U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999. Commission File No. 1-14081
YADKIN VALLEY COMPANY
- --------------------------------------------------------------------------------
(Name of small business issurer in its charter)
North Carolina 56-1249566
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Post Office Box 18747
Raleigh, North Carolina 27619 27602
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(919) 716-2266
-------------------------------------------------
(Registrant's Telephone Number including area code)
Securities registered under Section 12(b) of the Act : None
--------------------
Securities registered under Section 12(b) of the Act : Common stock, $1.00 par
value per share (Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Yes [X] No [ ]
Registrant's revenue for its most recent fiscal year were : $ 282,675.
----------
On March 24, 2000, the aggregate market value of the voting and non-voting
common equity held by nonaffiliates (computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity) was $ 1,537,190.
------------
On March 24, 2000, the number of outstanding shares of Registrant's common
stock was 183,619.
--------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 are incorporated herein in Part II.
Portions of Registrant's definitive Proxy Statement dated March 24, 2000,
are incorporated herein in Part III.
<PAGE>
PART I
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 credit life insurance policies ("credit life
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 12. 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.
Credit life policies are sold by Southern, Fidelity and Heritage
pursuant to insurance contracts between them and Triangle Life and pursuant to
which they each receive commissions from Triangle Life on policies sold. These
policies provide life insurance coverage, subject to the amount, age and other
limitations specified in the insurance contracts, and are written on the lives
of customers of Southern, Fidelity and Heritage in connection with various
extensions of credit to those customers, including consumer and commercial loans
(installment and term), overdraft and equity lines of credit, and credit card
accounts. Policies are reinsured by Yadkin Valley Life pursuant to a Reinsurance
Agreement between it and Triangle Life which provides that Triangle Life will
automatically cede to Yadkin Valley Life, and Yadkin Valley Life will accept
from Triangle Life, 100% of the rights, obligations, liabilities and risks on
credit life policies up to a maximum of $25,000 of insurance in force on any one
life. At December 31, 1999 and December 31, 1998, respectively, there were 3,947
and 4,217 policies in force which were reinsured by Yadkin Valley Life.
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. On a monthly basis, Triangle Life pays to Yadkin Valley
Life, on a net basis, the amount of premiums on reinsured credit life policies
written, less the amount of "reinsurance commissions" owed by Yadkin Valley Life
pursuant to the Reinsurance Agreement. Reinsurance commissions are equal to 5%
of the gross premiums received on the reinsured policies, plus the amount of all
(I) premium taxes and regulatory charges which Triangle Life is required to pay
on such policies, (II) all commissions or service fees, including any contingent
compensation or other compensation, paid to creditors or agents with respect to
such policies, and (III) all guaranty association assessments or payments
attributable to such policies.
Claims on policies reinsured by Yadkin Valley Life are reported to Triangle Life
by Southern, Fidelity and Heritage as they arise and are investigated and paid
by the claims department of Triangle Life. Yadkin Valley Life reimburses
Triangle Life monthly for claims paid up to the limits of its risk. Yadkin
Valley Life maintains a reserve for claims, the amount of which is set and
changed from time to time by management. The reserve is reviewed annually by a
certified consulting actuary and adjusted based on industry standard
methodologies.
Neither Registrant nor Yadkin Valley Life employ any personnel. Subject
to the supervision and control of Registrant's Board of Directors, all
managerial, administrative and operational services necessary
-1-
<PAGE>
in carrying on Registrant's insurance holding company business and Yadkin Valley
Life's reinsurance business are provided to Registrant and Yadkin Valley Life by
American Guaranty Insurance Company, Raleigh, North Carolina ("American
Guaranty"), another wholly-owned subsidiary of FCB, pursuant to Administration
Agreements (the "Agreements"). (See "Item 12. Certain Relationships and Related
Transactions.")
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. Also, 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 12. Certain Relationships and Related Transactions." These investments
were made by Registrant beginning in 1986 and are deemed by Registrant's
management and directors to be prudent and sound investments for Registrant. The
following table lists the aggregate amounts of each of these investments, and
the percentages of Registrant's total consolidated assets represented by each
such amount, at the dates indicated.
