,696) $ 5,162,575
Net change in unrealized
loss on securities held for sale (3,291) (3,291)
Issuance of common stock 25,741 25,741 231,679 257,420
Net loss (390,921) (390,921)
-----------------------------------------------------------------------------------
Balance September 30, 2000 633,298 $ 633,298 $ 6,129,636 $(1,732,164) $ (4,987) $ 5,025,783
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
---------------------- Paid-In Accumulated Comprehensive Shareholders'
Shares Amount Capital Deficit Income (Loss) Equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 633,298 $ 633,298 $ 6,129,636 $(1,590,896) $ (3,639) $ 5,168,399
Net change in unrealized
loss on securities held for sale 4,380 4,380
Net income 814,409 814,409
-----------------------------------------------------------------------------------
Balance September 30, 2000 633,298 $ 633,298 $ 6,129,636 $ (776,487) $ 741 $ 5,987,188
===================================================================================
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
Weststar Financial Services Corporation & Subsidiary
Consolidated Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30,
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ 814,409 $ (390,921)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation 174,637 127,103
Provision for loan loss 317,460 265,455
Premium amortization and discount accretion, net (18,233) (53,130)
Cumulative effect of a change in accounting principle 0 71,326
Increase in accrued interest receivable (200,931) (101,041)
Increase in accrued interest payable 67,262 72,652
Increase in other assets (34,412) (28,379)
Deferred income taxes (406,627) 0
Increase (decrease) in other liabilities 74,235 (101,185)
------------ ------------
Net cash provided (used) by operating activities 787,800 (138,120)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock (87,500) 0
Purchases of securities available for sale (2,010,234) (2,509,711)
Maturities of securities available for sale 2,521,000 2,100,000
Net increase in loans (21,550,814) (16,984,105)
Additions to premises and equipment (73,521) (401,655)
Issuance of common stock 0 257,420
------------ ------------
Net cash used in investing activities (21,201,069) (17,538,051)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts, and savings accounts 11,806,039 10,836,202
Net increase in certificates of deposits 7,828,132 7,704,525
Net increase in federal funds purchased 1,760,000 0
------------ ------------
Net cash provided by financing activities 21,394,171 18,540,727
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 980,902 864,556
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,005,187 3,545,714
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,986,089 $ 4,410,270
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 1,363,424 $ 693,582
Income taxes 3,000 0
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
WESTSTAR FINANCIAL SERVICES CORPORTION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Weststar Financial Services Corporation (the "Company") is a bank
holding company with one subsidiary, The Bank of Asheville, a
state chartered commercial bank incorporated in North Carolina on
October 29, 1997. Common shares of The Bank of Asheville were
exchanged for common shares of the Company on April 29, 2000.
In the opinion of management, the accompanying financial
statements contain all adjustments necessary to present fairly
the consolidated financial position of the Company as of
September 30, 2000 and December 31, 1999, and the consolidated
results of their operations and their cash flows for the three
and nine month periods ended September 30, 2000 and 1999.
The accounting policies followed are set forth in Note 1 to the
1999 Annual Report to Shareholders (Form 10-KSB) on file with the
Federal Deposit Insurance Corporation.
2. Loans at September 30, 2000 and December 31, 1999 classified by
type are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
Real Estate:
<S> <C> <C>
Construction $ 9,201,506 $ 7,152,238
Mortgage 29,890,483 16,963,594
Commercial, financial and agricultural 16,090,477 9,926,255
Consumer 1,009,529 562,765
------------ ------------
Subtotal 56,191,995 34,604,852
Net deferred loan origination fees (202,580) (144,128)
------------ ------------
Total $ 55,989,415 $ 34,460,724
============ ============
</TABLE>
3. At December 31, 1999, the Company had a $543,000 valuation
allowance related to deferred tax assets for which, in the
opinion of management, realization was not reasonably assured.
Based upon the taxable income being generated in 2000 and
management expectations of continued profitability, management
now believes that realization of the deferred tax assets is more
likely than not. The valuation allowance was reversed in the
first quarter of 2000, thereby providing a deferred tax benefit.
4. In the normal course of business there are various commitments
and contingent liabilities such as commitments to extend credit,
which are not reflected on the financial statements. The unused
portion of lines to extend credit were $10,618,000 and $5,537,000
at September 30, 2000 and December 31, 1999, respectively.
