SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
YADKIN VALLEY COMPANY
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(Name of small business issuer in its charter)
North Carolina 56-1249566
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 1729
Raleigh, North Carolina 27602
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(Address of principal executive offices) (Zip Code)
(919) 716-2266
--------------
Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None N/A
---- ---
Securities to be registered pursuant to Section 12(g) of the Act:
</TABLE>
Common stock, $1.00 par value per share
---------------------------------------
(Title of class)
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Business.
Yadkin Valley Company (the "Registrant") was incorporated under the
laws of North Carolina during 1979. Its primary activity is the ownership of all
the outstanding capital stock, and serving as the parent holding company, of
Yadkin Valley Life Insurance Company ("Yadkin Valley Life") which is
incorporated under the laws of Arizona and is engaged in the business of
reinsuring credit life insurance policies.
Yadkin Valley Life's reinsurance activities currently are limited to
assuming risks associated with policies up to a maximum risk of $25,000 on any
one insured, issued only by Triangle Life Insurance Company, Raleigh, North
Carolina ("Triangle Life"), and sold only in North Carolina by Southern Bank and
Trust Company, Mount Olive, North Carolina ("Southern"), The Fidelity Bank,
Fuquay-Varina, North Carolina ("Fidelity") and The Heritage Bank, Lucama, North
Carolina ("Heritage"). Triangle Life is a wholly-owned subsidiary of
First-Citizens Bank & Trust Company, Raleigh, North Carolina ("FCB"). Registrant
is affiliated with Southern, Fidelity, Heritage and FCB through certain common
control relationships. See "Item 7. Certain Relationships and Related
Transactions." In consideration of its assumption of risk, Yadkin Valley Life
receives a portion of the premium income on policies it reinsures, less the
amount of claims paid.
Registrant is not significantly affected by competition in that Yadkin
Valley Life does not seek to reinsure policies issued by any insurer other than
Triangle Life or sold by any other creditors, premium rates for credit life
insurance sold in North Carolina are the prima facie rates promulgated by the
North Carolina Department of Insurance, and regulation of the terms of credit
life insurance policies results in the policies offered by various issuers being
substantially the same. The volume of Yadkin Valley Life's business does vary
from year to year based on the volume of loans originated by the banks that are
eligible for credit life insurance and the amount of those loans on which the
banks are able to write insurance, and, historically, Yadkin Valley Life's
reinsurance business has not demonstrated any seasonality nor dependency on a
few customers.
In addition to its investment in its subsidiary, Yadkin Valley Life,
a substantial amount of Registrant's assets are represented by investments it
holds in equity securities of (i) First Citizens BancShares, Inc.
("BancShares," a bank holding company headquartered in Raleigh, North
Carolina); (ii) First Citizens Bancorporation of South Carolina, Inc.
("Bancorporation," a bank holding company headquartered in Columbia, South
Carolina); and (iii) Heritage. See "Item 7. Certain Relationships and
Related Transactions."
Yadkin Valley Life's revenues are derived primarily from premium income
received in connection with the reinsurance of credit life insurance and income
on its investments.
Registrant and Yadkin Valley Life have three officers, none of whom
are compensated for their services as such, and no other employees. See "
Item 5. Directors, Executive Officers, Promoters and Control Persons."
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations. Registrant's main source of operating funds has
historically been from Yadkin Valley Life's operations. Revenue from Yadkin
Valley Life's operations has decreased for the years reported, primarily as a
result of decreased premium writings by the company from whom Yadkin Valley Life
assumes business.
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<PAGE>
The primary outflows of Registrant's operating funds are for claim
payments and for commission payments. Incurred claims have increased for the
years reported. While abnormal policyholder mortality experience represents the
primary uncertainty of Yadkin Valley Life's operations, claim reserves have
historically been adequate to absorb death claims. The decline in commission
payments in 1997 versus 1996 is directly correlated to the decline in assumed
premiums written.
Registrant's consolidated financial statements for 1997 and 1996
reflect gains on the sale of equity securities. The gains are from the sales of
a specific stock and are not expected to reoccur in the coming year. Excluding
the gains on the sale of these equity securities, dividend and interest income
equaled $49,038 in 1997 and $59,047 in 1996.
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 Registrant to fund
asset growth and maintain liquidity. A factor which could impact Registrant's
financial position and liquidity are significant increases or decreases in the
market values of the securities held in the investment portfolio.
Management believes the liquidity of the Registrant to be adequate as
evidenced by a ratio of assets to liabilities of 2.71 at December 31, 1997 and
2.64 at December 31, 1996. Investments in equity securities had a carrying value
at December 31, 1997 and December 31, 1996 of $14,041,263 and $8,760,962
respectively. A substantial amount of these securities is readily marketable.
During 1997, total assets grew 55% from $9,381,257 at December 31, 1996, to
$14,525,458 at December 31, 1997, primarily due to unrealized gains on
marketable equity securities. There were no other material changes in assets
during 1997.
During 1997, total liabilities increased from $3,554,140 at December
31, 1996, to $5,349,799 at December 31, 1997. The increase in deferred federal
income taxes on the unrealized gains on investments increased $2,066,821, while
total liabilities increased $1,796,659.
Capital Resources. There are no material commitments for capital
expenditures and none are anticipated. At December 31, 1997, Registrant had
outstanding borrowings of $745,069 secured by 35,000 shares of common stock in
First Citizens Bancorporation of South Carolina, Inc., with a fair market value
of approximately $11,725,000. Any funds needed to satisfy loan repayments will
be derived from dividends from Yadkin Valley Life and the sale of or
repositioning of investments.
Item 3. Description of Property.
Registrant and Yadkin Valley Life own no properties. Their offices are
located at the offices of American Guaranty Insurance Company, Raleigh, North
Carolina, which, like Triangle Life, is a wholly-owned subsidiary of FCB and
which provides Registrant with certain managerial, administrative and
operational services. See "Item 7. Certain Relationships and Related
Transactions."
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<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
As of April 15, 1998, the following persons were known to management of
Registrant to own of record or beneficially more than 5% of Registrant's
outstanding common stock (which is Registrant's only class of voting
securities):
<TABLE>
<CAPTION>
<S> <C>
Name and address Amount and nature of Percentage
of beneficial owner beneficial ownership of class (1)
------------------- -------------------- ------------
Peter M. Bristow
P.O. Box 29
Columbia, SC 29202 15,367 (2) 8.35%
Hope Holding Connell
P.O. Box 29550
Raleigh, NC 27601 14,283 (3) 7.76%
Frank B. Holding, Jr.
P.O. Box 29549
Smithfield, NC 27626 19,740 (4) 10.73%
Lewis R. Holding
P.O. Box 151
Raleigh, NC 27602 49,374 (5) 26.84%
</TABLE>
- - ---------------
(1) The percentage of class is based on the 183,958 shares issued and
outstanding as of April 15, 1998.
(2) Includes an aggregate of 10,736 shares as to which Mr. Bristow
exercises sole voting and investment power. Also includes an aggregate
of 4,631 shares held by or in trust for his spouse and as to which he
disclaims beneficial ownership..
(3) Includes an aggregate of 6,208 shares as to which Ms. Connell exercises
sole voting and investment power and 101 shares as to which she
exercises shared voting and investment power. Also includes an
aggregate of 7,974 shares held by her husband individually or as
custodian for their minor children and as to which she disclaims
beneficial ownership.
(4) Includes an aggregate of 13,688 shares as to which Mr. Holding
exercises sole voting and investment power and an aggregate of 1,948
shares as to which he exercises or may be deemed to exercise shared
voting and investment power (including 1,048 shares held by First
Citizens BancShares, Inc., and 799 shares held in various fiduciary
capacities by the Trust Department of First-Citizens Bank & Trust
Company, of which entities he is an executive officer and director, and
which shares also are included in the shares listed as beneficially
held by Lewis R. Holding). Also includes 4,098 shares held by his
spouse and as to which he disclaims beneficial ownership.
(5) Includes 45,349 shares as to which Mr. Holding exercises sole voting
and investment power and an aggregate of 2,841 shares as to which he
exercises or may be deemed to exercise shared voting and investment
power (including 1,048 shares held by First Citizens BancShares, Inc.,
799 shares held in various fiduciary capacities by the Trust Department
of First-Citizens Bank & Trust Company, and 994 shares held by the
Robert P. Holding Foundation, of which entities he is an executive
officer and/or director, and 1,847 of which shares also are included in
the shares listed as beneficially held by Frank B. Holding, Jr.). Also
includes an aggregate of 1,184 shares held by his spouse and adult
children and as to which he disclaims beneficial ownership.
4
<PAGE>
As of April 15, 1998, Registrant's directors, and its directors and
executive officers as a group, beneficially owned the following numbers of
shares of Registrant's common stock:
<TABLE>
<CAPTION>
<S> <C>
Name and address Amount and nature of Percentage
of beneficial owner beneficial ownership(1) of class (2)
------------------- ----------------------- ------------
Hope Holding Connell 14,283 (3) 7.76%
E. Thomas Lucas 204 0.11%
David S. Perry 335 (4) 0.18%
All directors and executive officers
as a group (the 3 persons listed above) 15,022 (5) 8.16%
</TABLE>
----------------
(1) Except as otherwise noted, all shares shown as beneficially owned are,
to the best of management's knowledge, owned of record by the persons
named and such persons exercise sole voting and investment power with
respect to such shares.