AT 12/31/99 AT 12/31/98
----------- -----------
AMOUNT % AMOUNT %
------ ---- ------ ----
BancShares $ 1,399,026 11.5% $ 1,780,641 11.0%
Bancorporation 9,717,473 80.0 13,392,473 82.8
Heritage 455,932 3.8 455,932 2.9
Registrant and Yadkin Valley Life have three officers, none of whom are
compensated for their services as such, and no other employees. See " Item 9.
Directors, Executive Officers, Promoters and Control Persons."
ITEM 2. 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 12. Certain Relationships and Related
Transactions" below.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1999, Registrant was not a party to any legal
proceedings that are expected to have a material effect on its financial
condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
2
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Incorporated herein by reference to page 5 of Registrant's 1999 Annual
Report to Shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Incorporated herein by reference to pages 2 through 4 of Registrant's
1999 Annual Report to Shareholders.
ITEM 7. FINANCIAL STATEMENTS.
Incorporated herein by reference to pages 6 through 17 of Registrant's
1999 Annual Report to Shareholders.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
Incorporated herein by reference from pages 3 and 4 (under the captions
"Proposal 1: Election of Directors" and "Management Compensation") of
Registrant's definitive Proxy Statement dated March 24, 2000.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated herein by reference from page 4 (under the caption
"Management Compensation") of Registrant's definitive Proxy Statement
dated March 24, 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference to pages 2 and 3 (under the caption
"Beneficial Ownership of Securities") of Registrant's definitive Proxy
Statement dated March 24, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to page 4 and 5 (under the caption
"Certain Relationships and Transactions") of Registrant's definitive
Proxy Statement dated March 24, 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS. The following exhibits are filed herewith or incorporated
herein by reference as part of this Report.
3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
3.1 Registrant's Restated Articles of Incorporation (incorporated
herein by reference to Registrant's Registration Statement on
Form 10-SB)
3.2 Registrant's Bylaws (incorporated herein by reference to
Registrant's Registration Statement on Form 10-SB)
10.1 Administration Agreement between Registrant and American
Guaranty Insurance Company (incorporated herein by reference
to Registrant's Registration Statement on Form 10-SB)
10.2 Administration Agreement between Yadkin Valley Life and
American Guaranty Insurance Company (incorporated herein by
reference to Amendment No. 1 to Registrant's Registration
Statement on Form 10-SB)
10.3 Reinsurance Agreement between Yadkin Valley Life and Triangle
Life Insurance Company (incorporated herein by reference to
Amendment No. 1 to Registrant's Registration Statement on Form
10-SB)
13 Registrant's 1999 Annual Report to Shareholders (filed
herewith)
22 Subsidiaries of Registrant (incorporated herein by reference
to Registrant's Registration Statement on Form 10-SB)
99 Registrant's definitive Proxy Statement dated March 24, 2000
as filed with the Securities and Exchange Commission (not
being refiled)
(B) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed by
Registrant during the last quarter of the period covered by this Report on Form
10-KSB.
