As filed with the Securities and Exchange Commission on ________, 2000
Registration No. 333-______
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WESTSTAR FINANCIAL SERVICES CORPORATION
(Name of small business issuer in its charter)
North Carolina 6712 56-2181423
(State or Jurisdiction (Primary Standard (IRS Employer
of Organization) Industrial Code) Identification No.)
79 Woodfin Place
Asheville, North Carolina 28801-2426
(828) 252-1735
(Address and telephone number of principal executive offices)
G. Gordon Greenwood, President
79 Woodfin Place
Asheville, North Carolina 28801-2426
(828) 252-1735
(Name, address and telephone number of agent for service)
Copies to:
Anthony Gaeta, Jr., Esq.
Erik Gerhard, Esq.
Gaeta & Glesener, P.A.
808 Salem Woods Drive, Suite 201
Raleigh, NC 27615
(919) 845-2558 Phone
(919) 518-2146 Fax
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional securities for an Offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Maximum Offering Proposed Maximum
Class of Securities Amount to Price Aggregate Amount of Registration
To be Registered be Registered Per Share (1) Offering Price Fee
----------------------- ---------------- ----------------------------- ------------------- --------------------------
<S> <C> <C> <C> <C>
Common Stock 410,000 $8.50 $3,485,000 $920.00
$1.00 par
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee, based
upon the average of the bid and asked prices of the Common Stock on the
Nasdaq OTC Bulletin Board on August 29, 2000 in accordance with Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED ________, 2000
<PAGE>
[Prospectus cover page]
Prospectus
________, 2000
WESTSTAR FINANCIAL SERVICES CORPORATION
COMMON STOCK
PURCHASE PRICE $____ PER SHARE
410,000 Shares (Maximum)
117,600 Shares (Minimum)
We are the parent company for The Bank of Asheville, a North Carolina community
bank that opened for business in December 1997.
Weststar Financial Services Corporation
The Bank of Asheville
79 Woodfin Place
Asheville, North Carolina 28801-2426
(828) 252-1735
Trading Market
Our Common Stock is currently traded on the Nasdaq OTC Bulletin Board under the
symbol "WFSC."
The Offering
Weststar Financial Services Corporation ("Weststar") is offering a minimum of
117,600 shares and a maximum of 410,000 shares of its $1.00 par value Common
Stock ("Common Stock") for sale at $____ per share (the "Offering"). We will
offer the Common Stock primarily in the City of Asheville and Buncombe County,
North Carolina. Wachovia Securities, Inc., a broker-dealer located in Charlotte,
North Carolina ("Wachovia") will offer shares of Common Stock on a "best
efforts" basis through its brokerage offices. Funds collected during the
Offering will be placed in escrow at ________ until the minimum of 117,600
shares is sold. We plan to use the proceeds from the Offering to enhance our
capital and liquidity positions, fund our expansion plans, including the
establishment of additional branch offices in and around Buncombe County, and
for general corporate purposes. This Offering will end on December 31, 2000,
unless sooner terminated upon the sale of all of the shares offered, or
extended.
Total of Total of
Per Share Minimum Maximum
Public Offering Price $___ $___ $___
Estimated Expenses of the Offering $___ $___ $___
Proceeds to Weststar $___ $___ $___
THIS INVESTMENT INVOLVES RISK. IT IS NOT A DEPOSIT OR AN ACCOUNT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER GOVERNMENT AGENCY.
SOME OF THE RISKS OF THIS INVESTMENT ARE DESCRIBED UNDER THE CAPTION "RISK
FACTORS" BEGINNING ON PAGE __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
[Inside Front Cover of prospectus]
[MAP]
OFFICE LOCATIONS
Main Office Candler Office Leicester Highway Office
79 Woodfin Place 6 Dogwood Road 557 New Leicester Highway
Asheville, North Carolina Candler, North Carolina Asheville, North Carolina
(Scheduled to open in
October 2000)
WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, a copy of any exhibits to
our registration statement incorporated by reference in this Prospectus. If you
want more information, write or call us at:
Weststar Financial Services Corporation
The Bank of Asheville
79 Woodfin Place
Asheville, North Carolina 28801-2426
(828) 252-1735
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended ("1934 Act") and as required by the 1934 Act we file
reports, proxy statements and other information with the Securities and Exchange
Commission ("SEC"). Reports, proxy statements and other information filed by us
may be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549
and at the SEC's regional offices located at 7 World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Our SEC filings are also available to the public on the SEC
Internet site at http://www.sec.gov.
Prior to our formation as the holding company for The Bank of Asheville in April
2000, The Bank of Asheville was subject to the informational requirements of the
1934 Act and filed reports, proxy statements and other information with the
FDIC. The Bank's filings with the FDIC may be inspected and copied, after paying
a prescribed fee, at the FDIC's public reference facilities at the Registration,
Disclosure and Securities Operations Unit, 550 17th Street, NW, Room 6043,
Washington, DC 20429.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed business
information and the financial statements and related notes that appear elsewhere
in this Prospectus. Market and industry data used in this Prospectus are based
on independent industry publications, other publicly available information or
the good faith belief of our management. Although we believe that these sources
are reliable, the accuracy and completeness of the information is not guaranteed
and has not been independently verified. All references to "we" or "us" or "our"
in this Prospectus mean Weststar Financial Services Corporation and The Bank of
Asheville collectively, except where it is clear that we mean only the parent
holding company or only the Bank.
WESTSTAR FINANCIAL SERVICES CORPORATION
AND THE BANK OF ASHEVILLE
Business
Weststar Financial Services Corporation ("Weststar") is a bank holding company
formed in April 2000 to own all of the Common Stock of The Bank of Asheville
(the "Bank"), a North Carolina-chartered bank that opened for business as a
community bank in Asheville, Buncombe County, North Carolina in December 1997.
At this time, Weststar does not engage in any business activities on its own. It
only owns the Bank which engages in the commercial banking business. At June 30,
2000, Weststar had total assets of $61.2 million, total deposits of $55.0
million and shareholders' equity of $5.9 million.
The Bank's Market Area
The Bank's market area consists of Asheville, Buncombe County, North Carolina
and surrounding areas. Buncombe County is part of the Asheville Ranally
Metropolitan area. Asheville is the county seat and the industrial center of
Buncombe County with a population of approximately 68,000. In addition,
Asheville is the commercial hub for several other prosperous towns in Buncombe
County, including Arden, Biltmore Forest, Black Mountain, Montreat, Skyland,
Weaverville and Woodfin. The total population of Buncombe County is 190,200.
Buncombe County has a diversified economy and an unemployment rate of only 1.7%
as of September 1999.
Executive Offices
Weststar Financial Services Corporation
The Bank of Asheville
79 Woodfin Place
Asheville, North Carolina 28801-2426
(828) 252-1735
1
<PAGE>
Management
G. Gordon Greenwood, 52, is our President and Chief Executive Officer. A native
of Black Mountain, North Carolina, he has approximately 31 years of banking
experience. He is a graduate of Western Carolina University and the Banking
School of the South at Louisiana State University. Until January 2000, Mr.
Greenwood was a Regional Market Manager for Centura Bank in Asheville, North
Carolina. Prior thereto, he was senior vice president for commercial loans for
First Commercial Bank, a locally owned community bank in Asheville until its
acquisition by Centura Bank.
Randall C. Hall, 35, Executive Vice President, Secretary and Chief Financial
Officer, has approximately 12 years of banking experience. He is a graduate of
Gardner-Webb University and The BAI Graduate Schools of Banking at University of
Wisconsin. He has been with the Bank since its organization in 1997. He was
formerly with the Bank of Granite in Granite Falls, North Carolina as Vice
President, Chief Financial Officer and Secretary.
Robert E. Tuck, Jr., 41, Senior Vice President and Chief Credit Officer, is a 15
year banking veteran. He was formerly with First Citizens Bank as Vice President
and Branch Manager in Asheville, North Carolina.
Judy P. Waldroop, 42, Senior Vice President, is a long time resident of
Asheville and a 22 year banking veteran. She formerly was a Branch Sales and
Service Manager with Wachovia Bank in Asheville, North Carolina.
The Offering
Securities Offered for Sale Shares of Common Stock, $1.00 par value,
of Weststar Financial Services Corporation.
Number of Shares Being Offered A minimum of 117,600 and a maximum of
410,000.
Offering Price $____ per share.
How to Subscribe The Subscription Offer Form attached to
this Prospectus.
Minimum Subscription The minimum number of shares an
individual may purchase is ____ shares.
Number of Shares to be A minimum of 750,898 and a maximum
Outstanding after the Offering of 1,043,298 shares.
Dividend Policy We do not intend to pay any cash dividends
in the foreseeable future.
2
<PAGE>
Use of Proceeds We intend to use the net proceeds from the
Offering to provide additional liquidity, fund our
expansion plans and general corporate purposes.
Risk Factors You should read the "Risk Factors" section
beginning on page 5 before deciding to invest in
the Offering.
Trading Market/Symbol Nasdaq OTC Bulletin Board/WFSC
Summary Consolidated Financial and Other Data
The summary consolidated financial and other data presented below should be read
in conjunction with, and is qualified in its entirety by reference to, the
audited financial statements of the Bank for the years ended December 31, 1999
and 1998 and related notes, and to the unaudited consolidated financial
statements of Weststar for the six months ended June 30, 2000 and 1999. These
financial statements can be found at the end of this Prospectus.
3
<PAGE>
Weststar Financial Services Corporation
<TABLE>
<CAPTION>
At or for the Six Months At or for the Year Ended
Ended June 30, December 31,
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Interest income $ 2,191,878 $ 1,095,967 $ 2,760,318 $ 1,061,351
Interest expense 869,707 471,245 1,128,641 424,509
------------ ------------ ------------ ------------
Net interest income 1,322,171 624,722 1,631,677 636,842
Provision for loan losses 157,200 204,285 316,685 269,614
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 1,164,971 420,437 1,314,992 367,228
Noninterest income 232,985 156,959 414,864 117,044
Noninterest expense 1,189,940 904,025 2,018,808 1,458,899
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of a change in
Accounting principle and income taxes 208,016 (326,629) (288,952) (974,627)
Income tax provision (benefit) (473,676) (110,625) --
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of a change in
accounting principle 681,692 (326,629) (178,327) (974,627)
Cumulative effect of a change in accounting principle,
net of tax benefit of $44,877 -- (71,326) (71,326) --
------------ ------------ ------------ ------------
Net income (loss) $ 681,692 ($ 397,955) ($ 249,653) ($ 974,627)
============ ============= ============ =============
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 61,221,847 $ 33,881,817 $ 43,368,097 $ 21,892,695
Investments 2,008,293 3,064,535 2,502,411 2,085,000
Loans, net of allowance for loan losses 46,921,215 24,938,952 33,931,916 13,804,546
Deposits 55,030,787 28,928,049 37,920,980 16,446,648
Shareholders' equity 5,851,563 4,761,054 5,168,399 5,162,575
PER SHARE DATA:
Basic and diluted income (loss) before cumulative effect
of a change in accounting principle $ 1.08 ($ .54) ($ .29) ($ 1.60)
Cumulative effect of a change in accounting principle -- (.12) (.12) --
------------ ------------ ------------ ------------
Basic and diluted net income (loss) $ 1.08 ($ .66) ($ .41) ($ 1.60)
============ ============= ============ =============
Book Value $ 9.24 $ 7.84 $ 8.16 $ 8.50
SELECTED OTHER DATA:
Return on average assets 2.80% (2.74%) (.74%) (6.09%)
Return on average equity 24.69% (13.59%) (5.05%) (17.18%)
Average equity to average assets 11.3% 17.0% 14.6% 35.5%
Net yield on average interest-earning assets 6.0% 4.9% 5.4% 4.6%
Average interest-earning assets to average interest-bearing
liabilities 120.0% 123.5% 121.7% 165.5%
Ratio of non-interest expense to average total assets 4.9% 6.2% 6.0% 9.1%
Nonperforming loans to total assets .83% .27% .57% 0%
Nonperforming loans to total loans 1.07% .36% .72% 0%
Allowance for loan losses to total loans 1.44% 1.70% 1.53% 1.56%
Number of full service branches in operation 2 2 2 2
</TABLE>
4
<PAGE>
RISK FACTORS
In connection with this Offering, you should consider carefully all of the
information in this Prospectus and, in particular, the following factors:
We Do Not Plan to Pay Cash Dividends in the Immediate, Foreseeable Future.
We do not expect to pay dividends on our Common Stock in the immediate,
foreseeable future. You should not buy shares in this Offering if you need
dividend income from this investment. Currently and in the immediate future,
Weststar will have no significant assets other than its ownership of the Bank,
and the only source of funds for paying dividends to shareholders will be
dividends Weststar receives from the Bank. The Bank is prohibited from paying
cash dividends until December 2000 unless special permission is received from
the North Carolina Commissioner of Banks. This is a common prohibition for new
banks chartered under North Carolina law. Also, the Bank may not generate
sufficient earnings to enable it to continue to grow and also pay dividends to
Weststar. Even if it does, Weststar's board of directors would not be required
to pay dividends to shareholders. Also, there are other regulatory requirements
which may limit our ability to pay cash dividends.
If the Bank Experiences Greater Loan Losses Than Anticipated, It Will Have an
Adverse Effect on Our Net Income and Our Ability to Fund Our Growth Strategy.
The risk of nonpayment of loans is inherent in banking. If we experience greater
nonpayment levels than anticipated, our earnings and overall financial
condition, as well as the value of our Common Stock, could be adversely
affected.
We continuously strive to manage our credit risk, and we also maintain an
allowance for loan losses to provide for loan defaults and nonperformance.
However, we cannot assure you that our monitoring, procedures and policies will
reduce certain lending risks or that our allowance for loan losses will be
adequate to cover actual losses. In addition, as a result of the recent rapid
growth in our loan portfolio, loan losses may be greater than management's
estimates of the appropriate level for the allowance. Loan losses can cause
insolvency and failure of a financial institution and, in such an event, our
shareholders could lose their entire investment. In addition, future provisions
for loan losses could materially and adversely affect our results of operations.
Our Operations and Profitability Will be Affected by the Local Economy.
We operate primarily in the western area of North Carolina, principally in the
City of Asheville and Buncombe County. While the economy in this area generally
has been healthy in recent years, an economic downturn in the area would
probably have a significant negative impact on us.
5
<PAGE>
In Order to be Profitable, We Must Compete Successfully With Other Financial
Institutions Which Have Greater Resources and Capabilities Than We Do.
The banking business is extremely competitive. Most of our competitors are
larger and have greater resources than we do and have been in existence a longer
period of time. We will have to overcome historical bank-customer relationships
to attract customers away from our competition. We compete with the following
types of institutions:
- other commercial banks - securities brokerage firms
- savings banks - mortgage brokers
- thrifts - insurance companies
- credit unions - mutual funds
- consumer finance companies - trust companies
Some of our competitors are not regulated as extensively as we are and,
therefore, may have greater flexibility in competing for business. Some of these
competitors are subject to similar regulation but have the advantages of larger
established customer bases, higher lending limits, extensive branch networks,
numerous automated teller machines, a greater advertising-marketing budget or
other factors.
Our legal lending limit is determined by applicable law. The size of the loans
which we offer to our customers may be less than the size of the loans that most
of our competitors are able to offer. This limit may affect to some degree our
ability to seek relationships with the larger businesses in our market. We
satisfy loan requests in excess of our lending limit of $1,627,000 through the
sale of participations in such loans to other banks. However, we cannot assure
you that we will be successful in attracting or maintaining customers seeking
larger loans or that we will be able to engage in the sale of participations in
such loans on terms we consider favorable.
Our Need to Comply with Extensive and Complex Governmental Regulation Could Have
an Adverse Effect on Our Business, and Our Operations and Profitability Will Be
Affected by Federal Policies Outside of Our Control.
The banking industry is subject to extensive regulation by state and federal
banking authorities. Many of these regulations are intended to protect
depositors, the public or the FDIC insurance funds, not shareholders. Regulatory
requirements will affect our lending practices, capital structure, investment
practices, dividend policy and many other aspects of our business. These
requirements may constrain our rate of growth. Regulations affecting financial
institutions are undergoing continuous change, and such changes could adversely
affect us. Sometimes, these changes are applied retroactively. In addition, the
burden imposed by these federal and state regulations may place banks in
general, and us specifically, at a competitive disadvantage compared to less
regulated competitors.
In addition, various aspects of the banking industry and our operations will be
affected by federal economic and monetary policies, which are outside our
6
<PAGE>
control. Changes in federal economic and monetary policies may adversely affect
our ability to attract deposits, make loans and achieve satisfactory interest
spreads.
The Loss of One or More Key Executives Could Seriously Impair Our Ability to
Implement Our Strategy.
For the foreseeable future, we will depend upon the services of G. Gordon
Greenwood, our President and Chief Executive Officer, as well as other senior
management we employ. The loss of services of Mr. Greenwood may have a material
adverse effect on our operations. To protect against such a loss, we have
acquired a key-man life insurance policy covering Mr. Greenwood in the amount of
$700,000, payable to the Bank. We cannot assure you that we will be able to
maintain it on satisfactory terms. In an effort to maintain Mr. Greenwood's
employment, we entered into a five-year employment agreement with Mr. Greenwood
in February 2000. If Mr. Greenwood or any other key employee were no longer
employed by us, it could impair our ability to implement our growth strategy. In
addition, if we are unable to hire qualified and experienced personnel to
adequately staff our anticipated growth, our operating results would be
adversely affected. To protect the Bank, Mr. Greenwood and Randall C. Hall, our
Executive Vice President and Chief Financial Officer, have entered into
employment agreements with the Bank that would, in most circumstances, prohibit
the executives from competing with the Bank in our market areas should they
leave the Bank's employ.
Changes in Interest Rates Could Have an Adverse Effect on Our Net Income.
Our profitability is based in part on the difference or "spread" between the
interest rates we earn on investments and loans and the interest rates we pay on
deposits and other interest-bearing liabilities. Like most banking institutions,
our net interest spread and margin is affected by general economic conditions
and other factors that influence market interest rates and by our ability to
respond to changes in interest rates. At any given time, our assets and
liabilities are affected differently by a given change in interest rates,
principally because it is impossible to match the maturities of our loans and
investments precisely with our deposits and other funding sources. As a result,
an increase or decrease in interest rates could have a material adverse effect
on our net income, capital and liquidity. As of June 30, 2000, we had a negative
interest rate gap of $4.2 million or 90.9% of interest-earning assets to
interest-bearing liabilities in the one-year time frame. In theory this means
our earnings could be adversely affected by periods of rising interest rates
because during such periods the interest expense paid on deposits and borrowings
will generally increase more rapidly than the interest income earned on loans
and investments. However, it is important to note that while non-time related
interest-bearing deposits are subject to frequent repricing, in reality these
deposits are inelastic and generally do not reprice on a frequent basis. Thus,
if we chose to exclude these accounts, which totaled $23,099,514 at June 30,
2000 from deposits that reprice within the one-year time horizon, the Bank would
reflect a positive gap. Therefore, in a rising rate environment our earnings
would be positively impacted as more interest-earning assets would be subject to
repricing than interest-bearing liabilities within the one-year time horizon.
Conversely, in a decreasing rate environment, earnings would be negatively
impacted as more interest-earning assets would reprice to lower rates than
interest-bearing liabilities. Due to this asset and liability mix, the Bank is
7
<PAGE>
in fact asset sensitive and should benefit from rising rates. For information
regarding our interest rate risk sensitivity and our negative interest rate gap
at June 30, 2000 as computed on various future time horizons, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
ASSET/LIABILITY MANAGEMENT." While management intends to take measures to
mitigate interest rate risk, we cannot assure you that such measures will be
effective in minimizing our exposure to interest rate risk.
In addition to affecting interest income and expense, changes in interest rates
also can affect the value of a financial institution's interest-earning assets,
which consist of fixed- and adjustable-rate instruments (such as loans and
investments). Generally, the value of fixed-rate instruments fluctuates
inversely with changes in interest rates. Changes in interest rates also can
affect the average life of, and demand for, loans and mortgage-related
securities. In a declining interest rate environment, for example, a financial
institution is subject to reinvestment risk to the extent that it is not able to
reinvest such prepayments at rates which are comparable to the rates on the
paid-off loans.
