U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
[_] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended ________________
Commission File Number 0-26551
--------------
CATAWBA VALLEY BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-2137427
- ----------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1039 SECOND STREET NE, HICKORY, NC 28601
- --------------------------------------------------------------------------------
(Address of principal executive office)
(828) 431-2300
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _____
-----
As of June 30, 2001, 1,644,886 shares of the issuer's common stock, $1.00 par
value, were outstanding.
This report contains 11 pages.
-1-
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
June 30, 2001 and December 31, 2000.................................................. 3
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2001 and 2000............................. 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and 2000.............................................. 5
Notes to Consolidated Financial Statements........................................... 6
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 8
Part II. Other Information
Item 4. Submission of Matters to a vote of shareholders............................. 10
Item 6. Exhibits and Reports on Form 8-K............................................ 10
-2-
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
Catawba Valley Bancshares, Inc. and Subsidiary
Consolidated Statements of Financial Condition
================================================================================
June 30,
2001 December 31,
ASSETS (Unaudited) 2000*
------------ ------------
Cash and due from banks $ 1,285,363 $ 1,464,535
Interest-bearing deposits with banks 6,448,496 2,527,781
Federal funds sold 1,983,875 1,711,825
Time deposits in banks 296,978 593,978
Securities available for sale 35,585,970 32,010,857
Loans 120,709,759 112,719,740
Allowance for loan losses (1,823,859) (1,653,831)
------------ ------------
NET LOANS 118,885,900 111,065,909
Federal Home Loan Bank stock 750,000 500,000
Bank premises and equipment 3,817,661 3,393,934
Other assets 2,387,283 2,383,265
------------ ------------
TOTAL ASSETS $171,441,526 $155,652,084
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest-bearing demand $ 9,493,191 $ 8,928,234
Money market and NOW accounts 40,072,265 38,365,504
Savings 2,652,984 2,030,698
Time, $100,000 and over 30,181,541 28,678,481
Other time 58,623,640 52,139,751
------------ ------------
TOTAL DEPOSITS 141,023,621 130,142,668
Borrowings 12,000,000 8,000,000
Accrued expenses and other liabilities 335,114 529,361
------------ ------------
TOTAL LIABILITIES 153,358,735 138,672,029
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized; none issued - -
Common stock, $1 par value, 9,000,000 shares
authorized, 1,644,886 and 1,495,351 shares issued
and outstanding in 2001 and 2000, respectively 1,644,886 1,495,351
Additional paid-in capital 15,416,661 13,602,333
Retained earnings 505,841 1,661,234
Accumulated other comprehensive income 515,403 221,137
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,082,791 16,980,055
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $171,441,526 $155,652,084
============ ============
* Derived from audited financial statements
See accompanying notes.
-3-
Catawba Valley Bancshares, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
INTEREST INCOME
Loans $2,570,110 $2,423,562 $5,224,405 $4,479,647
Investment securities 619,772 373,937 1,156,483 697,596
Federal funds sold 23,781 20,531 48,991 31,995
Time deposits 5,200 22,282 12,394 45,518
Interest-bearing deposits with banks 51,773 61,271 108,720 106,632
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 3,270,636 2,901,583 6,550,993 5,361,388
---------- ---------- ---------- ----------
INTEREST EXPENSE
Time deposits, $100,000 and over 441,084 348,538 909,344 630,142
Other deposits 1,201,569 1,043,950 2,451,423 1,992,520
Borrowings 197,826 115,176 400,426 193,032
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 1,840,479 1,507,664 3,761,193 2,815,694
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,430,157 1,393,919 2,789,800 2,545,694
PROVISION FOR LOAN LOSSES 100,000 135,000 225,000 221,972
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,330,157 1,258,919 2,564,800 2,323,722
---------- ---------- ---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts 193,821 115,591 391,763 208,769
Other 309,743 77,465 575,421 196,572
---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME 503,564 193,056 967,184 405,341
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE
Compensation and employee benefits 621,571 424,086 1,140,759 825,290
Occupancy and equipment 115,344 112,624 242,320 237,805
Professional fees 54,063 27,266 115,653 53,101
Stationery, printing and supplies 31,774 7,907 61,917 32,587
Advertising and business promotion 69,995 47,678 106,554 81,475
Data processing 102,889 83,279 204,636 168,835
Other 141,529 147,328 297,509 243,071
---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE 1,137,165 850,168 2,169,348 1,642,164
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 696,556 601,807 1,362,636 1,086,899
INCOME TAXES 232,058 210,153 455,473 380,998
---------- ---------- ---------- ==========
NET INCOME $ 464,498 $ 391,654 $ 907,163 $ 705,901
========== ========== ========== ==========
NET INCOME PER COMMON SHARE
Basic $ 0.28 $ 0.24 $ 0.55 $ 0.43
========== ========== ========== ==========
Diluted $ 0.28 $ 0.23 $ 0.53 $ 0.41
========== ========== ========== ==========
DIVIDEND PER COMMON SHARE $ - $ - $ .06 $ .06
========== ========== ========== ==========
See accompanying notes.