(2) The percentage of class is based on the 183,958 shares issued and
outstanding as of April 15, 1998.
(3) For a description of the nature of Ms. Connell's beneficial ownership
of Registrant's common stock, see footnote (3) to the preceding table.
(4) Mr. Perry exercises shared voting and investment power with respect to
all shares.
(5) Includes an aggregate of 436 shares as to which persons included in the
group exercise shared voting and investment power and 7,974 shares as
to which persons included in the group disclaim beneficial ownership.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Directors. Registrant's Bylaws provide that the number of Registrant's
directors shall be set at three and that directors shall serve for one-year
terms or until their respective successors have been duly elected and qualified.
The following table sets forth information regarding Registrant's three current
directors.
<TABLE>
<CAPTION>
<S> <C>
Position with Year Principal occupation and
Name and age Registrant first elected business experience for past five years
------------ ---------- ------------- ---------------------------------------
Hope Holding Connell Director 1998 Senior Vice President, First-Citizens Bank & Trust
(35) Company, Raleigh, NC; Director, Southern BancShares
(N.C.), Inc. and Southern Bank and Trust Company,
Mount Olive, NC
E. Thomas Lucas Vice President, 1979 Retired; Director and former President and Chief
(69) Secretary and Director Executive Officer, The Heritage Bank, Lucama, NC
David S. Perry President, Treasurer 1988 President, American Guaranty Insurance Company,
(53) and Director Raleigh, NC (property and casualty insurer);
President, Triangle Life Insurance Company, Raleigh,
NC (credit life and accident and health insurer)(1)
</TABLE>
- - -----------------
(1) American Guaranty Insurance Company and Triangle Life Insurance Company
are wholly-owned subsidiaries of First-Citizens Bank & Trust Company,
Raleigh, North Carolina.
5
<PAGE>
Executive Officers. Registrant's two executive officers are David S.
Perry, who has served as President and Treasurer since 1988, and E. Thomas
Lucas, who has served as Vice President and Secretary since 1982. Certain
information regarding the executive officers is included in their listings as
directors in the preceding table. Neither Registrant nor Yadkin Valley Life has
any other officers or employees, except Hope H. Connell, who has served as
Treasurer of Yadkin Valley Life since 1998.
Item 6. Executive Compensation.
Registrant's executive officers and directors receive no salaries, fees
or other benefits from Registrant for their services. See "Item 7.
Certain Relationships and Related Transactions."
Item 7. Certain Relationships and Related Transactions.
Registrant is party to an Administration Agreement (the "Agreement")
with American Guaranty Insurance Company, Raleigh, North Carolina ("American
Guaranty"), a wholly-owned subsidiary of FCB, which provides for American
Guaranty to provide managerial, administrative and operational services
necessary in carrying on the insurance holding company business of Registrant,
subject to the supervision and control of Registrant's Board of Directors.
American Guaranty is compensated and reimbursed for services rendered and
expenses incurred which are reasonable and properly attributable, directly or
indirectly, to the management and conduct of Registrant's business affairs. The
Agreement may be terminated by either Registrant or American Guaranty at any
time upon written notice to the other. Aggregate fees paid by Registrant to
American Guaranty pursuant to the Agreement during 1997 and 1996 were $16,107
and $15,261, respectively. Those fees did not exceed 5% of the consolidated
gross revenues of either Registrant or American Guaranty. David S. Perry, who is
President, Treasurer and a director of Registrant, also serves as President and
a director of American Guaranty, and Frank B. Holding, Jr., a principal
shareholder of Registrant, serves as Chairman of American Guaranty's Board.
Additionally, Frank B. Holding, Jr., Lewis R. Holding and Hope Holding Connell,
who are principal shareholders of Registrant, also are principal shareholders of
FCB's parent holding company, BancShares, and Messrs. F. Holding, Jr. and L.
Holding serve as directors and executive officers of FCB and BancShares.
Registrant's reinsurance business consists solely of assuming risks,
through Yadkin Valley Life, on credit life insurance policies issued by
Triangle Life which is a wholly-owned subsidiary of FCB. Frank B. Holding,
Jr., Lewis R. Holding and Hope Holding Connell, who are principal shareholders
of Registrant, also are principal shareholders of FCB's parent holding
company, BancShares, and Messrs. F. Holding, Jr. and L. Holding also serve as
directors and executive officers of FCB and BancShares. Additionally, David
S. Perry, who is President, Treasurer and a director of Registrant, also
serves as President and a director of Triangle Life, and Frank B. Holding, Jr.
serves as Chairman of the Board of Triangle Life.
Yadkin Valley Life has an arrangement with each of Southern, Fidelity
and Heritage whereby each bank receives a commission on credit life insurance
policies it sells to its loan customers which is issued by Triangle Life and
reinsured by Yadkin Valley Life. Hope H. Connell, who is a director and
principal shareholder of Registrant, also serves as a director of Southern and
its parent holding company and is a principal shareholder of Heritage. Lewis R.
Holding, a principal shareholder of Registrant, also is a principal shareholder
of Southern's and Fidelity's respective parent holding company. E. Thomas Lucas,
an executive officer and director of Registrant, also is a director of Heritage.
The dollar amounts of commissions received by Southern, Fidelity and Heritage
during 1997 and 1996 pursuant to this arrangement are reflected in the following
table.
6
<PAGE>
<TABLE>
<S> <C>
Bank 1997 1996
----------
Southern $46,796 $58,267
Fidelity 57,578 65,834
Heritage 19,526 20,627
</TABLE>
A significant portion of Registrant's assets are represented by its
investments in equity securities of BancShares, Bancorporation and Heritage.
Registrant is affiliated with BancShares and Heritage as a result of the common
control relationships described above. Additionally, Lewis R. Holding, who is a
principal shareholder of Registrant, also is a principal shareholder of
Bancorporation.
Item 8. Legal Proceedings.
At March 31, 1998, Registrant was not a party to any legal proceeding
that is expected to have a material effect on its financial condition or results
of operations.
Item 9. Market for Common Equity and Related Stockholder Matters.
There is not an active market for Registrant's common stock. However,
the stock is traded over the counter and quotations for the stock are published
in the National Quotation Bureau, LLC's "pink sheets" which lists three brokers
as market makers for the stock.
Based on information supplied by the National Quotation Bureau, LLC,
the following table presents the high and low closing bid prices for
Registrant's common stock for the periods indicated. These bid prices should not
be taken as an indication of the existence of any established trading market.
<TABLE>
<CAPTION>
<S> <C>
Year Quarterly period High bid Low bid
---- ---------------- -------- -------
1997 Fourth Quarter $17.50 $17.00
Third Quarter 17.00 16.50
Second Quarter 16.50 16.50
First Quarter 16.50 16.50
1996 Fourth Quarter 16.50 13.00
Third Quarter 16.50 16.00
Second Quarter 16.50 16.00
First Quarter 16.00 13.00
</TABLE>
The above quotations represent prices between dealers and do no include
retail markup, markdown or commissions, and they do not represent actual
transactions.
Registrant has never paid cash dividends on its common stock and does
not anticipate any change in its existing dividend policy or practice.
Registrant is authorized to pay cash dividends as and when declared by its Board
of Directors, provided that no such distribution results in its insolvency on a
going concern or balance sheet basis.
Historically, the Registrant has been funded primarily by dividends
paid by Yadkin Valley Life. The amount of dividend payments by Yadkin Valley
Life during any 12-month period, without prior approval by the Arizona
Department of Insurance (the "Department"), is limited by statute to the lesser
of 10% of
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<PAGE>
its capital and surplus or its gain from operations for the previous fiscal
year. Under that restriction, Yadkin Valley Life can not pay a cash dividend to
Registrant without prior approval of the Department until October 1998.
As of April 15, 1998, Registrant's outstanding common stock was held by
an aggregate of approximately 937 shareholders of record.
Item 10. Recent Sales of Unregistered Securities.
Not applicable.
Item 11. Description of Securities.
Authorized Capital. Registrant's authorized capital stock consists of
500,000 shares of common stock, $1.00 par value per share, of which 183,958
shares were issued and outstanding as of April 15, 1998.
Voting Rights. Each holder of Registrant's common stock is entitled to
one vote per share held of record on all matters submitted to a vote of
shareholders. Under North Carolina law, Registrant's shareholders have the right
to vote cumulatively in the election of directors unless, on the record date for
the determination of shareholders entitled to vote, Registrant has a class of
securities registered under the Securities Exchange Act of 1934 (the "1934
Act"). Therefore, following registration of Registrant's common stock under the
1934 Act, Registrant's shareholders will not be entitled to vote cumulatively.
The North Carolina Control Share Acquisition Act, in general, provides
that shares of voting stock of a corporation (to which the Act applies) acquired
in a "control share acquisition" ("Control Shares") will have no voting rights
unless such rights are granted by resolution adopted by the holders of at least
a majority of the outstanding shares of the corporation entitled to vote in the
election of directors, excluding shares held by the person who has acquired or
proposes to acquire the Control Shares and excluding shares held by any officer
or director who is also an employee of the corporation. "Control Shares" are
defined as shares of such a corporation acquired by any person which, when added
to the shares already owned by such person, would entitle that person (except
for the application of the Act) to voting power in the election of directors
equal to or greater than (i) one-fifth of all voting power, (ii) one-third of
all voting power, or (iii) a majority of all voting power. "Control share
acquisition" means the acquisition by any person of beneficial ownership of
Control Shares with certain exceptions, including an acquisition pursuant to
certain agreements of merger or consolidation to which such corporation is a
party, and purchases of shares directly from such a corporation. Among other
exclusions, shares acquired before the corporation becomes subject to the Act
are excluded by the Act from the definition of "Control Shares." The Act
currently does not apply to Registrant, but it will become applicable in the
future when the registration of Registrant's common stock under the 1934 Act
becomes effective unless, before then, Registrant's Board of Directors adopts a
bylaw provision which excludes Registrant's common stock from the provisions of
the Act. Registrant's Board of Directors has not yet decided whether it will
adopt such a bylaw provision.