5. Basic earnings per share have been computed using the weighted
average number of shares of common stock outstanding of 633,298
and 613,395 for the quarters ended September 30, 2000 and 1999,
respectively and 633,298 and 609,530 for the nine month periods
ended September 30, 2000 and 1999, respectively. There were no
potentially dilutive securities during the three and nine month
periods ended September 30, 2000 and 1999.
8
<PAGE>
6. The Company's capital at September 30, 2000 and December 31, 1999
to risk weighted assets totaled 12.92% and 17.13%, respectively.
Current federal regulations require that the Company maintain a
minimum ratio of total capital to risk weighted assets of 8%,
with at least 4% being in the form of Tier 1 capital, as defined
in the regulations. In addition, the Company must maintain a
leverage ratio of 4%. As of September 30, 2000 and December 31,
1999, the Company's capital exceeded the current capital
requirements.
7. The SEC has issued Staff Accounting Bulletin No. 101 ("SAB 101"),
as amended on June 26, 2000, titled "Revenue Recognition in
Financial Statements". SAB 101 provides SEC guidance on the
recognition, presentation and disclosure of revenue in accordance
with generally accepted accounting principles in the financial
statements. The Company must implement any applicable provisions
of SAB 101 no later than the fourth quarter of the current fiscal
year. The Company has determined that implementation of the
applicable provisions of SAB 101 will not have a material effect
on the Company's financial statements and current disclosures.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. The new
standard requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133
was amended by SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective
Date for FASB Statement No. 133", which delays the Company's
effective date until January 1, 2001. Management does not believe
that SFAS 133 will have a material effect on the Company's
financial statements and current disclosures.
In September 2000, the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities". SFAS 140 revises the standards for accounting for
securitization and other transfers of financial assets and
collateral and requires certain disclosures, but carries over
most of the provisions of SFAS 125 without reconsideration. The
statement is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after March
31, 2001. Management does not believe that SFAS 140 will have a
material effect on the Company's financial statements and current
disclosures.
9
<PAGE>
Weststar Financial Services Corporation & Subsidiary
Management's Discussion and Analysis
CHANGES IN FINANCIAL CONDITION
SEPTEMBER 30, 2000 COMPARED TO DECEMBER 31, 1999
During the period from December 31, 1999 to September 30, 2000 total assets
increased $22,354,456 or 52%. This increase, reflected primarily in the cash and
loan portfolios, was funded primarily by deposit growth.
Securities and interest-bearing balances with other financial institutions at
September 30, 2000 totaled $2,024,989 compared to $4,615,195 at December 31,
1999. Securities available for sale remained relatively flat when compared to
December 31, 1999 and federal funds sold was reduced to none as funds were
allocated to the loan portfolio. During 1999, the Company gained access to the
Federal Home Loan Bank system. This access grants the Company additional sources
of funds for lending and liquidity. An initial equity investment of $58,100 was
required to gain access to the Federal Home Loan Bank's resources. During the
nine month period of 2000, an additional investment of $87,500 was required by
the Federal Home Loan Bank.
The loan portfolio constituted 85% of the Company's total assets. Loans
increased $21,528,691 from December 31, 1999 to September 30, 2000. The increase
in loan demand resulted from market penetration into the small business,
professional and consumer bases within the Company's market. Management places a
strong emphasis on loan quality. At September 30, 2000, there were no loans that
(i) represented or resulted from trends or uncertainties which management
reasonably expects to materially impact future operating results, liquidity, or
capital resources, or (ii) represented material credits about which management
was aware of any information which caused management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms.
Management considers the Company's asset quality to be of primary importance.
The allowance for loan losses, which is utilized to absorb losses inherent in
the loan portfolio, is maintained at a level sufficient to provide for estimated
potential charge-offs of non-collectible loans. The loan portfolio is analyzed
periodically in an effort to identify potential problems before they actually
occur. The allowance for loan losses is evaluated on a regular basis by
management using a methodology that segments the loan portfolio by types. This
methodology is based upon management's periodic review of the collectibility of
the loans in light of the current status of the portfolio, historical
experience, the nature and volume of the loan portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral, and prevailing economic conditions. Because the Company has been in
existence for a relatively short time, and therefore has a limited history,
management has also considered in applying its analytical methodology the loss
experience and allowance levels of other peer community banks and the historical
experiences encountered by the Company's management and senior lending officers.
Weststar's methodology for assessing the appropriateness of the allowance for
loan losses consists of two key elements, which are the formula allowance and
specific allowance.