We May Be Unsuccessful in Implementing or Managing our Growth Strategy.
Weststar intends to expand its business through selective de novo Bank branch
openings and possible acquisitions. There can be no assurance that we will be
able to consummate, or if consummated, successfully integrate, any future de
novo branch openings or acquisitions, and there can be no assurance that we will
not incur disruption and unexpected expenses in integrating any such
transactions. Although we currently have no such agreements or understandings,
either written or oral, in the normal course of business we evaluate potential
transactions that would compliment or expand our banking business. In doing so,
we compete with other potential bidders, many of which have greater financial
and operational resources. There can be no assurance that we will be able to
successfully negotiate, finance or integrate any such transactions. Furthermore,
the process of evaluating, negotiating and integrating transactions may divert
our time and attention as well as our resources. There can be no assurance that
any given de novo branch or whole business opening or acquisition, when and if
consummated, will have a material favorable effect on our business, results of
operations or financial condition.
If We Are Unable to Make Technological Improvements Necessary to Compete for
Customers, Our Ability to Grow as Anticipated Will Be Adversely Affected.
The banking industry is undergoing rapid technological changes with frequent
introductions of new technology-driven products and services. In addition to
better serving customers, the effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will
depend in part on our ability to address the needs of our customers by using
technology to provide products and services that will satisfy customer demands
for convenience as well as to create additional efficiencies in our operations.
In addition, many of our competitors have substantially greater resources to
invest in technological improvements. Such technology may permit competitors to
perform certain functions at a lower cost than we can perform them. We cannot
assure you that we will be able to implement new technology-driven products and
services effectively or be successful in marketing such products and services to
our customers.
8
<PAGE>
Anti-Takeover Provisions in Our Articles of Incorporation Could Reduce the
Likelihood That You Will Receive a Takeover Premium.
Certain provisions of state and federal law and our articles of incorporation
and by-laws will make it more difficult for anyone to acquire control of us
without our board of directors' approval. In many cases, shareholders receive a
premium for their shares in a change in control, and these provisions could make
it somewhat less likely that a change in control will occur or that you will
receive a premium for your shares if a change in control does occur.
FORWARD LOOKING STATEMENTS
Some of the statements in this Prospectus discuss future expectations, contain
projections of results of operations or financial condition or state other
"forward-looking" information. Those statements are subject to known and unknown
risks, uncertainties and other factors that could cause the actual results to
differ materially from those contemplated by the statements. We based the
forward-looking information on various factors and using numerous assumptions.
Important factors that may cause actual results to differ from those
contemplated by forward-looking statements include, for example:
- the success or failure of our efforts to implement our business strategy;
- the effect of changing economic conditions;
- changes in government regulations, tax rates and similar matters;
- our ability to attract and retain quality employees; and
- other risks which may be described in our future filings with the SEC.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
USE OF PROCEEDS
We estimate the net proceeds from the sale of the minimum of 117,600 shares and
maximum of 410,000 shares of Common Stock we are Offering will be a minimum of
approximately $___ million and a maximum of approximately $____ million,
assuming an offering price of $____ per share and after deducting estimated
sales commissions and offering expenses.
We intend to use these net proceeds to: (i) enhance the Bank's liquidity
position; (ii) provide funding or capital to the Bank to support additional
branch locations; and (iii) general corporate purposes.
The net proceeds will initially be invested in short-term investment grade
securities until such time as management can deploy the proceeds as described
above.
9
<PAGE>
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Market Information
Weststar's Common Stock is currently being traded on the Nasdaq OTC Bulletin
Board under the symbol "WFSC." The prices reflected below are for Weststar since
April 28, 2000, the date of its organization. For dates prior thereto, the
prices reflect the shares of Common Stock of the Bank. The following table gives
the high and low sales prices for the calendar quarters indicated:
Sale Price
High Low
---- ----
1998
First Quarter $ n/a $ n/a
Second Quarter 11.50 11.00
Third Quarter 14.50 12.00
Fourth Quarter 12.00 10.0625
1999
First Quarter $11.00 $ 9.50
Second Quarter 10.50 9.50
Third Quarter 11.00 9.00
Fourth Quarter 10.50 6.375
2000
First Quarter $9.50 $7.00
Second Quarter 9.375 7.00
Third Quarter
(thru ___, 2000)
The over-the-counter quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Holders
There are approximately 800 holders of our Common Stock.
DIVIDEND POLICY
We initially expect that our earnings will be retained to finance our growth and
that we will pay no cash dividends for the foreseeable future. As a condition to
receipt of its charter from the North Carolina Banking Commission, the Bank is
prohibited from paying dividends until December 2000. This is a standard and
common condition which may be waived by the North
10
<PAGE>
Carolina Commissioner of Banks. We may consider payment of dividends after
December 2000. However, the declaration of dividends is at the discretion of the
board of directors, and we cannot assure you that dividends will be declared at
any time. If and when dividends are declared, they will be largely dependent
upon the earnings of the Bank.
As a banking corporation organized under North Carolina law, the Bank is
restricted as to the maximum amount of dividends it may pay to Weststar. North
Carolina law prohibits the Bank from declaring or paying dividends unless the
Bank's capital surplus is at least 50% of its paid-in capital. In addition,
regulatory authorities may limit payment of dividends by any bank when it is
determined that such a limitation is in the public interest and is necessary to
ensure financial soundness of the Bank. The North Carolina Commissioner of Banks
and the FDIC are also authorized to prohibit the payment of dividends by the
Bank under certain circumstances. See "Supervision and Regulation - Regulation
of the Bank -- Miscellaneous." Such requirements and policies may limit
Weststar's ability to obtain dividends from the Bank for its cash needs,
including payment of dividends to our shareholders and the payment of operating
expenses.
Weststar is organized under the North Carolina Business Corporation Act, which
prohibits the payment of a dividend if, after giving its effect, the corporation
would not be able to pay its debts as they become due in the usual course of
business or the corporation's total assets would be less than the sum of its
total liabilities plus the amount that would be needed, if the corporation were
to be dissolved, to satisfy the preferential rights upon dissolution of any
preferred shareholders. In addition, the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") may impose restrictions on
dividends paid by Weststar.
11
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000 on an
actual basis and on a pro forma basis as adjusted to give effect to this
Offering, assuming an Offering price of $____ per share. You should read this
information together with our consolidated financial statements and related
notes, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At June 30, 2000
-----------------
Proforma Proforma
Actual Minimum (1) Maximum (1)
------ ----------- -----------
Shareholders' Equity:
Preferred Stock, no par value, 1,000,000 shares authorized, none issued. -- -- --
Common Stock, $1.00 par value, 9,000,000 shares authorized,
633,298, 750,898 and 1,043,298 shares issued and $633,298 $750,898 $1,043,298
outstanding.
<S> <C> <C> <C>
Additional paid-in capital 6,129,636
Accumulated deficit (909,204) (909,204) (909,204)
Comprehensive loss (2,167) (2,167) (2,167)
Total Shareholders' Equity $5,851,563
Capital Ratios:
Leverage 11.17%
Tier 1 Risk-Based 13.17%
Total Risk-Based 14.42%
</TABLE>
(1)
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our selected
financial statements and the related notes presented elsewhere in this
Prospectus, as well as our historical financial statements which appear at the
end of this Prospectus.
Certain statements in this section constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 (the "1933 Act")
and Section 21E of the 1934 Act. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of Weststar to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
OVERVIEW
From our opening, the Bank has focused on developing products and services that
will enable both sustained growth and the attainment of profitability over the
long term. The Bank opened on December 1, 1997 in its permanent headquarters
office at 79 Woodfin Place in Asheville.
As is typical of de novo institutions, the Bank incurred net losses during its
initial periods of operations, with total net losses aggregating to an
accumulated deficit of approximately $909,000 at June 30, 2000. Within that same
period, provisions for additions to the Bank's allowance for loan losses have
approximated $686,000. Exclusive of loan loss provisions, the aggregate net loss
for the period from its opening through June 30, 2000 totals approximately
$224,000.
CHANGES IN FINANCIAL CONDITION
JUNE 30, 2000 COMPARED TO DECEMBER 31, 1999
During the period from December 31, 1999 to June 30, 2000 total assets increased
$17,853,750 or 41%. This increase, reflected primarily in the cash and loan
portfolios, was funded primarily by deposit growth.
Securities, federal funds sold, and interest-bearing balances with other
financial institutions at June 30, 2000 totaled $4,223,368 compared to
$4,615,195 at December 31, 1999. Securities available for sale remained
relatively flat when compared to December 31, 1999 as funds were allocated to
the loan portfolio. During 1999, the Bank gained access to the Federal Home Loan
Bank system. This access grants us 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 period ended June 20,
2000, an additional investment of $87,500 was required by the Federal Home Loan
Bank. Federal funds sold totaled $2,210,000. These funds are temporary
investments, which provide liquidity and funding for longer-term investments and
loans.
The loan portfolio constituted 78% of Weststar's total assets. Loans increased
$13,146,499 from December 31, 1999 to June 30, 2000. The increase in loan demand
13
<PAGE>
resulted from market penetration into the small business, professional and
consumer bases within our market. Management places a strong emphasis on loan
quality. At June 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 us to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms.
The adequacy of the loan loss reserve is monitored by management through an
internal loan review process. Among the factors determining the level of the
reserve are loan growth, projected net charge-offs, the amount of non-performing
and past due loans, and the current economic condition.
The allowance for loan losses at June 30, 2000 and December 31, 1999 was 1.44%
and 1.53% or $686,000 and 528,808, respectively, of gross loans outstanding.
Management believes the loan loss reserve to be adequate. However, future
additions to the allowance may be necessary based on changes in economic
conditions or the circumstances of individual borrowers which may impact the
borrowers' ability to repay their loans.
Deposits increased $17,109,807 during the six months ended June 30, 2000. The
growth was found in all categories of deposits. Growth stemmed from continued
market penetration, and the addition of new products/services. Transaction and
savings accounts accounted for $13,016,268 or 76% of growth, while time deposits
accounted for $4,093,539 or 24% of growth.
The Bank's capital at June 30, 2000 to risk weighted assets totaled 14.42%.
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, Weststar must maintain a leverage ratio
of 4%. As of June 30, 2000, Weststar's capital exceeded the current regulatory
capital requirements. See REGULATORY CAPITAL for details on capital adequacy.
RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2000 AND 1999
Net interest income, the principal source of Weststar'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: JUNE 30, 2000 AND 1999
Net interest income for the quarter ended June 30, 2000 totaled $736,453
compared to $357,448 in 1999. This increase is attributable to growth in net
earning assets and improved net interest margins. Weststar's net interest margin
was approximately 5.7% and 4.4% for the quarters ended June 30, 2000 and 1999,
respectively. The increased net interest margin resulted from variable rate
14
<PAGE>
loans repricing as interest rates increased, and new loan contracts issued
during a higher rate environment than the prior year. On the liability side,
interest rates paid on interest-bearing liabilities remained fairly constant.
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 probable 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 quarters ended June 30, 2000 and 1999, management allocated $100,000
and $129,825, respectively, to the loan loss reserve.
Non-interest income for the June 30, 2000 and 1999 quarters totaled $113,910 and
$101,897, respectively. The growth in service charge income increased
commensurate with growth in transaction related deposit accounts. Non-interest
expense totaled $593,908 compared to $455,797 in 1999. Non-interest expense
increased primarily as a result of 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 sundry
other items. Income (loss) before income taxes totaled $156,455 and $(126,277)
for the quarters ended June 30, 2000 and 1999, respectively. Income taxes
totaled $56,936 and none for the quarters ended June 30, 2000 and 1999,
respectively. Net income (loss) was $99,519 and $(126,277) for the quarters
ended June 30, 2000 and 1999, respectively.
The other comprehensive income (loss), which is the change in shareholders'
equity excluding transactions with shareholders', totaled $527 and ($2,210) in
2000 and 1999, respectively. Comprehensive income totaled $100,046 compared to a
loss of $128,487 for the quarters ended June 30, 2000 and 1999, respectively.
COMPARATIVE SIX MONTHS: JUNE 30, 2000 AND 1999
Net interest income for the six month periods ended June 30, 2000 totaled
$1,322,171 compared to $624,722 in 1999. This increase is primarily attributable
to growth in earning assets and interest-bearing liabilities. Weststar's net
interest margin was approximately 5.4% and 4.3% for the six months ended June
30, 2000 and 1999, respectively. The increased net interest margin resulted from
variable rate loans repricing as interest rates increased, and new loan
contracts issued during a higher rate environment than the prior year. On the
liability side, interest rates paid on interest-bearing liabilities remained
fairly constant.
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 six month periods ended June 30, 2000 and 1999, management allocated
$157,200 and $204,285, 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 $509,299 and
15
<PAGE>
$90,544 at June 30, 2000 and 1999, respectively. The average recorded balance of
impaired loans during 2000 and 1999 was not significantly different from the
balance at June 30, 2000 and 1999, respectively. The related allowance for loan
losses determined in accordance with SFAS No. 114 for impaired loans was $65,296
and $51,823 at June 30, 2000 and 1999, respectively. For the six month periods
ended June 30, 2000 and 1999, Weststar recognized interest income from impaired
loans of approximately $16,627 and $4,044, respectively.
Non-interest income for the six month periods ended June 30, 2000 and 1999
totaled $232,985 and $156,959, respectively. The growth in service charge income
increased commensurate with growth in transaction related deposit accounts.
Non-interest expense totaled $1,189,940 compared to $904,025 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
sundry other items. The net operating income (loss) before a cumulative effect
of a change in accounting principle and income tax benefit was $208,016 and
($326,629) for the six month periods ended June 30, 2000 and 1999, respectively.
For the six month period ended June 30, 2000, Weststar recognized an income tax
benefit of $473,676 primarily related to the release of a valuation allowance
previously recorded against deferred tax assets. Net income after the tax
benefit totaled $681,692.
The other comprehensive income (loss), which is the change in shareholders'
equity excluding transactions with shareholders, totaled $727 and $(3,676) in
2000 and 1999, respectively. Comprehensive income (loss) after totaled $682,419
compared to $(401,631) in 2000 and 1999, respectively.
COMPARATIVE TWELVE MONTHS: DECEMBER 31, 1999 AND 1998
Interest income, the primary source of revenue for the Bank, was derived from
interest-earning assets such as loans, investments and federal funds sold. The
rate earned on interest-earning assets and dollar volume of the interest-earning
assets drive interest income. Interest income totaled $2,760,318 for the year
ended December 31, 1999 compared to $1,061,351 in 1998. Growth in interest
income was primarily attributable to growth in interest-earning assets; the
average balance of interest-earning assets increased from $13,886,850 during
1998 to $30,311,789 during 1999 or 118%. Interest expense, derived from
interest-bearing liabilities such as deposits and borrowed funds, totaled
$1,128,641 for 1999 compared to $424,509 for 1998. The increase in interest
expense was attributable to growth in interest-bearing liabilities. The average
balance of interest-bearing liabilities grew from $8,390,404 in 1998 to
$24,825,935 in 1999 or 196%.
Other operating income totaled $414,864 in 1999 compared to $117,044 in 1998.
Service charge fees on deposit accounts account and other fees and commissions
earned account for the majority of non-interest income. During 1999, the Bank
earned $272,911 from service charges on deposit accounts compared to $83,349 in
1998, an increase of 227%. Other service fees and commissions, including fees
from the origination of mortgage loans, totaled $131,316 in 1999 compared to
$29,162 in 1998. Mortgage loan fees accounted for $50,339 or 38% of other fees
16
<PAGE>
and commissions. Miscellaneous income, primarily the fees from the sales of
checks and deposit slips, provided additional income of $10,637 in 1999 compared
to $4,533 in 1998. Other expenses totaled $2,018,808 in 1999 compared to
$1,458,899 in 1998. Expenses increased as a result of opening a new banking
office, increased personnel expense and increased supplies expense to process
the banks growth in loans and deposits. Salaries and wages accounted for
$1,049,339 in 1999 or 52% of other expenses compared to $715,661 or 49% in 1998.
Equipment expenses totaled $201,738 in 1999 compared to $132,439 in 1998. Other
non-interest expenses of $688,451 in 1999 compared to $546,671 in 1998 included
sundry items such as marketing, accounting, insurance, and data processing.
During the fourth quarter of 1999, a tax benefit amounting to $110,625 was
recorded. The net operating loss, before cumulative effect of a change in income
taxes, totaled $178,327 or $.29 per share in 1999 compared to $974,627 or $1.60
per share in 1998. The cumulative effect of a change in accounting principle
during 1999 totaled $71,326, net of taxes, or $.12 per share. The net operating
loss after the cumulative effect of a change in accounting principle totaled
$249,653 in 1999 compared to $974,627 in 1998. The return on average assets and
equity were (.74%) and (5.05%) for 1999 compared to (6.09%) and (17.18%) in
1998. The comprehensive loss, which is the change in equity during a period
excluding changes resulting from investments by shareholders and distributions
to shareholders, totaled $251,596 in 1999 compared to $982,897 in 1998.
FOR THE YEAR ENDED DECEMBER 31, 1997
The Bank began operations on December 1, 1997. The opening balance sheet
reflected $6,572,712 in total assets. Assets were comprised primarily of
$4,990,000 in federal funds sold; $751,416 in interest-bearing balances due from
financial institutions, $148,345 in organizational costs and $398,423 in
premises and equipment. Liabilities totaled $290,517 of which $184,016
represented accounts payable for services and products acquired. Total equity
was $6,282,196. Equity was comprised of 607,557 shares of $5.00 par value common
stock, which sold for $11.00 per share. Total capital raised was $6,505,514, net
of $177,614 broker fees. Net pre-opening expenses totaled $204,690. Pre-opening
expenses, which are not capitalized as in the case of organizational costs,
consisted of costs such as salaries and benefits, rent, utilities,
printing/postage, advertising and supplies.
From December 1, 1997 to December 31, 1997 assets had grown $1,607,853 or 24.5%
to $8,180,565. The increase was attributable to the $1,772,920 growth in
deposits during the month of operations. Approximately 34% or $1,334,476 of the
Bank's deposits were in the form of demand deposits, including NOW and Money
market accounts. At December 31, 1997, the aggregate amount of certificates of
deposit and other time deposits of the Bank, in amounts greater than or equal to
$100,000 was $200,000.
An allowance for loan losses in the amount of $3,200 was established at December
31, 1997. The allowance was general in nature and not allocated to any
particular class of loans.
Net premises and equipment were $550,220 or 6.7% of total assets. Liabilities
consisted primarily of deposits and a note payable. During the month of
operation, 216 deposit accounts were opened which reflected balances of
$1,772,920 at December 31, 1997. A note payable in the amount of $150,000 was
incurred to finance the upfitting of the banking facility. The note bears an
17
<PAGE>
interest rate of prime plus 1% and is repayable over a 3 year period.
Shareholders' equity was $6,145,472 including an operating loss of $366,616 or
$.60 per share, and an unrealized gain on securities available for sale (net of
deferred income taxes) of $6,574. The Bank's capital to assets was 75.1% at
December 31, 1997. Warrants outstanding totaled 60,360 at December 31, 1997. If
exercised in full, these warrants would provide an additional $666,930 in
capital. Currently, the Bank does not anticipate needing additional funds within
the next twelve months. However, should the opportunity arise for the Bank to
acquire or build multiple branches, a need may exist for additional capital. The
capital could be raised either through exercise warrants or a secondary
offering.
The net operating loss, before other comprehensive income, incurred from October
29, 1997 (date of incorporation) to December 31, 1997 totaled $161,926. During
the period, interest income totaled $100,855. The net operating loss adjusted
for comprehensive income totaled $155,352. Interest expense on interest-bearing
liabilities was $3,552. The Bank contributed $3,200 to the loan loss reserve for
a reserve of 1.5% to gross loans outstanding. Non-interest income amounted to
$1,103. Other expenses totaled $232,939. The net loss before provision for
income taxes totaled $137,823. As a result of net deferred income tax credits, a
provision for income taxes was incurred in the amount of $24,103. The
accumulated deficit (the accumulation of pre-opening and post opening losses)
totaled $366,616.
ASSET/LIABILITY MANAGEMENT
The Bank's asset/liability management, or interest rate risk management, program
is focused primarily on evaluating and managing the composition of its assets
and liabilities in view of various interest rate scenarios. Factors beyond the
Bank's control, such as market interest rates and competition, may also have an
impact on the Bank's interest income and interest expense.