Registrant's Articles of Incorporation and Bylaws contain
no"supermajority" voting requirements pertaining to any matter submitted to a
vote of shareholders. Therefore, except as otherwise provided under North
Carolina law, subject to the presence of a quorum at a meeting of Registrant's
shareholders at which any matter is submitted for voting, such matter will be
approved if the votes cast in favor of such matter exceed the votes cast against
it. The North Carolina Shareholder Protection Act requires the affirmative vote
of the holders of 95% of the outstanding shares of common stock (excluding
shares owned by an "interested shareholder") of a corporation (to which the Act
applies) to approve certain business combinations between the corporation and an
entity which owns more than 10% of the voting shares of such corporation. The
Act currently does not apply to Registrant, but it will become applicable in the
future when the registration of
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Registrant's common stock under the 1934 Act becomes effective unless, within 90
days after such date, Registrant's Board of Directors adopts a bylaw provision
which excludes Registrant's common stock from the provisions of the Act. The
Board of Directors has not yet decided whether it will adopt such a bylaw
provision.
Dividends. Holders of Registrant's common stock are entitled to
dividends when, as, and if declared by the Board of Directors out of funds
legally available therefor, whether in cash or in stock. See "Item 9. Market
for Common Equity and Related Stockholder Matters."
Preemptive Rights. Holders of Registrant's common stock do not have any
preemptive or preferential rights to purchase or subscribe for any additional
shares of Registrant's common stock or any other securities that may be issued
by Registrant from time to time.
Assessment. The shares of Registrant's common stock currently
outstanding are non-assessable.
Liquidation Rights. In the event of liquidation, dissolution, or
winding-up of the affairs of Registrant, whether voluntary or involuntary, the
holders of Registrant's common stock would be entitled to share ratably in any
assets or funds available for distribution to shareholders after the
satisfaction of all liabilities, or after adequate provision is made therefor.
The form of distribution would depend upon the nature of the liquidation and the
assets of Registrant at that time.
Miscellaneous. There are no redemption, conversion or sinking fund
provisions relating to Registrant's common stock.
Item 12. Indemnification of Directors and Officers.
The North Carolina Business Corporation Act (the "NCBCA") provides for
the indemnification of directors and officers of corporations in the manner
described below.
Permissible Indemnification. The NCBCA allows a corporation, by
charter, bylaw, contract or resolution, to indemnify or agree to indemnify its
officers, directors, employees and agents and any person who is or was serving
at the corporation's request as a director, officer, employee or agent of
another entity or enterprise or as a trustee or administrator under an employee
benefit plan, against liability and expenses, including reasonable attorneys'
fees, in any proceeding (including without limitation a proceeding brought by or
on behalf of the corporation itself) arising out of their status as such or
their activities in any of the foregoing capacities as summarized herein. Any
provision in a corporation's charter or bylaws or in a contract or resolution
may include provisions for recovery from the corporation of reasonable costs,
expenses and attorneys' fees in connection with the enforcement of rights to
indemnification granted therein and may further include provisions establishing
reasonable procedures for determining and enforcing such rights.
The corporation may indemnify such person against expenses or
liability incurred only where such person conducted himself or herself in good
faith; reasonably believed (i) in the case of conduct in his or her official
corporate capacity, that his or her conduct was in the corporation's best
interests, and (ii) in all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and, in the case of a criminal
proceeding, he or she had no reasonable cause to believe his or her conduct was
unlawful; provided, however, that a corporation may not indemnify such person
either in connection with a proceeding by or in the right of the corporation in
which such person was adjudged liable to the corporation, or in connection with
any other proceeding charging improper personal benefit to such person (whether
or not involving action in an official capacity) in which such person was
adjudged liable on the basis that personal benefit was improperly received.
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<PAGE>
Mandatory Indemnification. Unless limited by the corporation's charter,
the NCBCA requires a corporation to indemnify a director or officer of the
corporation who is wholly successful, on the merits or otherwise, in the defense
of any proceeding to which such person was a party because he or she is or was a
director or officer of the corporation against reasonable expenses incurred in
connection with the proceeding.
Advance for Expenses. Expenses incurred by a director, officer,
employee or agent of the corporation in defending a proceeding may be paid by
the corporation in advance of the final disposition of the proceeding as
authorized by the board of directors in the specific case, or as authorized by
the charter or bylaws or by any applicable resolution or contract, upon receipt
of an undertaking by or on behalf of such person to repay amounts advanced
unless it ultimately is determined that such person is entitled to be
indemnified by the corporation against such expenses.
Court-Ordered Indemnification. Unless otherwise provided in the
corporation's charter, a director or officer of the corporation who is a party
to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court deems necessary, may
order indemnification if it determines either (i) that the director or officer
is entitled to mandatory indemnification as described above, in which case the
court also will order the corporation to pay the reasonable expenses incurred to
obtain the court-ordered indemnification, or (ii) that the director or officer
is fairly and reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not such person met the requisite standard of conduct
or was adjudged liable to the corporation in connection with a proceeding by or
in the right of the corporation or on the basis that personal benefit was
improperly received in connection with any other proceeding so charging (but if
adjudged so liable, indemnification is limited to reasonable expenses incurred).
Parties Entitled to Indemnification. The NCBCA defines "director" to
include ex-directors and the estate or personal representative of a director.
Unless its charter provides otherwise, a corporation may indemnify and advance
expenses to an officer, employee or agent of the corporation to the same extent
as to a director and also may indemnify and advance expenses to an officer,
employee or agent who is not a director to the extent, consistent with public
policy, as may be provided in its charter or bylaws, by general or specific
action of its board of directors, or by contract.
Indemnification by Registrant. Registrant's Bylaws provide for
indemnification of its directors and officers to the fullest extent permitted by
North Carolina law, and require its Board of Directors to take all actions
necessary and appropriate to authorize such indemnification.
Under North Carolina law, a corporation also may purchase insurance on
behalf of any person who is or was a director or officer against any liability
arising out of his status as such. Registrant currently does not maintain a
directors' and officers' liability insurance policy.
Item 13. Financial Statements.
Registrant's consolidated balance sheets as of December 31, 1997 and
1996, and its consolidated statements of income, changes in shareholders' equity
and cash flows, together with notes thereto and independent auditors' report
thereon, are incorporated herein by reference from Exhibit 99 to this
Registration Statement.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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<PAGE>
Item 15. Financial Statements and Exhibits.
(a) The following financial statements are incorporated by reference in
Item 13 of this Registration Statement:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Income
for the years ended December 31, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows
for the years ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements
(b) The following exhibits are filed as part of this Registration
Statement.
Exhibit
Number Description
------- -----------
3(a) Registrant's Restated Articles of
Incorporation
3(b) Registrant's Bylaws
10 Administration Agreement between
Registrant and
American Guaranty Insurance Company
22 Subsidiaries of Registrant
99 Registrant's financial statements
11
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
YADKIN VALLEY COMPANY
Date: April 29 , 1998 By: /s/ David S. Perry
-------------------------
David S. Perry, President
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- - ------ ----------- -----------
<S> <C>
3(a) Registrant's Restated Articles of Incorporation 14
3(b) Registrant's Bylaws 16
10 Administration Agreement between Registrant and
American Guaranty Insurance Company 25
22 Subsidiaries of Registrant 28
99 Registrant's consolidated financial statements 29
</TABLE>
13
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Exhibit 3(a)
ARTICLES OF RESTATEMENT
OF
YADKIN VALLEY COMPANY
The undersigned corporation hereby submits these Articles of
Restatement for the purpose of integrating into one document its original
Articles of Incorporation and all amendments thereto.
1. The name of the corporation is Yadkin Valley Company.
2. Attached hereto as Exhibit A are the Restated Articles of
Incorporation.
3. The Restated Articles of Incorporation do not contain any amendments
to the Articles of Incorporation requiring shareholder approval, and the
Restated Articles of Incorporation were adopted by the Board of Directors.
This the 22nd day of April, 1998.
YADKIN VALLEY COMPANY
By: /s/ David S. Perry
------------------
David S. Perry, President
<PAGE>
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
YADKIN VALLEY COMPANY
<PAGE>
1. The name of the corporation is YADKIN VALLEY COMPANY.
2. The period of duration of the corporation shall be perpetual.
3. The purpose for which the corporation is organized is to engage in
any lawful act or activity for which corporations may be organized under Chapter
55 of the General Statutes of North Carolina.
4. The aggregate number of shares which the corporation shall have
authority to issue is 500,000 shares having a par value of $1.00 per share.
5. The address of the current registered office of the corporation is
239 Fayetteville Street Mall, Raleigh, Wake County, North Carolina 27602 and the
name of the current registered agent at such address
is David S. Perry.
6. The number of directors of the corporation may be fixed by
the Bylaws.