-4-
Catawba Valley Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
________________________________________________________________________________
Six Months Ended
June 30,
----------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 907,163 $ 705,901
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 123,398 117,729
Provision for loan losses 225,000 221,972
Deferred income taxes 151,978 (15,906)
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable 83,049 (209,531)
(Increase) decrease in other assets (231,009) 734,671
Increase (decrease) in accrued expenses and other liabilities (194,247) 19,309
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,065,332 1,574,145
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in time deposits with other financial institutions 297,000 891,000
Purchase of securities available for sale (9,934,375) (9,330,415)
Purchase of securities held to maturity - (304,122)
Purchase of Federal Home Loan Bank stock (250,000) (129,000)
Collections and maturities of securities available for sale 6,805,120 416,777
Collections and maturities of securities held to maturity - 64,888
Net increase in loans (8,204,559) (14,639,064)
Proceeds from sale of foreclosed real estate - 547,490
Purchase of premises and equipment (547,185) (283,975)
------------ ------------
NET CASH USED BY
INVESTING ACTIVITIES (11,833,999) (22,766,421)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 10,880,953 17,852,740
Proceeds from borrowings 4,000,000 3,000,000
Cash dividends paid (98,693) (89,721)
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 14,782,260 20,763,019
------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 4,013,593 (429,257)
CASH AND CASH EQUIVALENTS, BEGINNING 5,704,141 9,737,595
------------ ------------
CASH AND CASH
EQUIVALENTS, ENDING $ 9,717,734 $ 9,308,338
============ ============
-5-
Catawba Valley Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
________________________________________________________________________________
NOTE A - BASIS OF PRESENTATION
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of and for the three and
six month periods ended June 30, 2001 and 2000, in conformity with generally
accepted accounting principles. The financial statements include the accounts of
Catawba Valley Bancshares, Inc. (the "Company") and its wholly-owned subsidiary,
Catawba Valley Bank. Operating results for the three and six month periods ended
June 30, 2001 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2001.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the consolidated
financial statements filed as part of the Company's 2000 annual report on Form
10-KSB. This quarterly report should be read in conjunction with such annual
report.
NOTE B - NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. In accordance with generally accepted accounting principles, employee
stock ownership plan shares are only considered outstanding for the basic
earnings per share calculations when they are earned or committed to be
released. The weighted average number of shares outstanding or assumed to be
outstanding are summarized below:
Three months ended Six months ended
June 30, June 30,
---------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Weighted average number of common
shares used in computing basic net
income per share 1,644,886 1,644,886 1,644,886 1,644,886
Effect of dilutive stock options 34,143 83,557 60,815 80,481
--------- --------- --------- ---------
Weighted average number of common
shares and dilutive potential common
shares used in computing diluted net
income per share 1,679,029 1,728,443 1,705,701 1,725,367
========= ========= ========= =========
NOTE C - COMPREHENSIVE INCOME
For the three months ended June 30, 2001 and 2000, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $366,653 and $439,059, respectively.
For the six months ended June 30, 2001 and 2000, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $1,201,429 and $736,777, respectively.
-6-
NOTE D - OTHER SIGNIFICANT EVENTS
On June 29, 2001, the Company and First Gaston Bank of North Carolina, Gastonia,
North Carolina ("First Gaston") signed an Agreement and Plan of Share Exchange
(the "Agreement") whereby shareholders of First Gaston will exchange their share
of common stock for the Company's common stock on a basis of 0.8934 shares of
the Company for each share of First Gaston. At the conclusion of the
combination, First Gaston will become the wholly-owned subsidiary of the
Company. The Company currently is the bank holding company for Catawba Valley
Bank. Under the Agreement, First Gaston has agreed to cause a special meeting of
shareholders to be called to vote on the Agreement and the share exchange
contemplated therein. The Company will also hold a special meeting of
shareholders to vote on the share exchange, the renaming of the Company to
"United Community Banks, Inc.," and reducing the minimum number of directors
under its bylaws from (9) to eight (8). The transaction is subject to approval
of the Federal Reserve Board. The Company anticipates closing the transaction on
December 31, 2001.
-7-
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
This Quarterly Report on Form 10-QSB may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
Comparison of Financial Condition at June 30, 2001 and December 31, 2000
During the six months ended June 30, 2001, total assets increased $15.8 million
or 10.1% from $155.6 million to $171.4 million. Total loans outstanding
increased $8.0 million or 7.1% for the same period. The growth in these areas
was funded by a $10.9 million or 8.4% increase in deposits, and a $4.0 million
increase in borrowings.
The Bank operates four full service branches and actively solicits loans and
deposits. The Bank also operates a mortgage center.
Total stockholders' equity increased $1.1 million for the six month period ended
June 30, 2001. The increase resulted principally from net income of $907,163 for
the six months. At June 30, 2001, the Bank continued to exceed all applicable
regulatory capital requirements.
