U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 12 (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission file number- 1-14081
YADKIN VALLEY COMPANY
(Exact name of registrant as specified in its charter)
North Carolina 56-1249566
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Post Office Box 18747
Raleigh, North Carolina 27619
(address of principal executive offices)
Telephone: (919) 716-2266
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 (g) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 182,645
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Class Outstanding at March 31, 2001
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 2001 December 31, 2000
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(UNAUDITED)
ASSETS
Cash $ 70,946 57,611
Investments in equity securities (cost of $2,276,744
at March 31, 2001 and December 31, 2000) 12,579,768 10,957,890
Certificates of deposit 460,363 463,000
Accrued investment income 4,322 1,899
Federal and state income taxes recoverable - 3,590
Other assets 100 17,911
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Total assets $ 13,115,499 11,501,901
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities :
Life policy claims reserves 8,712 8,712
Deferred income taxes 3,990,683 3,364,779
Notes payable 899,205 869,205
Accrued interest payable 3,925 5,522
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Total liabilities 4,902,525 4,248,218
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Shareholders' equity :
Common stock, par value $1 per share; authorized 500,000
shares, issued and outstanding 182,645 in 2001 and 183,465
In 2000 182,645 183,465
Retained earnings 1,742,227 1,772,413
Accumulated other comprehensive income 6,288,102 5,297,805
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Total shareholders' equity 8,212,974 7,253,683
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Total liabilities and shareholders' equity $ 13,115,499 11,501,901
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See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the For the
three three
months ended Months ended
March 31, 2001 March 31 ,2000
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UNAUDITED UNAUDITED
Premiums and other revenue :
Life premium $ 52,304 58,165
Dividend income 13,936 5,186
Interest income 6,454 6,286
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72,694 69,637
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Benefits and expenses :
Death benefits 5,137 5,517
Decrease in life policy claims reserve - (625)
Operating expenses :
Commissions 24,554 26,194
Interest 14,002 15,649
Professional fees 17,176 15,749
Management fees 8,263 8,060
General, administrative and other 20,253 21,063
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89,385 91,607
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Loss before income taxes (16,691) (21,970)
Income tax benefit (2,085) (7,470)
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Net loss $ (14,606) (14,500)
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See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2001
Accumulated
other Total
Common Retained comprehensive shareholders'
stock earnings income equity
------------------ ---------------- ------------------ -----------------
Balance at December 31, 2000 $ 183,465 1,772,413 5,297,805 7,253,683
Comprehensive income:
Net loss - (14,606) - (14,606)
Net unrealized gains on securities available
for sale, net of income taxes of $631,581 - - 990,297 990,297
-----------------
Comprehensive income 975,691
Redemption of 820 shares of common stock (820) (15,580) - (16,400)
------------------ ---------------- ------------------ -----------------
Balance at March 31, 2001 $ 182,645 1,742,227 6,288,102 8,212,974
================== ================ ================== =================
See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
2001 2000
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UNAUDITED UNAUDITED
Operating activities :
Net loss $ (14,606) (14,500)
Adjustments to reconcile net loss to net Cash provided (used) by operating
activities:
Deferred tax benefit (5,675) -
Decrease (increase) in other assets 17,811 (9,783)
Decrease in reserve for life policy claims - (625)
Decrease (increase) in federal and state income taxes recoverable 3,590 (7,469)
Increase in accrued investment income (2,423) (64)
Increase (decrease) in other liabilities (1,597) 4,149
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Net cash used by operating activities (2,900) (28,292)
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Investing activities :
Purchases of certificates of deposit (450,365) (645,101)
Maturities of certificates of deposit 453,000 645,146
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Net cash provided by investing activities 2,635 45
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Financing activities :
Proceeds from issuance of notes payable 30,000 -
Purchases and retirement of common stock (16,400) (61)
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Net cash provided (used) by financing activities 13,600 (61)
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Net increase (decrease) in cash 13,335 (28,308)
Cash at beginning of reporting period 57,611 57,026
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Cash at end of reporting period $ 70,946 28,718
=============== ================
Cash payments for :
Interest $ 15,599 15,906
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Income taxes - -
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Non-cash investing and financing activities :
Increase (decrease) in unrealized gain on marketable equity
Securities, net of applicable income taxes of $631,581 and
$684,085 $ 990,297 (1,071,172)
=============== ================
See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying consolidated financial statements include the accounts and
operations of Yadkin Valley Company (the "Parent") and its wholly owned
subsidiary Yadkin Valley Life Insurance Company hereinafter collectively
referred to as the Company. Inter-company accounts and transactions have been
eliminated. The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America which, as to the insurance subsidiary, may vary in some respects from
statutory accounting practices, which are prescribed or permitted by the
Insurance Department of the State of Arizona. All adjustments considered
necessary for a fair presentation of the results for the interim periods have
been included (such adjustments are normal and recurring in nature).