4
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
YADKIN VALLEY COMPANY
DATE: MARCH 24 , 2000 BY: /s/ David S. Perry
------ -------------------------
David S. Perry, President
In accordance with Section13 or 15(d) of the Securities and Exchange
Act of 1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
President, Treasurer and March 24, 2000
- ------------------------------------ Director (chief executive
David S. Perry and chief financial officer)
Vice President, Secretary March 24, 2000
- ------------------------------------ and Director
E. Thomas Lucas
Director March 24, 2000
- ------------------------------------
Hope Holding Connell
</TABLE>
5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Registrant's Restated Articles of Incorporation (incorporated
herein by reference to Registrant's Registration Statement on
Form 10-SB)
3.2 Registrant's Bylaws (incorporated herein by reference to
Registrant's Registration Statement on Form 10-SB)
10.1 Administration Agreement between Registrant and American
Guaranty Insurance Company (incorporated herein by reference
Registrant's Registration Statement on Form 10-SB)
10.2 Administration Agreement between Yadkin Valley Life and
American Guaranty Insurance Company (incorporated herein by
reference to Amendment No. 1 to Registrant's Registration
Statement on Form 10-SB)
10.3 Reinsurance Agreement between Yadkin Valley Life and Triangle
Life Insurance Company (incorporated herein by reference to
Amendment No. 1 to Registrant's Registration Statement on Form
10-SB)
13 Registrant's 1999 Annual Report to Shareholders (filed
herewith)
22 Subsidiaries of Registrant (incorporated herein by reference
to Registrant's Registration Statement on Form 10-SB)
99 Registrant's definitive Proxy Statement dated March 24, 2000,
as filed with the Securities and Exchange Commission (not
being refiled)
6
EXHIBIT 13
YADKIN VALLEY COMPANY
1999 ANNUAL REPORT TO SHAREHOLDERS
7
<PAGE>
1999 ANNUAL REPORT TO SHAREHOLDERS
BUSINESS
Yadkin Valley Company ("Yadkin") was incorporated under the laws of
North Carolina during 1979. Its primary activity is the ownership of all the
outstanding shares of the 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 risk associated with credit life
insurance policies ("credit life policies") up to a maximum risk of $25,000 on
any one insured, issued only by Triangle Life Insurance Company, Raleigh, North
Carolina, and sold only in North Carolina by The Fidelity Bank, Fuquay-Varina,
North Carolina, The Heritage Bank, Lucama, North Carolina, and Southern Bank and
Trust Company, Mount Olive, North Carolina. Triangle Life is a wholly owned
subsidiary of First-Citizens Bank & Trust Company, Raleigh, North Carolina. 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 and
insurance taxes paid.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRINCIPAL OCCUPATION
POSITION WITH AND EMPLOYMENT
NAME YADKIN BUSINESS PRINCIPAL
Hope Holding Connell Director Senior Vice President,
First Citizens Bank & Banking
Trust Company
E. Thomas Lucas Director, Retired; formerly President
Vice President and Chief Executive Officer,
Secretary The Heritage Bank Banking
David S. Perry Director, President,
President, American Guaranty Insurance Company Insurance
Treasurer Triangle Life Insurance Company
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is presented to assist shareholders in
understanding Yadkin's consolidated financial condition and results of
operations and should be read in conjunction with the audited consolidated
financial statements appearing elsewhere in this report.
RESULTS OF OPERATION. Yadkin's net loss for 1999 was $3,172, compared
to net loss of $47,512 for 1998. The primary factors contributing to the change
in net loss between 1998 and 1999 were (i) a decrease of $34,210 in revenue from
life premiums; (ii) a decrease of $15,896 in interest paid on outstanding loans;
and (iii) a decrease in death benefit claims paid of $92,258.
The decrease in life premiums between 1998 and 1999 was largely due to
a decrease in premium writings by producers for the company from whom Yadkin
Valley Life assumes business. Since Yadkin Valley Life does not directly solicit
business from customers, its revenue from life premiums is dependent on the
volume generated by the ceding insurance company. Accordingly, these decreases
may continue in future periods to the extent that the producers do not generate
additional volume. As set forth in Note 6 to the Consolidated Financial
Statements, the ceding insurance company is related through common ownership to
Yadkin.
8
<PAGE>
The decrease in interest paid on outstanding loans was due to a
favorable interest rate environment, as the amount of outstanding loans
increased by $30,000 during 1999. Any future decrease or increase in interest
paid will depend on the interest rate environment and Yadkin's ability to reduce
loans or the need for additional borrowing.