In the absence of other factors, the yield or return associated with the Bank's
earning assets generally will increase from existing levels when interest rates
rise over an extended period of time and, conversely, interest income will
decrease when interest rates decline. In general, interest expense will increase
when interest rates rise over an extended period of time and, conversely,
interest expense will decrease when interest rates decline.
Interest Rate Gap Analysis. As a part of its interest rate risk management
policy, the Bank calculates an interest rate "gap." Interest rate "gap" analysis
is a common, though imperfect, measure of interest rate risk, which measures the
relative dollar amounts of interest-earning assets and interest-bearing
liabilities which reprice within a specific time period, either through maturity
or rate adjustment. The "gap" is the difference between the amounts of such
assets and liabilities that are subject to repricing. A "positive" gap for a
given period means that the amount of interest-earning assets maturing or
otherwise repricing within that period exceeds the amount of interest-bearing
liabilities maturing or otherwise repricing within the same period. Accordingly,
in a declining interest rate environment, an institution with a positive gap
would generally be expected, absent the effects of other factors, to experience
a decrease in the yield on its assets greater than the decrease in the cost of
its liabilities and its income should be negatively affected. Conversely, the
cost of funds for an institution with a positive gap would generally be expected
to increase more slowly than the yield on its assets in a rising interest rate
18
<PAGE>
environment, and such institution's net interest income generally would be
expected to be positively affected by rising interest rates. Changes in interest
rates generally have the opposite effect on an institution with a "negative
gap."
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 2000, which are projected
to reprice or mature in each of the future time periods shown. Except as stated
below, the amounts of assets and liabilities shown which reprice or mature
within a particular period were determined in accordance with the contractual
terms of the assets or liabilities. Loans with adjustable rates are shown as
being due at the end of the next upcoming adjustment period. In addition, the
table reflects scheduled principal payments, which will be received throughout
the lives of the loans. The interest rate sensitivity of the Bank's assets and
liabilities illustrated in the following table would vary substantially if
different assumptions were used or if actual experience differs from that
indicated by such assumptions.
<TABLE>
<CAPTION>
TERMS TO REPRICING AT JUNE 30, 2000
1-90 Days 91-180 Days 181-365 Days Total One Year Non-Sensitive Total
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest bearing deposits $ 5,075 -- -- $ 5,075 -- $ 5,075
Federal funds sold 2,210,000 -- -- 2,210,000 -- 2,210,000
Investment securities 498,291 $ 767,250 $ 742,752 2,008,293 -- 2,008,293
Federal Home Loan Bank stock -- -- -- -- $ 145,600 145,600
Loans 30,261,683 5,367,081 1,904,224 37,532,988 10,074,235 47,607,223
Total interest-earning assets 32,975,049 6,134,331 2,646,976 41,756,356 10,219,835 51,976,191
Interest-bearing liabilities
Time deposits 7,586,665 12,705,462 2,569,042 22,861,169 11,071 22,872,240
All other deposits 23,099,514 -- -- 23,099,514 -- 23,099,514
Total interest-bearing liabilities 30,686,179 12,705,462 2,569,042 45,960,683 11,071 45,971,754
Interest sensitivity gap $ 2,288,870 ($6,571,131) $ 77,934 ($4,204,327) $10,208,764 $6,004,437
Cumulative interest sensitivity
Gap $ 2,288,870 ($4,282,261) ($4,204,327)
Interest-earning assets as a
Percent of interest sensitive
liabilities 107.5% 48.3% 103.0% 90.9%
</TABLE>
The Company has established an acceptable range of 80% to 120% for
interest-earning assets as a percent of interest sensitive liabilities.
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<PAGE>
NET INTEREST INCOME
Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities ("net
interest-earning balance"). The following tables set forth information relating
to average balances of the Bank's assets and liabilities for the six months
ended June 30, 2000 and 1999 and for the years ended December 31, 1999 and 1998.
The table reflects the average yield on interest-earning assets and the average
cost of interest-bearing liabilities (derived by dividing income or expense by
the daily average balance of interest-earning assets or interest-bearing
liabilities, respectively) as well as the net yield on interest-earning assets
(which reflects the impact of the net interest-earning balance).
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets:
<S> <C> <C> <C> <C> <C> <C>
Interest earnings assets:
Interest earning deposits with banks $ 4,280 $ 116 5.4% $ 49,081 $ 1,158 4.7%
Investments 2,382,598 69,478 5.8% 2,393,851 57,496 4.8%
Federal funds sold 1,256,121 40,782 6.5% 3,948,771 98,067 5.0%
Loans (1) 40,218,327 2,081,502 10.4% 19,241,425 939,246 9.8%
---------- --------- ----- ---------- ------- ----
Total interest-earning assets 43,861,326 2,191,878 10.0% 25,633,128 1,095,967 8.6%
---------- --------- ----- ---------- ------- ----
Other assets 4,815,155 3,389,626
---------- ----------
Total assets $48,756,481 $29,022,754
=========== ===========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
NOW accounts $ 3,999,640 $16,902 .9% 2,228,286 9,940 .9%
Money market demand accounts 11,493,287 256,825 4.5% 7,928,578 182,289 4.6%
Savings accounts 831,893 6,834 1.6% 394,674 3,455 1.8%
Time deposits greater than $100,000 5,632,950 166,995 5.9% 2,796,175 76,895 5.5%
Other time deposits 14,522,302 418,783 5.8% 7,414,698 198,666 5.4%
---------- --------- ----- ---------- ------- ----
Total interest-bearing deposits 36,480,072 866,339 4.8% 20,762,411 471,245 4.5%
Borrowings 72,177 3,368 9.3% -- -- --
---------- --------- ----- ---------- ------- ----
Total interest-bearing liabilities 36,552,249 869,707 4.8% 20,762,411 471,245 4.5%
---------- --------- ----- ---------- ------- ----
Other liabilities 6,684,113 3,333,832
Shareholders' equity 5,520,119 4,926,511
---------- ----------
Total liabilities and shareholders' equity $48,756,481 $29,022,754
=========== ===========
Net yield on earning assets and net interest $1,322,171 6.0% 6.0% $624,722 4.9%
========== ========
income (2)
Interest rate spread (3) 5.2% 5.2% 4.1%
</TABLE>
(1) Non-accrual loans have been included.
(2) Net yield on earning assets is computed by dividing net interest earned by
average earning assets.
(3) The interest rate spread is the interest-earning assets rate less the
interest-bearing liabilities rate
20
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
---- ----
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earnings assets:
Interest earning deposits with banks $ 25,640 $ 1,211 4.7% $ 92,041 $ 4,560 5.0%
Investments 2,548,495 123,944 4.7% 3,773,274 208,750 5.5%
Federal funds sold 2,780,640 142,955 5.1% 3,425,331 186,602 5.4%
Loans (1) 24,857,014 2,492,208 10.0% 6,596,204 661,439 10.0%
---------- --------- ----- ---------- ------- -----
Total interest-earning assets 30,211,789 2,760,318 9.1% 13,886,850 1,061,351 7.6%
---------- --------- ----- ---------- ------- -----
Other assets 3,617,418 2,110,422
---------- ----------
Total assets $33,829,207 $15,997,272
=========== ===========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
NOW accounts $2,493,602 $22,393 .9% $881,899 $15,503 1.8%
Money market demand accounts 9,624,597 429,407 4.5% 1,881,178 88,940 4.7%
Savings accounts 458,028 7,982 1.7% 276,929 6,077 2.2%
Time deposits greater than $100,000 3,419,763 191,537 5.6% 1,880,033 109,687 5.8%
Other time deposits 8,800,671 475,703 5.4% 3,157,919 176,380 5.6%
---------- --------- ----- ---------- ------- -----
Deposits 24,796,661 1,127,022 4.6% 8,077,958 396,587 4.9%
Borrowings 29,274 1,619 5.5% 312,446 27,922 8.9%
---------- --------- ----- ---------- ------- -----
Total interest-bearing liabilities 24,825,935 1,128,641 4.6% 8,390,404 424,509 5.1%
---------- --------- ----- ---------- ------- -----
Other liabilities 4,067,281 1,934,554
Shareholders' equity 4,935,991 5,672,314
--------- ---------
Total liabilities and shareholders' equity $33,829,207 $15,997,272
=========== ===========
Net yield on earning assets and net interest $1,631,677 5.4% $636,842 4.6%
========== ========
income (2)
Interest rate spread (3) 4.5% 2.5%
</TABLE>
(1) Non-accrual loans have been included.
(2) Net yield on earning assets is computed by dividing net interest earned by
average earning assets.
(3) The interest rate spread is the interest-earning assets rate less the
interest-bearing liabilities rate.
21
<PAGE>
VOLUME/RATE VARIANCE ANALYSIS
The following table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), (iii) the change attributable to both rate and volume
(changes in rate multiplied by changes in volume), and (iv) total change (the
sum of the previous columns).
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 vs. 1999
Increase (Decrease) Due to
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest income:
Interest-earning deposits in other banks $ (1,136) $ 94 $ (1,042)
Investment securities (299) 12,281 11,982
Federal funds sold (77,146) 19,861 (57,285)
Loans 1,054,811 87,445 1,142,256
---------- ------ ---------
Total interest-earning assets $976,230 $119,681 $1,095,911
======== ======== ==========
Interest expense:
Interest-bearing deposits $80,035 $ 15,059 $ 395,094
Borrowings 1,684 1,684 3,368
--------- ------ ---------
Total interest-bearing liabilities $ 381,719 $ 16,743 $398,462
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
1999 vs. 1998
Increase (Decrease) Due to
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest income:
Interest-earning deposits in other banks $ (3,213) $ (136) $ (3,349)
Investment securities (63,662) (21,144) (84,806)
Federal funds sold (34,132) (9,515) (43,647)
Loans 1,830,988 (219) 1,830,769
--------- ------ ---------
Total interest-earning assets $1,729,981 $(31,014) $1,698,967
========== ======== ==========
Interest expense:
Interest-bearing deposits $754,770 $(24,335) $ 730,435
Borrowings (20,483) (5,820) (26,303)
--------- -------- ---------
Total interest-bearing liabilities $734,287 $(30,155) $704,132
======== ======== ========
</TABLE>
The rate/volume variance for each category has been allocated equally on a
consistent basis between rate and volume variance.
22
<PAGE>
ASSET QUALITY
Management considers the Bank's asset quality to be of primary importance. The
allowance for loan losses, which is utilized to absorb actual losses 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 Bank's allowance for loan losses is also analyzed monthly by
management. This analysis includes a methodology that segments the loan
portfolio by selected loan types and considers the current status of the
portfolio, historical charge-off experience, current levels of delinquent,
impaired and non-performing loans, as well as economic and inherent risk
factors. 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 following table allocates the allowance for loan losses by loan category at
the dates indicated. The allocation of the allowance to each category is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At June 30, 2000 At December 31, 1999 At December 31, 1998
---------------- -------------------- --------------------
Amount of Percent of Amount of Percent of Amount of Percent of
Allowance Total Loans Allowance Total Loans Allowance Total Loans
<S> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN:
Real estate $466,485 69% $367,917 70% $140,500 65%
Commercial, financial and
agricultural 198,942 29% 150,445 29% 68,040 33%
Consumer 13,720 2% 8,650 1% 4,340 2%
---- ---- ----
Unallocated 6,861 1,796 5,839
-------- -------- --------
Total allowance $686,008 100% $528,808 100% $218,719 100%
======== ==== ======== ==== ======== ====
</TABLE>
23
<PAGE>
The following table contains an analysis of the allowance for loan losses,
including the amount of charge-offs and recoveries by loan type, for the
six-months ended June 30, 2000 and 1999 and for the years ended December 31,
1999 and 1998.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
For the six months ended For the year ended
June 30, December 31,
------------------------ --------------------------
2000 1999 1999 1998
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $528,808 $218,719 $218,719 $3,200
Charge-offs:
Loans to individuals -- -- (2,114) (316)
Commercial and industrial loans -- -- (16,453) (55,522)
------- ------- ------- -------
Total charge-offs -- -- (18,567) (55,838)
Recoveries -- 8,008 11,971 1,743
------- ------- ------- -------
Net charge-offs -- -- (6,596) (54,095)
------- ------- ------- -------
Provision charged to operations 157,200 204,285 316,685 269,614
------- ------- ------- -------
Balance, end of period $ 686,008 $ 431,012 $ 528,808 $ 218,719
========= ========= ========= =========
Percentage of net charge-offs to average loans 0% 0% .03% .8%
Percentage of allowance to period-end loans 1.44% 1.70% 1.53% 1.56%
</TABLE>
Non-performing assets include non-accrual loans, accruing loans contractually
past due 90 days or more, restructured loans, other real estate, and other real
estate under contract for sale. Loans are placed on non-accrual when management
has concerns relating to the ability to collect the loan principal and interest,
and generally when such loans are 90 days or more past due. Management believes
the allowance for loan losses is sufficient to absorb known risks in the
portfolio. No assurance can be given that economic conditions will not adversely
affect borrowers and result in increased losses. The Bank had non-performing
assets at June 30, 2000 and December 31, 1999 of $509,299 and $247,559,
respectively.
CAPITAL RESOURCES
Banks and bank holding companies, as regulated institutions, must meet required
levels of capital. The FDIC and the Federal Reserve, the primary regulators of
the Bank and Weststar, respectively, have adopted minimum capital regulations or
guidelines that categorize components and the level of risk associated with
various types of assets. Financial institutions are expected to maintain a level
of capital commensurate with the risk profile assigned to its assets in
accordance with these guidelines. As shown in the following table, Weststar and
the Bank both maintained capital levels exceeding the minimum levels for "well
capitalized" banks and bank holding companies.
24
<PAGE>
<TABLE>
<CAPTION>
REGULATORY CAPITAL
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000
Total Capital (to Risk Weighted Assets)
Consolidated $6,376 14.42% $3,537 8.00% $4,421 10.00%
Bank $6,376 14.42% $3,537 8.00% $4,421 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $5,822 13.17% $1,768 4.00% $2,653 6.00%
Bank $5,822 13.17% $1,768 4.00% $2,653 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $5,822 11.17% $2,085 4.00% $2,607 5.00%
Bank $5,822 11.17% $2,085 4.00% $2,607 5.00%
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Capital (to Risk Weighted Assets)
Consolidated $5,580 17.13% $2,605 8.00% $3,256 10.00%
Bank $5,580 17.13% $2,605 8.00% $3,256 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $5,171 15.88% $1,303 4.00% $1,954 6.00%
Bank $5,171 15.88% $1,303 4.00% $1,954 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $5,171 12.63% $1,638 4.00% $2,078 5.00%
Bank $5,171 12.63% $1,638 4.00% $2,078 5.00%
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Capital (to Risk Weighted Assets)
Consolidated $5,257 31.60% $1,331 8.00% $1,664 10.00%
Bank $5,257 31.60% $1,331 8.00% $1,664 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $5,049 30.35% $ 665 4.00% $ 998 6.00%
Bank $5,049 30.35% $ 665 4.00% $ 998 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $5,049 25.25% $ 800 4.00% $1,000 5.00%
Bank $5,049 25.25% $ 800 4.00% $1,000 5.00%
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital (to Risk Weighted Assets)
Consolidated $6,145 78.23% $ 169 8.00% $ 211 10.00%
Bank $6,145 78.23% $ 169 8.00% $ 211 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $6,366 302.21% $ 84 4.00% $ 126 6.00%
Bank $6,366 302.21% $ 84 4.00% $ 126 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $6,366 291.73% $ 321 4.00% $ 402 5.00%
Bank $6,366 291.73% $ 321 4.00% $ 402 5.00%
</TABLE>
26
<PAGE>
LIQUIDITY
Maintaining adequate liquidity while managing interest rate risk is the primary
goal of the Bank's asset and liability management strategy. Liquidity is the
ability to fund the needs of the Bank's borrowers and depositors, pay operating
expenses, and meet regulatory liquidity requirements. Loan repayments, deposit
growth, federal funds purchased and borrowings from the Federal Home Loan Bank
are presently the main sources of the Bank's liquidity. The Bank's primary uses
of liquidity are to fund loans and to make investments.
As of June 30, 2000, liquid assets (cash due from banks, interest-earning bank
deposits and federal funds sold) were approximately $8.7 million, which
represents 14.2% of total assets and 15.7% of total deposits and borrowings.
Supplementing this liquidity, the Bank has available lines of credit from
correspondent banks of approximately $4.5 million. At June 30, 2000, outstanding
commitments to extend credit were $9.8 million and available line of credit
balances totaled $9.8 million. Management believes that the combined aggregate
liquidity position of the Bank is sufficient to meet the funding requirements of
loan demand and deposit maturities and withdrawals in the near term.
Certificates of deposit represented approximately 41.6% of the Bank's total
deposits at June 30, 2000. The Bank's growth strategy will include efforts
focused on increasing the relative volume of transaction deposit accounts, as
the branch network is expanded, making it more convenient for our banking
customers. Certificates of deposit of $100,000 or more represented 10% of the
Bank's total deposits at year-end. These deposits are generally considered rate
sensitive, but management believes most of them are relationship-oriented. While
the Bank will need to pay competitive rates to retain these deposits at
maturity, there are other subjective factors that will determine the Bank's
continued retention of those deposits.
INVESTMENT ACTIVITIES
At June 30, 2000, the Company's investments consisted of a U.S. Government
agency security and Treasury note and Federal Home Loan Bank stock. The agency
security and treasury note, with aggregate amortized cost of $2 million, are
classified as available for sale and are presented in the financial statements
at their market value of $2 million at June 30, 2000. These securities have a
yield of 6.4% and 6.2% with an aggregate duration of approximately 7.4 months.
The Bank's investment in stock of the Federal Home Loan Bank, which is required
of every member and is redeemable only by the Federal Home Loan Bank, was
$145,600 with a yield of 7.8% at June 30, 2000.
ACCOUNTING AND REGULATORY MATTERS
In June 1998, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
27
<PAGE>
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that the Company recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company will adopt SFAS No. 133 on
January 1, 2001, as required. Given that the Company has no investments in
derivative instruments, management of the Company believes that adoption of SFAS
No. 133 will not have a material impact on the Company's balance sheet or the
related statements of income and changes in shareholders' equity.
IMPACT OF INFLATION AND CHANGING PRICES
A financial institution has assets and liabilities that are distinctly different
from those of a company with substantial investments in plant and inventory
because the major portion of its assets are monetary in nature. As a result, a
bank's performance may be significantly influenced by changes in interest rates.
Although the banking industry is more affected by changes in interest rates than
by inflation in the prices of goods and services, inflation is a factor which
may influence interest rates. However, the frequency and magnitude of interest
rate fluctuations do not necessarily coincide with changes in the general
inflation rate. Inflation does affect operating expenses in that personnel
expenses, cost of supplies and outside services tend to increase more during
periods of high inflation.
BUSINESS
General
Weststar is a bank holding company that owns all of the Common Stock of the
Bank, a North Carolina-chartered bank with deposit accounts insured by the Bank
Insurance Fund ("BIF") of the FDIC. Weststar was incorporated at the direction
of the Board of Directors of the Bank as a North Carolina-chartered corporation
and became the holding company for the Bank on April 28, 2000. To become the
Bank's holding company, Weststar received approval of the Federal Reserve Board
as well as the Bank's shareholders. Upon receiving such approvals, each share of
the Common Stock of the Bank was exchanged on a one-for-one basis for shares of
the Common Stock of Weststar.
The Bank was incorporated in October 1997 as a North Carolina-chartered
commercial bank. The Bank opened for business on December 1, 1997 at its current
home office located at 17 Woodfin Place, Asheville, North Carolina. On February
1, 1999, the Bank opened a full service branch in Candler, North Carolina which
is located southwest of Asheville in Buncombe County. The Bank has received
approvals from the FDIC and the North Carolina Commissioner of Banks to open a
third full service office in Leicester, North Carolina, a town also located in
Buncombe County. That office is expected to open in October 2000.
The Bank operates for the primary purpose of serving the banking needs of
individuals, and small to medium-sized businesses in its market area. While
28
<PAGE>
numerous banks in our market have chosen to focus on the affluent and high net
worth individuals, we have chosen to focus on small businesses in our market
area. The Bank offers a range of banking services typically found in a community
bank. These services include checking, money market, NOW and savings accounts,
commercial, consumer and personal loans, mortgage lending services and other
associated financial services. The Bank's main office is located in the downtown
section of Asheville and borders areas designated as low to moderate income.
