U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the Transition period ended________________
COMMISSION FILE NUMBER 0-26551
CATAWBA VALLEY BANCSHARES, INC.
NORTH CAROLINA 56-2137427
1039 SECOND STREET NE, HICKORY, NC 28601
(828) 431-2300
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 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_____
As of July 31, 1999, 1,359,410 shares of the Registrant common stock, $1.00 par
value, were outstanding. The Registrant has no other classes of securities
outstanding.
This report contains 12 pages.
<PAGE>
Page No.
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
June 30, 1999 and December 31, 1998.......................3
Consolidate Statements of Operations
Three Months and Six Months Ended June 30, 1999 and 1998..4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998...................5
Notes to Consolidated Financial Statements................6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................6
PART II. OTHER INFORMATION...............................................10
Item 6. Exhibits and Reports on Form 8-K.................11
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CATAWBA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------------- ---------------------
(Unaudited) (1)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,234,719 $ 911,275
Interest bearing bank deposits 3,948,655 8,174,944
Federal funds sold 3,809,350 2,509,567
Time deposits with other financial institutions 2,475,978 2,476,956
Securities available for sale 12,878,393 9,564,531
Securities held to maturity,market value of
$2,081,166 in 1999 and $ 1,857,317 in 1998 2,099,713 1,833,472
Federal Home Loan Bank and Bankers Bank Stock 333,725 257,525
Loans 71,816,975 60,607,040
Less allowance for loan losses (1,205,881) (1,050,360)
--------------- -------------
Net loans 70,611,094 59,556,680
Premises and equipment, net 2,670,273 1,950,087
Other assets 1,926,442 2,432,965
--------------- -------------
Total assets $ 101,988,342 $ 89,668,002
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 5,147,292 $ 4,269,142
Money market and NOW accounts 25,826,770 22,880,065
Savings 1,673,566 1,203,456
Time , $100,000 and over 16,994,120 13,150,539
Other time 37,673,731 33,317,847
--------------- -------------
Total deposits 87,315,479 74,821,049
Other liabilities 106,392 529,529
--------------- -------------
Total liabilities 87,421,871 75,350,578
--------------- -------------
Stockholders' equity
Common stock, $1 par value; 1,359,410 shares
issued and outstanding 1,359,410
Common stock, $5 par value; 1,351,910 shares
issued and outstanding 6,759,550
Additional paid-in capital 12,444,573 6,979,408
Retained earnings 1,033,784 573,868
Accumulated other comprehensive income(loss) (271,296) 4,598
--------------- -------------
Total stockholders' equity 14,566,471 14,317,424
--------------- -------------
Total liabilities and stockholders' equity $ 101,988,342 $ 89,668,002
=============== =============
(1) Derived from audited financial statements
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
CATAWBA VALLEY BANCSHARES, INC.
COMSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------------- ---------------- --------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C>
Interest income:
Interest and fees on loans $1,585,928 $1,200,175 $3,053,375 $2,275,862
Interest on securities including
mortgage backed 196,357 121,220 375,282 226,948
Interest on federal funds sold 29,013 35,658 52,334 69,467
Interest on interest bearing bank
deposits 48,239 68,453 91,534 153,565
Interest on time deposits with
other institutions 35,258 33,991 69,349 63,384
------------- --------------- -------------- ----------
Total interest income 1,894,795 1,459,497 3,641,874 2,789,226
------------- --------------- -------------- ----------
Interest expense:
Savings deposits 965,998 794,339 1,847,897 1,545,613
------------- --------------- -------------- ----------
Total interest expense 965,998 794,339 1,847,897 1,545,613
------------- --------------- -------------- ----------
Net interest income 928,797 665,158 1,793,977 1,243,613
Provision for loan losses 74,724 76,281 173,987 159,719
------------- --------------- -------------- ----------
Net interest income after provision
for loan losses 854,073 588,877 1,619,990 1,083,894
------------- --------------- -------------- ----------
Noninterest income:
Service charges on deposit accounts 69,258 57,540 128,666 104,712
Other 138,550 126,857 274,525 240,824
------------- --------------- -------------- ----------
Total noninterest income 207,808 184,397 403,191 345,536
------------- --------------- -------------- ----------
Noninterest expense:
Salaries, wages and employee benefits 316,081 226,010 613,915 422,634
Occupancy 44,826 34,204 84,692 58,788
Equipment 51,317 29,838 87,326 58,799
Professional Fees 56,349 30,107 89,845 44,322
Stationery, printing and supplies 20,634 10,402 39,730 18,943
Advertising and business promotion 43,598 24,236 76,555 49,458
Other 158,546 104,365 300,144 206,951
------------- --------------- -------------- -----------
Total noninterest expense 691,351 459,162 1,292,207 859,895
------------- --------------- -------------- -----------