7. No director of the corporation shall be personally liable to the
corporation or any of its stockholders or otherwise for monetary damages for
breach of duty as a director, except with respect to (i) acts or omissions not
made in good faith that the director at the time of such breach knew or believed
were in conflict with the best interests of the corporation, (ii) any liability
under G.S. 55-32, (iii) any transaction from which the director derived an
improper personal benefit, or (iv) acts or omissions occurring prior to the date
on which this provision became effective. As used herein, the term "improper
personal benefit" does not include a director's compensation or other incidental
benefit for or on account of his service as a director, officer, employee,
independent contractor, attorney, or consultant of the corporation. If the North
Carolina General Statutes are amended after approval by the stockholders of this
Paragraph to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the North Carolina General Statutes, as so amended. No amendment or repeal of
the provisions of this Paragraph shall apply to or have any effect on the
liability or alleged liability of any director of the corporation for or with
respect to any act or failure to act on the part of such director occurring
prior to such amendment or repeal. The provisions of this Paragraph shall not be
deemed to limit or preclude indemnification of a director by the corporation for
any liability which has not been eliminated by the provisions of this Paragraph.
<PAGE>
Exhibit 3(b)
BY-LAWS
OF
YADKIN VALLEY COMPANY
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
corporation shall be located at 625 Oberlin Road, Raleigh, Wake County, North
Carolina.
Section 1. Registered Office. The registered office of the
corporation, which by law is required to be maintained within the State of North
Carolina, shall be located at 625 Oberlin Road, Raleigh, Wake County, North
Carolina, or at such other place within the State of North Carolina as may, from
time to time, be fixed and determined by the Board of Directors.
Section 3. Other Offices. The corporation may have offices at
such places, either within or outside the State of North Carolina, as the Board
of Directors may from time to time determine.
ARTICLE II
Meeting of Shareholders
Section 1. Annual Meeting. The annual meeting of the
shareholders for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on any day during
the first six months of the corporation's fiscal year (except a Saturday, Sunday
or legal holiday) as shall be determined by the Board of Directors.
Section 2. Substitute Annual Meeting. If the annual meeting
shall not be held on the day designated by these by-laws, a substitute annual
meeting may be called in the manner provided for the call of a special meeting
in accordance with the provisions of Section 3 of this Article II and a
substitute annual meeting so called shall be designated and shall be treated,
for all purposes, as the annual meeting.
Section 3. Special Meetings. Special meetings of the
shareholders may be called at any time by the President, or any two members of
the Board of Directors, or by any shareholder pursuant to the written request of
the holders of not less than one-tenth (1/10th) of all the shares entitled to
vote at the meeting.
Section 4. Place of Meetings. All meetings of shareholders
shall be held at the principal office of the corporation except that a meeting
may be held at such other place, within or outside the State of North Carolina,
as may be designated in a duly executed waiver of notice of such meeting or as
may be otherwise agreed upon in advance by a majority of the shareholders
entitled to vote at such meeting.
Section 5. Notice of Meetings. Written or printed notice
stating the time and place of a meeting of shareholders shall be delivered,
personally or by mail, by or at the direction of the President, the Secretary or
other person authorized to call such meeting, to each shareholder of record
entitled to vote at such meeting, not less than ten (10) nor more than fifty
(50) days prior to the date of such meeting. If mailed, such notice shall be
directed to each shareholder at the address of such shareholder as set forth on
the records of the corporation except that if any shareholder shall have filed
with the Secretary a written request that notices intended for such shareholder
be mailed to some other address, then all notices to such shareholder shall be
mailed to the address designated in such request. A statement of the business to
be transacted at an annual or substitute annual meeting of shareholders need not
be set forth in the notice of such meeting except
<PAGE>
that if any matter is to be considered or acted upon, other than the election of
directors, on which the vote of shareholders is required under the provisions of
the North Carolina Business Corporation Act, then a specific statement thereof
shall be set forth in such notice. In the case of a special meeting, the notice
shall set forth the nature of the business to be transacted. If a meeting shall
be adjourned for more than thirty (30) days, notice of such adjourned meeting
shall be given as in the case of an original meeting and if the adjournment
shall be for less than thirty (30) days, no notice thereof need be given except
that such adjournment shall be announced at the meeting at which the adjournment
is taken. Any notice which shall be mailed shall be directed to each shareholder
at the address of such shareholder set forth on the share books of the
corporation except that if any shareholder shall have filed with the Secretary a
written request that notices intended for such shareholder be mailed to some
other address, then notice to such shareholder shall be mailed to the address
set forth in such written request. Notice of a meeting need not be given if each
shareholder entitled to notice thereof shall, in person or by attorney thereunto
duly authorized, waive notice thereof in writing, either before or after such
meeting.
Section 6. Voting Lists. At least ten (10) days before each
meeting of shareholders, the Secretary of the corporation shall prepare an
alphabetical list of the shareholders entitled to vote at such meeting, with the
address of and the number of shares held by each, which list shall be kept on
file at the registered office of the corporation for a period of ten (10) days
prior to such meeting, and shall be subject to inspection by any shareholder at
any time during the usual business hours. The aforementioned list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to inspection by any shareholder during the whole time of the meeting.
Section 7. Quorum. Except as otherwise provided by statute, or
by the charter of the corporation, or by these bylaws, the presence in person or
by proxy of holders of record of a majority of the shares entitled to vote at
the meeting shall be necessary to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of the shareholders
entitled to vote present in person or by proxy, may adjourn the meeting from
time to time. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called if a quorum had been there present. The shareholders
present in person or by proxy at a meeting at which a quorum is present may
continue to do business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Section 8. Voting. At each meeting of shareholders, every
holder of record of shares entitled to vote shall be entitled to one (1) vote
for every share standing in his name on the books of the corporation and all
questions, except as otherwise provided by statute, or by the charter of the
corporation, or by these by-laws, shall be determined by a majority of the votes
so cast. Persons holding shares in a fiduciary capacity shall be entitled to
vote the shares so held. Any shareholder entitled to vote may vote by proxy,
provided that the instrument authorizing such proxy to act shall have been
executed in writing by the shareholder or his duly authorized attorney. No proxy
shall be valid after the expiration of eleven (11) months from the date of its
execution, unless the person executing it shall have specified therein the
length of time it is to continue in force or limits its use to a particular
meeting and in any event, no proxy shall be valid after ten (10) years from the
date of its execution. Each instrument designating a proxy shall be exhibited to
the Secretary of the meeting and shall be filed with the records of the
corporation. Voting on all matters, except the election of directors, shall be
by voice vote or by a show of hands except that if prior to voting on any
particular matter, demand shall be made by or on behalf of the holders of not
less than one-tenth (1/10th) of the shares represented at such meeting that the
vote thereon be taken by ballot, then the vote on such matter shall be taken by
ballot.
Section 9. Informal Action by Shareholders. Any action which
may be taken by the shareholders at a meeting thereof may be taken without a
meeting if consent in writing, setting forth the action taken, shall be signed
by all of the persons who would be entitled to vote upon such action at a
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meeting and filed with the Secretary of the corporation. Any consent so filed
with the Secretary of the corporation shall be filed in the corporate minute
book in like manner as minutes of a meeting. Any such consent shall have the
same force and effect as a unanimous vote of shareholders.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. The property, affairs and
business of the corporation shall be managed by the Board of Directors.
Section 2. Number, Term of Office and Qualifications. The
number of directors shall be three (3). Each director shall continue in office
until the annual meeting of shareholders held next after his election or until
his successor shall have been elected and qualified, or until his death or until
he shall resign or shall have become disqualified or shall have been removed in
the manner hereinafter provided. Directors need not be residents of the State of
North Carolina or shareholders of the corporation.
Section 3. Election of Directors. Except as provided in
Section 6 of this Article III, the directors shall be elected at the annual
meeting of shareholders and the persons who shall receive the highest number of
votes shall be the elected directors. If prior to voting for the election of
directors, demand therefor shall be made by or on behalf of any shares entitled
to vote at such meeting, the election of directors shall be by ballot.
Section 4. Cumulative Voting. Every shareholder entitled to
vote at an election of directors shall have the right to vote the number of
shares standing of record in such shareholder's name for as many persons as
there are directors to be elected and for whose election such shareholder has a
right to vote, or to cumulate such vote by giving one (1) candidate as many
votes as shall be equal to the number of such directors, multiplied by the
number of shares of such shareholder, or by distributing such votes on the same
principal among any number of such candidates. This right of cumulative voting
shall not be exercised unless some shareholder or proxy holder announces in open
meeting, before the voting for the directors starts, such shareholder's
intention to so vote cumulatively and if such announcement is made, the chair
shall declare that all shares entitled to vote have the right to vote
cumulatively and shall thereupon grant a recess of not less than one (1) nor
more than four (4) hours, as he shall determine, or of such other period of time
as is unanimously then agreed upon.
Section 5. Removal of Directors. The Board of Directors or any
individual director may be removed from office with or without cause by a vote
of shareholders holding a majority of the shares entitled to vote at an election
of directors provided, however, that, except in the event the entire board shall
be removed, a particular director may not be removed if the number of shares
voting against the removal would be sufficient to elect a director if such
shares were voted cumulatively at an annual election. If any or all directors
are so removed, new directors may be elected at the same meeting.