Yadkin's investments in marketable equity securities that are accounted
for in accordance with SFAS No. 115 experienced a decline in their fair values,
during the year ended December 31, 1999 and an increase during the year ended
December 31, 1998, resulting in an increase (decrease) in unrealized gains, net
of taxes, of ($2,475,239) in 1999 and $993,589 in 1998. Substantially all of
these unrealized gains arise from investments in marketable equity securities
issued by banking organizations. Contributing to the increase in 1998 was an
increase throughout the financial services industry in the market values of
banking enterprises in general. Additionally, contributing to the decrease in
1999 was a decrease throughout the financial services industry in the market
values of banking enterprises in general. Decreases in the fair values of these
investments in future periods will result in continued reductions of
shareholders' equity. See further discussion of the salability of these
investments in "Liquidity" below.
Total death benefit claims paid in 1999 were $49,207, a decrease of
$92,258 when compared to death benefit claims paid of $141,465 in 1998. While
management considers the death benefit claims paid in 1999 to be lower than what
can be expected in future periods, the amount of paid claims is more
representative of Yadkin's historical levels and industry averages. Accordingly,
the estimate of Yadkin Valley Life's life policy claim reserves at December 31,
1999 decreased $3,498 (26%) from December 31, 1998. The estimate of life policy
claim reserves will vary from period to period based on actuarial development
and amount of known claims at the period reporting date.
Income tax benefit was $28,258 in 1998, compared to income tax benefit
of $11,903 in 1998. This change was primarily due to a decrease in loss before
income taxes from a loss of $75,770 in 1998 to a loss of $15,075 in 1999.
FINANCIAL CONDITION. During 1999, total assets declined 24.9% from
$16,174,256 at December 31, 1998, to $12,139,776 at December 31, 1999, primarily
due to decline in unrealized gains on marketable equity securities. There were
no other material changes in assets during 1999.
During 1999, total liabilities decreased from $6,062,372, at December
31, 1998, to $4,507,637 at December 31, 1999. The decrease in deferred federal
income taxes on the unrealized gains on investments was $1,581,371 while total
liabilities decreased $1,554,735.
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, borrowings from a commercial bank have allowed
Yadkin to fund asset growth and maintain liquidity.
Management believes the liquidity of Yadkin to be adequate as evidenced
by a ratio of assets to liabilities of 2.69 at December 31, 1999 and 2.67
December 31, 1998. Additionally, investments in equity securities had a carrying
value at December 31, 1999 and December 31, 1999 of $11,572,431 and $15,629,046
respectively, substantially all of which are classified as available for sale
and portions of which could be sold as a source of cash. A factor which could
impact Yadkin's financial position and liquidity are significant increases or
decreases in the market values of these equity securities. While management
considers these securities to be readily marketable, Yadkin's ability to sell a
substantial portion of these investments may be inhibited by the limited trading
in most of these issuances, and, as a result, Yadkin could realize substantial
losses on any such sales. In the event the need for additional liquidity arises,
management believes that, as an alternative to selling investment securities,
Yadkin has the ability to borrow additional funds from outside sources, using
its investment securities as collateral if necessary.
9
<PAGE>
CAPITAL RESOURCES. There are no material commitments for capital
expenditures and none are anticipated. At December 31, 1999, Yadkin had
outstanding borrowings of $869,205 secured by 10,000 voting common shares of
First Citizens Bancorporation of South Carolina, Inc. and 19,864 shares of First
Citizens BancShares, Inc. with a fair market value of approximately $4,044,011.
Any funds needed to satisfy loan repayments will be derived from dividends from
Yadkin Valley Life and the sale of or repositioning of investments.
UPDATE ON YEAR 2000. The date rollover to the year 2000 in computer
programs with which Yadkin interacts was successfully achieved. To the best of
management's knowledge and belief, the Year 2000 issue had no impact on the
operations of Yadkin, ceding company or any vendor. Management notes that the
Company is not heavily dependent on computer programs in the course of
performing day-to-day operations, as a result of the size of the Company and the
fact that Yadkin Valley Life acts a reinsurer and not a primary insurer. As a
reinsurer, Yadkin Valley Life is not required to maintain extensive policyholder
information on record. The ceding company maintains all such policyholder
information.