The formula allowance is calculated by applying loss factors to outstanding
loans and certain unused commitments, in each case based on the internal risk
grade of such loans, pools of loans and commitments. Changes in risk grades of
both performing and non-performing loans affect the amount of the formula
allowance. Loss factors are based in part on limited experience and may be
adjusted for significant factors that, in management's judgement, affect the
collectibility of the portfolio as of the evaluation date. Loss factors are
developed in the following way.
10
<PAGE>
- Problem graded loan loss factors are derived from a methodology that
utilizes published experience of peer community banks and the historical
experiences encountered by Weststar's management.
- Pass graded loan loss factors are based on average annual net charge-offs
rate over a period believed to be a business cycle.
- Pooled loan loss factors (not individually graded loans) are based on
expected net charge-offs for one year. Pooled loans are loans that are
homogeneous in nature, such as consumer installment loans.
- Specific allowances are established in cases where management has identified
significant conditions or circumstances related to a credit that management
believes indicate the probability that a loss has been incurred in excess of
the formula allowance. This amount is determined either by a discounted cash
flow method or the fair value of the collateral.
The Company has incurred limited charge-off experience. Actual charge-offs are
compared to the allowance and adjustments are made accordingly. Also, by basing
the pass graded loan loss factors over a period relative of a business cycle,
the methodology is designed to take our recent loss experience into account.
Pooled loan loss factors are adjusted monthly based upon the level of net
charge-offs expected by management in the next twelve months. Furthermore, the
methodology permits adjustments to any loss factor used in the computation of
the formula allowance in the event that, in management's judgement, significant
factors, which affect the collectibility of the portfolio as of the evaluation
date, are not reflected in the loss factors. By assessing the probable estimated
losses inherent in the loan portfolio on a monthly basis, we are able to adjust
specific and inherent loss estimates based upon the most recent information.
The provision for loan losses represents a charge against income in an amount
necessary to maintain the allowance at an appropriate level. The monthly
provision for loan losses may fluctuate based on the results of this analysis.
The allowance for loan losses at September 30, 2000 and December 31, 1999 was
$824,145 and $528,808 or 1.47% and 1.53%, respectively, of gross loans
outstanding.
Deposits increased $19,634,171 during the nine months ended September 30, 2000.
The growth was found in all categories of deposits. Transaction and savings
accounts accounted for $11,806,039 or 60% of growth, while time deposits
accounted for $7,828,132 or 40% of growth. Approximately $5 million in time
deposits were generated through the internet. These deposits primarily represent
deposits from other financial institutions such as credit unions and savings
banks, and account for approximately 9% of total deposits.
The Company's capital at September 30, 2000 to risk weighted assets totaled
12.92%. Current federal regulations require a minimum ratio of total capital to
risk weighted assets of 8%, with at least 4% being in the form of Tier 1
capital, as defined in the regulations. In addition, the Company must maintain a
leverage ratio of 4%. As of September 30, 2000, the Company's capital exceeded
the current regulatory capital requirements.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 AND 1999
Net interest income, the principal source of the Company's earnings, is the
amount of income generated by earning assets (primarily loans and investment
securities) less the total interest cost of the funds obtained to carry them
(primarily deposits and other borrowings). The volume, rate and mix of both
earning assets and related funding sources determine net interest income.
COMPARATIVE THREE MONTHS
Net interest income for the quarter ended September 30, 2000 totaled $850,350
compared to $473,741 in 1999. This increase is attributable to growth in net
earning assets and improved net interest margins. The Company's net interest
margin was approximately 5.7% and 5.2% for the quarters ended September 30, 2000
and 1999, respectively.
11
<PAGE>
Weststar recorded a provision for loan losses of $160,260 and $16,170 for the
quarters ended September 30, 2000 and 1999, respectively. The provision for loan
losses is charged to operations to bring the allowance to a level deemed
appropriate by management based on the factors discussed under "Asset Quality."
The provision for credit losses increased due to growth in the loan portfolio,
and an increase in non-performing loans from .30% to .83% of gross loans
outstanding at September 30, 1999 and 2000, respectively.
Non-interest income for the September 30, 2000 and 1999 quarters totaled
$136,018 and $126,086, respectively. The growth in service charge income
increased commensurate with growth in transaction related deposit accounts.
Non-interest expense totaled $623,342 compared to $531,623 in 1999. Non-interest
expense increased primarily as a result of Company wide asset growth and the
costs of servicing a larger loan and deposit base of customers. Additional
increased costs related directly to insurance, supplies, audit, tax and legal
fees as well as a sundry of other items. Income (loss) before income taxes
totaled $202,766 and $7,034 for the quarters ended September 30, 2000 and 1999,
respectively. Income taxes totaled $70,049 and none for the quarters ended
September 30, 2000 and 1999, respectively. Net income totaled $132,717 and
$7,034 for the quarters ended September 30, 2000 and 1999, respectively.