Section 6. Vacancies. A vacancy in the Board of Directors
created by an increase in the authorized number of directors shall be filled
only by election at an annual meeting of shareholders or at a special meeting of
shareholders called for that purpose. Any vacancy in the Board of Directors
created other than by an increase in the number of directors may be filled by a
majority of the remaining directors, though less than a quorum, or by the sole
remaining director. The shareholders may elect a director at any time to fill
any vacancy not filled by the directors. In the event of the resignation of a
director to take effect at a future date, either the Board of Directors or the
shareholders, at any time after tender of such resignation, may elect a
successor to such director to take office as of the effective date of such
resignation.
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<PAGE>
Section 7. Compensation of Directors. The Board of Directors
may cause the corporation to compensate directors for their services as
directors and may provide for the payment by the corporation of all expenses
incurred by directors in attending regular and special meetings of the Board.
Section 8. Executive Committee. The Board of Directors may, by
the vote of a majority of the entire Board, designate two (2) or more directors
to constitute and serve as an Executive Committee, which committee, to the
extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors in the management of the corporation.
ARTICLE IV
Meetings of Directors
---------------------
Section 1. Regular Meetings. A regular annual meeting of the
Board of Directors may be held immediately after the annual meeting of
shareholders and if not then held shall be held within a reasonable time
thereafter.
Section 2. Special Meetings. Special meetings of the Board
of Directors may be called by or at the request of the President or any two
(2) directors.
Section 3. Place of Meetings. All meetings of the Board of
Directors shall be held at the principal office of the corporation except that
such meetings may be held at such other place, within or outside the State of
North Carolina as may be designated in a duly executed waiver of notice of such
meeting or as may be otherwise agreed upon in advance of the meeting by a
majority of the directors.
Section 4. Notice of Meetings. Regular meetings of the Board
of Directors may be held without notice. Special meetings shall be called on not
less than two (2) days' prior notice. Notice of a special meeting need not state
the purpose thereof and such notice shall be directed to each director at his
residence or usual place of business by mail, cable, telegram or may be
delivered personally. The presence of a director at a meeting shall constitute a
waiver of notice of that meeting except only when such director attends the
meeting solely for the purpose of objecting to the transaction of any business
thereat, on the ground that the meeting has not been lawfully called, and does
not otherwise participate in such meeting.
Section 5. Quorum and Manner of Acting. A majority of the
number of directors fixed by these by-laws as the number of directors of the
corporation shall constitute a quorum for the transaction of any business at any
meeting of the Board of Directors. Except as otherwise expressly provided in
this section, the act of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors. The vote
of a majority of the number of directors fixed by these by-laws as the number of
directors of the corporation shall be required to adopt a resolution appointing
an Executive Committee, and the vote of a majority of the directors then holding
office shall be required to adopt, amend or repeal a by-law or to dissolve the
corporation pursuant to the provisions of the North Carolina Business
Corporation Act without shareholder consent.
Section 6. Informal Action of Directors. Action taken by a
majority of the Directors without a meeting shall constitute Board action if
written consent to the action in question is signed by all the directors and
filed with the minutes of the proceedings of the Board, whether done before or
after the action so taken.
Section 7. Resignations. Any director may resign at any time
by giving written notice to the President or the Secretary of the corporation.
Such resignation shall take effect at the time specified therein, or if no time
is specified therein, at the time such resignation is received by the President
or Secretary of the corporation unless it shall be necessary to accept such
resignation before it becomes effective, in which
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event the resignation shall take effect upon its acceptance by the Board of
Directors. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
ARTICLE V
Officers
--------
Section 1. Number of Officers. The officers of the corporation
shall be a President, one (1) or more Vice Presidents, a Secretary and a
Treasurer, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article V. Any two (2) offices or more may be
held by one (1) person, except the offices of President and Secretary, but no
officer shall sign or execute any document in more than one (1) capacity.
Section 2. Election, Term of Office and Qualifications. Each
officer, except such officers as may be appointed in accordance with the
provisions of Section 3 of this Article V, shall be chosen by the Board of
Directors and shall hold office until the annual meeting of the Board of
Directors held next after his election or until his successor shall have been
duly chosen and qualified or until his death or until he shall resign or shall
have been disqualified or shall have been removed from office.
Section 3. Subordinate Officers and Agents. The Board of
Directors from time to time may appoint other officers or agents, each of whom
shall hold office for such period, have such authority, and perform such duties
as the Board of Directors from time to time may determine. The Board of
Directors may delegate to any officer or agent the power to appoint any
subordinate officer or agent and to prescribe his respective authority and
duties.
Section 4. Removal. The officers specifically designated in
Section 1 of this Article V may be removed, either with or without cause, by
vote of a majority of the whole Board of Directors at a special meeting of the
Board called for that purpose. The officers appointed in accordance with the
provisions of Section 3 of this Article V may be removed, either with or without
cause, by the Board of Directors, by a majority vote of the Directors present at
any meeting, or by any officer or agent upon whom such power of removal may be
conferred by the Board of Directors. The removal of any person from office shall
be without prejudice to the contract rights, if any, of the person so removed.
Section 5. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or the
Secretary of the corporation, or if he was appointed by an officer or agent in
accordance with Section 3 of this Article V, by giving written notice to the
officer or agent who appointed him. Any such resignation shall take effect upon
its being accepted by the Board of Directors or by the officer or agent
appointing the person so resigning.
Section 6. Vacancies. A vacancy in any office because of
death, resignation, removal, or disqualification, or any other cause, shall be
filled for the unexpired portion of the term in the manner prescribed by these
by-laws for regular appointments or elections to such offices.
Section 7. President. The President shall be the chief
executive officer of the corporation, and, subject to the instructions of the
Board of Directors, shall have general charge of the business, affairs and
property of the corporation and control over its other officers, agents and
employees. He shall preside at all meetings of the shareholders and of the Board
of Directors at which he may be present. The President shall do and perform such
other duties as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice President. At the request of the President, or
in his absence or disability, the Vice President, and if there be more than one
(1) Vice President, the Vice President designated by the
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Board of Directors, or in the absence of such designation, the Vice President
designated by the President, shall perform all the duties of the President and
when so acting shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall perform such other
duties and have such authority as from time to time may be assigned to them by
the Board of Directors.
Section 9. Secretary. The Secretary shall keep the minutes of
the meetings of shareholders and of the Board of Directors, and shall see that
all notices are duly given in accordance with the provisions of these by-laws or
as required by law. He shall be custodian of the records, books, reports,
statements, certificates and other documents of the corporation and of the seal
of the corporation, and see that the seal is affixed to all share certificates
prior to their issuance and to all documents requiring such seal. In general, he
shall perform all duties and possess all authority incident to the office of
Secretary, and he shall perform such other duties and have such other authority
as from time to time may be assigned to him by the Board of Directors.
Section 10. Treasurer. The Treasurer shall have supervision
over the funds, securities, receipts and disbursements of the corporation. He
shall keep full and accurate accounts of the finances of the corporation in
books especially provided for that purpose, and he shall cause a true statement
of its assets and liabilities, as of the close of each fiscal year, and of the
results of its operations and of changes in surplus for such fiscal year, all in
reasonable detail, including particulars as to convertible securities then
outstanding, to be made and filed at the registered or principal office of the
corporation within four (4) months after the end of such fiscal year. The
statement so filed shall be kept available for inspection by any shareholder for
a period of ten (10) years and the Treasurer shall mail or otherwise deliver a
copy of the latest such statement to any shareholder upon his written request
for the same. He shall in general perform all duties and have all authority
incident to the office of Treasurer and shall perform such other duties and have
such other authority as from time to time may be assigned or granted to him by
the Board of Directors. He may be required to give a bond for the faithful
performance of his duties in such form and amount as the Board of Directors may
determine.
Section 11. Duties of Officers May be Delegated. In case of
the absence of any officer of the corporation or for any other reason that the
Board may deem sufficient, the Board may delegate the powers or duties of such
officer to any other officer or to any director for the time being provided a
majority of the entire Board of Directors concurs therein.
Section 12. Salaries of Officers. No officer of the
corporation shall be prevented from receiving a salary as such officer or from
voting thereon by reason of the fact that he is also a director of the
corporation. The salaries of the officers of the corporation, including such
officers as may be directors of the corporation, shall be fixed from time to
time by the Board of Directors, except that the Board of Directors may delegate
to any officer who has been given power to appoint subordinate officers or
agents, as provided in Section 3 of this Article V, the authority to fix the
salaries or other compensation of any such officers or agents appointed by him.
ARTICLE VI
Contracts, Loans, Deposits, Checks, Drafts, Etc.
------------------------------------------------
Section 1. Contracts. Except as otherwise provided in these
by-laws, the Board of Directors may authorize any officer or officers, agent or
agents to enter into any contract or to execute or deliver any instrument on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 2. Loans. No loans shall be contracted on behalf of
the corporation and no evidences of indebtedness shall be issued in its name,
unless and except as authorized by the Board of Directors. Any officer or agent
of the corporation thereunto so authorized may effect loans or advances for
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the corporation and for such loans and advances may make, execute and deliver
promissory notes, bonds, or other evidences of indebtedness of the corporation.
Any such officer or agent, when thereunto so authorized, may mortgage, pledge,
hypothecate or transfer as security for the payment of any and all loans,
advances, indebtednesses and liabilities of the corporation any real property
and all stocks, bonds, other securities and other personal property at any time
held by the corporation, and to that end may endorse, assign and deliver the
same, and do every act and thing necessary or proper in connection therewith.
Such authority may be general or confined to specific instances.
Section 3. Deposits. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks or
trust companies or with such bankers or other depositories as the Board of
Directors may select, or as may be selected by any officer or officers, agent or
agents of the corporation to whom such power may from time to time be given by
the Board of Directors.