Yadkin identified The Fidelity Bank, The Heritage Bank, and Southern
Bank & Trust Company as the most significant vendors with whom they interact
(through the ceding company) in the course of daily operations. These banks are
responsible for calculating and paying premiums to the ceding company. The
ceding company is therefore reliant on the Year 2000 readiness of the banks. The
banks' loan system provides all information necessary to provide and maintain
the credit life insurance written by the ceding company.
Significant expenditures to address the Year 2000 issue were not
required of Yadkin. There was no material cost to Yadkin for the Year 2000
project during the year 1999.
ACCOUNTING MATTERS. During 1998, Yadkin adopted the provisions of
the Financial Accounting Standards Board's ("FASB'S") Statements of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements.
Comprehensive income includes all non-owner changes in equity during a period
and is divided into two broad classifications: (i) net income and (ii) other
comprehensive income. For Yadkin, other comprehensive income consists solely of
unrealized gains on securities available for sale, net of taxes.
Management monitors the activities of the FASB and assesses the
impact that new and proposed accounting standards could have on Yadkin's
consolidated financial statements. Management is currently unaware of any new or
proposed accounting standards that could have a material affect on Yadkin's
consolidated financial statements.
FORWARD-LOOKING STATEMENTS. The foregoing discussion may contain
statements that could be deemed forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and the Private Securities
Litigation Reform Act, which statements are inherently subject to risks and
uncertainties. Forward-looking statements are statements that include
projections, predictions, expectations, or beliefs about future events or
results or otherwise are not statements of historical fact. Such statements are
often characterized by the use of qualifying words (and their derivatives) such
as "expect," "believe," "estimate," "plan," "project," or other statements
concerning opinions or judgment of the Company and its management about future
events. Factors that could influence the accuracy of such forward looking
statements include, but are not limited to, the financial success or changing
strategies of the Company's customers, actions of government regulators, the
level of market interest rates, and general economic conditions.
10
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
There is not an active market for Yadkin's common stock. However, the
stock is traded over the counter and the OTC Bank Trust and Insurance Industry
System publish quotations for the stock.
The following table lists the high and low closing bid prices for
Yadkin's common stock in the over the counter market for the periods indicated.
This information was supplied by First Citizens Bank & Trust Company, which
serves as Transfer Agent of Yadkin, and should not be taken as an indication of
the existence of any established trading market.
Year Quarterly period High bid Low bid
- ---- ---------------- -------- -------
1999 Fourth Quarter $18.125 $17.750
Third Quarter 17.750 17.500
Second Quarter 17.750 17.500
First Quarter 17.500 17.500
1998 Fourth Quarter 18.000 17.000
Third Quarter 18.000 17.500
Second Quarter 18.000 18.000
First Quarter 18.000 18.000
1997 Fourth Quarter 17.500 17.500
Third Quarter 17.000 16.500
Second Quarter 16.500 16.500
First Quarter 16.500 16.500
The above quotations represent prices between dealers and do not
include retail markup, markdown or commissions, and they do not represent actual
transactions.
Yadkin has never paid cash dividends on its common stock and does not
anticipate any change in its existing dividend policy or practice. Cash
dividends may be authorized 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, Yadkin 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 its
statutory capital and surplus or the amount of its gain from operations for the
previous fiscal year.
As of December 31, 1999, Yadkin's outstanding common stock was held by
an aggregate of approximately 897 shareholders of record.
