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, 2002
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 182,198
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Class Outstanding at June 30, 2002
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2002 December 31, 2001
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(UNAUDITED)
ASSETS
Cash ............................................................... $ 98,950 83,442
Investments in equity securities (cost of $2,276,744
at June 30, 2002 and December 31, 2001) ......................... 15,946,583 12,720,054
Certificates of deposit ............................................ 425,000 474,050
Accrued investment income .......................................... 489 1,027
Other assets ....................................................... 7,941 100
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Total assets ........................................ $16,478,963 13,278,673
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Life policy claims reserves .................................... 8,108 8,228
Deferred income taxes .......................................... 5,316,660 4,041,174
Notes payable .................................................. 899,205 899,205
Accrued interest payable ....................................... 1,930 2,480
Other liabilities .............................................. 4,327 --
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Total liabilities ................................... 6,230,230 4,951,087
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Shareholders' equity:
Common stock, par value $1 per share; authorized 500,000 shares,
issued and outstanding 182,198 shares in 2002 and
182,327 in 2001 ............................................ 182,198 182,327
Retained earnings ............................................... 1,752,970 1,771,747
Accumulated other comprehensive income .......................... 8,313,565 6,373,512
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Total shareholders' equity ......................... 10,248,733 8,327,586
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Total liabilities and shareholders' equity ......... $16,478,963 13,278,673
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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, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
Premiums and other revenue:
Life premium ...................... $ 48,548 $ 54,221 96,716 106,525
Dividend income ................... 13,937 15,047 27,873 28,983
Interest income ................... 1,749 5,863 3,941 12,317
-------- -------- -------- --------
64,234 75,131 128,530 147,825
-------- -------- -------- --------
Benefits and expenses:
Death benefits .................... 8,532 20,034 38,185 25,342
Decrease in liability for
life policy claims ............. -- -- (120) (171)
Operating expenses:
Commissions ....................... 21,888 24,418 43,570 48,972
Interest .......................... 4,662 12,577 11,218 26,579
Professional fees ................. 5,002 2,378 21,191 19,553
Management fees ................... 4,327 4,243 12,579 12,506
General, administrative and other.. 3,364 8,838 29,111 29,091
-------- -------- -------- --------
47,775 72,488 155,734 161,872
-------- -------- -------- --------
Income (loss) before
income taxes .............. 16,459 2,634 (27,204) (14,047)
Income tax expense (benefit) ......... 5,312 896 (10,990) (1,186)
-------- -------- -------- --------
Net income (loss) ............ $ 11,147 $ 1,738 (16,214) (12,861)
======== ======== ======== ========
Net income (loss) per share .......... $ 0.06 $ 0.01 (0.09) (0.07)
======== ======== ======== ========
Weighted average shares outstanding .. 182,205 182,572 182,263 183,072
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED June 30, 2002
Accumulated
Other Total
Common Retained comprehensive shareholders'
stock earnings Income equity
----------- ----------- ------------- -----------
Balance at December 31, 2001 ................... $ 182,327 1,771,747 6,373,512 8,327,586
Comprehensive income:
Net loss ................................... -- (16,214) -- (16,214)
Net unrealized gains on securities available
for sale, net of income taxes of
$1,286,476.............................. -- -- 1,940,053 1,940,053
-----------
Comprehensive income ........... 1,923,839
Redemption of 129 shares of common stock ....... (129) (2,563) -- (2,692)
----------- ----------- ----------- -----------
Balance at June 30, 2002 ....................... $ 182,198 1,752,970 8,313,565 10,248,733
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
YADKIN VALLEY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
2002 2001
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UNAUDITED UNAUDITED
Operating activities:
Net loss ................................................................... $ (16,214) (12,861)
Adjustments to reconcile net loss to net cash used by operating activities:
Deferred tax benefit .................................................. (10,990) (4,778)
Decrease in reserve for life policy claims ............................ (120) (171)
Decrease in federal and state income taxes recoverable ................ -- 3,590
Decrease in accrued investment income ................................. 538 466
Decrease (increase) in accounts receivable ............................ (7,841) 17,811
Increase in other liabilities ......................................... 4,327 --
Decrease in accrued interest payable .................................. (550) (1,662)
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Net cash used by operating activities ...................... (30,850) 2,375
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Investing activities:
Purchases of certificates of deposit ...................................... (700,993) (902,071)
Maturities of certificates of deposit ..................................... 750,043 913,362
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Net cash provided by investing activities .................. 49,050 11,288
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Financing activities:
Proceeds from issuance of notes payable ................................... -- 30,000
Purchases and retirement of common stock .................................. (2,692) (19,321)
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Net cash provided (used) by financing activities ................ (2,692) 10,679
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Net increase (decrease) in cash ............................ 15,508 24,342
Cash at beginning of reporting period .......................................... 83,442 57,611
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Cash at end of reporting period ................................................ $ 98,950 81,953
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Cash payments for:
Interest .................................................................. $ 11,768 28,241
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Income taxes .............................................................. -- --
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Non-cash investing and financing activities:
Increase in unrealized gain on marketable equity
securities, net of applicable income taxes of $1,286,476 and
$682,158 ............................................................... $ 1,940,053 1,069,348
=========== ===========
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, 2002.
For the six months ended June 30, 2002 and 2001, total comprehensive income
consisting of net loss and unrealized gains on securities available for sale,
net of taxes, was $1,923,839 and $1,056,487, respectively.