Section 4. Checks, Drafts, Etc. All notes, drafts,
acceptances, checks and endorsements or other evidences of indebtedness shall be
signed by the President or a Vice President and by the Secretary or the
Treasurer, or in such other manner as the Board of Directors from time to time
may determine. Endorsements for deposit to the credit of the corporation in any
of its duly authorized depositories will be made by the President or Treasurer
or by any officer or agent who may be designated by resolution of the Board of
Directors in such manner as such resolution may provide.
Section 5. Proxies. Any share in any other corporation which
may from time to time be held by the corporation may be represented and voted at
any meeting of shareholders or such other corporation by any person or persons
thereunto authorized by the Board of Directors or if no one be so authorized, by
the President or a Vice President or by any proxy appointed in writing by the
President or a Vice President.
ARTICLE VII
Certificates for Shares and Their Transfer
------------------------------------------
Section 1. Certificate for Shares. Certificates for shares of
the corporation shall be in such form as shall be approved by the Board of
Directors. They shall be signed by the President or a Vice President and by the
Secretary or the Treasurer and sealed with the seal of the corporation, which
seal may be a facsimile, engraved or printed.
Section 2. Transfers of Shares. A book shall be kept
containing the names, alphabetically arranged, of all shareholders of the
corporation, showing their places of residence, the number of shares held by
them respectively, the time when they respectively became the owners thereof and
the amount paid thereon. Transfers of the shares of the corporation shall be
made on the books of the corporation at the direction of the record holder
thereof or his attorney thereunto duly authorized by a power of attorney duly
executed and filed with the Secretary, or with the transfer agent, if any, for
such shares, and the surrender of the certificate or certificates for such
shares properly endorsed. The corporation shall be entitled to treat the holder
of record of any share or shares as the holder and owner thereof and shall not
be bound to recognize any legal, equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
laws of the State of North Carolina.
Section 3. Lost or Destroyed Certificates. The holder of any
share or shares of the corporation shall immediately notify the corporation of
any loss, destruction, theft or mutilation of the certificate therefor and the
corporation, with the approval of the Board of Directors, may issue a new
certificate for such share or shares in the place of such certificate
theretofore issued by it alleged to have been lost, destroyed, stolen or
mutilated. The Board of Directors in its discretion may require the owner of the
certificate alleged to have been lost, destroyed, stolen or mutilated, or his
legal representative to give the
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corporation and its transfer agent and its registrar, if any, before the
issuance of such new certificate, a bond of indemnity in such sum and in such
form and with such surety or sureties as the Board of Directors may direct or
the Board, by resolution reciting that the circumstances justify such action,
may authorize the issuance of such new certificate without requiring such bond.
Section 4. Regulations. The Board of Directors may make such
rules and regulations as it may deem expedient concerning the issuance and
transfer of certificates for shares of the corporation and may appoint transfer
agents or registrars, or both, and may require all certificates of stock to bear
the signature of either or both.
Section 5. Closing Transfer Books and Fixing Record Date. For
the purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividends, or in order to make a determination of shareholders
for any other proper purpose, the Board of Directors may provide that the share
transfer books shall be closed for a stated period but not to exceed, in any
case, fifty (50) days. If the share transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the share transfer books,
the Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such record date in any case to be not more than
fifty (50) days and, in case of a meeting of shareholders, not less than ten
(10) days immediately preceding the date on which the particular action
requiring such determination of shareholders is to be taken. If the share
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted as the case may be shall be the
record date for such determination of shareholders.
ARTICLE VIII
General Provisions
------------------
Section 1. Corporate Seal. The corporate seal shall be in
such form as shall be approved from time to time by the Board of Directors.
Section 2. Fiscal Year. The fiscal year of the corporation
shall be established by resolution of the Board of Directors.
Section 3. Waiver of Notice. Whenever any notice is required
to be given to any shareholder or director under the provisions of the North
Carolina Business Corporation Act or under the provisions of the charter or
by-laws of this corporation.
Section 4. Amendments. Except as otherwise herein provided,
these by-laws may be amended or repealed and new by-laws may be adopted by the
affirmative vote of a majority of the directors then holding office at any
regular or special meeting of the Board of Directors. The Board of Directors
shall not have power to adopt a by-law: (1) requiring more than a majority of
the voting shares for a quorum at a meeting of shareholders or more than a
majority of the votes cast to constitute action by the shareholders, except
where higher percentages are required by law, (2) providing for the management
of the corporation other than by the Board of Directors or its Executive
Committee, (3) increasing or decreasing the number of directors, or (4)
classifying and staggering the election of directors. The shareholders may make,
alter, amend and repeal the by-laws of the corporation at any annual meeting or
at a special meeting called for such purpose and by-laws adopted by the
directors may be altered or repealed by the shareholders. No by-law adopted or
amended by the shareholders shall be altered or repealed by the Board of
Directors.
8
<PAGE>
Section 5. Indemnification. The corporation shall indemnify
any person who is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether or not brought by or on
behalf of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise or as a
trustee or administrator under an employee benefit plan, or arising out of his
activities in any of the foregoing capacities, against all liability and
litigation expense, including reasonable attorneys' fees; PROVIDED, however,
that the corporation shall not indemnify any such person against liability or
expense incurred on account of such person's activities which were at the time
taken known or believed by such person to be clearly in conflict with the best
interests of the corporation. The corporation shall likewise indemnify any such
person for all reasonable costs and expenses (including attorneys' fees)
incurred by such person in connection with the enforcement of such person's
right to indemnification granted herein. The corporation shall pay all expenses
incurred by any director, officer, employee or agent in defending a civil or
criminal action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation against such expenses.
The Board of Directors of the corporation shall take all such
action as may be necessary and appropriate to authorize the corporation to pay
the indemnification required by this bylaw, including without limitation, a
determination by a majority vote of disinterested Directors that the activities
giving rise to the liability or expense for which indemnification is requested
were not, at the time taken, known or believed by the person requesting
indemnification to be clearly in conflict with the best interests of the
corporation. Any person who at any time after the adoption of this bylaw serves
or has served in any of the aforesaid capacities for or on behalf of the
corporation shall be deemed to be doing or to have done so in reliance upon, and
as consideration for, the right of indemnification provided herein. Such right
shall inure to the benefit of the legal representatives of any such person and
shall not be exclusive of, but shall be in addition to, any rights to which such
person may be entitled apart from the provisions of this bylaw.
9
<PAGE>
Exhibit 10
STATE OF NORTH CAROLINA
COUNTY OF WAKE
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT ("Agreement") made and entered
into as of the 21st day of October, 1991 (the "Effective Date"), by and between
AMERICAN GUARANTY INSURANCE COMPANY, a North Carolina corporation with its
principal office in Raleigh, North Carolina ("American Guaranty"), party of the
first part; and YADKIN VALLEY COMPANY, a North Carolina corporation with its
principal office in Raleigh, North Carolina ("Yadkin"), party of the second
part;
W I T N E S S E T H:
WHEREAS, American Guaranty is engaged in the insurance
business in North Carolina and maintains facilities, equipment, and services and
has employed experienced personnel with expertise in the insurance industry
necessary to manage and conduct such business;
WHEREAS, Yadkin is a holding company whose wholly-owned
subsidiary, Yadkin Valley Life Insurance Company, is authorized and licensed to
engage in the insurance business, and Yadkin desires to utilize the expertise of
the personnel, and such of the facilities, equipment, and services of American
Guaranty as may be proper for the management and conduct of its business as an
insurance holding company, and desires to reimburse American Guaranty for the
costs and expenses associated with such assistance; and,
WHEREAS, American Guaranty has agreed to provide
administrative services necessary in carrying on the business of Yadkin in the
manner and to the extent set forth hereinafter.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements between the parties made, and for other good
and valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, American Guaranty and Yadkin hereby agree as follows:
'
1. Yadkin hereby contracts with and engages American Guaranty
to provide the administrative services necessary in carrying on the insurance
holding company business of Yadkin, subject at all times to the direction,
control, and authority of the Board of Directors of Yadkin.
2. American Guaranty hereby accepts such employment by Yadkin
and agrees to provide administrative services necessary in carrying on the
insurance holding company business of Yadkin in accordance with the generally
accepted practice of the insurance industry, subject to the direction, control,
instruction, and authority of the Board of Directors of Yadkin.
3. The administrative services provided hereunder shall
include investment services. All investments by American Guaranty on behalf of
Yadkin shall be made in accordance with applicable North Carolina investments
laws.
4. In providing administrative services necessary in carrying
on the business of Yadkin, complete control of all of the operations and
functions of Yadkin, except for the establishment of its business policies,
shall be vested in American Guaranty, which shall maintain all books, records,
and accounts of all business of Yadkin in accordance with the accepted practice
of the insurance industry and shall furnish to the Board of Directors of Yadkin
such periodic reports as the said Board of Directors may request or designate.
<PAGE>
5. In consideration for the assistance provided to Yadkin by
American Guaranty as authorized above, Yadkin shall remunerate and reimburse
American Guaranty for services rendered and expenses incurred which are
reasonable and which directly or indirectly properly are attributed to the
management and conduct of the business of Yadkin. Services and expenses for
which American Guaranty shall be entitled to remuneration and reimbursement
shall include, but not necessarily be limited to, the following items:
a. Services by employees of American Guaranty
that properly may be attributed to the business of Yadkin;
b. General administrative and office expenses
that properly may be attributed to the business of Yadkin; and,
c. Travel and auto expenses that properly may
be attributed to the business of Yadkin.