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The 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, 1999 and 1998, and the related
consolidated statements of income (loss), changes in shareholders' 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, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG LLP
Raleigh, North Carolina
February 11, 2000
12
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1999 1998
---------------- ---------------
Cash $ 57,026 51,980
Investments in equity securities (note 2) 11,572,431 15,629,046
Certificates of deposit (notes 2, 4 and 6) 491,291 439,502
---------------- ---------------
Total Cash and investments 12,120,748 16,120,528
Accrued investment income 3,695 3,885
Federal and state income taxes recoverable 15,233 49,743
Other assets 100 100
---------------- ---------------
Total assets $ 12,139,776 16,174,256
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Life policy claims reserve (note 6) 9,875 13,373
Deferred income taxes (note 5) 3,623,743 5,205,114
Notes payable (note 3) 869,205 839,205
Other liabilities 4,814 4,680
---------------- ---------------
Total liabilities 4,507,637 6,062,372
---------------- ---------------
Shareholders' equity (note 4):
Common stock, par value $1 per share; authorized 500,000 shares, issued and
outstanding 183,620 shares in 1999 and
183,692 shares in 1998 183,620 183,692
Retained earnings 1,776,574 1,781,008
Accumulated other comprehensive income (note 1) 5,671,945 8,147,184
---------------- ---------------
Total shareholders' equity 7,632,139 10,111,884
---------------- ---------------
Total liabilities and shareholders' equity $ 12,139,776 16,174,256
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Income (Loss)
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------- ---------
Premiums and other revenue:
Life premiums (note 6) $ 238,226 272,436
Dividend income 22,965 24,775
Interest income 20,895 21,218
Gain on sale of equity securities -- 13,591
Miscellaneous income 589 1,795
--------- ---------
282,675 333,815
--------- ---------
Benefits and expenses:
Death benefits (note 6) 49,207 141,465
Increase (decrease) in liability for life policy claims (note 6) (3,498) (16,748)
Operating expenses:
Commissions (note 6) 107,246 122,777
Interest 56,029 61,203
Professional fees 38,231 54,127
Management fees (note 6) 16,116 15,165
General, administrative and other 34,419 31,596
--------- ---------
297,750 409,585
--------- ---------
Loss before income taxes (15,075) (75,770)
Income tax expense (benefit) (note 5) (11,903) (28,258)
--------- ---------
Net loss $ (3,172) (47,512)
========= =========
Net loss per share (note 1) $ (0.02) (0.26)
========= =========
Weighted average shares outstanding 183,656 183,936
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK EARNINGS INCOME EQUITY
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 184,180 1,837,884 7,153,595 9,175,659
Comprehensive income:
Net income -- (47,512) -- (47,512)
Net unrealized gains on equity securities,
Net of income taxes of $636,087 -- -- 993,589 993,589
-----------
Comprehensive income 946,077
Redemption of 488 shares of
Common stock (488) (9,364) -- (9,852)
----------- ----------- ----------- -----------
Balance at December 31, 1998 183,692 1,781,008 8,147,184 10,111,884
Comprehensive income:
Net loss -- (3,172) -- (3,172)
Net unrealized gains on equity securities,
Net of income taxes of $1,581,371 -- -- (2,475,239) (2,475,239)
-----------
Comprehensive income (2,478,411)
Redemption of 72 shares of
Common stock (72) (1,262) -- (1,334)
----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 183,620 1,776,574 5,671,945 7,632,139
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------- -----------
Operating activities:
Net loss $ (3,172) (47,512)
Adjustments to reconcile net income to net
Cash provided (used) by operating activities:
Gain on sale of equity securities -- (13,591)
Decrease in reserve for life policy and contract claims (3,498) (16,748)
Decrease (increase) in federal income taxes recoverable 34,510 (39,711)
Decrease (increase in) accrued investment income 190 (737)
Increase (decrease) in other liabilities 134 (902)
----------- -----------
Net cash provided (used) by operating activities 28,164 (119,201)
----------- -----------
Investing activities:
Proceeds from sale of equity securities -- 55,484
Purchases of certificates of deposit (1,919,440) (1,549,935)
Maturities of certificates of deposit 1,867,656 1,536,287
----------- -----------
Net cash provided (used) by investing activities (51,784) 41,836
----------- -----------
Financing activities:
Principal payments on notes payable -- (805,067)
Proceeds from issuance of note payable 30,000 899,203
Purchases and retirement of common stock (1,334) (9,852)
----------- -----------
Net cash provided by financing activities 28,666 84,284
----------- -----------
Net increase in cash 5,046 6,919
Cash at beginning of year 51,980 45,061
----------- -----------
Cash at end of year $ 57,026 51,980
=========== ===========
Cash payments for:
Interest $ 55,895 62,105
=========== ===========
Income taxes $ -- 14,630
=========== ===========
Non-cash investing and financing activities:
Increase in unrealized gain on equity securities,
Net of applicable income taxes of $1,581,371 and
$636,087, respectively $(2,475,239) 993,589
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(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 ("Southern"), The Heritage Bank
("Heritage") and The Fidelity Bank ("Fidelity"). The Company and the
three aforementioned banks are related through certain common ownership
(see note 6).