The information contained in the footnotes to the Company's consolidated
financial statements, included in the Company's Form 10-KSB, should be
referenced when reading these unaudited interim financial statements. Operating
results for the interim periods presented herein are not necessarily indicative
of the results that may be expected for the year ending December 31, 2001.
For the three months ended March 31, 2001 and 2000, total comprehensive income
(loss) consisting of net income (loss) and unrealized gains (losses) on
securities available for sale, net of taxes was $975,691 and $(1,085,672)
respectively.
Note 2: Related Parties
A director and certain significant shareholders of the Company are also
significant shareholders and, in some cases, directors of First Citizens
BancShares, Inc. ("FCB"), First-Citizens Bank & Trust Company ("FCB&T"), First
Citizens Bancorporation of South Carolina, Inc. ("FCB-SC"), The Heritage Bank
("Heritage"), Southern Bank & Trust Company, Mount Olive, North Carolina
("Southern"), The Fidelity Bank, Fuquay-Varina, North Carolina ("Fidelity"),
Triangle Life Insurance Company ("TLIC"), and American Guaranty Insurance
Company (AGI"). All of these entities are related through common ownership. The
Company holds stock in FCB, FCB-SC and Heritage. At March 31, 2001 and 2000, the
Company had $360,362 and $391,246, respectively, invested in certificates of
deposit in FCB&T.
AGI is a subsidiary of FCB and provides management services to the Company.
Management fees were $8,263 for the three months ending March 31, 2001 and
$8,060 for the corresponding period in 2000.
Yadkin Valley Life provides reinsurance to TLIC, a subsidiary of FCB&T. The
policies reinsured are sold through Southern, Fidelity and Heritage. Amounts
related to business assumed from TLIC for the three months ended March 31, 2001
and the corresponding period in 2000 is as follows:
2001 2000
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Premiums assumed $ 52,304 58,165
Death benefits assumed 5,137 5,517
Life policy claim reserves assumed 8,712 9,250
Commissions assumed 24,554 26,194
An executive officer and director of the Company is also a director of Heritage.
As a part of reinsurance commissions assumed, the Company paid approximately
$3,533 in commissions to Heritage for the three months ended March 31, 2001 and
$3,418 for the corresponding period in 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations. The Company realized an increase in consolidated
loss before income taxes of $5,279 during the period reported compared to the
corresponding period in 2000. The decrease was primarily due to a $8,750
increase in dividend income. Consolidated net loss during the period was $14,606
compared to consolidated net loss of $14,500 during the corresponding period of
2000.
The main source of operating funds for the period reported was from
Yadkin Valley Life Insurance Company's ("Yadkin Valley Life") operation. Revenue
from Yadkin Valley Life's operation continued to decline primarily as a result
of a decrease in sales of credit life insurance by producing banks. Premiums
have decreased $5,861 (10.0%) from the corresponding period in 2000 and
management expects the decline may continue for the remainder of the year. The
premium volume of Yadkin Valley Life does vary from year to year based on the
volume and eligibility of loans for credit life insurance in producing banks.
The primary outflows of the Company's funds are for claim payments,
commission payments and general expenses. Incurred claims decreased $380 (6.9%)
from the corresponding period in 2000. The decrease is not specifically
attributable to any known events as there have been no change in operations,
underwriting or any other procedure. Management believes all claims filed and
paid to be proper and paid according to provisions in the various policies
issued. While the policyholder mortality experience represents the primary
uncertainty of Yadkin Valley Life's operations, claim reserves have proven to be
adequate. The decline in commission payments in 2001 versus 2000 is directly
correlated to the decline in assumed premium written. Operating expenses,
excluding commissions, decreased by $827 (1.4%) for the period reported from the
corresponding period of 2000, primarily due to a decrease in loan interest of
$1,647 (10.5%) and a decrease in general and administrative expenses of $810,
which increases were offset by a $1,427 (9.1%) increase in professional fees.