Such remuneration and reimbursement shall be paid by Yadkin to
American Guaranty on a monthly basis within fourteen (14) calendar days of
presentation by American Guaranty of an itemized account of services rendered
and expenses incurred on behalf of Yadkin during the monthly period being
billed.
6. The arrangement established by this Agreement may be
terminated by either party by written notice delivered to the other party. Any
such termination shall not, however, relieve Yadkin of the requirement to
remunerate and reimburse American Guaranty for services and expenses incurred or
committed prior to the date of termination which properly are presented to the
Yadkin in accordance with the terms of this Agreement.
7. In the event this Agreement is terminated by either party,
American Guaranty hereby agrees to assist Yadkin in preparing any annual report
or reports required by any state insurance department for the last year during
which this Agreement is in effect. The services of American Guaranty in
assisting Yadkin in preparing any such report or reports shall not entitle
American Guaranty to any remuneration therefor.
8. American Guaranty agrees to employ standard accounting
practices employed by the insurance industry in the operation and development of
the business of Yadkin. This Agreement shall be construed in accordance with the
general practices and accounting methods of the insurance industry.
9. Yadkin, upon reasonable request and during American
Guaranty's regular business hours, shall be permitted to examine such books and
records of American Guaranty as relate American Guaranty's services under this
Agreement.
10. American Guaranty shall permit the North Carolina
Commissioner of Insurance, upon reasonable request and during American
Guaranty's regular business hours, to examine and audit such books and records
of American Guaranty as relate to American Guaranty's services under this
Agreement.
11. This Agreement shall be performed in the State of North
Carolina, and notwithstanding the principles of conflicts of law, the internal
laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Agreement.
12. In the event any term or condition of this Agreement or
the application thereof to any circumstance or situation shall be invalid or
unenforceable in whole or in part, the remainder of such
2
<PAGE>
term or condition and the application thereof to any other circumstance or
situation shall not be affected thereby; and each term and condition of this
Agreement shall be valid and enforceable to the full extent permitted by law.
13. This Agreement constitutes the entire agreement between
American Guaranty and Yadkin with regard to the provision of administrative
services by American Guaranty to Yadkin, and all prior negotiations,
understandings, terms, and conditions are merged herein. The terms of this
Agreement may not be changed or altered by parol statements made prior to or
subsequent to its execution, but may be modified only by an agreement in writing
signed by the parties hereto.
IN WITNESS WHEREOF, and in duplicate originals, American
Guaranty has caused this Agreement to be executed by its President, attested by
its Secretary, and its corporate seal to be hereto affixed, all effective as of
the Effective Date; and Yadkin has caused this Agreement to be executed by its
President, attested by is Secretary, and its corporate seal to be hereto
affixed, all effective as of the Effective Date.
AMERICAN GUARANTY:
AMERICAN GUARANTY INSURANCE COMPANY
By: /s/ David S. Perry
----------------------
President
Attest:
/s/ Charles A. Cobb
- - -------------------
Secretary
[SEAL]
YADKIN:
YADKIN VALLEY COMPANY
By: /s/ David S. Perry
----------------------
President
Attest:
/s/ E. Thomas Lucas
- - -------------------
Secretary
[SEAL]
3
<PAGE>
Exhibit 22
SUBSIDIARIES OF REGISTRANT
Yadkin Valley Life Insurance Company
<PAGE>
Exhibit 99
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report ................................................................................ 1
Consolidated Balance Sheets.................................................................................. 2
Consolidated Statements of Income............................................................................ 3
Consolidated Statements of Changes in Shareholders' Equity................................................... 4
Consolidated Statements of Cash Flows........................................................................ 5
Notes to Consolidated Financial Statements................................................................... 6 - 12
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Yadkin Valley Company:
We have audited the accompanying consolidated balance sheets of Yadkin Valley
Company and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Yadkin Valley
Company and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
February 6, 1998
<PAGE>
1
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C>
Assets 1997 1996
------ ---- ----
Cash $ 45,061 69,498
Investments in equity securities (notes 2 and 3) 14,041,263 8,760,962
Certificates of deposit (notes 2, 4 and 6) 425,854 550,000
------------ --------
14,512,178 9,380,460
Accrued investment income 3,148 697
Federal income taxes recoverable 6,029 -
State income taxes recoverable 4,003 -
Other assets 100 100
------------- ---------
Total assets $ 14,525,458 9,381,257
========== =========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
- - ------------
Life policy claims reserve (note 6) 30,121 15,881
Federal income taxes payable - 225,982
State income taxes payable - 55,127
Deferred income taxes (note 5) 4,569,027 2,502,206
Notes payable (note 3) 745,069 747,472
Other liabilities 5,582 7,472
-------------- ------------
Total liabilities 5,349,799 3,554,140
--------- ---------
Shareholders' equity (note 4):
Common stock, par value $1 per share; authorized 500,000 shares, issued and
outstanding 184,180 shares in 1997
and 184,396 shares in 1996 184,180 184,396
Retained earnings 1,837,884 1,724,326
Net unrealized gain on marketable equity securities (note 2) 7,153,595 3,918,395
----------- ---------
Total shareholders' equity 9,175,659 5,827,117
Total liabilities and shareholders' equity $ 14,525,458 9,381,257
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C>
1997 1996
Premiums and other revenue:
Life premiums (note 6) $ 326,054 380,859
Dividend income 23,715 29,669
Interest income 25,323 29,378
Gain on sale of equity securities 162,246 787,013
---------- ----------
537,338 1,226,919
------- ---------
Benefits and expenses:
Death benefits (note 6) 104,405 72,799
Increase (decrease) in liability for life policy claims (note 6) 14,240 (3,211)
Operating expenses:
Commissions (note 6) 146,865 171,770
Interest 62,867 55,353
Professional fees 17,278 31,715
Management fees (note 6) 16,107 15,261
General, administrative and other 14,023 20,708
---------- ----------
375,785 364,395
------- -------
Income before income taxes 161,553 862,524
Income tax expense (note 5) 43,893 322,607
---------- ----------
Net income $ 117,660 539,917
========== ==========
Net income per share (note 1) $ 0.64 2.92
========== ==========
Weighted average shares outstanding 184,288 185,021
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C>
Net unrealized
gain on
marketable Total
Common Retained equity shareholders'
stock earnings securities equity
----- -------- ---------- ------
Balance at December 31, 1995 $ 185,289 1,198,216 2,932,819 4,316,324
Redemption of 893 shares of
common stock (893) (13,807) -- (14,700)
Net unrealized gains on marketable equity
securities, net of income taxes (note 2) -- -- 985,576 985,576
Net income -- 539,917 -- 539,917
---------- ---------- ---------- ----------
Balance at December 31, 1996 184,396 1,724,326 3,918,395 5,827,117
Redemption of 216 shares of
common stock (216) (4,102) -- (4,318)
Net unrealized gains on marketable equity
securities, net of income taxes -- -- 3,235,200 3,235,200
Net income -- 117,660 -- 117,660
---------- ---------- ---------- ----------
Balance at December 31, 1997 $ 184,180 1,837,884 7,153,595 9,175,659
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
<S> <C>
1997 1996
---- ----
Operating activities:
Net income $ 117,660 539,917
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of equity securities (162,246) (787,013)
Decrease in reserve for policy and contract claims 14,240 (3,211)
Decrease in amounts due to ceding company -- (5,857)
Increase in federal income taxes recoverable (6,029) --
Increase in state income taxes recoverable (4,003) --
Increase (decrease) in federal income taxes payable (225,982) 190,109
Increase (decrease) in state income taxes payable (55,127) 55,127
Decrease (increase) in premiums receivable -- 14,808
Decrease (increase) in accrued investment income (2,451) 5,570
Increase (decrease) in other liabilities (1,890) 2,540
---------- ----------
Net cash provided (used) by operating activities (325,828) 11,990
---------- ----------
Investing activities:
Proceeds from sale of available-for-sale equity securities 183,966 972,793
Purchases of available-for-sale equity securities -- (1,032,807)
Purchases of other equity securities -- (358,526)
Purchases of certificates of deposit (87,614) (2,330,598)
Maturities of certificates of deposit 211,760 2,395,747
---------- ----------
Net cash provided (used) by investing activities 308,112 (353,391)
---------- ----------
Financing activities:
Principal payments on notes payable (2,403) --
Proceeds from issuance of note payable -- 375,000
Purchases and retirement of common stock (4,318) (14,700)
---------- ----------
Net cash provided (used) by financing activities (6,721) 360,300
---------- ----------
Net increase (decrease) in cash (24,437) 18,899
Cash at beginning of year 69,498 50,599
---------- ----------
Cash at end of year $ 45,061 69,498
========== ==========
Cash payments for:
Interest $ 62,757 52,813
========== ==========
Income taxes $ 335,034 77,371
========== ==========
Non-cash investing and financing activities:
Increase in unrealized gain on marketable equity securities,
net of applicable income taxes of $2,066,821 and
$991,361, respectively. $ 3,235,200 985,576
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
December 31, 1997 and 1996
(1) Significant Accounting Policies
Basis of Presentation: The 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. Intercompany accounts and
transactions have been eliminated. The consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles which, as to the insurance subsidiary, may vary in some respects
from the statutory accounting practices which are prescribed or permitted
by the Insurance Department of the State of Arizona. The variations between
generally accepted accounting principles and statutory accounting practices
are not significant to the accompanying consolidated financial statements.