Income before income taxes 370,530 314,112 730,974 569,535
Provision for income taxes 138,492 153,527 271,778 253,403
------------- --------------- -------------- -----------
Net income $232,038 $160,585 $459,196 $316,132
============= =============== ============== =========
Basic income per share $0.17 $0.15 $0.34 $0.30
Diluted income per share $0.15 $0.14 $0.31 $0.28
============= =============== ============== =========
Weighted average common shares outstanding
Basic 1,359,410 1,351,110 1,355,660 1,051,110
Effect of stock options 115,303 86,118 115,172 75,891
------------- --------------- -------------- -----------
Diluted 1,474,713 1,437,228 1,470,832 1,127,001
============= =============== ============== ===========
</TABLE>
4
<PAGE>
CATAWBA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 459,196 $ 316,132
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation & amortization 89,658 61,130
Issuance of stock options 65,025 0
Provision for loan losses 173,987 159,719
(Increase)decrease in other assets (506,524) 27,321
Increase(decrease) in other liabilities (423,137) 107,924
--------------------- ---------------------
Net cash provided by (used in) operating activities (141,795) 672,226
--------------------- ---------------------
Cash flows from investing activities:
(Increase)decrease in time deposits with other financial institutions 978 (995,990)
Purchase of securities available for sale (6,075,000) (3,272,827)
Purchase of securities held to maturity (360,000) (484,622)
Collections and maturities of securities available for sale 3,314,687 376,558
Collections and maturities of securities held to maturity 93,759 1,478,450
Proceeds from sale of securities available for sale
Net increase in loans (11,209,935) (6,701,113)
Purchases or premises and equipment (720,186) (244,532)
--------------------- ---------------------
Net cash used in investing activities (14,955,697) (9,844,076)
--------------------- ---------------------
Cash flows from financing activities:
Net increase in deposit accounts 12,494,430 7,500,053
Proceeds from issuance of common stock
--------------------- ---------------------
Net cash provided by financing activites 12,494,430 7,500,053
--------------------- ---------------------
Net increase(decrease) in cash and cash equivalents (2,603,062) (1,671,797)
Cash and cash equivalents, beginning of period 11,595,786 12,297,535
--------------------- ---------------------
Cash and cash equivalents, end of period $ 8,992,724 $ 10,625,738
===================== =====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CATAWBA VALLEY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
In management's opinion, the Financial Information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the Financial information as of and for the three and
six month periods ended June 30, 1999 and 1998, in conformity with generally
accepted accounting principles. The Financial Statements include the accounts of
Catawba Valley Bancshares, Inc. (the "Company") and it's wholly-owned
subsidiary, Catawba Valley Bank, (the "Bank"). Operating results for the three
and six month periods ended June 30, 1999 are not necessarily indicative of the
results that maybe expected for the fiscal year ending December 31, 1999.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Financial
Statements filed as part of the Company's Registration Statement on Form S-4.
This quarterly report should be read in conjunction with such Registration
Statement.
NOTE B - FORMATION OF HOLDING COMPANY
Catawba Valley Bancshares, Inc. was formed as a Holding company for Catawba
Valley Bank effective June 30, 1999.
NOTE C - COMPREHENSIVE INCOME
For the three months ended June 30, 1999 and 1998, total comprehensive income,
consisting of Net income and unrealized securities gains and losses, Net of
taxes, was $125,817 and $166,197 respectively. For the six months ended June 30,
1999 and 1998, total comprehensive income was $284,445, and $316,515,
respectively.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER 31, 1998
During the six months ended June 30, 1999, total assets increased $12.3 million
13.7% from $89.7 million to $102.0 million. Total loans outstanding increased
$11.2 million or
6
<PAGE>
18.50% for the same period. The growth in these areas was funded by a $12.5
million or 16.70% increase in deposits.
The Bank opened it's third full service branch during the first quarter of 1999.
This, along with the active solicitation of loans and deposits the company
performs, generated the positive results discussed above.
Total stockholders' equity increased $249,047 for the six month period ended
June 30, 1999. The increase resulted principally from net income of $459,196 for
the six months. At June 30, 1999 the Bank continued to exceed all applicable
Regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
1998.
Net Income. Net income for the quarter ended June 30, 1999 was $232,038 or $.17
per share, as compared with net income of $160,585 or $.15 per share for the
three months ended June 30, 1998, and increase of $71.435 or $.02 per share.
Net Interest Income. Net interest income for the quarter ended June 30, 1999 was
$928,797 as compared with $665,158 during the quarter ended June 30, 1998, an
increase of $263,639.