During 2001, the Company's investment in marketable equity securities
that are accounted for in accordance with SFAS No. 115 experienced an increase
in their fair values of $1,621,878 (14.80%) from December 31, 2000. The increase
in fair values of the Company's investments as of March 31, 2001 is driven by
the fact that the Company's largest individual holding is in a banking
organization (FCB-SC) whose equity securities are not widely traded and thus are
subject to fluctuation. There can be no assurances that the current fair values
will be sustained in future periods and continued fluctuations in the fair
values of these investments in future periods will result in fluctuations of
shareholders' equity.
Liquidity. Management views liquidity as a key financial objective.
Management relies on the operations of Yadkin Valley Life as the principal
source of liquidity. Further, limited borrowings have allowed the Company to
fund asset growth and maintain liquidity. A factor, which could impact the
Company's financial position and liquidity, is a significant increase or
decrease in the market values of the securities held in the investment
portfolio.
Management believes the liquidity of the Company to be adequate as
evidenced by ratios of assets to liabilities of 2.66 at March 31, 2001 and 2.71
at December 31, 2000, which ratio continues to remain constant. Investments in
equity securities had a carrying value at March 31, 2001 and December 31, 2000
of $12,579,768 and $10,957,890 respectively. While management considers these
securities to be readily marketable, the Company's ability to sell a substantial
portion of these investments may be inhibited by the limited trading of most of
these issuances, and may result in the Company realizing substantial losses on
any such sales. Management of the Company believes that Yadkin Valley Life
maintains sufficient other sources of liquidity such that sales of these
investments would not appear necessary for the foreseeable future.
Financial Condition. The increase in total assets from December 31,
2000 was primarily due to an increase in unrealized gains on marketable equity
securities. There were no other material changes in assets during 2001.
During 2001, total liabilities increased from $4,248,2188 at December
31, 2000 to $4,902,525 at March 31, 2001. The increase in deferred federal
income taxes on the unrealized gains on investments was $625,904 while total
liabilities increased $654,307.
Capital Resources. There are no material commitments for capital
expenditures and none are anticipated. At March 31, 2001, Registrant had
outstanding borrowings, which is with an unrelated bank, of $899,205 secured by
18,139 shares of First Citizens BancShares, Inc. of North Carolina Class A
Common Stock, which have a carrying value of $1,859,247; and 1,725 shares of
First Citizens BancShares, Inc. of North Carolina Class B Common Stock, which
have a carrying value of $176,812; and 10,000 voting common shares of First
Citizens Bancorporation of South Carolina, Inc, which have a carrying value of
$2,780,000. Any funds needed to satisfy loan repayments would be derived from
the sale of or repositioning of investments and dividends from Yadkin Valley
Life.
ADOPTION OF CODIFICATION: Codification of statutory accounting
principles ("Codification") became effective for Yadkin Valley Life Insurance
Company for all financial reporting on January 1, 2001 and adoption had no
material impact on the Company's financial statements.
FORWARD-LOOKING STATEMENTS: The foregoing discussion may contain
statements that could be deemed forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and the Private Securities
Litigation Reform Act, which statements are inherently subject to risks and
uncertainties. Forward-looking statements are statements that include
projections, predictions, expectations, or beliefs about future events or
results or otherwise are not statements of historical fact. Such statements are
often characterized by the use of qualifying words (and their derivatives) such
as "expect," "believe," "estimate," "plan," "project," or other statements
concerning opinions or judgment of the Company and its management about future
events. Factors that could influence the accuracy of such forward looking
statements include, but are not limited to, the financial success or changing
strategies of the Company's customers, actions of government regulators, the
level of market interest rates, and general economic conditions.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings involving the company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
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.
YADKIN VALLEY COMPANY
Date: May 10, 2001 By:
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David S. Perry, President and Principal
Financial Officer