This location has facilitated the Bank's ability to serve such income groups as
well as to be conveniently located off of the Interstate 240 bypass for
commercial customers.
Our market area is highly diverse. Situated in the Blue Ridge Mountains of North
Carolina, Asheville is a favorite for tourists, featuring a variety of outdoor
activities on a year round basis. It is also the home of the Biltmore House, the
largest residential home in the country built by the Vanderbilt family. The
market area is becoming a popular retirement community and houses a significant
medical community and major hospital system. Further, the area has attracted a
diverse manufacturing base with facilities of Square D, Volvo and Magnavox among
some of the major industries situated here.
Lending Activities
General. The Bank offers a broad array of lending services, including real
estate, commercial and consumer loans and equity lines of credit to individuals
and small-to-medium size businesses and other organizations that are located in
or conduct a substantial portion of their business in the Bank's market area.
The Bank's total loans at June 30, 2000 were $47.6 million or 81% of total
earning assets. At June 30, 2000, the Bank had no large loan concentrations
(exceeding 10% of its portfolio) in any particular industry. Approximately 69%
of the Bank's loan portfolio is categorized as loans secured by real estate, all
of which is situated in the Bank's market area. These real estate secured loans
consist of a wide variety of loan types. The Bank obtains real estate in its
market area as collateral since it believes it is one of the most conservative
means of securing a loan. A portion of its real estate secured portfolio
consists of short-term construction loans for 1-4 family residential
construction. Some such loans are to builders who have demonstrated to the Bank
a record of successful development. Because of the mountainous terrain in the
Bank's market area, no large development tracts are developed or financed with a
typical development consisting of 10 or fewer building sites. The Bank does not
concentrate such lending with a small number of builders but finances a large
number of local builders. The Bank does not finance the permanent loan on such
dwellings and refers such loans to various mortgage brokers for financing. While
the Bank performs all the administrative preparation for such permanent loans
and closes the loans, they all are pre-sold, at par, to a mortgage lender. The
Bank earns a fee but does not retain any such mortgage products on its books.
Another portion of its real estate secured portfolio consists of
commercial-business loans such as to finance commercial construction, working
capital term loans and business lines of credit. Also included are equity lines
of credit which normally consist of second mortgage liens on residential
property.
The Bank also finances some small business loans without obtaining real estate
as collateral. Such loans may consist of working capital lines of credit and
equipment financing. Often personal guarantees are required and security is
29
<PAGE>
taken in the equipment, inventory or accounts receivable that are financed.
These non-real estate secured loans typically have a maturity of 18 months or
less and carry interest rates subject to the floating prime rate for commercial
customers.
The Bank's legal lending limit at June 30, 2000 equaled $1,627 thousand and the
few loans made in excess of the legal lending limit are sold as participations
to other financial institutions.
Loan Composition. The following table sets forth, at the dates indicated, the
composition of the Bank's loan portfolio and the related percentage composition.
<TABLE>
<CAPTION>
December 31,
------------
June 30, 2000 1999 1998
------------- ---- ----
Percentage Percentage Percentage
Amount Of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN
Real Estate:
Construction $ 8,853,209 18.5% $ 7,152,238 20.7% $ 1,780,563 12.7%
Mortgage 24,199,749 50.6% 16,963,594 49.0% 7,414,218 52.6%
Commercial, financial and agricultural 13,831,650 28.9% 9,926,255 28.7% 4,594,259 32.6%
Consumer 922,609 2.0% 562,765 1.6% 299,105 2.1%
------------ ----- ------------ ----- ------------ -----
Subtotal 47,807,217 34,604,852 14,088,145
------------ ------------ ------------
Net deferred loan origination fees (199,994) (144,128) (64,880)
------------ ------------ ------------
Total loans, net of deferral fees $ 47,607,223 100% $ 34,460,724 100% $ 14,023,265 100%
============ ==== ============ ==== ============= ====
</TABLE>
December 31, 1997
Percentage
Amount of Total
TYPE OF LOAN
Commercial, financial and agricultural $ 19,630 9.1%
Consumer 194,928 90.9%
------- ----
Subtotal 214,558
-------
Net deferred loan origination fees (432)
----
Total loans, net of deferral fees $214,126 100%
======== ====
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
As of June 30, 2000
<TABLE>
<CAPTION>
Within One One to Five Years
Year Five Years or More
--------------------------------------------------
<S> <C> <C> <C>
Real estate:
Construction $ 8,276,867 $ 390,815 $ 185,527
Mortgage 15,819,508 7,989,415 390,826
Predetermined rate, maturity greater than one year $8,349,171 $576,353
Variable rate or maturing within one year $24,096,375 31,059 --
</TABLE>
30
<PAGE>
As of December 31, 1999
<TABLE>
<CAPTION>
Within One One to Five Years
Year Five Years or More
---- ---------- -------
Real estate:
<S> <C> <C> <C>
Construction $ 6,808,752 $ 343,486 $ --
Mortgage 9,966,789 6,151,858 844,947
Predetermined rate, maturity greater than one year $6,445,521 $844,947
Variable rate or maturing within one year $16,775,541 49,823 --
As of December 31, 1998
Within One One to Five Years
Year Five Years or More
---- ---------- -------
Real estate:
Construction $1,364,450 $ 341,113 $ 75,000
Mortgage 5,560,664 1,112,133 741,421
Predetermined rate, maturity greater than one year $ 435,974 $244,926
Variable rate or maturing within one year $6,925,114 1,017,272 571,495
</TABLE>
LOANS AND NONPERFORMING ASSETS
December 31,
June 30, 2000 1999 1998 1997
Nonperforming assets $509,299 $247,559 $ -- $ --
No loans were past due 90 days or more and still accruing interest nor were
there any foreclosed properties at June 30, 2000 or December 31, 1999, 1998, and
1997, respectively. If interest from non-accrual loans had been recognized in
accordance with the original terms of the loans, net income for the periods
would not have been materially different from the amounts reported.
The Bank monitors all loans on a regular basis and mails a delinquent notice to
any borrower who is 10 days past due. Personal contact is made after a loan
becomes 15 days past due with formal action taken after 30 days. Depending on
the particular circumstances that action could include submission of the matter
to an attorney for collection. Any loans that are 90 days or more past due are
placed on a non-accrual status. The Bank does not have a separate collection
department and requires the loan officer who initially made the loan to
institute collection action as necessary.
The Bank offers a credit card on an agency basis as an accommodation to its
customers. At such time as the Bank believes there will be sufficient volume, it
intends to review this product and may offer credit cards as a principal,
thereby underwriting the credit risks associated with card holders. The Bank has
two ATM facilities attached to its existing banking offices and intends to
install an ATM at its new Leicester Highway office when opened. The Bank's ATM
31
<PAGE>
cards are linked to the nationwide Cirrus(R), Plus(R) and Pulse(R) systems,
allowing the Bank's customers to withdraw funds from any ATM machine honoring
these systems.
Internet and Tele-Banking
The Bank has a web site at "www.bankofasheville.com". The Bank is considering
the introduction of on-line banking and will implement it when it feels its
customer base has expanded to a level that would justify the initial start-up
and on-going maintenance costs.
The Bank provides a 7 days a week, 24 hour per day automated tele-banking
service where customers can check account balances, transfer funds between
accounts, determine loan balances, make loan payments and obtain information on
cleared checks.
Deposits
The Bank offers a variety of deposit programs to individuals and to
small-to-medium size businesses and other organizations at interest rates
generally competitive with local market conditions. The Bank's demand deposit
accounts are truncated but for a fee a customer may obtain a check image.
Imaging of demand deposit accounts for commercial customers is free.
The following table sets forth the mix of depository accounts at the Bank as a
percentage of total deposits at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
June 30, 2000 1999 1998
------------------------------------------- ---- ----
Weighted Percent Weighted Percent Weighted Percent
Average Total Average Total Average Total
Amount Cost Deposits Amount Cost Deposits Amount Cost Deposits
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits
Demand, NOW,
Money market $31,245,397 2.5% 56.8% $18,558,482 2.8% 49.0% $ 8,659,120 2.3% 52.6%
Savings 913,150 1.6% 1.6% 583,797 1.7% 1.5% 328,820 2.2% 2.0%
----------- ---- ----- ----------- ---- ----- ----------- ---- -----
Total demand deposits 32,158,547 2.5% 58.4% 19,142,279 2.8% 50.5% 8,987,940 2.5% 54.6%
=========== ==== ===== =========== ==== ==== ========== ==== =====
Certificate accounts with
original Time deposits
Over $100,000 5,506,095 6.0% 10.0% 5,620,684 5.7% 14.8% 3,206,120 5.8% 19.5%
Other 17,366,145 5.8% 31.6% 13,158,017 5.4% 34.7% 4,252,588 5.6% 25.9%
----------- ---- ----- ----------- ---- ----- ----------- ---- -----
Total time deposits 22,872,240 5.8% 41.6% 18,778,701 5.5% 49.5% 7,458,708 5.7% 45.4%
----------- ---- ----- ----------- ---- ----- ----------- ---- -----
Total deposits $55,030,787 4.0% 100.0% $37,920,980 3.9% 100.00% $16,466,648 4.0% 100.0%
=========== ==== ===== =========== ==== ==== ========== ==== =====
</TABLE>
32
<PAGE>
the following table indicates the amount of the Bank's certificates of deposit
by interest rate and by time remaining until maturity as of June 30, 2000.
<TABLE>
<CAPTION>
Greater
Within 3 Months 3 to 6 months 6 to 12 months than 1 year
--------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Time deposits of $100,000 or more $2,393,545 $1,857,461 $1,255,089 -0-
</TABLE>
The Bank does not purchase brokered deposits but has been successful in
attracting certificates of deposits over the Internet by bidding for deposits
with set maturities. The Bank does not pay a fee for such deposits and has
predetermined its own limit so as not to exceed $3 million in total Internet
deposits. The Bank's experience has been that such deposits can be obtained at
interest rates that are lower than rates in its market area.
Competition
Commercial banking in North Carolina is extremely competitive in large part due
to statewide branching. We compete in our market areas with some of the largest
banking organizations in the state and the country and other financial
institutions, such as federally and state-chartered savings and loan
institutions and credit unions, as well as consumer finance companies, mortgage
companies and other lenders engaged in the business of extending credit or
taking investment monies, such as mutual funds and brokerage firms. Many of our
competitors have broader geographic markets and higher lending limits than us
and are also able to provide more services and make greater use of media
advertising. In Buncombe County, there are currently 45 offices of 9 different
commercial banks (including the largest banks in North Carolina) and 28 offices
of 16 savings institutions and credit unions, as well as offices of various
other entities engaged in the extension of credit. Our primary competitors in
the area of loans are two of North Carolina's major mid-tier banks. In the area
of deposits, a local savings bank is our primary competition. There also are a
number of small community banks in the City of Asheville and Buncombe County
which have some competitive effect.
The enactment of legislation authorizing interstate banking has caused great
increases in the size and financial resources of some of our competitors. In
addition, as a result of interstate banking, out-of-state commercial banks have
acquired North Carolina banks and heightened the competition among banks in
North Carolina.
Despite the competition in our market areas, we believe that we have certain
competitive advantages that distinguish us from our competition. We offer
customers modern, high-tech banking without forsaking community values such as
prompt, personal service and friendliness. We attract customers by being
responsive and sensitive to their individualized needs. We also rely on existing
relationships of our banking officers, goodwill and referrals from shareholders
and satisfied customers. We make limited use of traditional marketing such as TV
and newspaper ads but have recently increased such marketing/advertising to
establish our image and presence in the community.
As a community bank, we have a commitment to the people of Buncombe County. Our
service has been recognized through a number of awards and high honors bestowed
upon us. In September 1999, we received the Local Bank Minority Lender of the
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Year for our efforts in promoting minority business development. In 2000, the
readers of the Asheville Citizen-Times, a newspaper with a circulation of
approximately 150,000, voted the Bank as the Best Community Bank in Western
North Carolina. For the past two years, Robert Tuck, the Bank's Chief Lending
Officer, has been nominated for the Athena Award, which recognizes support of
women owned businesses. Also for the 1999-2000 year, the Bank received
recognition by the Asheville Area Chamber of Commerce as a Small Business
Advocate. We intend to continue our commitment to the local community and local
business development.
Properties
The following table sets forth the location of our main office and branch
offices, as well as certain information relating to these offices to date.
Approximate
Office Location Year Opened Square Footage Owned or Leased
Main Office 1997 10,000 Own
79 Woodfin Place
Asheville, North Carolina
Candler Office 1999 1,900 Own Building,
6 Dogwood Road Lease Land
Candler, North Carolina
Leicester Highway Office Opening 800 Leasing
Leicester Highway October 2000
Asheville, North Carolina
The Bank entered into a lease with Max O. Cogburn, Sr., a director of the Bank,
and his spouse to lease the location of the Candler office. The lease is for
four years with options to extend for two additional three year terms. See
"Certain RELATIONSHIPS AND RELATED TRANSACTIONS".
Employees
As of June 30, 2000, we had approximately 23 full-time employees and
approximately 3 part-time employees. None of these employees are covered by a
collective bargaining agreement. We consider relations with our employees to be
good.
Litigation
There are no pending legal proceedings to which the Bank or Weststar is a party,
or of which any of their property is the subject.
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MANAGEMENT
Directors
Weststar's Board of Directors consists of 10 directors. The Bylaws of the
Corporation provide that its Board of Directors shall consist of between 8 and
12 members, as determined by the Board of Directors or the shareholders and if
nine or more members, they shall be staggered into terms of one, two and three
years in as equal a number as possible. Certain information regarding the
current directors who serve as both directors of Weststar and the Bank is set
forth below:
<TABLE>
<CAPTION>
Director Term
Name and Age Since Expires Principal Occupation and Business Experience During Past Five Years
------------ ----- ------- --------------------------------------------------------------------
<S> <C> <C> <C>
William E. Anderson 1997 2001 Director, Hasco Mold Bases, Asheville, North Carolina.
(60)
Max O. Cogburn, Sr. 1997 2002 Attorney and Partner, Cogburn, Croosman, Brazil & Rose, P.A., Asheville,
(72) North Carolina.
M. David Cogburn, M.D. 1999 2003 President, Carolina Mountain Dermatology, P.A., Arden, North Carolina.
(44)
G. Gordon Greenwood 2000 2001 President and Chief Executive Officer, Weststar and the Bank, January 2000-
Present; Regional Market Manager, Centura Bank, Asheville 1996-2000; Senior
(52) Vice President/Commercial Loans, First Commercial Bank, Asheville, 1983-1996.
Darryl J. Hart 1997 2001 Vice President and General Manager, Hart Funeral Services, Inc., Asheville,
(38) North Carolina.
Carol L. King 1997 2002 President, Carol L. King & Associates, P.A., Asheville, North Carolina
(54) (certified public accountant).
Stephen L. Pignatiello 1997 2003 President, P COMMS INTL, Asheville, North Carolina.
(40)
Kent W. Salisbury, M.D. 1997 2003 Partner, Asheville Cardiology Associates, P.A., Asheville, North Carolina.
(56)
Laura A. Webb 1999 2003 President, Webb Investment Services, Inc., Asheville, North Carolina.
(40)
David N. Wilcox 1997 2002 Vice President, Wilcox Travel Agency, Inc., Asheville, North Carolina.
(39)
</TABLE>
Director Relationships
Only one family relationship on the Board exists. Max O. Cogburn, Sr. is the
father of M. David Cogburn, M.D. No director is a director of any company with a
class of securities registered pursuant to Section 12 of the 1934 Act or subject
to the requirements of Section 15(d) of the 1934 Act, or any company registered
as an investment company under the Investment Company Act of 1940.
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Director Compensation
Board Fees. As of July 2000, each non-officer director received $100 for each
Board meeting attended. Prior thereto, the directors received no compensation.
Executive Officers
Set forth below is certain information regarding the Bank's and Weststar's
executive officers as of June 30, 2000.
<TABLE>
<CAPTION>
Name Age Position(s) Held Business Experience
---- --- ---------------- -------------------
<S> <C> <C> <C>
G. Gordon Greenwood 52 President and Chief January 2000-Present; Regional Market Manager,
Executive Officer, of Bank, Centura Bank, Asheville, 1996-2000; Senior Vice
and Weststar President/Commercial Loans, First Commercial Bank,
Asheville, North Carolina, 1983-1996.
Executive Vice President and Chief Financial
Randall C. Hall 35 Executive Vice President, Officer of Bank since December 1997; Vice
Chief Financial Officer President and Chief Financial Officer of Bank of
of Bank and Weststar Granite, Granite Falls, North Carolina, 1988-1997.
Robert E. Tuck, Jr. 42 Senior Vice President and Senior Vice President and Chief Credit Officer of
Chief Credit Officer of Bank Bank since 1997; Vice President/Business Banker,
First Citizens Bank, Asheville, North Carolina,
1985-1997.
Judy P. Waldroop 43 Senior Vice President Senior Vice President of Bank since 1997; Sales
of Bank and Service Manager, Wachovia Bank, N.A.,
Asheville, North Carolina, 1978-1997.
</TABLE>
Employment Agreements
All compensation paid to the Bank's executive officers is paid by the Bank to
such persons in their capacity as executive officers of the Bank. Accordingly,
the compensation of such executives is reviewed and approved annually by the
full Board of Directors of the Bank which consist of the same persons. This
report is furnished by the Compensation Committee of the Bank's Board of
Directors.
During 1999 and until his retirement in February 2000, Mr. Howard B. Montgomery,
Jr. was President and Chief Executive Officer of the Bank with a total
compensation of $140,000 per annum. Mr. Montgomery's compensation consisted of a
base salary at a rate of $115,000 per annum. Mr. Montgomery entered into a three
(3) year contract with the Bank on November 18, 1997. The contract covered base
salary, performance bonuses, employee benefits and other usual executive
perquisites. Additionally, the contract contained a change in control provision
which permitted Mr. Montgomery, within twenty-four (24) months after a change in
control, to terminate his contract and be entitled to 299% of his base salary.
If such termination had occurred on December 31, 1999, the payout would have
been $343,850. As a result of his retirement, Mr. Montgomery's contract was
terminated and in February 2000 the Bank entered into an agreement similar in
nature with G. Gordon Greenwood. (See discussion below Summary Compensation
Table).
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<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation (1)
------------------------
Name and Principal Position Year Salary ($) Bonus ($)
--------------------------- ---- ---------- ---------
Howard B. Montgomery, President and 1999 115,000 4,160
Chief Executive Officer (retired in February 2000)
1998 90,000 -0-
1997 90,000 -0-
(1) Perquisites and personal benefits awarded to Mr. Montgomery did not exceed
10% of the total annual salary and bonus in any year reported.
The Bank has entered into an employment and change of control agreement with G.
Gordon Greenwood (dated February 9, 2000) as its President and Chief Executive
Officer to establish his duties and compensation and to provide for his
continued employment with the Bank. The employment agreement provides for an
initial term of five years with renewal at the end of the third year and on each
anniversary thereafter for an additional one year term provided an affirmative
decision to renew is made by the Board of Directors. The employment agreement
provides for an annual base salary of $125,000, and for participation in other
pension and profit-sharing retirement plans maintained by the Bank on behalf of
its employees, as well as fringe benefits normally associated with Mr.