Note 2: Related Parties
Certain significant shareholders of the Company are also significant
shareholders of First Citizens BancShares, Inc. ("FCB"), First Citizens
Bancorporation of South Carolina, Inc. ("FCB-SC"), The Heritage Bank
("Heritage"), Southern Bank & Trust Company, Mount Olive, North Carolina
("Southern"), and The Fidelity Bank, Fuquay-Varina, North Carolina ("Fidelity").
All of these entities are related through common ownership. American Guaranty
Insurance Company ("AGI") and First-Citizens Bank & Trust Company ("FCB&T") are
wholly owned subsidiaries of FCB, and Triangle Life Insurance Company ("TLIC")
is wholly owned by FCB&T. The Company holds stock in FCB, FCB-SC and Heritage.
At June 30, 2002 and December 31, 2001, the Company had $325,000 and $374,050,
respectively, invested in certificates of deposit in FCB&T.
The Company has no employees. AGI provides all managerial, administration and
operational services necessary in carrying out the Company's business. AGI is a
subsidiary of FCB and provides management services to the Company. Management
fees were $12,579 for the six months ending June 30, 2002 and $12,506 for the
corresponding period in 2001.
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, 2002 and
the corresponding period in 2001 are as follows:
2002 2001
--------- --------
Premiums assumed $ 96,716 106,525
Death benefits assumed 38,065 25,171
Life policy claim reserves assumed 8,108 8,541
Commissions assumed 43,570 48,972
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
$6,323 in commissions to Heritage for the six months ended June 30, 2002 and
$6,793 for the corresponding period in 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations. The Company realized an increase in consolidated
income before income taxes of $13,825 during the three months ended June 30,
2002 compared to the corresponding period in 2001. The increase was primarily
due to decreases of $24,891 in death benefits, loan interest expense and
general, administrative and other expenses, which were partially offset by a
$10,897 decrease in revenue. Consolidated net income during the three-month
period was $11,147 compared to a consolidated net income of $1,738 during the
corresponding period of 2001.
Despite the significant improvement during the three months ended June 30, 2002,
the Company realized an increase in consolidated loss before income taxes of
$13,157 during the six months ended June 30, 2002 compared to the corresponding
period in 2001. The increase was primarily due to a decrease of $9,809 in
premiums earned and a $12,843 increase in death claims paid, which were
partially offset by a $15,361 decrease in loan interest expense. Consolidated
net loss during the period was $16,214 compared to a consolidated net loss of
$12,861 during the corresponding period of 2001.
The main sources of operating funds for the period reported was from
Yadkin Valley Life Insurance Company's ("Yadkin Valley Life") operation and
dividend income. 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 $9,809 (9.2%) from the corresponding
period in 2001 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 increased $12,894
(51.2%) from the corresponding period in 2001. The increase is not specifically
attributable to any known events as there have been no changes 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 and the increase is not necessarily indicative of a trend. 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 2002 versus 2001 is directly correlated to the decline
in assumed premiums written. Operating expenses, excluding commissions,
decreased by $13,630 (15.5%) for the period reported from the corresponding
period of 2001, primarily due to a decrease in loan interest expense of $15,361
(57.8%) which was offset by an increase in professional fees, management fees
and general, administrative and other expenses.
During 2002, 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 $3,226,529 (25.4%) from December 31, 2001. The increase
in fair values of the Company's investments as of June 30, 2002 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 and dividend income as
primary sources 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 2.65 at June 30, 2002 and 2.68
at December 31, 2001, which ratio continues to remain constant. Investments in
equity securities had a carrying value at June 30, 2002 and December 31, 2001 of
$15,946,583 and $12,720,054 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 or
diminished gains 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,
2001 was primarily due to an increase in unrealized gains on marketable equity
securities. There were no other material changes in assets during 2002.
During 2002, total liabilities increased from $4,951,087 at December
31, 2001 to $6,230,230 at June 30, 2002. The increase in deferred federal income
taxes on the unrealized gains on investments was $1,286,476 while total
liabilities increased $1,279,143.
CAPITAL RESOURCES. There are no material commitments for capital
expenditures and none are anticipated. At June 30, 2002, 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 $2,005,992; and 1,725 shares of
First Citizens BancShares, Inc. of North Carolina Class B Common Stock, which
have a carrying value of $171,691; and 10,000 voting common shares of First
Citizens Bancorporation of South Carolina, Inc, which have a carrying value of
$3,700,000. Any funds needed to satisfy loan repayments would be derived from
the sale of or repositioning of investments and dividends from Yadkin Valley
Life.
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 22, 2002.
(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
2003
FOR AGAINST WITHHELD
David S. Perry 138,064 0 215
Hope H. Connell 138,064 0 215
E. Thomas Lucas 138,064 0 215
(2) Ratification of the appointment of KPMG LLP as
independent public accountants for the Company for
2002:
FOR 138,069
AGAINST 1
ABSTAINING FROM VOTING 209
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, 2002 By: /s/ David S. Perry
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David S. Perry, President and Principal
Financial Officer
CERTIFICATION
(Pursant to 18 U.S.C. Section 1350
The undersigned hereby certifies that, to the best of his knowledge, (i) the
foregoing Quarterly Report on Form 10-Q SB filed by Yadkin Valley Company (the
"Company") for the quarter ended June 30, 2002, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and (ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: August 10, 2002 /s/ David S. Perry
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David S. Perry, President and
Principal Financial Officer