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 June 30, 2001
Commission file number- 1-14081
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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 182,499
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Class Outstanding at June 30, 2001
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2001 December 31, 2000
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(UNAUDITED)
ASSETS
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Cash $ 81,953 57,611
Investment in securities available for sale (cost of $2,276,744
at June 30, 2001 and December 31, 2000) 12,709,396 10,957,890
Certificates of deposit 451,712 463,000
Accrued investment income 1,453 1,899
Federal and state income taxes recoverable -- 3,590
Other assets 100 17,911
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Total assets $ 13,244,614 11,501,901
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Liabilities:
Life policy claims reserves 8,541 8,712
Deferred income taxes 4,042,159 3,364,779
Notes payable 899,205 869,205
Accrued interest payable 3,860 5,522
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Total liabilities 4,953,765 4,248,218
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Shareholders' equity:
Common stock, par value $1 per share; authorized 500,000
shares, issued and outstanding 182,499 in 2001 and
183,465 in 2000 182,499 183,465
Retained earnings 1,741,197 1,772,413
Accumulated other comprehensive income 6,367,153 5,297,805
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Total shareholders' equity 8,290,849 7,253,683
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Total liabilities and shareholders' equity $ 13,244,614 11,501,901
=============== =================
See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
Premiums and other revenue:
Life premium $ 54,221 56,124 106,525 114,289
Dividend income 15,047 15,047 28,983 20,233
Interest income 5,863 6,855 12,317 13,141
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75,131 78,026 147,825 147,663
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Benefits and expenses:
Death benefits 20,034 30,883 25,342 36,400
Increase (decrease) in liability for
life policy claims -- 268 (171) (357)
Operating expenses:
Commissions 24,418 25,273 48,972 51,467
Interest 12,577 14,972 26,579 30,621
Professional fees 2,378 12,133 19,553 27,882
Management fees 4,243 4,163 12,506 12,223
General, administrative and other 8,838 6,779 29,091 27,842
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72,488 94,471 161,872 186,078
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Income (loss) before income taxes 2,634 (16,445) (14,047) (38,415)
Income tax expense (benefit) 896 (5,591) (1,186) (13,061)
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Net income (loss) $ 1,738 (10,854) (12,861) (25,354)
============= ============= ============= =============
Net income (loss) per share $ 0.01 (0.06) (0.07) (0.14)
============= ============= ============= =============
Weighted average shares outstanding 182,572 183,465 183,072 183,542
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 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 -- (12,861) -- (12,861)
Net unrealized gains on securities available
for sale, net of income taxes of $682,158 -- -- 1,069,348 1,069,348
-----------------
Comprehensive income 1,056,487
Redemption of 966 shares of common stock (966) (18,355) -- (19,321)
--------------- ---------------- ------------------ -----------------
Balance at June 30, 2001 $ 182,499 1,741,197 6,367,153 8,290,849
=============== ================ ================== =================
See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
2001 2000
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UNAUDITED UNAUDITED
Operating Activities:
Net loss $ (12,861) (25,354)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Decrease in reserve for policy and contract claims (171) (357)
Deferred tax benefit (4,778) --
Decrease (increase) in federal and state income taxes recoverable 3,590 (1,418)
Decrease in accounts receivable 17,811 --
Decrease in accrued investment income 446 1,477
Decrease in accrued interest payable (1,662) (2,066)
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Net cash provided (used) by operating activities 2,375 (27,718)
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Investing activities:
Purchases of certificates of deposit (902,074) (1,251,977)
Maturities of certificates of deposit 913,362 1,298,268
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Net cash provided by investing activities 11,288 46,291
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Financing activities:
Proceeds from issuance of notes payable 30,000 --
Purchases and retirement of common stock (19,321) (579)
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Net cash provided (used) by financing activities 10,679 (579)
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Net increase in cash 24,342 17,994
Cash at beginning of reporting period 57,611 57,026
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Cash at end of reporting period $ 81,953 75,020
=============== ===============
Cash payments for:
Interest $ 28,241 32,685
=============== ===============
Income taxes -- --
=============== ===============
Non-cash investing and financing activities:
Increase (decrease) in unrealized gain on securities available
for sale, net of applicable income taxes of $682,158 and
$825,723 $ 1,069,348 (1,292,435)
=============== ===============
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 six months ended June 30, 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 $1,069,348 and $(1,292,435),
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 June 30, 2001 and 2000, the
Company had $451,712 and $445,000, 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 $12,506 for the six months ending June 30, 2001 and $12,223
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 six months ended June 30, 2001 and
the corresponding period in 2000 is as follows:
2001 2000
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Premiums assumed $ 106,525 114,289
Death benefits assumed 25,171 36,400
Life policy claim reserves assumed 8,541 9,518
Commissions assumed 48,972 51,467
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
$7,111 in commissions to Heritage for the six months ended June 30, 2001 and
$6,793 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 a decrease in consolidated
loss before income taxes of $24,368 during the six-month period ending June 30,
2001compared to the corresponding period in 2000. The decrease was primarily due
to a $11,058 reduction in claims payments, a $4,042 reduction in loan interest
expense and a $8,329 reduction in professional fees. Consolidated net loss
during the period was $12,861 compared to consolidated net loss of $25,354
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,
for the six-months ended June 30, 2001, decreased $7,764 (6.8%) 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, for the six-months
ended June 30, 2001, decreased $10,872 (30.2%) 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
premiums written. Operating expenses, excluding commissions, for the six-months
ended June 30, 2001, decreased by $10,839 (11.0%) for the period reported from
the corresponding period of 2000, primarily due to a decrease in loan interest
of $4,042 (13.2%) and a decrease in professional fees of $8,329, which decreases
were partially offset by an increase in general and administrative expenses of
$1,249 (4.5%).
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 $1,751,506 (16.0%) from December 31, 2000. The increase
in fair values of the Company's investments as of June 30, 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 2.67 at June 30, 2001 and 2.71
at December 31, 2000, which ratio continues to remain constant. Investments in
equity securities had a carrying value at June 30, 2001 and December 31, 2000 of
$12,709,396 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 $4,248,218 at December
31, 2000 to $4,953,765 at June 30, 2001, with the majority of the increase due
to an increase in deferred federal income taxes on the unrealized gains on
investments of $677,380.
CAPITAL RESOURCES. There are no material commitments for capital
expenditures and none are anticipated. At June 30, 2001, Registrant had
outstanding borrowings 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 $1,850,178; 1,725 shares of First Citizens
BancShares, Inc. of North Carolina Class B Common Stock, which have a carrying
value of $175,950; and 10,000 voting common shares of First Citizens
Bancorporation of South Carolina, Inc, which have a carrying value of
$2,820,000. 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
(a) The Annual Meeting of Shareholders of the Company was held on
April 23, 2001.
(b) At the Annual Meeting, the following Directors were elected to
the Board of Directors for a term of one year or until a
successor is duly elected and qualified.
David S. Perry
Hope H. Connell
Edward T. Lucas
(c) Matters voted upon at the Annual Meeting and the number of
shares voted for, against, withheld, abstaining from voting
and broker non-votes were as follows:
(1) Election of three Directors for a term expiring in
2002
FOR AGAINST WITHHELD
David S. Perry 144,790 0 1,222
Hope H. Connell 144,790 0 1,222
E. Thomas Lucas 143,661 0 2,351
(2) Ratification of the appointment of KPMG LLP as independent
public accountants for the Company for 2001:
FOR 144,491
AGAINST 44
ABSTAINING FROM VOTING 1,477
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: August 10, 2001 By: /s/ David S. Perry
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David S. Perry,
President and Principal Financial Officer