Greenwood's position or made available to all other employees. Additionally, at
the sooner to occur of (i) a "change in control" of the Bank or, (ii) the end of
the initial five year term, Mr. Greenwood is to receive a 10 year annuity of
$40,000 per year. Upon adoption of a stock option plan, Mr. Greenwood is to be
granted options to purchase shares of the Bank or Weststar valued at 300% of
base compensation. The employment agreement provides that Mr. Greenwood may be
terminated for "cause" as defined in the employment agreement, and that the
employment agreement may otherwise be terminated, in some cases with certain
financial consequences incurred, by the Bank or by Mr. Greenwood. The employment
agreement provides that should the Bank terminate the employment agreement other
than for cause or disability within 24 months after a "change in control", or
should Mr. Greenwood terminate the agreement within such 24 months during which
his compensation or responsibilities have been reduced, or his workplace
location has been moved outside of Asheville, North Carolina, then he shall
receive a lump sum equal to 299% of his "base amount" as determined by Section
280G of the Internal Revenue Code. A "Change in Control" shall be deemed to have
occurred upon (i) any person becoming the beneficial owner or otherwise
acquiring control, directly or indirectly, of securities of the Bank
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<PAGE>
representing thirty-five percent (35%) or more of the voting power of the Bank's
then outstanding securities; (ii) the acquisition by any Person in any manner of
the ability to elect, or to control the election, of a majority of the directors
of the Bank; (iii) the merger of the Bank into another entity or the merger of
any entity into the Bank without the Bank being the survivor; or (iv) the
acquisition of substantially all of the assets of the Bank by another
corporation. The reorganization into a holding company form of organization is
specifically excluded from becoming a "change of control".
401(k) Savings Plan
In 1998, the Bank adopted a tax-qualified savings plan (the "Savings Plan")
which covers all current full-time employees and any new full-time employees who
have completed 1,000 hours of service for the Bank. Under the Savings Plan, a
participating employee may contribute up to 15% of his or her base salary on a
tax-deferred basis through salary reduction as permitted under Section 401(k) of
the Internal Revenue Code of 1986, as amended (the "Code"). The Bank may make
additional discretionary profit sharing contributions to the Savings Plan on
behalf of all participants. Such discretionary profit sharing contributions may
not exceed 6% of the aggregate of the pre-tax base salaries of all participants
in the Savings Plan and are allocated among all participants on the basis of the
participant's age and level of compensation. Amounts deferred above the first 6%
of salary are not matched by the Bank. A participant's contributions and the
Bank's matching and profit sharing contributions under the Savings Plan will be
held in trust accounts for the benefit of participants. A participant is at all
times 100% vested with respect to his or her own contributions under the Savings
Plan, and becomes 100% vested in the account for the Bank's matching and profit
sharing contributions after completing five years of service with the Bank. The
value of a participant's accounts under the Savings Plan becomes payable to him
or her in full upon retirement, total or permanent disability or termination of
employment for any other reason, or becomes payable to a designated beneficiary
upon a participant's death. The Savings Plan also will contain provisions for
withdrawals in the event of certain hardships. A participant's contributions,
vested matching and profit sharing contributions of the Bank, and any income
accrued on such contributions, are not subject to federal or state taxes until
such time as they are withdrawn by the participant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, banking transactions in the
ordinary course of business with certain of its current directors, nominees for
director, executive officers and their associates. All loans included in such
transactions were made on substantially the same terms, including interest
rates, repayment terms and collateral, as those prevailing at the time such
loans were made for comparable transactions with other persons, and do not
involve more than the normal risk of collectibility or present other unfavorable
features.
On October 1, 1998, a partnership, of which Max O. Cogburn, Sr. and his wife
belong, leased the location of the Candler office to the Bank. The term of the
lease is four years and the Bank has options to extend the lease for two
additional three year terms. The rent on the land is $24,000 for the first two
years and $30,000 for the subsequent two years. Mr. Cogburn and his wife own
38
<PAGE>
one-third of the leased property as tenants-by-the-entirety. All terms of the
lease were reached by arms-length negotiations.
All such transactions have been negotiated on an arms-length basis at terms no
more favorable than would otherwise be obtained from an independent third party.
Beneficial Ownership of Voting Securities
As of June 30, 2000, no shareholder owned more than 5% of Weststar's Common
Stock.
As of June 30, 2000, the beneficial ownership of Weststar's Common Stock by
directors of Weststar and the Bank individually, and by directors and executive
officers of Weststar and the Bank as a group, was as follows:
Amount and
Nature of
Beneficial Percent of
Name of Beneficial Owner Ownership (1) Class (2)
------------------------ ------------- ---------
William E. Anderson 14,500 2.29%
Max O. Cogburn, Sr. 5,500 (3) 0.87%
M. David Cogburn, M.D. 6,380 1.01%
G. Gordon Greenwood 1,000 0.16%
Darryl J. Hart 1,999 0.32%
Carol L. King 3,440 0.54%
Stephen P. Pignatiello 2,420 0.38%
Kent W. Salisbury, M.D. 13,200 2.08%
Laura A. Webb 1,100 0.17%
David N. Wilcox 2,600 0.41%
All Directors and
Executive Officers 54,459 (4) 8.60%
as a group (13 persons) (5)
(1) Except as otherwise noted, to the best knowledge of Weststar's management,
the above individuals and group exercise sole voting and investment power with
respect to all shares shown as beneficially owned other than the following
shares as to which such powers are shared: Dr. Cogburn - 220 shares; Dr.
Salisbury - 2,200 shares; and Mr. Tuck - 200 shares.
(2) The calculation of the percentage of class beneficially owned by each
individual and the group is based on the sum of a total of 633,298 outstanding
shares of Common Stock outstanding as of June 30, 2000.
(3) Mr. Cogburn disclaims beneficial ownership of his spouse's shares.
(4) The Board of Directors intends to purchase, in the aggregate, a number of
shares equaling approximately $500,000 in value.
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<PAGE>
(5) Includes Randall C. Hall, Executive Vice President, Secretary and Chief
Financial Officer, Robert E. Tuck, Senior Vice President and Chief Credit
Officer and Judy P. Waldroop, Senior Vice President.
SUPERVISION AND REGULATION
Regulation of the Bank
The Bank is extensively regulated under both federal and state law. Generally,
these laws and regulations are intended to protect depositors and borrowers, not
shareholders. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable law or
regulation may have a material effect on the business of Weststar and the Bank.
State Law. The Bank is subject to extensive supervision and regulation by the
North Carolina Commissioner of Banks (the "Commissioner"). The Commissioner
oversees state laws that set specific requirements for bank capital and regulate
deposits in, and loans and investments by, banks, including the amounts, types,
and in some cases, rates. The Commissioner supervises and performs periodic
examinations of North Carolina-chartered banks to assure compliance with state
banking statutes and regulations, and the Bank is required to make regular
reports to the Commissioner describing in detail the resources, assets,
liabilities and financial condition of the Bank. Among other things, the
Commissioner regulates mergers and consolidations of state-chartered banks, the
payment of dividends, loans to officers and directors, record keeping, types and
amounts of loans and investments, and the establishment of branches.
Deposit Insurance. As a member institution of the FDIC, the Bank's deposits are
insured up to a maximum of $100,000 per depositor through the Bank Insurance
Fund (the "BIF"), administered by the FDIC, and each member institution is
required to pay semi-annual deposit insurance premium assessments to the FDIC.
The BIF assessment rates have a range of 0 cents to 27 cents for every $100 in
assessable deposits. Banks with no premium are subject to an annual statutory
minimum assessment.
Capital Requirements. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit, and
recourse arrangements, which are recorded as off balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit equivalent amounts
of off balance sheet items are multiplied by one of several risk adjustment
percentages which range from 0% for assets with low credit risk, such as certain
U.S. Treasury securities, to 100% for assets with relatively high credit risk,
such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
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<PAGE>
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
qualifying noncumulative perpetual preferred stock and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and other
intangibles, subject to certain exceptions. "Tier 2," or supplementary capital,
includes among other things, limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and
the allowance for loan and lease losses, subject to certain limitations and less
required deductions. The inclusion of elements of Tier 2 capital is subject to
certain other requirements and limitations of the federal banking agencies.
Banks and bank holding companies subject to the risk-based capital guidelines
are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at
least 4% and a ratio of total capital to risk-weighted assets of at least 8%.
The appropriate regulatory authority may set higher capital requirements when
particular circumstances warrant. As of December 31, 1999, the Bank was
classified as "well-capitalized" with Tier 1 and Total Risk-Based Capital of
15.88% and 17.13% respectively.
The federal banking agencies have adopted regulations specifying that they will
include, in their evaluations of a bank's capital adequacy, an assessment of the
bank's interest rate risk ("IRR") exposure. The standards for measuring the
adequacy and effectiveness of a banking organization's IRR management include a
measurement of board of director and senior management oversight, and a
determination of whether a banking organization's procedures for comprehensive
risk management are appropriate for the circumstances of the specific banking
organization.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as the
measures described under the "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the shareholders.
Federal Deposit Insurance Corporation Improvement Act of 1991. In December 1991,
Congress enacted the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), which substantially revised the bank regulatory and funding
provisions of the FDIC and made significant revisions to several other federal
banking statutes. FDICIA provides for, among other things:
- publicly available annual financial condition and management reports
for certain financial institutions, including audits by independent
accountants,
- the establishment of uniform accounting standards by federal banking
agencies,
- the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with
greater scrutiny and restrictions placed on depository institutions
with lower levels of capital,
- additional grounds for the appointment of a conservator or receiver,
and
41
<PAGE>
- restrictions or prohibitions on accepting brokered deposits, except for
institutions which significantly exceed minimum capital requirements.
FDICIA also provides for increased funding of the FDIC insurance funds and the
implementation of risk-based premiums.
A central feature of FDICIA is the requirement that the federal banking agencies
take "prompt corrective action" with respect to depository institutions that do
not meet minimum capital requirements. Pursuant to FDICIA, the federal bank
regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." An institution may be deemed by the regulators to
be in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity.
FDICIA provides the federal banking agencies with significantly expanded powers
to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
Miscellaneous. The dividends that may be paid by the Bank are subject to legal
limitations. In accordance with North Carolina banking law, dividends may not be
paid unless the Bank's capital surplus is at least 50% of its paid-in capital.
Shareholders of banks may be compelled by the Commissioner pursuant to North
Carolina law to invest additional capital in the event their bank's capital
shall have become impaired by losses or otherwise. Failure to pay such an
assessment could result in a forced sale of a shareholder's bank stock.
The earnings of the Bank will be affected significantly by the policies of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which is responsible for regulating the United States money supply in order to
mitigate recessionary and inflationary pressures. Among the techniques used to
implement these objectives are open market transactions in United States
government securities, changes in the rate paid by banks on bank borrowings, and
changes in reserve requirements against bank deposits. These techniques are used
in varying combinations to influence overall growth and distribution of bank
loans, investments, and deposits, and their use may also affect interest rates
charged on loans or paid for deposits.
The monetary policies of the Federal Reserve Board have had a significant effect
on the operating results of commercial banks in the past and are expected to
continue to do so in the future. In view of changing conditions in the national
42
<PAGE>
economy and money markets, as well as the effect of actions by monetary and
fiscal authorities, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and earnings of the
Bank.
The Bank cannot predict what legislation might be enacted or what regulations
might be adopted, or if enacted or adopted, the effect thereof on the Bank's
operations.
Regulation of Weststar
Federal Regulation. Weststar is subject to examination, regulation and periodic
reporting under the Bank Holding Company Act (the "BHC Act"), as administered by
the Federal Reserve Board. The Federal Reserve Board has adopted capital
adequacy guidelines for bank holding companies on a consolidated basis.
Weststar is required to obtain the prior approval of the Federal Reserve Board
to acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior Federal Reserve Board approval is required for Weststar to
acquire direct or indirect ownership or control of any voting securities of any
bank or bank holding company if, after giving effect to such acquisition, it
would, directly or indirectly, own or control more than five percent of any
class of voting shares of such bank or bank holding company.
The merger or consolidation of Weststar with another bank, or the acquisition by
Weststar of assets of another bank, or the assumption of liability by Weststar
to pay any deposits in another bank, will require the prior written approval of
the primary federal bank regulatory agency of the acquiring or surviving bank
under the federal Bank Merger Act. The decision is based upon a consideration of
statutory factors similar to those outlined above with respect to the BHC Act.
In addition, in certain such cases an application to, and the prior approval of,
the Federal Reserve Board under the BHC Act and/or the North Carolina Banking
Commission may be required.
Weststar is required to give the Federal Reserve Board prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of Weststar's consolidated net worth. The
Federal Reserve Board may disapprove such a purchase or redemption if it
determines that the proposal would constitute an unsafe and unsound practice, or
would violate any law, regulation, Federal Reserve Board order or directive, or
any condition imposed by, or written agreement with, the Federal Reserve Board.
Such notice and approval is not required for a bank holding company that would
be treated as "well capitalized" under applicable regulations of the Federal
Reserve Board, that has received a composite "1" or "2" rating at its most
recent bank holding company inspection by the Federal Reserve Board, and that is
not the subject of any unresolved supervisory issues.
The status of Weststar as a registered bank holding company under the BHC Act
does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
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<PAGE>
In addition, a bank holding company is prohibited generally from engaging in, or
acquiring five percent or more of any class of voting securities of any company
engaged in, non-banking activities. One of the principal exceptions to this
prohibition is for activities found by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the principal activities that the Federal Reserve
Board has determined by regulation to be so closely related to banking as to be
a proper incident thereto are:
- making or servicing loans;
- performing certain data processing services;
- providing discount brokerage services;
- acting as fiduciary, investment or financial advisor;
- leasing personal or real property;
- making investments in corporations or projects designed primarily to
promote community welfare; and
- acquiring a savings and loan association.
In evaluating a written notice of such an acquisition, the Federal Reserve Board
will consider various factors, including among others the financial and
managerial resources of the notifying bank holding company and the relative
public benefits and adverse effects which may be expected to result from the
performance of the activity by an affiliate of such company. The Federal Reserve
Board may apply different standards to activities proposed to be commenced de
novo and activities commenced by acquisition, in whole or in part, of a going
concern. The required notice period may be extended by the Federal Reserve Board
under certain circumstances, including a notice for acquisition of a company
engaged in activities not previously approved by regulation of the Federal
Reserve Board. If such a proposed acquisition is not disapproved or subjected to
conditions by the Federal Reserve Board within the applicable notice period, it
is deemed approved by the Federal Reserve Board.
Capital Requirements. The Federal Reserve Board uses capital adequacy guidelines
in its examination and regulation of bank holding companies. If capital falls
below minimum guidelines, a bank holding company may, among other things, be
denied approval to acquire or establish additional banks or non-bank businesses.
The Federal Reserve Board's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies:
- a leverage capital requirement expressed as a percentage of total
assets;
- a risk-based requirement expressed as a percentage of total
risk-weighted assets; and
- a Tier 1 leverage requirement expressed as a percentage of total
assets.
The leverage capital requirement consists of a minimum ratio of total capital to
total assets of 6%, with an expressed expectation that banking organizations
generally should operate above such minimum level. The risk-based requirement
consists of a minimum ratio of total capital to total risk-weighted assets of
8%, of which at least one-half must be Tier 1 capital (which consists
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<PAGE>
principally of shareholders' equity). The Tier 1 leverage requirement consists
of a minimum ratio of Tier 1 capital to total assets of 3% for the most
highly-rated companies, with minimum requirements of 4% to 5% for all others.
The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum requirements, and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all intangible assets),
well above the minimum levels.
The Federal Reserve Board's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets. On a pro forma basis, assuming the
issuance and sale of 117,600 shares of Common Stock (the minimum amount offered
in this Prospectus) at $___ per share, our leverage capital ratio, risk-based
capital ratio and Tier 1 leverage ratio immediately after the Offering, in each
case as calculated on a consolidated basis and a bank-only basis under the
Federal Reserve Board's capital guidelines, would be ____%, ____% and ____%,
respectively, significantly exceeding the minimum requirements.
FDICIA requires the federal bank regulatory agencies biennially to review
risk-based capital standards to ensure that they adequately address interest
rate risk, concentration of credit risk and risks from non-traditional
activities and, since adoption of the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "Riegle Act"), to do so taking into
account the size and activities of depository institutions and the avoidance of
undue reporting burdens. In 1995, the agencies adopted regulations requiring as
part of the assessment of an institution's capital adequacy the consideration of
(a) identified concentrations of credit risks, (b) the exposure of the
institution to a decline in the value of its capital due to changes in interest
rates and (c) the application of revised conversion factors and netting rules on
the institution's potential future exposure from derivative transactions.
In addition, in September 1996 the agencies adopted amendments to their
respective risk-based capital standards to require banks and bank holding
companies having significant exposure to market risk arising from, among other
things, trading of debt instruments, (1) to measure that risk using an internal
value-at-risk model conforming to the parameters established in the agencies'
standards and (2) to maintain a commensurate amount of additional capital to
reflect such risk. The new rules were adopted effective January 1, 1997, with
compliance mandatory from and after January 1, 1998.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), depository institutions are liable to the FDIC for losses suffered
or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law is applicable to the extent that
Weststar maintains as a separate subsidiary a depository institution in addition
to the Bank.
45
<PAGE>
Subsidiary banks of a bank holding company are subject to certain quantitative
and qualitative restrictions imposed by the Federal Reserve Act on any extension
of credit to, or purchase of assets from, or letter of credit on behalf of, the
bank holding company or its subsidiaries, and on the investment in or acceptance
of stocks or securities of such holding company or its subsidiaries as
collateral for loans. In addition, provisions of the Federal Reserve Act and
Federal Reserve Board regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors and principal shareholders of the Bank, Weststar,
any subsidiary of Weststar and related interests of such persons. Moreover,
subsidiaries of bank holding companies are prohibited from engaging in certain
tie-in arrangements (with the holding company or any of its subsidiaries) in
connection with any extension of credit, lease or sale of property or furnishing
of services.
Any loans by a bank holding company to a subsidiary bank are subordinate in
right of payment to deposits and to certain other indebtedness of the subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to
a priority of payment. This priority would also apply to guarantees of capital
plans under FDICIA.
Branching
Under the Riegle Act, the Federal Reserve Board may approve bank holding company
acquisitions of banks in other states, subject to certain aging and deposit
concentration limits. As of June 1, 1997, banks in one state may merge with
banks in another state, unless the other state has chosen not to implement this
section of the Riegle Act. These mergers are also subject to similar aging and
deposit concentration limits.
North Carolina "opted-in" to the provisions of the Riegle Act. Since July 1,
1995, an out-of-state bank that did not already maintain a branch in North
Carolina was permitted to establish and maintain a de novo branch in North
Carolina, or acquire a branch in North Carolina, if the laws of the home state
of the out-of-state bank permit North Carolina banks to engage in the same
activities in that state under substantially the same terms as permitted by
North Carolina. Also, North Carolina banks may merge with out-of-state banks,
and an out-of-state bank resulting from such an interstate merger transaction
may maintain and operate the branches in North Carolina of a merged North
Carolina bank, if the laws of the home state of the out-of-state bank involved
in the interstate merger transaction permit interstate merger.
Recent Legislative Developments
Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999, which was signed
into law on November 12, 1999, will allow a bank holding company to qualify as a
"financial holding company" and, as a result, be permitted to engage in a
broader range of activities that are "financial in nature" and in activities
that are determined to be incidental or complementary to activities that are
financial in nature. The Gramm-Leach-Bliley Act amends the BHC Act to include a
list of activities that are financial in nature, and the list includes
46
<PAGE>
activities such as underwriting, dealing in and making a market in securities,
insurance underwriting and agency activities and merchant banking. The Federal
Reserve Board is authorized to determine other activities that are financial in
nature or incidental or complementary to such activities. The Gramm-Leach-Bliley
Act also authorizes banks to engage through financial subsidiaries in certain of
the activities permitted for financial holding companies.
On September 30, 1996, the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 (the "Growth Act"), was enacted which contained a comprehensive
approach to recapitalize the FDIC's Savings Association Insurance Fund (the
"SAIF") and to assure payment of the Financing Corporation (the "FICO")
obligations. All of the Bank's deposits are insured by the FDIC's BIF. Under the
Growth Act, banks with deposits that are insured under the BIF are required to
pay a portion of the interest due on bonds that were issued by FICO to help
shore up the ailing Federal Savings and Loan Insurance Corporation in 1987. The
Growth Act stipulates that the BIF assessment rate to contribute toward the FICO
obligations must be equal to one-fifth the SAIF assessment rate through year-end
2000, or until the insurance funds are merged, whichever occurs first. The
amount of FICO debt service to be paid by all BIF-insured institutions is
approximately $0.0126 per $100 of BIF-insured deposits for each year from 1997
through 2000 when the obligation of BIF-insured institutions increases to
approximately $0.0240 per $100 of BIF-insured deposits per year through the year
2019, subject in all cases to adjustments by the FDIC on a quarterly basis. The
Growth Act also contained provisions protecting banks from liability for
environmental clean-up costs; prohibiting credit unions sponsored by Farm Credit
System banks; easing application requirements for most bank holding companies
when they acquire a thrift or a permissible non-bank operation; easing Fair
Credit Reporting Act restrictions between bank holding company affiliates; and
reducing the regulatory burden under the Real Estate Settlement Procedures Act,
the Truth-in-Savings Act, the Truth-in-Lending Act and the Home Savings Mortgage
Disclosure Act.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material provisions of Weststar's Articles of
Incorporation and Bylaws.