Line of Business: The Parent, which was organized as a North Carolina
holding company, manages the operations of Yadkin Valley Life Insurance
Company, which is in the business of assuming credit life insurance. All
reinsurance is assumed from Triangle Life Insurance Company (TLIC), which
is an affiliate through common ownership. TLIC issues credit life insurance
policies on loans made by three banks located in North Carolina: Southern
Bank and Trust, The Heritage Bank ("Heritage") and The Fidelity Bank. The
Company and the three aforementioned banks are related through certain
common ownership.
Yadkin Valley Life Insurance Company's assumption limit, which has been
determined by management, is $25,000 per policy.
Recognition of Premium Revenues: Revenue is recognized based on premiums
collected from ceding companies. The premiums are received monthly and are
based on the reinsurance coverage provided for the month. Since reinsurance
coverage is provided prior to the receipt of premiums, there is no deferral
of revenue to future periods.
Liabilities for Policy and Contract Claims: The reserve for life policy
claims includes estimates of losses on reported claims and claims incurred
but not reported. Although management believes that the liability for life
policy claims is adequate, the ultimate amount of such claims may vary,
perhaps significantly, from the estimated amounts in the financial
statements.
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Significant Accounting Policies, Continued
Investments: Investments in equity securities with readily determinable
fair values are classified as available-for-sale and are carried at fair
value. The unrealized holding gains and losses are reported as a separate
component of shareholders' equity, net of deferred income taxes. An equity
security's fair value is considered readily determinable if its price is
quoted on a registered securities exchange or in the over-the-counter
market.
Equity securities which do not have readily determinable fair values are
carried at the lower of aggregate costs or market value. A decline in the
fair value of securities which is deemed to be other than temporary is
recognized in earnings.
Realized gains and losses on equity securities are recognized in net income
using the specific identification method.
Income Taxes: Income tax provisions are based on income reported for
financial statement purposes. Deferred federal income taxes are recorded
based on temporary differences between the financial reporting basis and
the tax basis of assets and liabilities at enacted tax rates expected to be
in effect when such amounts are realized or settled.
Net Income Per Share: The Company adopted Statement of Financial Accounting
Standards 128 in 1997, which requires net income per share to be calculated
on both a basic and diluted basis. Net income per share is computed based
on the weighted average number of common shares outstanding during the year
and represents basic and diluted net income per share for 1997 and 1996.
Because the Company has no potentially dilutive securities, restatement of
1996 net income per share was not necessary.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
(2) Investments
Investments at December 31, 1997 and 1996, consisted of certificates of
deposit and equity securities. Certificates of deposit of $425,854 and
$550,000 at December 31, 1997 and 1996, respectively, are carried at cost.
These certificates of deposit have maturities of less than one year. The
cost of these securities approximates fair value.
Investments in equity securities at December 31, 1997 and 1996 are
classified as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Available-for-sale, carried at fair value $ 13,233,267 7,952,966
Other, carried at cost 807,996 807,996
------------ --------
$ 14,041,263 8,760,962
========== =========
</TABLE>
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Investments, Continued
Equity securities classified as available-for-sale at December 31, 1997
consist of the following securities:
<TABLE>
<CAPTION>
Number Unrealized Fair
Description of shares Cost gain value
<S> <C> <C> <C> <C>
First Citizens Bancorporation
of South Carolina, Inc. -
voting common stock -
par value $5 per share 35,000 $ 455,000 10,745,000 11,200,000
First Citizens BancShares,
Inc. - Class A common
stock - par value $1
per share 19,545 1,055,644 977,623 2,033,267
--------- ------------ -----------
Total $ 1,510,644 11,722,623 13,233,267
========= ========== ==========
</TABLE>
Equity securities classified as "other" and carried at cost at December 31,
1997 consist of the following securities:
<TABLE>
<CAPTION>
Number
Description of shares Cost
<S> <C> <C>
First Citizens Bancorporation of South Carolina, Inc. -
non-voting common stock - par value $5 per share 5,631 $ 267,473
First Citizens BancShares, Inc. - Class B common
stock - par value $1 per share 1,900 84,591
The Heritage Bank - common stock -
par value $1 per share 7,401 455,932
-------
Total $ 807,996
=======
</TABLE>
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Investments, Continued
Equity securities classified as available-for-sale at December 31, 1996
consist of the following securities:
<TABLE>
<CAPTION>
<S> <C>
Number Unrealized Fair
Description of shares Cost gain value
----------- --------- ---- ---- -----
First Citizens Bancorporation of
South Carolina, Inc. - voting
common stock - par value
$5 per share 35,000 $ 455,000 5,845,000 6,300,000
First Citizens BancShares, Inc. -
Class A common stock - par
value $1 per share 19,545 1,055,645 449,321 1,504,966
First Union Corporation - common
stock - par value $3.33 per share 2,000 21,720 126,280 148,000
----------- ---------- ----------
Total $ 1,532,365 6,420,601 7,952,966
========= ========= =========
</TABLE>
Equity securities classified as "other" and carried at cost at December 31,
1996 consist of the following securities:
<TABLE>
<CAPTION>
<S> <C>
Number
Description of shares Cost
----------- --------- ----
First Citizens Bancorporation of South Carolina, Inc. -
non-voting common stock - par value $5 per share 5,631 $ 267,473
First Citizens BancShares, Inc. - Class B common stock -
par value $1 per share 1,900 84,591
The Heritage Bank - common stock - par value $1 per share 7,401 455,932
-------
Total $ 807,996
=======
</TABLE>
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Notes Payable
Notes payable at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
Note payable on demand, interest payable
quarterly at prime rate $ 297,169 297,472
Note payable on demand, interest payable
quarterly at prime rate 72,900 75,000
Note payable due March 11, 1998,
renewable annually, interest at
prime rate less .5% 375,000 375,000
------- -------
$ 745,069 747,472
======= =======
</TABLE>
The notes payable are secured by 35,000 common shares of First Citizens
Bancorporation of South Carolina, Inc., which have a carrying value of
$11,200,000 at December 31, 1997.
(4) Shareholders' Equity and Restrictions
Prior approval by state regulators is required for insurance companies to pay
dividends to their shareholders in excess of certain limitations. In
addition, shareholders' equity and minimum capital requirements, as defined
by statute are restricted and cannot be distributed by insurance subsidiaries
without approval of the state insurance department. The amount which the
insurance subsidiary can pay in dividends during any twelve month period
without prior approval is limited by statute to the lesser of 10% of
statutory surplus, or statutory gain from operations of the previous fiscal
year. In 1997 and 1996, the subsidiary paid dividends to the parent of
$148,000 and $185,000, respectively.
Statutory surplus at December 31, 1997, and net income for the year then
ended of the insurance subsidiary, as computed in accordance with statutory
accounting practices, were $465,059 and $54,498, respectively. Statutory
surplus at December 31, 1996 and net income for the year then ended were
$556,515 and $106,627, respectively.
The insurance subsidiary has $100,000 of certificates of deposit on deposit
with the Arizona Department of Insurance.
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes
The Company has elected to file a consolidated federal income tax return.
Current income tax expense for the years ended December 31, 1997 and 1996 is
comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
Federal $ 36,713 267,480
State 7,180 55,127
------- --------
$ 43,893 322,607
====== =======
</TABLE>
There were no significant differences between the financial reporting basis
and the tax basis of assets and liabilities, except for the excess of the
financial reporting basis over the tax basis for marketable equity securities
with readily determinable fair values.
At December 31, 1997 and 1996, deferred income taxes represent the tax effect
of the excess of the financial statement carrying value over the income tax
basis for marketable equity securities with readily determinable fair values.
The reasons for the difference between total income tax expense and the
amount computed by applying the statutory federal income tax rate of 34% to
income before income taxes are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
Income tax expense at federal statutory rates $ 54,927 293,258
Deduct:
State income taxes, net of federal tax benefit 4,739 36,384
Effect of graduated tax rates (9,896) -
Effect of dividends received deduction
and other (5,877) (7,035)
------- -------
$ 43,893 322,607
====== =======
</TABLE>
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Related Parties
American Guaranty Insurance Company, a subsidiary of First Citizens Bank &
Trust Company ("FCB&T"), a subsidiary of First Citizens BancShares, Inc.
("FCB"), provides management services to the Company. Management fees were
$16,107 in 1997 and $15,261 in 1996.
As described in note 1, Yadkin Valley Life Insurance Company provides
reinsurance to TLIC, a company affiliated through certain common ownership.
Amounts related to business assumed from TLIC for 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
---- ----
Premiums assumed $ 326,054 380,859
Death benefits assumed 104,405 72,799
Life policy claims reserve assumed 30,121 15,881
Commissions assumed 146,865 171,770
</TABLE>
As described in note 2, the Company holds stock in FCB, First Citizens
Bancorporation of South Carolina, Inc. ("FCB-SC") and Heritage. The Company,
FCB, FCB-SC and Heritage are related through certain common ownership. At
December 31, 1997 and 1996, the Company also had $325,854 and $450,000,
respectively, invested in FCB&T certificates of deposits.
An executive officer and director of the Company is also a director of
Heritage. As part of reinsurance commissions assumed, the Company paid
approximately $19,526 and $20,627 in commissions to Heritage in 1997 and
1996, respectively.