Comparison of Results of Operations for the Three Months Ended June 30, 2001 and
2000
Net Income. Net income for the quarter ended June 30, 2001 was $464,498 or $.28
per share, as compared with net income of $391,654 or $.24 per share for the
three months ended June 30, 2000, an increase of $72,844 or $.04 per share. An
increase in net interest income for the quarter ended June 30, 2001 of $36,238
and an increase in non-interest income of $310,508 was offset by an increase in
non-interest expense of $286,997.
Net Interest Income. Net interest income for the quarter ended June 30, 2001 was
$1,430,157 as compared with $1,393,919 during the quarter ended June 30, 2000 an
increase of $36,238, that resulted principally from an increased level of
interest earning assets during the quarter. Average interest earning assets were
approximately $36.8 million higher during the quarter ended June 30, 2001 as
compared with the quarter ended June 30, 2000.
Provision for Loan Losses. The provision for loan losses was $100,000 and
$135,000 for the quarters ended June 30, 2001 and 2000, respectively. There were
net loan charge offs of $21,987 during the quarter ended June 30, 2001 as
compared with net charge offs of $12,000 during the quarter ended June 30, 2000.
At June 30, 2001, non-accrual loans aggregated $129,427.
Non-Interest Income. Non-interest income was $503,564 for the quarter ended June
30, 2001 compared to $193,056 for the quarter ended June 30, 2000, an increase
of $310,508. This increase resulted principally from an increase of $78,230 in
service charges on deposit accounts and an increase in other non-interest income
of $232,278. This increase was due largely in part to the Bank originating $14.3
million in mortgage loans that passed through to the secondary market and the
fees received from that business.
-8-
Non-Interest Expense. Non-interest expense increased to $1,137,165 during the
quarter ended June 30, 2001 as compared to $850,168 for the quarter ended June
30, 2000, an increase of $286,997. The primary factor contributing to this
increase was an increase of $217,095 in compensation and data processing that
was attributable to the Bank opening its fourth full service branch late in the
first quarter of 2001.
Comparison of Results of Operations for the Six Months Ended June 30, 2001 and
2000.
Net Income. Net income for the six months ended June 30, 2001 was $907,163 or
$.55 per share, as compared with net income of $705,901 or $.43 per share for
the six months ended June 30, 2000, an increase of $201,262 or $.12 per share.
An increase in net interest income of $244,106 and an increase in non-interest
income of $561,843 for the six month period were off set by an increase in non-
interest expense of $527,184.
Net Interest Income. Net interest income was $2.8 million during the six months
ended June 30, 2001 as compared with $2.5 million during the corresponding
period of the previous fiscal year, an increase of $244,106.
Provision for Loan Losses. The provision for the loan losses was $225,000 and
$221,972 for the six months ended June 30, 2001 and 2000, respectively. There
were net loan charge offs of $57,972 for the six months ended June 30, 2001 as
compared with net loan charge offs of $54,000 during the six months ended June
30, 2000. At June 30, 2001, non-accrual loans aggregated $129,427.
Non-Interest Income. Non-interest income was $967,184 for the six months ended
June 30, 2001 as compared to $405,341 for the six months ended June 30, 2000, an
increase of $561,843. This increase resulted principally from an increase of
$182,994 in service charges on deposit accounts and an increase in other non-
interest income of $378,849. The Bank originated $30.5 million in mortgage loans
that passed straight through to the secondary market. The fee income on this
production accounted for much of the increase in non-interest income.
Non-Interest Expense. Non-interest expense increased to $2,169,348 during the
six months ended June 30, 2001 as compared to $1,642,164 for the six months
ended June 30, 2000, an increase of $527,184. The primary factor contributing to
this increase was an increase of $355,785 in compensation, occupancy expense and
data processing expense that was attributable to the Bank opening its fourth
full service branch late in the first quarter of 2001.
Liquidity and Capital Resources
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity
and to fund new loans and investments as opportunities arise.
The primary sources of internally generated funds are principal and interest
payments on loans receivable, cash flows generated from operations and
repayments of mortgage-backed securities. The external source of funds is an
increase in deposits.
At June 30, 2001, liquid assets comprised 32% of total assets. Management
believes that it will have sufficient funds available to meet its anticipated
future loan commitments as well as other liquidity needs.
-9-
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The Annual Meeting of Stockholders was held on April 24, 2001. Of 1,495,351
shares entitled to vote at the meeting, 1,297,131 shares voted. The following
matters were voted on at the meeting:
1. Election of Directors
Hal F. Huffman, Jr., Robert T. King, and William R. Sigmon, Jr. were
all elected to three-year terms with 86.7% of shares voted.
2. Dixon Odom PLLC was ratified to serve as independent auditor for the
year ending December 31, 2001 with 86.7% of the shares voted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
A Form 8-K was filed by the Company on June 5, 2001.
A Second Form 8-K was filed by the Company on July 3, 2001.
-10-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CATAWBA VALLEY BANCSHARES, INC.
Date: July 17, 2001 By: /s/ R. Steve Aaron
---------------------------------------------
R. Steve Aaron
President and Chief Executive Officer
Date: July 17, 2001 By: /s/ G. Marvin Lowder
--------------------------------------------
G. Marvin Lowder
Chief Financial Officer
-11-