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, based on information provided by the ceding
company and on the Company's historical experience. 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.
17
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 net of
deferred income taxes as a component of accumulated other comprehensive
income. 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 cost 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.
Fair Value of Financial Instruments: The Company's on-balance sheet
financial instruments are cash, investments in equity securities,
certificate of deposit, and notes payable. Fair values of investment in
equity securities are discussed in note 2. The carrying values of other
on-balance sheet financial instruments approximate fair value.
The fair value estimates are made at a specific point in time based on
relevant market information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holding of a
particular financial instrument. In cases where quoted market prices are
not available, fair value estimates are based on judgments regarding
current economic conditions, risk characteristics of financial
instruments, and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions
could significantly affect the estimates. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered in the estimates. Finally, the fair value estimates
presented herein are based on pertinent information available to
management as of December 31, 1999 and 1998, respectively. Such amounts
have not been comprehensively revalued for purposes of these financial
statements since those dates and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
COMPREHENSIVE INCOME: Other comprehensive income consists of unrealized
gains on marketable equity securities.
18
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Net Income Per Share: 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 1999 and 1998,
since the Company has no potentially dilutive common stock.
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 as of the dates of the consolidated balance sheets and the
reported amounts of income and expense included in the consolidated
statements of income. Actual results could differ from those estimates.
The most significant estimate the Company makes in preparing its
consolidated financial statements relates to the determination of the
life policy claims reserve.
(2) INVESTMENTS
Investments at December 31, 1999 and 1998, consisted of certificates of
deposit and equity securities. Certificates of deposit of $492,291 and
$439,502 at December 31, 1999 and 1998, respectively, are carried at
cost. These certificates of deposit have maturities of less than one
year. The cost of these securities approximates fair value.
Set forth in the consolidated statements of cash flows are gross realized
gains and proceeds from sales of equity securities.
Investments in equity securities at December 31, 1999 and 1998 are
classified as follows:
1999 1998
----------- -----------
Available-for-sale, carried at fair value $10,764,435 14,821,050
Other, carried at cost 807,996 807,996
----------- -----------
$11,572,431 15,629,046
=========== ===========
19
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
At December 31, 1999 and 1998, the estimated fair value of investments in
equity securities carried at cost were $1,955,735 and $2,272,789,
respectively.
Equity securities classified as available-for-sale at December 31, 1999
consist of the following securities:
<TABLE>
<CAPTION>
<S> <C> <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 8,995,000 9,450,000
First Citizens BancShares,
Inc. - Class A common stock -
par value $1 per share 18,845 1,013,751 300,684 1,314,435
--------- --------- ----------
Total $ 1,468,751 9,295,684 10,764,435
========= ========= ==========
</TABLE>
Equity securities classified as available-for-sale at December 31, 1998
consist of the following securities:
<TABLE>
<CAPTION>
<S> <C> <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 12,670,000 13,125,000
First Citizens BancShares,
Inc. - Class A common stock -
par value $1 per share 18,845 1,013,751 676,528 1,696,050
---------- ---------- ----------
Total $ 1,468,751 13,346,528 14,821,050
========== ========== ==========
</TABLE>
20
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Equity securities classified as "other" and carried at cost at December
31, 1999 and 1998 consist of the following securities:
<TABLE>
<CAPTION>
<S> <C> <C> <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>
Included in certificates of deposit on the consolidated balance sheets
are $100,000 in certificates of deposit owned by Yadkin Valley Life
Insurance Company which are held on deposit with the Arizona Department
of Insurance.