Other comprehensive income, which is the change in shareholders' equity
excluding transactions with shareholders', totaled $2,908 and $385 in 2000 and
1999, respectively. Comprehensive income totaled $135,625 for the quarter ended
September 30, 2000 compared to $7,419 for the quarters ended September 30, 1999.
COMPARATIVE NINE MONTHS
Net interest income for the nine month period ended September 30, 2000 totaled
$2,172,521 compared to $1,098,463 in 1999. This increase is primarily
attributable to growth in earning assets and interest-bearing liabilities. The
Company's net interest margin was approximately 5.5% and 4.7% for the nine
months ended September 30, 2000 and 1999, respectively.
The provision for loan losses charged to operations is an amount sufficient to
bring the allowance for loan losses to an estimated balance considered to be
adequate to absorb potential losses in the portfolio. Management's determination
of the adequacy of the allowance is based on an evaluation of the portfolio,
current economic conditions, historical loan loss experience and other risks.
During the nine month period ended September 30, 2000 and 1999, management
allocated $317,460 and $265,455, respectively, to the loan loss reserve.
The recorded investment in loans that are considered to be impaired in
accordance with criteria set forth in Statement of Financial Accounting
Standards No. 114 of the Financial Accounting Standards Board was $194,528 and
$90,544 at September 30, 2000 and 1999, respectively. The average recorded
balance of impaired loans during 2000 and 1999 was not significantly different
from the balance at September 30, 2000 and 1999. Loans are considered impaired
when based on current information, it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the loan
agreement, including interest payments. Impaired loans are carried at the lower
of the recorded investment in the loan, the estimated present value of the total
expected future cash flows, discounted at the loan's effective rate or the fair
value of the collateral, if the loan is collateral dependent. The related
allowance for loan losses determined in accordance with SFAS No. 114 for
impaired loans was $51,779 and $51,823 at September 30, 2000 and 1999,
respectively. For the nine month period ended September 30, 2000 and 1999, the
Company recognized interest income from impaired loans of approximately $8,660
and $4,044, respectively.
12
<PAGE>
Non-interest income for the nine month period ended September 30, 2000 and 1999
totaled $369,003 and $283,045, respectively. The growth in service charge income
increased commensurate with growth in transaction related deposit accounts.
Non-interest expense totaled $1,813,282 compared to $1,435,648 in 1999.
Non-interest expense increased primarily as a result of additional staffing and
premises and equipment purchases related to growth. Additional increased costs
related directly to insurance, supplies, audit, tax and legal fees as well as a
sundry of other items. The net operating income (loss) before a cumulative
effect of a change in accounting principle and income tax benefit was $410,782
and ($319,595) for September 30, 2000 and 1999, respectively.
For the nine month period ended September 30, 2000, the Company recognized an
income tax benefit of $403,627 primarily related to the release of a valuation
allowance of $530,612 previously recorded against deferred tax assets, net of
income taxes related to operations for the period. At December 31, 1999
management believed the realization of the valuation allowance was not
reasonably assured. Based upon the taxable income being generated in 2000 and
management's expectations of continued profitability, management now believes
the realization of the deferred tax asset is more likely than not. The valuation
allowance was reversed in the first quarter of 2000, thereby providing a
deferred tax benefit. Net income totaled $814,409 compared to ($390,921) for the
nine month periods ended September 30, 2000 and 1999, respectively.
Other comprehensive income (loss), which is the change in shareholders' equity
excluding transactions with shareholders', totaled $4,380 and $(3,291) in 2000
and 1999, respectively. Other comprehensive income (loss) totaled $818,789
compared to $(394,212) in 2000 and 1999, respectively.
13
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Part II - OTHER INFORMATION
ITEM 4 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A.) Exhibits
None
B.) Reports on Form 8-K
No reports on Form 8-K have been filed for the quarter ended June
30, 1999. Items 1, 2, 3, 4, 5, 6, 7, 8 and 9 are inapplicable and
are omitted.
14
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SIGNATURE
In accordance with the requirement of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Weststar Financial Services Corporation
(Registrant)
November 10, 2000 /s/ Randall C. Hall
--------------------
Randall C. Hall
Executive Vice President and
Chief Financial and
Principal Accounting Officer
