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 SEPTEMBER 30, 1999
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the Transition period ended________________
COMMISSION FILE NUMBER 0-26551
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CATAWBA VALLEY BANCSHARES, INC.
-------------------------------
NORTH CAROLINA 56-2137427
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1039 SECOND STREET NE, HICKORY, NC 28601
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(828) 431-2300
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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 October 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 11 pages.
<PAGE>
Page No.
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PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
September 30, 1999 and December 31, 1998....................3
Consolidate Statements of Operations
Three Months and Nine Months Ended
September 30, 1999 and 1998.................................4
Consolidated Statements of Cash Flows
Nine Months Ended September 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
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CATAWBA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited) (1)
ASSETS
Cash and due from banks $ 1,862,203 $ 911,275
Interest bearing bank deposits 4,646,771 8,174,944
Federal funds sold 2,819,669 2,509,567
Time deposits with other financial institutions 2,277,978 2,476,956
Securities available for sale 14,198,628 9,564,531
Securities held to maturity,market value of
$2,151,478 in 1999 and $ 1,857,317 in 1998 2,182,048 1,833,472
Federal Home Loan Bank and Bankers Bank Stock 333,725 257,525
Loans 79,980,627 60,607,040
Less allowance for loan losses (1,282,238) (1,050,360)
------------- -------------
Net loans 78,698,389 59,556,680
Premises and equipment, net 2,653,489 1,950,087
Other assets 2,245,763 2,432,965
------------- -------------
Total assets $ 111,918,663 $ 89,668,002
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 8,198,921 $ 4,269,142
Money market and NOW accounts 27,798,882 22,880,065
Savings 2,158,126 1,203,456
Time , $100,000 and over 17,394,509 13,150,539
Other time 41,277,860 33,317,847
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Total deposits 96,828,298 74,821,049
Other liabilities 297,832 529,529
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Total liabilities 97,126,130 75,350,578
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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 1,293,701 573,868
Accumulated other comprehensive income(loss) (305,151) 4,598
------------- -------------
Total stockholders' equity 14,792,533 14,317,424
------------- -------------
Total liabilities and stockholders' equity $ 111,918,663 $ 89,668,002
============= =============
</TABLE>
(1) Derived from audited financial statements
The accompanying notes are an integral part of the financial statements.
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<PAGE>
CATAWBA VALLEY BANCSHARES, INC.
COMSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income:
Interest and fees on loans $1,781,463 $1,276,679 $4,834,838 $3,552,541
Interest on securities including mortgage backed 244,992 121,603 620,274 348,551
Interest on federal funds sold 34,313 27,384 86,647 96,851
Interest on interest bearing bank deposits 41,050 101,602 132,584 255,167
Interest on time deposits with other institutions 34,383 32,486 103,732 95,870
---------- ---------- ---------- ----------
Total interest income 2,136,201 1,559,754 5,778,075 4,348,980
---------- ---------- ---------- ----------
Interest expense:
Savings deposits 1,043,849 837,414 2,891,746 2,383,027
---------- ---------- ---------- ----------
Total interest expense 1,043,849 837,414 2,891,746 2,383,027
---------- ---------- ---------- ----------
Net interest income 1,092,352 722,340 2,886,329 1,965,953
Provision for loan losses 141,379 137,826 315,366 297,545
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 950,973 584,514 2,570,963 1,668,408
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 71,981 54,468 200,647 159,180
Other 111,956 120,461 386,481 361,285
---------- ---------- ---------- ----------
Total noninterest income 183,937 174,929 587,128 520,465
---------- ---------- ---------- ----------
Noninterest expense:
Salaries, wages and employee benefits 351,079 233,800 964,994 656,434
Occupancy 58,311 38,462 143,003 97,250
Equipment 55,221 33,473 142,547 92,272
Professional Fees 48,894 22,951 138,739 67,273
Stationery, printing and supplies 24,161 11,332 63,891 30,275
Advertising and business promotion 40,267 22,810 116,822 72,268
Other 141,591 93,811 441,735 300,762
---------- ---------- ---------- ----------
Total noninterest expense 719,524 456,639 2,011,731 1,316,534
---------- ---------- ---------- ----------
Income before income taxes 415,386 302,804 1,146,360 872,339
Provision for income taxes 155,469 105,303 427,247 358,706
---------- ---------- ---------- ----------
Net income $ 259,917 $ 197,501 $ 719,113 $ 513,633
========== ========== ========== ==========
Basic income per share $ 0.19 $ 0.19 $ 0.53 $ 0.49
Diluted income per share $ 0.18 $ 0.17 $ 0.49 $ 0.45
========== ========== ========== ==========
Weighted average common shares outstanding
Basic 1,359,410 1,051,110 1,356,910 1,051,110
Effect of stock options 108,121 98,178 111,643 84,588
---------- ---------- ---------- ----------
Diluted 1,467,531 1,149,288 1,468,553 1,135,698
========== ========== ========== ==========
</TABLE>
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<PAGE>
CATAWBA VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------ ------------
Cash flows from operating activities:
Net income $ 719,113 $ 513,633
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation & amortization 146,045 95,769
Issuance of stock options 65,025 0
Provision for loan losses 315,366 297,545
(Increase)decrease in other assets 187,202 (402,564)
Increase(decrease) in other liabilities (231,697) (201,959)
------------ ------------
Net cash provided by (used in) operating activities 1,201,054) 302,424
------------ ------------
Cash flows from investing activities:
(Increase)decrease in time deposits with other financial institutions 197,978 (1,292,990)
Purchase of securities available for sale (7,778,560) (4,134,308)
Purchase of securities held to maturity (460,000) (626,699)
Collections and maturities of securities available for sale 2,752,231 2,661,482
Collections and maturities of securities held to maturity 32,441 1,154,533
Proceeds from sale of securities available for sale
Net increase in loans (19,373,587) (10,611,200)
Purchases or premises and equipment (845,949) (330,939)
------------ ------------
Net cash used in investing activities (25,475,446) (13,180,121)
------------ ------------
Cash flows from financing activities:
Net increase in deposit accounts 22,007,249 14,079,596
Proceeds from issuance of common stock
------------ ------------
Net cash provided by financing activites 22,007,249 14,079,596
------------ ------------
Net increase(decrease) in cash and cash equivalents (2,267,143) 1,201,899
Cash and cash equivalents, beginning of period 11,595,786 12,297,535
------------ ------------
Cash and cash equivalents, end of period $ 9,328,643 $ 13,499,434
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
CATAWBA VALLEY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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
nine month periods ended September 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 nine month periods ended September 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
dated March 25, 1999, Registration No. 333-75021. 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.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
During the nine months ended September 30, 1999, total assets increased $22.3
million or 24.8% from $89.7 million to $112.0 million. Total loans outstanding
increased $19.4 million or 31.96% for the same period. The growth in these areas
was funded by a $22.0 million or 29.41% 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 Bank
performs, generated the positive results discussed above.