(3) NOTES PAYABLE
Notes payable at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---------- -------
Advances under line of credit expiring June 5, 2000,
interest payable quarterly at LIBOR plus 1.25% $ 869,205 839,205
========== =======
</TABLE>
The line of credit, which is with an unrelated bank, is secured by 10,000
voting common shares of First Citizens Bancorporation of South Carolina,
Inc. ("FCB-SC") which have a carrying value of $2,700,000; 18,139 shares
of First Citizens BancShares, Inc. of North Carolina ("FCB") Class A
Common Class, which have a carrying value of $1,265,195; and 1,725 shares
of First Citizens BancShares, Inc. of North Carolina Class B Common
Class, which have a carrying value of $78,816. The Company may borrow up
to $1,000,000 under the line of credit.
21
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(4) SHAREHOLDERS' EQUITY AND RESTRICTIONS (UNAUDITED)
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. The maximum dividend which could be paid by the
subsidiary without prior approval was $51,464 at December 31, 1999. In
1999, the subsidiary paid dividends to the parent of $25,000, with
approval of the Arizona Department of Insurance.
Statutory surplus at December 31, 1999, and net income for the year then
ended of the insurance subsidiary, as computed in accordance with
statutory accounting practices, were $514,640 and $60,699, respectively.
Statutory surplus at December 31, 1998 and net income for the year then
ended were $487,072 and $25,514, respectively.
(5) INCOME TAXES
The Company has elected to file a consolidated federal income tax return.
Current income tax expense (benefit) for the years ended December 31,
1999 and 1998 is comprised of the following:
1999 1998
-------- --------
Federal $(11,903) (28,258)
State -- --
-------- --------
$(11,903) (28,258)
======== ========
At December 31, 1999 and 1998, 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.
22
<PAGE>
YADKIN VALLEY COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The reasons for the difference between total income tax expense (benefit)
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> <C>
1999 1998
--------------- -----------------
Income tax expense (benefit) at federal statutory rates $ (5,119) (25,762)
Deduct:
Effect of dividends received deduction and other (6,784) (2,496)
--------------- -----------------
$ (11,903) (28,258)
=============== =================
</TABLE>
(6) RELATED PARTIES
A director and certain significant shareholders of the Company are also
significant shareholders and in some cases directors of FCB, FCB-SC,
Heritage, TLIC, Fidelity, Southern and American Guaranty Insurance
Company ("AGI"). All of these entities are related through common
ownership. AGI and TLIC are subsidiaries of First-Citizens Bank & Trust
Company ("FCB&T"), which is a subsidiary of FCB.
AGI provides management services to the Company. Management fees were
$16,116 in 1999 and $15,165 in 1998.
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 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------- -----------------
Premiums assumed $ 238,226 272,436
Death benefits assumed 49,207 141,465
Life policy claims reserve assumed 9,875 13,373
Commissions assumed 107,246 122,777
</TABLE>
As part of reinsurance commissions assumed, the Company paid
approximately $13,979 and $17,019 in commissions to Heritage in 1999 and
1998, respectively.
As described in note 2, the Company holds stock in FCB, FCB-SC and
Heritage. At December 31, 1999 and 1998, the Company also had $391,291
and $339,502, respectively, invested in FCB&T certificates of deposits.
The interest rates on these certificates of deposit ranged from 4.3% to
5.2%.
23
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 11,572,431
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 11,572,431
<CASH> 548,317
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 12,139,776
<POLICY-LOSSES> 9,875
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 869,205
0
0
<COMMON> 183,620
<OTHER-SE> 7,448,519
<TOTAL-LIABILITY-AND-EQUITY> 12,139,776
238,226
<INVESTMENT-INCOME> 43,860
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 589
<BENEFITS> 45,709
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 107,246
<INCOME-PRETAX> (15,075)
<INCOME-TAX> (11,903)
<INCOME-CONTINUING> (3,172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,172)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
<RESERVE-OPEN> (13,373)
<PROVISION-CURRENT> 45,709
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 49,207
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 9,875
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