General
The Articles of Incorporation of Weststar authorize the issuance of 10,000,000
shares of capital stock, consisting of 9,000,000 shares of Common Stock, par
value $1.00 per share, and 1,000,000 shares of preferred stock at no par value.
Upon completion of the Offering, assuming the maximum number of shares are sold,
there will be 1,043,298 shares of Common Stock outstanding and no shares of
preferred stock issued and outstanding.
Common Stock
Dividend Rights. As a North Carolina corporation, Weststar is not directly
subject to the restrictions on the payment of dividends applicable to the Bank.
Holders of shares of Weststar's Common Stock are entitled to receive such cash
47
<PAGE>
dividends as the Board of Directors of Weststar may declare out of funds legally
available therefor. However, the payment of dividends by Weststar will be
subject to the restrictions of North Carolina law applicable to the declaration
of dividends by a business corporation. Under such provisions, cash dividends
may not be paid if a corporation will not be able to pay its debts as they
become due in the usual course of business after making such cash dividend
distribution or the corporation's total assets would be less than the sum of its
total liabilities plus the amount that would be needed to satisfy certain
liquidation preferential rights. The ability of Weststar to pay dividends to the
holders of shares of Weststar's Common Stock is, at least at the present time,
completely dependent upon the amount of dividends the Bank pays to Weststar.
Voting Rights. Each share of Weststar's Common Stock entitles the holder thereof
to one vote on all matters upon which shareholders have the right to vote. In
addition, if the Board of Directors of Weststar consists of nine or more
directors, its members will be classified so that approximately one-third of the
directors will be elected each year. Shareholders of Weststar are not entitled
to cumulate their votes for the election of directors.
Liquidation Rights. In the event of any liquidation, dissolution or winding up
of Weststar, the holders of shares of Weststar's Common Stock are entitled to
receive, after payment of all debts and liabilities of Weststar, all remaining
assets of Weststar available for distribution in cash or in kind. In the event
of any liquidation, dissolution or winding up of the Bank, Weststar, as the
holder of all shares of Bank Common Stock, would be entitled to receive payment
of all debts and liabilities of the Bank (including all deposits and accrued
interest thereon) and all remaining assets of the Bank available for
distribution in cash or in kind.
Preemptive Rights; Redemption. Holders of shares of Weststar's Common Stock are
not entitled to preemptive rights with respect to any shares that may be issued.
Weststar's Common Stock is not subject to call or redemption.
Preferred Stock
The authorized preferred stock is available for issuance from time to time at
the discretion of the Board of Directors without shareholder approval. The Board
of Directors has the authority to prescribe for each series of preferred stock
it establishes the number of shares in that series, the number of votes (if any)
to which the shares in that series are entitled, the consideration for the
shares in that series, and the designations, powers, preferences and other
rights, qualifications, limitations or restrictions of the shares in that
series. Depending upon the rights prescribed for a series of preferred stock,
the issuance of preferred stock could have an adverse effect on the voting power
of the holders of Common Stock and could adversely affect holders of Common
Stock by delaying or preventing a change in control, making removal of our
present management more difficult or imposing restrictions upon the payment of
dividends and other distributions to the holders of Common Stock.
Authorized But Unissued Shares
North Carolina law does not require shareholder approval for any issuance of
authorized shares. Authorized but unissued shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
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<PAGE>
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of authorized but unissued shares may be to enable the board of
directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control
of us by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of our management and possibly deprive the
shareholders of opportunities to sell their shares of Common Stock at prices
higher than prevailing market prices.
Certain Articles and Bylaw Provisions Having Potential Anti-Takeover Effects
General. The following is a summary of the material provisions of Weststar's
Articles of Incorporation and Bylaws which address matters of corporate
governance and the rights of shareholders. Certain of these provisions may delay
or prevent takeover attempts not first approved by the Board of Directors of
Weststar (including takeovers which certain shareholders may deem to be in their
best interests). These provisions also could delay or frustrate the removal of
incumbent directors or the assumption of control by shareholders. All references
to the Articles of Incorporation and Bylaws are to Weststar's Articles of
Incorporation and Bylaws in effect as of the date of this Prospectus.
Classification of the Board of Directors. The Bylaws provide that if the number
of directors is nine or more (the number of directors is currently 10), the
Board of Directors of Weststar shall be divided into three classes, Class I,
Class II and Class III, which shall be as nearly equal in number as possible. If
so classified, each director shall serve for a term ending on the date of the
third annual meeting of shareholders following the annual meeting at which the
director was elected (except for certain initial directors whose terms may be
shorter than three years as necessary to effect the classification process). A
director elected to fill a vacancy shall serve only until the next meeting of
shareholders at which directors are elected. Approximately one-third of the
members of the Board of Directors of Weststar will be elected each year, and two
annual meetings will be required for Weststar's shareholders to change a
majority of the members constituting the Board of Directors of Weststar.
Removal of Directors; Filling Vacancies. Weststar's Articles of Incorporation
provide that shareholders may remove one or more of the directors with cause
which includes (i) criminal prosecution and conviction during the course of a
director's service as a director of Weststar of an act of fraud embezzlement,
theft, or personal dishonesty, (ii) the prosecution and conviction of any
criminal offense involving dishonesty or breach of trust, or (iii) the
occurrence of any event resulting in a director being excluded from coverage, or
having coverage limited as to the director when compared to other covered
directors under any of the fidelity bonds or insurance policies covering its
directors, officers or employees. Vacancies occurring in the Board of Directors
of Weststar may be filled by the shareholders or a majority of the remaining
directors, even though less than a quorum, or by the sole remaining director.
Amendment of Bylaws. Subject to certain restrictions described below, either a
majority of the Board of Directors or the shareholders of Weststar may amend or
repeal the Bylaws. A bylaw adopted, amended or repealed by the shareholders may
not be readopted, amended or repealed by the Board of Directors of Weststar.
Generally, the shareholders of Weststar may adopt, amend, or repeal the Bylaws
49
<PAGE>
in accordance with the North Carolina Business Corporations Act (the "NCBCA").
The Board of Directors is permitted by Weststar's Articles of Incorporation to
consider other constituents besides the shareholders if faced with a proposal
that could cause a change in control. Such constituents are employees,
depositors, customers, creditors and the communities in which Weststar and its
subsidiaries conduct business. Further, the Board is permitted to evaluate the
competence, experience and integrity of any proposed acquiror as well as the
prospects for success of such a takeover proposal from a regulatory perspective.
Special Meetings of Shareholders. Weststar's Bylaws provide that special
meetings of shareholders may be called only by the President or Board of
Directors of Weststar.
Certain Provisions of North Carolina Law
Weststar is subject to the North Carolina Shareholder Protection Act (the
"Shareholder Protection Act") and the North Carolina Control Share Acquisition
Act (the "Control Share Act"), each of which, if applicable, would hinder the
ability of a third party to acquire control of either company. The Shareholder
Protection Act generally requires that, unless certain "fair price" and other
conditions are met, the affirmative vote of the holders of 95% of the voting
shares of a corporation is necessary to adopt or authorize a business
combination with any other entity, if that entity is the beneficial owner,
directly or indirectly, of more than 20% of the voting shares of the
corporation. The Control Share Act provides that any person or party who
acquires "control shares" (defined as a number of shares which, when added to
other shares held, gives the holder voting power in the election of directors
equal to 20%, 33 1/3% or a majority of all voting power) may only vote those
shares if the remaining shareholders of the corporation, by resolution, permit
those shares to be voted. If the shareholders of the corporation permit the
"control shares" to be accorded voting rights and the holder of the "control
shares" has a majority of all voting power for the election of directors, the
other shareholders of the corporation have the right to the redemption of their
shares at the fair value of the shares as of the date prior to the date on which
the vote was taken which gave voting rights to the "control shares." The
provisions of the Shareholder Protection Act and the Control Share Act may have
the effect of discouraging a change of control by allowing minority shareholders
to prevent a transaction favored by a majority of the shareholders. The primary
purpose of these provisions is to encourage negotiations with the board of
directors of a company by groups or corporations interested in acquiring control
of the company.
The acquisition of more than ten percent (10%) of the outstanding Weststar
Common Stock may, in certain circumstances, be subject to the provisions of the
Change in Bank Control Act of 1978 (the "Change in Bank Control Act"). The FDIC
has also adopted a regulation pursuant to the Change in Bank Control Act which
generally requires persons who at any time intend to acquire control of an
FDIC-insured state-chartered non-member bank, either directly or indirectly
through an acquisition of control of its holding company, to provide 60 days
prior written notice and certain financial and other information to the FDIC.
Control for the purpose of this Act exists in situations in which the acquiring
party has voting control of at least twenty-five percent (25%) of any class of
voting stock or the power to direct the management or policies of the bank or
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the holding company. However, under FDIC regulations, control is presumed to
exist where the acquiring party has voting control of at least ten percent (10%)
of any class of voting securities if (a) the bank or holding company has a class
of voting securities which is registered under Section 12 of the 1934 Act, or
(b) the acquiring party would be the largest holder of a class of voting shares
of the bank or the holding company. The statute and underlying regulations
authorize the FDIC to disapprove a proposed acquisition on certain specified
grounds.
Prior approval of the Federal Reserve Board would be required for any
acquisition of control of the Bank or Weststar by any bank holding company under
the BHC Act. Control for purposes of the BHC Act would be based on, among other
things, a twenty-five percent (25%) voting stock test or on the ability of the
holding company otherwise to control the election of a majority of the Board of
Directors of Weststar. As part of such acquisition, the acquiring company
(unless already so registered) would be required to register as a bank holding
company under the BHC Act.
The 1934 Act requires that a purchaser of any class of a corporation's
securities registered under the 1934 Act notify the SEC and such corporation
within ten days after its purchases exceed five percent of the outstanding
shares of that class of securities. This notice must disclose the background and
identity of the purchaser, the source and amount of funds used for the purchase,
the number of shares owned and, if the purpose of the transaction is to acquire
control of the corporation, any plans to alter materially the corporation's
business or corporate structure. In addition, any tender offer to acquire a
corporation's securities is subject to the limitations and disclosure
requirements of the 1934 Act.
Indemnification of Directors and Officers
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to our directors, officers and controlling persons under the
provisions discussed above or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the 1934 Act and is, therefore, unenforceable.
Registrar and Transfer Agent
The registrar and transfer agent for our Common Stock is Registrar and Transfer
Company, Cranford, New Jersey.
Shares Eligible for Future Sale
Upon completion of the Offering, we expect to have 1,043,298 shares of Common
Stock outstanding assuming the maximum number of shares are sold, all of which
either will have been registered with the SEC under the 1933 Act or will have
been outstanding for a sufficient period of time so that they will be eligible
for resale without registration under the 1933 Act unless they were acquired by
our directors, executive officers or other affiliates (collectively,
"affiliates"). Our affiliates generally will be able to sell shares of the
Common Stock only in accordance with the limitations of Rule 144 under the 1933
Act.
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In general, under Rule 144 as currently in effect, an affiliate (as defined in
Rule 144) may sell shares of Common Stock within any three-month period in an
amount limited to the greater of 1% of our outstanding shares of Common Stock or
the average weekly trading volume in our Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about us.
Prior to the Offering, the Common Stock has been trading on the Nasdaq OTC
Bulletin Board, and we cannot predict the effect, if any, that sales of shares
or the availability of shares for sale will have on the prevailing market price
of the Common Stock after completion of the Offering. Nevertheless, sales of
substantial amounts of Common Stock in the public market could have an adverse
effect on prevailing market prices.
METHOD OF SUBSCRIPTION/PLAN OF DISTRIBUTION
Weststar has engaged Wachovia to sell a portion of the Common Stock being
offered through this Offering on a best efforts basis. The management of
Weststar will conduct the Offering primarily in the City of Asheville and
Buncombe County. Simultaneously, Wachovia will commence its marketing efforts
primarily through the offices of its retail brokerage division, IJL/Wachovia.
Wachovia can, with our consent, engage other agents to sell our Common Stock.
Wachovia will receive a commission of __% of the Offering price for all shares
sold by any of its registered brokers. If any other agents sell any Common Stock
through an engagement with Wachovia, they will receive a portion of that
commission.
LEGAL OPINIONS
Gaeta & Glesener, P.A., Raleigh, North Carolina, will pass upon the legality of
the securities offered by this Prospectus for us.
EXPERTS
The financial statements of the Bank as of December 31, 1999 and 1998, and for
the years ended December 31, 1999 and 1998 and the period from October 29, 1997
(date of incorporation) to December 31, 1997, included in this Prospectus, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and have been so included in reliance upon the report of
such firm given their authority as experts in accounting and auditing.
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<PAGE>
TABLE OF CONTENTS
The Bank of Asheville
Independent Auditors' Report F-
Balance Sheets as of December 31, 1999 and 1998 F-
Statements of Operations for the years ended
December 31, 1999 and 1998 and the Period from
October 29, 1997 (Date of Incorporation) to December 31, 1997 F-
Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999 and 1998
and the Period from October 29, 1997 (Date of
Incorporation) to December 31, 1997 F-
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 and the Period
from October 29, 1997 (Date of Incorporation)
to December 31, 1997 F-
Notes to Financial Statements F-
Weststar Financial Services Corporation
Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 (Unaudited) F-
Consolidated Statements of Operations for the
three months and six months ended June 30, 2000
and 1999 (Unaudited) F-
Consolidated Statements of Comprehensive Income
(Loss) for the three months and six months ended
June 30, 2000 and 1999 (Unaudited) F-
Consolidated Statement of Changes in Shareholders'
Equity for the six months ended June 30, 2000 and
1999(Unaudited) F-
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 (Unaudited) F-
Notes to Consolidated Financial Statements F-
1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of The Bank of Asheville:
We have audited the accompanying balance sheets of The Bank of Asheville (the
"Bank") as of December 31, 1999 and 1998 and the related statements of
operations, changes in shareholders' equity, and cash flows for the years ended
December 31, 1999 and 1998 and the period from October 29, 1997 (date of
incorporation) to December 31, 1997. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these 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, such financial statements present fairly, in all material
respects, the financial position of the Bank at December 31, 1999 and 1998 and
the results of its operations and its cash flows for the years ended December
31, 1999 and 1998 and the period from October 29, 1997 (date of incorporation)
to December 31, 1997, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Hickory, North Carolina
January 25, 2000
2
<PAGE>
THE BANK OF ASHEVILLE
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Cash and cash equivalents (Notes 1, 7 and 12):
Cash and due from banks $ 1,892,403 $ 676,714
Interest-bearing deposits 2,784 99,000
Federal funds sold 2,110,000 2,770,000
------------ ------------
Total cash and cash equivalents 4,005,187 3,545,714
------------ ------------
Investment securities (Notes 1, 2 and 12) - available for sale, at fair
value (amortized cost of $2,508,339 and $2,087,778 at
December 31, 1999 and 1998, respectively) 2,502,411 2,085,000
------------ ------------
Loans (Notes 3 and 12) 34,460,724 14,023,265
Allowance for loan losses (Notes 1 and 4) (528,808) (218,719)
------------ ------------
Net loans 33,931,916 13,804,546
Premises and equipment, net (Notes 1, 5 and 9) 2,455,507 2,200,051
Accrued interest receivable 220,151 100,039
Federal Home Loan Bank stock, at cost 58,100 -
Organizational costs, net (Note 1) - 116,203
Deferred income taxes 133,688 -
Other assets 61,137 41,142
------------ ------------
TOTAL $ 43,368,097 $ 21,892,695
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (Note 6):
Demand $ 4,780,881 $ 2,759,092
NOW accounts 3,154,225 1,820,714
Money market accounts 10,623,376 4,079,314
Savings 583,797 328,820
Time deposits of $100,000 or more 5,620,684 3,206,120
Other time deposits 13,158,017 4,252,588
Total deposits 37,920,980 16,446,648
Accrued interest payable 159,149 64,497
Deferred income taxes - 23,021
Other liabilities 119,569 195,954
------------ ------------
Total liabilities 38,199,698 16,730,120
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY (Notes 1 and 10):
Common stock, $5 par value, authorized - 10,000,000 shares; outstanding shares
- 633,298 and 607,557 at December 31, 1999
and 1998, respectively 3,166,490 3,037,785
Additional paid-in capital 3,596,444 3,467,729
Accumulated deficit (1,590,896) (1,341,243)
Accumulated other comprehensive loss (Note 2) (3,639) (1,696)
------------ ------------
Total shareholders' equity 5,168,399 5,162,575
------------ ------------
TOTAL $ 43,368,097 $ 21,892,695
============ ============
</TABLE>
See notes to financial statements
2
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THE BANK OF ASHEVILLE
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
INTEREST INCOME:
<S> <C> <C> <C>
Interest and fees on loans $ 2,492,208 $ 661,439 $ 1,262
Federal funds sold 142,955 186,602 24,947
Interest-bearing deposits 1,211 4,560 64,482
Investments:
U. S. Treasuries 26,129 64,213 5,000
U. S. Government agencies 95,105 144,537 5,164
Corporate dividends 2,710 - -
----------- ----------- -----------
Total interest income 2,760,318 1,061,351 100,855
----------- ----------- -----------
INTEREST EXPENSE:
Time deposits of $100,000 or more 189,677 109,687 581
Other time and savings deposits 937,345 286,900 1,860
Federal funds purchased 1,522 - -
Note payable - 27,922 1,111
Other interest expense 97 - -
----------- ----------- -----------
Total interest expense 1,128,641 424,509 3,552
----------- ----------- -----------
NET INTEREST INCOME 1,631,677 636,842 97,303
PROVISION FOR LOAN LOSSES (Notes 1 and 4) 316,685 269,614 3,200
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,314,992 367,228 94,103
OTHER INCOME:
Service charges on deposit accounts 272,911 83,349 30
Other service fees and commissions 131,316 29,162 563
Other 10,637 4,533 420
----------- ----------- -----------
Total other income 414,864 117,044 1,013
----------- ----------- -----------
OTHER EXPENSES:
Salaries and wages 941,253 649,415 98,119
Employee benefits 108,086 66,246 9,467
Occupancy expense, net 79,280 64,128 4,299
Equipment rentals, depreciation and maintenance 201,738 132,439 29,526
Other 688,451 546,671 91,528
----------- ----------- -----------
Total other expenses 2,018,808 1,458,899 232,939
----------- ----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE AND INCOME TAXES (288,952) (974,627) (137,823)
INCOME TAX PROVISION (BENEFIT) (Notes 1 and 8) (110,625) - 24,103
----------- ----------- -----------
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (178,327) (974,627) (161,926)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX BENEFIT OF $44,877 (Note 1) (71,326) - -
----------- ----------- -----------
ET LOSS (249,653) (974,627) (161,926)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX -
Unrealized holding gains (losses) on securities available for sale (1,943) (8,270) 6,574
COMPREHENSIVE LOSS $ (251,596) $ (982,897) $ (155,352)
============ ============ ============
</TABLE>
3
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THE BANK OF ASHEVILLE
STATEMENTS OF OPERATIONS (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
--------------------------------------------------------------------------------
1999 1998 1997
BASIC NET LOSS PER SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (.29) $ (1.60) $ (.27)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (.12) - -
-------- --------- -------
BASIC NET LOSS PER SHARE $ (.41) $ (1.60) $ (.27)
======== ========= =======
See notes to financial statements.