Provision for Loan Losses. The provision for loan losses was $74,724 and $76,281
for the quarters ended June 30, 1999 and 1998 respectively. There were net loan
charge offs of $72,298 during the quarter ended June 30, 1999 as compared with
the net charge offs of $18,994 during the quarter ended June 30, 1998. At June
30, 1999, non accrual loans aggregated $34,726.
Non Interest Income. Non interest income was $207,806 for the quarter ended June
30, 1999 compared to $184,397 for the quarter ended June 30, 1998, an increase
of $23,409.
Non Interest Expense. Non interest expense increased to $691,351 during the
quarter ended June 30, 1999 as compared to $459,162 for the quarter ended June
30, 1998, an increase of $232,189. The growth discussed under the comparison of
Financial Condition section along with the costs associated with the opening of
the third full service branch resulted in the increase.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 199 AND
1998
Net Income. Net income for the six months ended June 30, 1999 was $459,196 or
$.34 per share, as compared with net income of $316,132 or $.30 per share for
the six months ended June 30, 1998 an increase of $143,064 or $.04 per share. An
increase in net interest income of $550,364 and an increase in non interest
income of $57,655 for the six
7
<PAGE>
month period were off set by an increase in non interest expense of $432,312 and
an increase in non interest income of $57,655 for the six month period. The
growth discussed under the comparison of Financial Condition section along with
the costs associated with the opening of the third full service branch
attributed to these increases.
Net Interest Income. Net interest income was $1.8 million during the six months
ended June 30, 1999 as compared with $1.2 million during the corresponding
period of the previous fiscal year, an increase of $550,000. The yield on
interest earning assets has remained constant while the cost of funds has
decreased.
Provision for Loan Losses. The provision for loan losses was $173,987 and
$159,719 for the six months ended June 30, 1999 and 1998, respectively. There
were net loan charge offs of $18,467 for the six months ended June 30, 1999 as
compared with net charge offs of $48,370 during the six months ended June 30,
1998. At June 30, 1999, non accrual loans aggregated $34,726.
Non Interest Income. Non interest income was $403,191 for the six months ended
June 30, 1999 as compared with $345,536 for the six month ended June 30, 1998.
Non Interest Expense. Non interest expense increased to $1,292,207 during the
six month period ended June 30, 1999 as compared to $859,895 for the six months
ended June 30, 1998, an increase of $432,312. The growth discussed under
Comparison of Financial Condition section, along with the costs associated with
the opening of the third full service branch resulted in the increase.
LIQUIDITY AND CAPITAL RESOURCES
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addressees the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
and to fund new loans and investments as opportunities arise.
The primary sources of internally generated funds are principal and interest
payments on loans receivable, cash flows generated from operations and
repayments of mortgage backed securities. The external source of funds is an
increase in deposits.
At June 30, 1999, liquid assets comprised 20 % of total assets. Management
believes that it will have sufficient funds available to meet it anticipated
future loan commitments as well as other liquidity needs.
At June 30, 1999 the Bank exceeded all applicable Regulatory Capital
requirements
8
<PAGE>
YEAR 200 COMPLIANCE ISSUES
As the Year 2000 approaches, an important business issue has emerged regarding
whether or not existing computer systems and other operating systems can process
this date value properly. The problem is the result of computer programs and
related logic which use a two digit value to define a particular calendar year
(i.e. 99 for 1999). When this logic is used, computer systems cannot recognize
the two digit code "00" associated with the Year 2000 as coming after 99. This
issue is significant because many computer systems deployed throughout the
business world, not just in banks, use software which contain the two digit date
logic.
Before it opened on November 1, 1995, the Bank's management made the strategic
decision to use an outside data processing company (service bureau) to provide
computer processing systems for its primary banking products including loans,
deposits, ATM's, check processing and general ledger. The computer software used
by the service bureau was developed and is maintained by a third party vendor.
This same software is used by many banks throughout the country and uses a
five-digit date logic designed to avoid the problems associated with the two
digit logic discussed above.
In addition to the service bureau, the Bank utilizes personal computers
configured into five local area networks (LANS) which are in turn, connected to
each other through a wide area network (WAN). All equipment was purchased new in
1997 and has subsequently been tested for Year 2000 readiness by an independent
consultant. The test results indicate that all equipment will function properly
into the Year 2000.
In addition to the service bureau applications, the Bank uses software
distributed through the LAN/WAN network for functions such as word processing,
E-mail, spreadsheet, teller transactions, document preparation and new account
setup. All of these software products are purchased or licensed from third party
vendors. It should be noted that the Bank does not write or develop any of its
own computer applications and all third party vendors have provided the Bank
with written certification that there software is year 2000 compliant.
