EXHIBIT 99
Risk Factors Relating to the Company
We Depend Heavily on Our CEO, James Beck
The Company currently depends heavily on the services of its Chief
Executive Officer, James A. Beck, and a number of other key management
personnel. Even though the Company carries a $2 million key man life insurance
policy on Mr. Beck, the loss of his services or of other key personnel could
affect the Company in a material and adverse way. The Company's success will
also depend in part on its ability to attract and retain additional qualified
management personnel who have experience both in sophisticated banking matters
and in operating a small to mid-size bank. Competition for such personnel is
strong in the banking industry and the Company may not be successful in
attracting or retaining the personnel it requires. The Company attempts to
effectively compete in this area by offering financial packages that include
incentive-based compensation and the opportunity to join in the rewarding work
of building a new bank.
Government Regulations May Prevent or Impair Our Ability to Pay
Dividends, Engage in Acquisitions or Operate in Other Ways
Current and future legislation and the policies established by federal
and state regulatory authorities will affect the Company's operations. The
Company is subject to supervision and periodic examination by the FDIC and the
North Carolina State Banking Commission. Banking regulations, designed primarily
for the protection of depositors, may limit our growth and the return to you,
our investors, by restricting our activities, such as:
o the payment of dividends to our shareholders;
o possible mergers with or acquisitions by other institutions;
o our desired investments;
o loans and interest rates;
o interest rates paid on our deposits;
o the possible expansion of our branch offices; and/or
o our ability to provide securities or trust services.
The Company also is subject to capitalization guidelines set forth in
federal legislation, and could be subject to enforcement actions to the extent
that the Company is found by regulatory examiners to be undercapitalized. The
Company cannot predict what changes, if any, will be made to existing federal
and state legislation and regulations or the effect that such changes may have
on the future business and earnings prospects of the Company. The cost of
compliance with regulatory requirements may adversely affect the Company's
ability to operate profitably.
Technological Advances Impact Our Business
The banking industry is undergoing technological changes with frequent
introductions of new technology-driven products and services. In addition to
improving customer services, 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. Many of our competitors have substantially greater resources
than we do to invest in technological improvements. We may not be able to
effectively implement new technology-driven products and services or
successfully market such products and services to our customers.
Our Trading Volume Has Been Low Compared With Larger Banks
The trading volume in Company's common stock on the Nasdaq SmallCap
Market has been comparable to other similarly-sized banks since trading began in
December 1997. As of April 1, 2002, the Company's common stock will be traded on
the Nasdaq National Market. Nevertheless, this trading is relatively low when
compared with more seasoned companies listed on the Nasdaq SmallCap Market, the
Nasdaq National Market or other stock exchanges. Thus, the market in the
Company's stock is limited in scope relative to other companies. In addition, we
cannot say with any certainty that an active and liquid trading market for the
Company's stock will develop.
Our Results Are Impacted by the Economic Conditions of Our Principal
Operating Regions
Our operations are concentrated in Eastern and Piedmont North
Carolina. As a result of this geographic concentration, our results may
correlate to the economic conditions in these areas. A deterioration in economic
conditions in our market areas, particularly in the industries on which these
areas depend, may adversely affect the quality of our loan portfolio and the
demand for our products and services, and accordingly, our results of
operations.
We Compete With Much Larger Companies for Some of the Same Business
The banking and financial services business in the Company's market
areas is highly competitive and is becoming more competitive as a result
primarily of:
o changes in regulations;
o changes in technology and product delivery systems; and
o the accelerating pace of consolidation among financial services
providers.
We may not be able to compete effectively in our markets, and our
results of operations could be adversely affected by the nature or pace of
change in competition. We compete for loans, deposits and customers with various
bank and nonbank financial services providers, many of which are much larger in
total assets and capitalization, have greater access to capital markets and
offer a broader array of financial services.
We Are Exposed to Risks in Connection with the Loans We Make
A significant source of risk for us arises from the possibility that
losses will be sustained because borrowers, guarantors and related parties may
fail to perform in accordance with the terms of their loans. We have
underwriting and credit monitoring procedures and credit policies, including the
establishment and review of the allowance for loan losses, that we believe are
appropriate to minimize this risk by assessing the likelihood of nonperformance,
tracking loan performance and diversifying our loan portfolio. Such policies and
procedures, however, may not prevent unexpected losses that could adversely
affect our results of operations.
Potential Risks Associated with Acquisitions
We intend to continue to explore expanding a branch system through
selective acquisitions of existing banks or bank branches in major North
Carolina markets. We cannot say with any certainty that we will be able to
consummate, or if consummated, successfully integrate future acquisitions, or
that we will not incur disruptions and unexpected expenses in integrating such
acquisitions. In the ordinary course of business, we evaluate potential
acquisitions that would bolster our ability to cater to the small business,
individual and residential lending markets of Wake, Chatham, Alamance and Lee
Counties, North Carolina. In attempting to make such acquisitions, we anticipate
competing with other financial institutions, many of which have greater
financial and operational resources. In addition, since the consideration for an
acquired bank or branch may involve cash, notes or the issuance of shares of
Common Stock, existing shareholders could experience dilution in the value of
their shares of Common Stock in connection with such acquisitions. Any given
acquisition, if and when consummated, may adversely affect our results of
operations or overall financial condition.
Recent Terrorist Attacks Could Result in a Material Adverse Effect on
the Company's Business
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. In response to these terrorist attacks, the
United States military began a military campaign against Al Qaeda terrorist
training camps and military installations of the Taliban regime in Afghanistan.
The terrorist attacks and the United States military campaign caused and
continue to cause significant instability in the world's financial markets and
may lead to further armed hostilities.
While the short and long term affects of these events and their
potential consequences are uncertain, they could have a material adverse effect
on general economic conditions, consumer confidence and market liquidity. Among
other things, it is possible that interest rates may be affected by these
events. If interest rates increase rapidly, it could cause the Company's
borrowing costs to increase faster than increases in the interest rates it earns
on its loans. If that were to happen, the Company's earnings could be negatively
affected.
In addition, prior to the events of September 11, 2001, unemployment
rates in certain of the Company's market areas were increasing. High
unemployment rates in the Company's market areas could have a negative effect on
its level of deposits. If unemployment rates continue to rise, due to worsening
economic conditions or consumer confidence resulting from the events of
September 11, 2001 and their aftermath, the Company's financial condition and
results of operations could be adversely affected.