4
<PAGE>
THE BANK OF ASHEVILLE
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Accumulated Shareholders'
Common Stock Additional Other Equity
----------------------- Paid-In Accumulated Comprehensive (Notes 1
Shares Amount Capital Deficit Income (Loss) and 10)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 29, 1997 607,557 $ 3,037,785 $ 3,467,729 $ (204,690) $ - $ 6,300,824
Net change in unrealized gain on
securities available for sale - - - - 6,574 6,574
Net loss - - - (161,926) - (161,926)
------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 607,557 3,037,785 3,467,729 (366,616) 6,574 6,145,472
Net change in unrealized gain on
securities available for sale - - - - (8,270) (8,270)
Net loss - - - (974,627) - (974,627)
------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 607,557 3,037,785 3,467,729 (1,341,243) (1,696) 5,162,575
Net change in unrealized loss on
securities available for sale - - - - (1,943) (1,943)
Warrants exercised 25,741 128,705 128,715 - - 257,420
Net loss - - - (249,653) - (249,653)
BALANCE, DECEMBER 31, 1999 633,298 $ 3,166,490 $ 3,596,444 $(1,590,896) $ (3,639) $ 5,168,399
======= =========== =========== =========== =========== ===========
</TABLE>
5
<PAGE>
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
AND THE PERIOD FROM OCTOBER 29, 1997 (date of incorporation) to December 31,
1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (249,653) $ (974,627) $ (161,926)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 173,617 97,946 27,047
Amortization of organization costs - 29,669 2,472
Provision for loan loss 316,685 269,614 3,200
Premium amortization and discount accretion, net (70,843) (116,570) (126)
Deferred income tax (benefit) provision (155,502) - 24,103
Cumulative effect of a change in accounting principle 116,203 - -
Increase in accrued interest receivable (120,112) (71,952) (28,087)
Increase (decrease) in accrued interest payable 94,652 62,358 (4,077)
(Increase) decrease in other assets (19,981) 13,393 28,478
(Decrease) increase in other liabilities (76,398) 114,216 26,088
------------- ------------- -----------
Net cash provided by (used in) operating activities 8,668 (575,953) (82,828)
------------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (4,449,719) (7,087,865) (2,977,217)
Maturities of securities available for sale 4,100,000 8,094,000 -
Net increase in loans (20,444,055) (13,863,234) (214,126)
Additions to premises and equipment (429,073) (1,747,777) (461,440)
Purchases of Federal Home Loan Bank stock (58,100) - -
------------- ------------- -----------
Net cash used in investing activities (21,280,947) (14,604,876) (3,652,783)
------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and
savings accounts 10,154,339 7,654,464 1,333,476
Net increase in certificates of deposits 11,319,993 7,019,264 439,444
Proceeds from notes payable - 990,000 150,000
Repayment of notes payable - (1,140,000) -
Issuance of common stock 257,420 - -
------------- ------------- -----------
Net cash provided by financing activities 21,731,752 14,523,728 1,922,920
------------- ------------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 459,473 (657,101) (1,812,691)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,545,714 4,202,815 6,015,506
------------- ------------- -----------
End of period $ 4,005,187 $ 3,545,714 $ 4,202,815
============ ============ ===========
SUPPLEMENTAL DISCLOSURE - Cash paid during the
period for interest $ 1,033,989 $ 362,151 $ 7,629
============ ========== =======
</TABLE>
See notes to financial statements
1
<PAGE>
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM OCTOBER 29, 1997
(DATE OF INCORPORATION) TO DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The Bank of Asheville (the "Bank") is a state chartered
commercial bank headquartered in Asheville, North Carolina and provides consumer
and commercial banking services in the Buncombe County and surrounding areas.
The Bank was organized and incorporated in North Carolina on October 29, 1997
and began accepting deposits and making loans on December 1, 1997.
Prior to receiving a bank charter and articles of incorporation, the Bank
conducted an initial public offering of its common stock. Net proceeds from the
public offering were $6,505,514 representing 607,557 shares of common stock sold
at $11.00 per share net of costs. Operations prior to incorporation consisted
only of organizational activities and the sale of common stock.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold. Generally, federal funds are
purchased and sold for one-day periods.
Investment Securities - Debt securities that the Bank has the positive
intent and ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost. Debt and equity securities that are
bought and held principally for the purpose of selling in the near term are
classified as "trading securities" and reported at fair value, with unrealized
gains and losses included in earnings. Debt securities not classified as either
held-to-maturity securities or trading securities and equity securities not
classified as trading securities are classified as "available-for-sale
securities" and reported at fair value, with unrealized gains and losses
reported as other comprehensive income. Gains and losses on held for investment
securities are recognized at the time of sale based upon the specific
identification method. Declines in the fair value of individual held-to-maturity
and available-for-sale securities below their cost that are other than
temporary, result in write-downs of the individual securities to their fair
value. The related write-downs are included in earnings as realized losses.
Premiums and discounts are recognized in interest expense, or interest income,
respectively, using the interest method over the period to maturity. Transfers
of securities between classifications are accounted for at fair value. The Bank
has not classified any securities as trading or held-to-maturity securities.
Loans - Loans held for investment are stated at the amount of unpaid
principal, reduced by an allowance for loan losses.
Allowance for Loan Losses - The provision for loan losses charged to
operations is an amount which management believes is sufficient to bring the
allowance for loan losses to an estimated balance considered 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 risk factors. Recovery of
the carrying value of loans is dependent to some extent on future economic,
operating and other conditions that may be beyond the Bank's control.
Unanticipated future adverse changes in such conditions could result in material
adjustments to the allowance for loan losses.
2
<PAGE>
Loans that are deemed to be impaired (i.e., probable that the Bank will be
unable to collect all amounts due according to the terms of the loan agreement)
are measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical matter, at the loan's
observable market value or fair value of the collateral if the loan is
collateral dependent. A valuation reserve is established to record the
difference between the stated loan amount and the loan's present value, market
value, or fair value of the collateral, as appropriate, of the impaired loan.
Impaired loans may be valued on a loan-by-loan basis (e.g., loans with risk
characteristics unique to an individual borrower) or on an aggregate basis
(e.g., loans with similar risk characteristics). As of December 31, 1999 and
1998, there were no loans within the Bank's portfolio that were considered to be
impaired.
Premises and Equipment and Other Long-Lived Assets - Premises and equipment
are stated at cost less accumulated depreciation and amortization. Depreciation
and amortization, computed by the straight-line method, are charged to
operations over the properties' estimated useful lives, which range from 25 to
50 years for buildings, 5 to 15 years for furniture and equipment or, in the
case of leasehold improvements, the term of the lease, if shorter. Maintenance
and repairs are charged to operations in the year incurred. Gains and losses on
dispositions are included in current operations.
The Bank reviews long-lived assets and certain identifiable intangibles to
be held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected cash flows is less than the stated amount of the asset, an
impairment loss is recognized.
Income Taxes - Deferred income taxes are computed using the asset and
liability approach. The tax effects of differences between the tax and financial
accounting bases of assets and liabilities are reflected in the balance sheet at
the tax rates expected to be in effect when the differences reverse. A valuation
allowance is provided as a reserve against deferred tax assets when realization
is deemed not to be likely. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Interest Income and Expense - The Bank utilizes the accrual method of
accounting. Substantially all loans earn interest on the level yield method
based on the daily outstanding balance. The accrual of interest is discontinued
when, in management's judgment, the interest may not be collected.
The Bank defers the immediate recognition of certain loan origination fees
and certain loan origination costs when new loans are originated and amortizes
these deferred amounts over the life of each related loan as an adjustment to
interest income.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Net Loss Per Share - Basic net loss per common share amount has been
computed using the weighted average number of shares of common stock outstanding
during the respective period (615,521 shares in 1999 and 607,557 shares in 1998
and 1997). There were no potentially dilutive securities during 1999, 1998 and
1997.
3
<PAGE>
New Accounting Standards - In April 1998, the AICPA issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities, which provides
additional guidance on the financial reporting of start-up and organizational
costs, requiring such costs to be expensed as incurred. As a result, the Bank
wrote off its unamortized start-up and organizational costs of $116,203 as of
January 1, 1999 as a cumulative effect of a change in accounting principle.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative. The statement is
effective for the Bank's fiscal year 2001 financial statements and may not be
applied retroactively. The Bank has not yet completed its analysis of the
effects of this new standard on its results of operations or financial position.
2. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and fair values of
investment securities at December 31, 1999 and 1998 are as follows:
Available-for-sale securities consist of the following at December 31,
1999:
<TABLE>
<CAPTION>
Unrealized Fair
Amortized ------------------------------- Value
Type and Maturity Group Cost Gains Losses
<S> <C> <C> <C> <C>
U. S. Treasury due - within 1 year $ 749,505 $ - $ (595) $ 748,910
U. S. Government agencies due - within 1 year 1,758,834 - (5,333) 1,753,501
---------- ---------- -------- ---------
Total at December 31, 1999 $ 2,508,339 $ - $ (5,928) $ 2,502,411
=== ==== =========== == =========== ===========
</TABLE>
Available-for-sale securities consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
Unrealized Fair
Amortized ------------------------------- Value
Type and Maturity Group Cost Gains Losses
<S> <C> <C> <C> <C> <C>
U. S. Treasury due - within 1 year $ 604,288 $ 212 $ - $ 604,500
U. S. Government agencies due - within 1 year 1,483,490 - (2,990) 1,480,500
---------- -- -------- ---------
Total at December 31, 1998 $2,087,778 $ 212 $ (2,990) $2,085,000
============ ====== ========== ===========
</TABLE>
4
<PAGE>
3. LOANS
Loans at December 31, 1999 and 1998 classified by type, are as follows:
1999 1998
Real estate:
Construction $ 7,152,238 $ 1,780,563
Mortgage 16,963,594 7,414,218
Commercial, financial and agricultural 9,926,255 4,594,259
Consumer 562,765 299,105
-------- -------
Subtotal 34,604,852 14,088,145
Net deferred loan origination fees (144,128) (64,880)
---------- --------
Total $ 34,460,724 $ 14,023,265
============= ============
Non-performing assets at December 31, 1999 and 1998 are as follows:
1999 1998
Non-accrual loans $247,559 $ -
No loans have been restructured during the 1997, 1998 or 1999 periods.
Directors and officers of the Bank and companies with which they are
affiliated are customers of and borrowers from the Bank in the ordinary course
of business. At December 31, 1999 and 1998, directors' and principal officers'
direct and indirect indebtedness to the Bank aggregated $136,856 and $131,870,
respectively.
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the periods ended December 31,
1999, 1998 and 1997 are as follows:
1999 1998 1997
Balance at beginning of period $ 218,719 $ 3,200 $ -
Additions charged to operations 316,685 269,614 3,200
Charge-offs (18,567) (55,838) -
Recoveries 11,971 1,743 -
--------- ---------- ---------
Balance at end of period $ 528,808 $ 218,719 $ 3,200
========= ========= =========
5
<PAGE>
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 are as follows:
1999 1998
Land $ 113,900 $ 113,900
Land improvements 121,874 -
Building and improvements 1,475,842 1,182,107
Furniture and equipment 744,064 502,472
Leasehold improvements 287,852 287,852
Construction in progress 10,585 238,714
----------- -----------
Total 2,754,117 2,325,045
Less accumulated depreciation and amortization (298,610) (124,994)
----------- -----------
Total $ 2,455,507 $ 2,200,051
=========== ===========
6. DEPOSIT ACCOUNTS
At December 31, 1999, the scheduled maturities of time deposits of $100,000
or more are as follows:
Within three months $ 2,083,909
Within six months 1,800,047
Within twelve months 1,418,309
Greater than one year 318,419
--------------------
Total $ 5,620,684
====================
7. NOTE PAYABLE
A 9.5% note payable, due in monthly installments of $4,805, was repaid in
full as of December 31, 1998.
8. INCOME TAXES
The income tax benefits for 1997 and 1999 were comprised solely of deferred
tax benefits.
For the years ended December 31, 1999 and 1998, a deferred tax benefit of
$1,207 and $1,082, respectively, was allocated to other comprehensive income as
the tax effect of the unrealized loss on investment securities available for
sale.
6
<PAGE>
A reconciliation of reported income tax benefit for the periods ended
December 31, 1999, 1998 and 1997 to the amount of tax benefit computed by
multiplying the loss before income taxes by the statutory federal income tax
rate of 34% follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Tax benefit at statutory rate $(137,757) $(331,373) $(116,454)
Increase (decrease) in income tax benefit
resulting from:
State income tax benefit net of federal tax benefit (17,745) (54,115) (16,955)
Valuation allowance - 385,488 157,512
---------- -------- ---------
Income taxes reported $(155,502) $ - $ 24,103
========== ======== =========
</TABLE>
The tax effect of the cumulative temporary differences and carryforwards
that gave rise to the deferred tax assets and liabilities at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 Assets Liabilities Total
<S> <C> <C> <C>
Net operating loss carryforward $ 468,180 $ 468,180
Contribution carryforward 8,164 8,164
Allowance for loan losses 180,792 180,792
Unrealized loss on securities available for sale 2,289 2,289
Depreciation - $ (58,707) (58,707)
Capitalized start-up expenditures 68,351 - 68,351
Capitalized organization costs 33,420 - 33,420
Prepaid expenses - (20,554) (20,554)
Other, net - (5,247) (5,247)
Valuation allowance (543,000) - (543,000)
---------- ---------- ---------
Total $ 218,196 $ (84,508) $ 133,688
========== =========== =========
<CAPTION>
1998 Assets Liabilities Total
<S> <C> <C> <C>
Net operating loss carryforward $ 445,757 $ 445,757
Contribution carryforward 5,753 5,753
Allowance for loan losses 53,189 53,189
Unrealized loss on securities available for sale 1,082 1,082
Depreciation - $ (28,394) (28,394)
Capitalized start-up expenditures 66,680 - 66,680
Prepaid expenses - (6,936) (6,936)
Other, net - (17,152) (17,152)
Valuation allowance (543,000) - (543,000)
---------- ---------- ---------
Total $ 29,461 $ (52,482) $ (23,021)
========== =========== =========
</TABLE>
As of December 31, 1999, federal and state operating loss carryovers of
approximately $1,190,000 and $1,358,000, respectively, are available to offset
future federal and state taxable income. The carryover period is 5 years for
state and 20 years for federal, which will result in expirations of varying
amounts.
The Bank has a charitable contribution carryforward of $24,011 available to
reduce federal taxable income. This credit will expire in year 2003.
7
<PAGE>
Management has evaluated the available evidence about future taxable income
and other possible sources of realization of deferred tax assets. The valuation
allowance at December 31, 1999 reduces deferred tax assets to an amount that
represents management's best estimate of the amount of such deferred tax assets
which more likely than not will be realized.
9. LEASES
The Bank leases the banking facility premises and equipment under operating
lease agreements. Future minimum rental payments are as follows:
2000 $34,045
2001 33,473
2002 24,525
Thereafter -
-------
Total $92,043
=======
The land for a branch office is leased from a partnership that includes a
director of the Bank. The annual rental is $24,000. Rental expense charged to
operations under all operating lease agreements was $45,529, $46,910 and $25,265
for the periods ended December 31, 1999, 1998 and 1997, respectively.
10. REGULATION AND REGULATORY RESTRICTIONS
The Bank is regulated by the Federal Deposit Insurance Corporation ("FDIC")
and the North Carolina State Banking Commission.
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification also are
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 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 average
assets (as defined). As of December 31, 1999, the most recent regulatory
notifications categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. Management believes, as of December 31,
1999 and 1998, that the Bank meets all capital adequacy requirements to which it
is subject. To be categorized as adequately capitalized under the regulatory
framework for prompt corrective action, the Bank must monitor the minimum
capital ratios as set forth in the table below.
8
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the
table (dollar amounts in thousands):
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Promp Corrective
Actual Adequacy Purposes Action Provisions
-------------------- --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets) $5,580 17.13% $2,605 8.00% $3,256 10.00%
Tier I Capital (to Risk Weighted Assets) $5,171 15.88% $1,303 4.00% $1,954 6.00%
Tier I Capital (to Average Assets) $5,171 12.63% $1,638 4.00% $2,078 5.00%
</TABLE>
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Promp Corrective
Actual Adequacy Purposes Action Provisions
-------------------- --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk Weighted Assets) $5,257 31.60% $1,331 8.0% $ 1,664 10.0%
Tier I Capital (to Risk Weighted Assets) $5,049 30.35% $ 665 4.0% $ 998 6.0%
Tier I Capital (to Average Assets) $5,049 25.25% $ 800 4.0% $ 1,000 5.0%
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Bank has various financial instruments (outstanding commitments) with
off-balance sheet risk that are issued 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. Commitments to
extend credit are legally binding agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts outstanding do not necessarily represent future cash
requirements. Standby letters of credit represent conditional commitments issued
by the Bank to assure the performance of a customer to a third party. The unused
portion of commitments to extend credit at December 31, 1999 and 1998 was
$5,536,642 and $2,583,000, respectively.
The Bank's exposure to credit loss for commitments to extend credit and
standby letters of credit is the contractual amount of those financial
instruments. The Bank uses the same credit policies for making commitments and
issuing standby letters of credit as it does for on-balance sheet financial
instruments. Each customer's creditworthiness is evaluated on an individual
case-by-case basis. The amount and type of collateral, if deemed necessary by
management, is based upon this evaluation of creditworthiness. Collateral held
varies, but may include marketable securities, deposits, property, plant and
equipment, investment assets, inventories and accounts receivable. Management
does not anticipate any significant losses as a result of these financial
instruments.
In the normal course of its operations, the Bank from time to time is party
to various legal proceedings. Based upon information currently available, and
after consultation with its legal counsel, management believes that such legal
proceedings, in the aggregate, will not have a material adverse effect on the
Bank's business, financial position or results of operations.
9
<PAGE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1999. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1999 1998
-------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 4,005 $ 4,005 $ 3,546 $ 3,546
Marketable securities 2,502 2,502 2,085 2,085
Federal Home Loan Bank stock 58 58 - -
Loans 34,461 34,463 14,023 13,840
Liabilities:
Demand deposits 19,142 19,142 8,989 8,989
Time deposits 18,779 18,793 7,458 7,475
Off-Balance-Sheet-commitments to
extend credit - 5,537 - 2,583
</TABLE>
13. EMPLOYEE BENEFIT PLAN
The Bank sponsors a defined contribution 401(k) plan, which allows those
employees who have attained the age of 21 years and worked 1,000 hours to elect
to contribute a portion of their salary to the plan in accordance with the
provisions and limits set forth in the plan document. The plan was established
in March 1999. The Bank makes discretionary matching contributions in an amount
determined each plan year to each participant who makes 401(k) savings
contributions during the year. The Bank may also make a discretionary
profit-sharing contribution for a plan year to those participants employed
during the year. The Bank's contribution expense to the plan was $10,000 for the
year ended December 31, 1999.
14. SUBSEQUENT EVENT
In January 2000, the Bank signed a nonbinding letter of intent to purchase
100% of the voting equity of an insurance agency. The Bank is currently
negotiating the terms of the transaction but a definitive agreement has not been
reached.