In addition to receiving these assurances from third party vendors, the Bank has
instituted a Year 2000 compliance program whereby it is reviewing the Year 2000
issue on a comprehensive, company-wide basis. This program is administered by a
project team consisting of executive and senior management as well as a
representative from the Board of Directors.
As of June 30, 1999, the Bank had completed its assessment of existing computer
systems and developed a detailed contingency plan for each system. However, the
Year 2000 is a global issue which extends beyond the control of the Bank and may
effect the providers of services such as power and telecommunications. These
services are critical to the ongoing operations of the Bank and in the unlikely
event of an interruption in these services, it is management's opinion that such
a failure will be quickly resolved.
9
<PAGE>
The Bank has budgeted $25,000 for the Year 2000 program and has spent
approximately $5,000 to date
As a lending institution, the Bank is exposed to potential risk if borrowers
suffer Year 2000 related difficulties and are unable to repay their loans. In
1998, the Bank sent informational material and a Year 2000 questionnaire to all
large borrowers which focused on their Year 2000 readiness. During the fourth
quarter 1998, the Bank's loan officers and account managers met with these
customers to personally review the answers to these questionnaires and to
discuss the impact of the Year 2000 on their operations. The Bank has evaluated
the information obtained from these meetings in order to determine what impact,
if any, the Year 2000 will have on their financial performance and their ability
to make loan payments. Thus far none of the Bank's borrowers have reported the
expectation of material adverse impacts as a result of the Year 2000 issue.
Based on the information now available. The Bank anticipates that the systems it
uses will properly process dates in the Year 2000 and beyond and that the costs
incurred in achieving full Year 2000 compliance will not be material to the
Bank's business, financial condition or results of operation.
PART II OTHER INFORMATION:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
On May 25, 1999 the shareholders of Catawba Valley Bank held its annual meeting
to elect three members of the Board of Directors for three year terms and to
vote on the Agreement and Plan of Reorganization and Share Exchange between the
Bank and the Registrant. Elected at the meeting for three year terms were
incumbent directors: R. Steve Aaron, W. Steve Ikerd and Pat M. Moss. Directors
whose term of office as a director continued after the meeting were Hal F.
Huffman, Jr., Robert P. Huntley, Robert T. King, Cloyd Hugh Propst, Jr., Howard
L. Pruitt and William R. Sigmon, Jr.
The share holders approved the reorganization of Catawba Valley Bank into a
holding company form of organization as set forth in the Agreement and Plan of
Reorganization and Share Exchange. Consummation of the Reorganization was
effective at the close of business on June 30, 1999. Each shareholder of the
Bank exchanged his $5.00 par value common stock for an equivalent number of
shares of the $1.00 par value common stock of the Registrant.
Voting results at the annual meeting were as follows:
1. To approve the Agreement and Plan of Reorganization and Share Exchange:
FOR AGAINST ABSTAIN
779,257 1,275 10,960
------- ----- ------
10
<PAGE>
2. Election of Directors:
FOR WITHHELD
R. Steve Aaron 1,012,968 -0-
W. Steve Ikerd 1,012,968 -0-
Pat M. Moss 1,000,518 12,450
Item 6, Exhibits and Reports on Form 8-K.
A) Exhibits
(27) Financial Data Schedule.
B) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1999.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf, by the undersigned, thereonto duly
authorized.
CATAWBA VALLEY BANCSHARES, INC.
Date: August 13, 1999 By: /s/ R. Steve Aaron
----------------
R. Steve Aaron
President and Chief Executive Officer
Date: August 13, 1999 By: /s/ G. Marvin Lowder
----------------------
G. Marvin Lowder
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,235
<INT-BEARING-DEPOSITS> 3,949
<FED-FUNDS-SOLD> 3,809
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,100
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 12,878
<LOANS> 71,817
<ALLOWANCE> 1,206
<TOTAL-ASSETS> 101,988
<DEPOSITS> 87,316
<SHORT-TERM> 0
<LIABILITIES-OTHER> 106
<LONG-TERM> 0
0
0
<COMMON> 1,359
<OTHER-SE> 13,207
<TOTAL-LIABILITIES-AND-EQUITY> 101,988
<INTEREST-LOAN> 3,053
<INTEREST-INVEST> 375
<INTEREST-OTHER> 214
<INTEREST-TOTAL> 3,642
<INTEREST-DEPOSIT> 1,848
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,794
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,292
<INCOME-PRETAX> 731
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459
<EPS-BASIC> .34
<EPS-DILUTED> .31
<YIELD-ACTUAL> 3.56
<LOANS-NON> 35
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 113
<RECOVERIES> 95
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
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</TABLE>