10
<PAGE>
Weststar Financial Services Corporation & Subsidiary
----------------------------------------------------
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------- --------------------
ASSETS:
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks $ 6,496,704 $ 1,892,403
Interest-bearing deposits 5,075 2,784
Federal funds sold 2,210,000 2,110,000
------------------- --------------------
Total cash and cash equivalents 8,711,779 4,005,187
------------------- --------------------
Investment securities -
Available for sale, at fair value (amortized cost of
$2,011,824 and $2,508,339, respectively) 2,008,293 2,502,411
------------------- --------------------
Loans 47,607,223 34,460,724
Allowance for loan losses (686,008) (528,808)
------------------- --------------------
Net loans 46,921,215 33,931,916
Premises and equipment, net 2,357,299 2,455,507
Accrued interest receivable 366,927 220,151
Federal Home Loan Bank stock, at cost 145,600 58,100
Deferred income taxes 606,452 133,688
Other assets 104,282 61,137
------------------- --------------------
TOTAL $ 61,221,847 $ 43,368,097
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 9,059,033 $ 4,780,881
NOW accounts 9,258,522 3,154,225
Money market accounts 12,927,842 10,623,376
Savings 913,150 583,797
Time deposits of $100,000 or more 5,506,095 5,620,684
Other time deposits 17,366,145 13,158,017
------------------- --------------------
Total deposits 55,030,787 37,920,980
Accrued interest payable 187,609 159,1499
Other liabilities 151,888 119,569
-------------------
--------------------
Total liabilities 55,370,284 38,199,698
------------------- --------------------
SHAREHOLDERS' EQUITY:
Preferred stock; authorized $1,000,000; issued and outstanding - none - -
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 (909,204) (1,590,896)
Accumulated other comprehensive loss (2,167) (3,639)
------------------- --------------------
Total shareholders' equity 5,851,563 5,168,399
------------------- --------------------
TOTAL $ 61,221,847 $ 43,368,097
=================== ====================
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
Weststar Financial Services Corporation & Subsidiary
-----------------------------------------------------------------
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---------------- --------------- --------------- ----------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 1,148,316 $ 533,178 $ 2,081,502 $ 939,246
Federal funds sold 13,336 56,946 40,782 98,067
Interest-bearing deposits with other banks 62 5 116 1,158
Investments:
U.S Treasuries 10,372 8,805 20,674 15,500
U.S. Government agencies 22,343 22,719 46,457 41,471
Other 1,212 525 2,347 525
---------------- --------------- --------------- ----------------
Total interest income 1,195,641 622,178 2,191,878 1,095,967
---------------- --------------- --------------- ----------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 84,353 37,984 166,996 76,895
Other time and savings deposits 371,508 226,746 699,343 394,350
Federal funds purchased 3,327 - 3,327 -
Other interest expense - - 41 -
---------------- --------------- --------------- ----------------
Total interest expense 459,188 264,730 869,707 471,245
---------------- --------------- --------------- ----------------
NET INTEREST INCOME 736,453 357,448 1,322,171 624,722
PROVISION FOR LOAN LOSSES 100,000 129,825 157,200 204,285
---------------- --------------- --------------- ----------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 636,453 227,623 1,164,971 420,437
---------------- --------------- --------------- ----------------
OTHER INCOME:
Service charges on deposit accounts 79,016 75,821 169,042 114,545
Other service fees and commissions 31,490 23,836 56,760 38,193
Other 3,404 2,240 7,183 4,221
---------------- --------------- --------------- ----------------
Total other income 113,910 101,897 232,985 156,959
---------------- --------------- --------------- ----------------
OTHER EXPENSES:
Salaries and wages 251,107 226,465 515,538 428,168
Employee benefits 49,618 18,818 78,816 38,431
Occupancy expense, net 34,515 18,321 63,053 36,915
Equipment rentals, depreciation and
Maintenance 56,025 44,496 113,521 92,891
Other 202,643 147,697 419,012 307,620
---------------- --------------- --------------- ----------------
Total other expenses 593,908 455,797 1,189,940 904,025
---------------- --------------- --------------- ----------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE AND INCOME TAXES 156,455 (126,277) 208,016 (326,629)
INCOME TAX PROVISION (BENEFIT) 56,936 - (473,676) -
---------------- --------------- --------------- ----------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE 99,519 (126,277) 681,692 (326,629)
---------------- --------------- --------------- ----------------
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX
BENEFIT OF $44,877 - - - (71,326)
---------------- --------------- --------------- ----------------
NET INCOME (LOSS) $ 9,519 $ (126,277) $ 681,692 $ (397,955)
================ =============== =============== ================
PER SHARE AMOUNTS:
Basic and diluted income (loss) before cumulative
Effect of a change in accounting principle $ 0.16 $ (0.21) $ 1.08 $ (0.54)
Cumulative effect of a change in accounting
Principle - - - (.12)
---------------- --------------- --------------- ----------------
Basic and diluted net income (loss) $ 0.16 $ (0.21) $ 1.08 $ (0.66)
================ =============== =============== ================
</TABLE>
See notes to consolidated financial statements
12
<PAGE>
WESTSTAR FINANCIAL SERVICES CORPORATION
---------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET INCOME/(LOSS) $ 99,519 $ (126,277) $ 681,692 $ (397,955)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) on securities
available for sale, net of income taxes 1,272 (2,210) 1,472 (3,676)
---------------- ----------------- -------------- ----------------
COMPREHENSIVE INCOME (LOSS) $ 100,791 $ (128,487) $ 683,164 $ (401,631)
================ ================= ============== ================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
WESTSTAR FINANCIAL SERVICES CORPORATION & SUBSIDIARY
----------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2000 and 1999(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, 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 1,472 1,472
Net income 681,692 681,692
-----------------------------------------------------------------------------------------
Balance June 30, 2000 633,298 $633,298 $6,129,636 $ (909,204) $ (2,167) $ 5,851,563
=========================================================================================
</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, 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 (3,676) (3,676)
Issuance of common stock 10 10 100 110
Net loss (397,955) (397,955)
-----------------------------------------------------------------------------------------
Balance June 30, 1999 607,567 $607,567 $5,898,057 $(1,739,198) $ (5,372) $4,761,054
=========================================================================================
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
Weststar Financial Services Corporation & Subsidiary
Consolidated Statements of Cash Flows (unaudited)
For the Six Months Ended June 30,
<TABLE>
<CAPTION>
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income/(loss) $ 681,692 $ (397,955)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 114,123 82,435
Provision for loan loss 157,200 204,285
Premium amortization and discount accretion, net (14,500) (33,944)
Cumulative effect of a change in accounting principle - 71,326
Increase in accrued interest receivable (146,776) (70,240)
Increase in accrued interest payable 28,460 40,836
Increase in other assets (43,159) (31,223)
Deferred income taxes (473,676) -
Increase (decrease) in other liabilities 32,319 (108,574)
----------------- -------------------
Net cash provided (used) by operating activities 335,683 (243,054)
----------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock (87,500) -
Purchases of securities available for sale (1,509,984) (2,509,711)
Maturities of securities available for sale 2,021,000 1,500,000
Net increase in loans (13,146,499) (11,338,691)
Additions to premises and equipment (15,915) (378,629)
Issuance of common stock - 110
----------------- -------------------
Net cash used in investing activities (12,738,898) (12,726,921)
----------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts, and savings accounts 13,016,268 9,919,566
Net increase in certificates of deposits 4,093,539 2,561,835
----------------- -------------------
Net cash provided by financing activities 17,109,807 12,481,401
----------------- -------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,706,592 (488,574)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,005,187 3,545,714
----------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,711,779 $ 3,057,140
================= ===================
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 841,247 $ 430,409
Income taxes - -
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
WESTSTAR FINANCIAL SERVICES CORPORTION
NOTES TO 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 June 30, 2000 and December 31, 1999, and the
consolidated results of their operations and their cash flows for the three
and six month periods ended June 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 June 30, 2000 and December 31, 1999 classified by type are as
follows:
June 30, December 31,
2000 1999
Real Estate:
Construction $ 8,853,209 $ 7,152,238
Mortgage 24,199,749 16,963,594
Commercial, financial and agricultural 13,831,650 9,926,255
Consumer 922,609 562,765
Subtotal 47,807,217 34,604,852
Net deferred loan origination fees (199,994) (144,128)
------------- -------------
Total $ 47,607,223 $ 34,460,724
============= =============
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 $9,800,142 and $5,536,642 at June 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 607,567 for the
quarters ended June 30, 2000 and 1999, respectively and 633,298 and 607,566
for the six month periods ended June 30, 2000 and 1999, respectively. There
were no potentially dilutive securities during the three and six month
periods ended June 30, 2000.
6. The Company's capital at June 30, 2000 and December 31, 1999 to risk
weighted assets totaled 14.42% and 21.09%, 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 June 30, 2000 and December 31,
1999, the Company's capital exceeded the current capital requirements.
<PAGE>
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. However, the SEC
has recently indicated that it intends to issue further guidance with
respect to adoption of specific issues addressed by SAB 101. Until such
time as this additional guidance is issued, the Company is unable to assess
the impact, if any, it may have on the Company's financial statements and
current disclosures.
<PAGE>
For Company Use (Do Not Fill In) Paid with Subscription $ ________
No. of Shares Requested ___________ Refund (if any) $ __________
No. of Shares Accepted ___________ Balance Due $ __________
SUBSCRIPTION OFFER
Weststar Financial Services Corporation
Asheville, North Carolina
The undersigned, having received and reviewed the Prospectus dated ______, 2000,
of Weststar Financial Services Corporation (the "Company"), a bank holding
company organized under the laws of the State of North Carolina, and in sole
reliance on the information contained therein, hereby subscribes for
_______________________________ shares of the Common Stock (par value $1.00 per
share) of the Company at a price of $____ per share. The minimum subscription is
____ shares and the maximum is __% of the aggregate shares subscribed in the
Offering, unless such maximum number is waived by the Board of Directors.
The subscription is paid herewith, in United States dollars either by check,
draft or money order drawn to the order of "Weststar Financial Services
Corporation Escrow Account."
Mail subscriptions and payment to:
Weststar Financial Services Corporation
Attention: Escrow Agent
79 Woodfin Place
Asheville, North Carolina 28801-2426
In connection with this subscription, the undersigned acknowledges and agrees
that:
1. This Subscription Offer may not be canceled, terminated or revoked by
the undersigned before December 31, 2000, unless extended by the Company until
February 28, 2001.
2. The Company reserves the right to accept this Subscription Offer for a
lesser number of shares than the number noted above, or to reject it altogether,
for any reason or no reason, whether or not the subscriptions of other
subscribers are treated differently. Subscriptions may be accepted at any time.
The Company also reserves the right to cancel accepted Subscription Offers for
any reason or no reason until the date the shares purchased through this
Offering are issued. Acceptances must be in writing and are legally effective
and binding when mailed to the address shown on this Subscription Offer, or in
the case of a subscriber whose address has changed and who has provided the new
address to the Company in writing, to the new address. If the subscription is
accepted in part, the undersigned agrees to purchase the accepted number of
shares subject to the terms of this Subscription Offer. A refund, with no
interest or income thereon, will be made of all amounts received for
subscriptions not accepted. This subscription is nonassignable and
nontransferable, except with the written consent of the Company.
3. All funds paid under this Subscription Offer will be held in the Escrow
Account as provided in the Prospectus with ______________, __________, North
Carolina ("_______") and will be forwarded directly to _____ by 12:00 noon of
the next business day after receipt. If by December 31, 2000 (unless extended to
February 28, 2001), the Company has not received subscriptions for at least
117,600 shares of its Common Stock, a refund of the funds paid under this
Subscription Offer, without interest or income thereon, will be returned to the
subscribers. (See " METHOD OF SUBSCRIPTION/ PLAN OF DISTRIBUTION" in the
Prospectus.)
1
<PAGE>
4. All terms of the Prospectus of the Company dated _________, 2000 are
incorporated herein by reference. The undersigned has read the Prospectus and
understood it, or has had it explained to him/her by his/her legal
representative, and acknowledges the terms and conditions under which this
Offering is made as more fully set forth in such Prospectus. In making a
decision to purchase shares, the undersigned is relying solely upon the
representations contained in the Prospectus, and confirms by his/her signature
below that this Subscription Offer is made in accordance therewith.
5. The undersigned will not purchase or otherwise acquire, directly or
indirectly, a beneficial interest in more than 5% of the aggregate shares to be
outstanding after the Offering unless such limit is waived by the Board of
Directors.
6. SUBSTITUTE FORM W-9: Under penalties of perjury, I certify that (1) the
Social Security Number or Taxpayer Identification Number given below is correct;
and (2) I am not subject to backup withholding. (INSTRUCTION: YOU MUST CROSS OUT
ITEM (2) DIRECTLY ABOVE IF YOU HAVE BEEN NOTIFIED BY THE INTERNAL REVENUE
SERVICE THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDER-REPORTING
INTEREST OR DIVIDENDS ON YOUR TAX RETURN.)
7. By his/her initials below, the subscriber acknowledges and agrees that:
(1) THESE SECURITIES ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER AGENCY OR PERSON AND ARE
SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL; (2) THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, THE FDIC, THE NORTH CAROLINA BANKING COMMISSION, OR ANY OTHER
REGULATORY BODY, NOR HAS ANY REGULATORY BODY PASSED ON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS, AND THAT ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL; AND
(3) SUBSCRIBER HAS RECEIVED AND READ A COPY OF THE PROSPECTUS BEFORE SIGNING
THIS SUBSCRIPTION OFFER.
If this Subscription Offer is being processed through a registered broker-dealer
that by execution hereof such broker-dealer is authorized to transfer sufficient
funds as indicated above from my account with such broker-dealer to ________ as
Escrow Agent.
Instruction: Each subscriber must place initials on the line below to indicate
that he/she has read the above paragraphs.
_________________ _________________
(Subscriber's Initials) (Subscriber's Initials)
Subscriber has signed this Subscription Offer on the date indicated beside
his/her signature below, and hereby requests that certificates evidencing shares
of Common Stock purchased pursuant to this Subscription Offer be registered in
the name and form of ownership described below.
_______________________________________(SEAL) _____________________________
(Signature) (Date)
_______________________________________(SEAL) _____________________________
(Additional Signature, if required) (Date)
Complete all blanks on this Subscription Offer Form and make check or money
order in the amount of $_____ for each share subscribed payable to "Weststar
Financial Services Corporation Escrow Account" and mail subscription and check
to:
2
<PAGE>
Weststar Financial Services Corporation
Attn: Escrow Agent
79 Woodfin Place
Asheville, North Carolina 28801-2426
Any questions concerning subscriptions or the Offering may be directed to the
above address or to (828) 252-1735.
STOCK REGISTRATION INFORMATION
(PLEASE PRINT)
-------------------------------------------------------------------------------
Name(s) in which stock is to be registered
-------------------------------------------------------------------------------
Address (Street or Post Office Box)
-------------------------------------------------------------------------------
City, State, and Zip Code
(---)---------------------------- (---)---------------------------------------
Daytime Phone Evening Phone Taxpayer ID (S.S. Number)
Legal form of ownership:
( ) Individual ( ) Joint Tenants with Right of Survivorship
( ) Tenants in Common ( ) Uniform Transfers to Minors
( ) Other ______________________
3
<PAGE>
[OUTSIDE BACK COVER]
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THOSE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
TABLE OF CONTENTS
Prospectus Summary
Risk Factors 410,000 Shares (Maximum)
Forward Looking Statements 117,600 Shares (Minimum)
Use of Proceeds
Market for Common Stock and Related
Shareholder matters [LOGO]
Dividend Policy
Capitalization WESTSTAR FINANCIAL
Management's Discussion and Analysis of SERVICES CORPORATION
Financial Condition and Results of Operations
Business COMMON STOCK
Management
Certain Relationships and Related Transactions
Supervision and Regulation
Description of Capital Stock PROSPECTUS
Method of Subscription/Plan of Distribution
Legal Opinions
Experts ___________, 2000
Index to Financial Statements
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-50 through 55-8-58 of the North Carolina General Statutes permit a
corporation to indemnify its directors, officers, employees or agents under
either or both a statutory or nonstatutory scheme of indemnification. Under the
statutory scheme, a corporation may, with certain exceptions, indemnify a
director, officer, employee or agent of the corporation who was, is, or is
threatened to be made, a party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, because of the fact that such person was a director, officer,
agent or employee of the corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (a) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (b) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of directors,
a committee of directors, special legal counsel or the shareholders in
accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
in connection with a proceeding in which a director was adjudged liable on the
basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification described above
under the statutory scheme, Section 55-8-57 of the North Carolina General
Statutes permits a corporation to indemnify or agree to indemnify any of its
directors, officers, employees or agents against liability and expenses
(including attorney's fees) in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation. The
Bylaws of Weststar provide for indemnification to the fullest extent permitted
under North Carolina law for persons who serve as directors or officers of
Weststar, or at the request of Weststar serve as an officer, director, agent,
partner, trustee, administrator or employee for any other foreign or domestic
entity, except to the extent such activities were at the time taken known or
believed by the potential indemnities to be clearly in conflict with the best
interests of Weststar. Accordingly, Weststar may indemnify its directors,
officers or employees in accordance with either the statutory or non-statutory
standards.
<PAGE>
Sections 55-8-52 and 55-8-56 of the North Carolina General Statutes require a
corporation, unless its articles of incorporation provide otherwise, to
indemnify a director or officer who has been wholly successful, on the merits or
otherwise, in the defense of any proceeding to which such director or officer
was a party. Unless prohibited by the articles of incorporation, a director or
officer also may make application and obtain court-ordered indemnification if
the court determines that such director or officer is fairly and reasonably
entitled to such indemnification as provided in Sections 55-8-54 and 55-8-56.
Finally, Section 55-8-57 of the North Carolina General Statutes provides that a
corporation may purchase and maintain insurance on behalf of an individual who
is or was a director, officer, employee or agent of the corporation against
certain liabilities incurred by such persons, whether or not the corporation is
otherwise authorized by the NCBCA to indemnify such party. Weststar has
purchased a standard directors' and officers liability policy which will,
subject to certain limitations, indemnify Weststar and its officers and
directors for damages they become legally obligated to pay as a result of any
negligent act, error, or omission committed by directors or officers while
acting in their capacity as such. Weststar may also purchase such a policy.
As permitted by North Carolina law, Article 5 of Weststar's Articles of
Incorporation limits the personal liability of directors for monetary damages
for breaches of duty as a director arising out of any legal action whether by or
in the right of Weststar or otherwise, provided that such limitation will not
apply to (i) acts or omissions that the director at the time of such breach knew
or believed were clearly in conflict with the best interests of Weststar, (ii)
any liability under Section 55-8-33 of the General Statutes of North Carolina,
or (iii) any transaction from which the director derived an improper personal
benefit (which does not include a director's reasonable compensation or other
reasonable incidental benefit for or on account of his service as a director,
officer, employee, independent contractor, attorney, or consultant of Weststar).
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration Fee $ 920
NASD Fee 4,600
Sales Agent Commission (1) 50,000
Printing and Engraving Expenses (1) 8,000
Legal Fees and Expenses 50,000
Accounting Fees and Expenses (1) 15,000
Blue Sky Fees and Expenses (1) 1,500
Miscellaneous 2,500
--------
Total $132,520
(1) Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Weststar has sold no unregistered securities since it was chartered on February
8, 2000.
<PAGE>
ITEM 27. INDEX TO EXHIBITS.
The following exhibits are filed with this Registration Statement:
Exhibit
Number Description
------- -----------
1.1 Sales Agency Agreement (to be filed by amendment)
1.2 Selected Dealer Agreement (to be filed by amendment)
1.3 Escrow Agreement (to be filed by amendment)
3.1 Articles of Incorporation of Weststar Financial Services
Corporation *
3.2 Bylaws of Weststar Financial Services Corporation *
4 Specimen Common Stock Certificate *
5 Opinion of Gaeta & Glesener, P.A. regarding the legality of the
securities being registered
10.1 Employment Agreement of G. Gordon Greenwood dated February 9, 2000*
10.2 Employment Agreement of Randall C. Hall dated March 20, 1998*
10.3 401(k) Savings Plan of The Bank of Asheville *
21 Subsidiaries of Weststar Financial Services Corporation
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Gaeta & Glesener, P.A. (contained in Exhibit 5 hereto)
24 Power of Attorney
27 Financial Data Schedule
* Incorporated by reference to the Registration Statement of Weststar
Financial Services Corporation on Form S-4, Registration No. 333-30200 as
filed with the Securities and Exchange Commission on February 11, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Asheville, State of North
Carolina, on _______, 2000.
WESTSTAR FINANCIAL SERVICES CORPORATION
By: /s/ G. Gordon Greenwood
-----------------------
G. Gordon Greenwood
President and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below on _____, 2000 by the following persons in the
capacities indicated.
/s/ G. Gordon Greenwood
-----------------------
G. Gordon Greenwood
President and Chief Executive Officer
/s/ Randall C. Hall
-------------------
Randall C. Hall
Executive Vice President
/s/ William E. Anderson*
------------------------
William E. Anderson
Director
/s/ Max O. Cogburn, Sr.*
------------------------
Max O. Cogburn, Sr.
Director
/s/ M. David Cogburn, Jr., M.D.*
--------------------------------
M. David Cogburn, Jr., M.D.
Director
/s/ Darryl J. Hart*
-------------------
Darryl J. Hart
Director
/s/ Carol L. King*
------------------
Carol L. King
Director
/s/ Stephen L. Pignatiello*
---------------------------
Stephen L. Pignatiello
Director
/s/ Kent W. Salisbury, M.D.*
----------------------------
Kent W. Salisbury, M.D.
Director
/s/ Laura A. Webb*
------------------
Laura A. Webb
Director
/s/ David N. Wilcox*
--------------------
David N. Wilcox
Director
* /s/ G. Gordon Greenwood
-----------------------
By G. Gordon Greenwood
Attorney-in-Fact