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<PAGE>
Total stockholders' equity increased $475,109 for the nine month period ended
September 30, 1999. The increase resulted principally from net income of
$719,113 for the nine months. At September 30, 1999 the Bank continued to exceed
all applicable regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998.
Net Income. Net income for the quarter ended September 30, 1999 was $259,917 or
$.19 per share, as compared with net income of $197,501 or $.19 per share for
the three months ended September 30, 1998, an increase of $62,416.
Net Interest Income. Net interest income for the quarter ended September 30,
1999 was $1,092,352 as compared with $722,340 during the quarter ended September
30, 1998, an increase of $370,012.
Provision for Loan Losses. The provision for loan losses was $141,379 and
$137,826 for the quarters ended September 30, 1999 and 1998 respectively. There
were net loan charge offs of $65,021 during the quarter ended September 30, 1999
as compared with the net charge offs of $15,954 during the quarter ended
September 30, 1998. At September 30, 1999, non accrual loans aggregated $53,686.
Non Interest Income. Non interest income was $183,937 for the quarter ended
September 30, 1999 compared to $174,929 for the quarter ended September 30,
1998, an increase of $9,008.
Non Interest Expense. Non interest expense increased to $719,524 during the
quarter ended September 30, 1999 as compared to $456,639 for the quarter ended
September 30, 1998, an increase of $262,885. 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 NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
Net Income. Net income for the nine months ended September 30, 1999 was $719,113
or $.53 per share, as compared with net income of $513,633 or $.49 per share for
the nine months ended September 30, 1998 an increase of $205,480 or $.04 per
share. An increase in net interest income of $920,376 and an increase in non
interest income of $66,663 for the nine month period were off set by an increase
in non interest expense of $695,197. 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.
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<PAGE>
Net Interest Income. Net interest income was $2.9 million during the nine months
ended September 30, 1999 as compared with $2.0 million during the corresponding
period of the previous fiscal year, an increase of $920,000. 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 $315,366 and
$297,545 for the nine months ended September 30, 1999 and 1998, respectively.
There were net loan charge offs of $83,488 for the nine months ended September
30, 1999 as compared with net charge offs of $64,325 during the nine months
ended September 30, 1998. At September 30, 1999, non accrual loans aggregated
$53,686.
Non Interest Income. Non interest income was $587,128 for the nine months ended
September 30, 1999 as compared with $520,465 for the nine months ended September
30, 1998.
Non Interest Expense. Non interest expense increased to $2,011,731 during the
nine month period ended September 30, 1999 as compared to $1,316,534 for the
nine months ended September 30, 1998, an increase of $695,197. 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 September 30, 1999, liquid assets comprised 20 % of total assets. Management
believes that it will have sufficient funds available to meet its anticipated
future loan commitments as well as other liquidity needs.
At September 30, 1999 the Bank exceeded all applicable Regulatory Capital
requirements
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
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<PAGE>
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 September 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.
The Bank has budgeted $25,000 for the Year 2000 program and has spent
approximately $5,000 to date
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<PAGE>
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:
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 September 30, 1999.
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<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 , there onto duly
authorized.
CATAWBA VALLEY
BANCSHARES, INC
Date: November 12, 1999 By: /s/ R. Steve Aaron
------------------
R. Steve Aaron
President and Chief Executive Officer
Date: November 12, 1999 By: /s/ G. Marvin Lowder
--------------------
G. Marvin Lowder
Chief Financial Officer
-11-
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,862
<INT-BEARING-DEPOSITS> 4,647
<FED-FUNDS-SOLD> 2,820
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 2,182
<INVESTMENTS-MARKET> 2,151
<LOANS> 79,981
<ALLOWANCE> (1,282)
<TOTAL-ASSETS> 111,919
<DEPOSITS> 96,828
<SHORT-TERM> 0
<LIABILITIES-OTHER> 299
<LONG-TERM> 0
0
0
<COMMON> 1,359
<OTHER-SE> 13,434
<TOTAL-LIABILITIES-AND-EQUITY> 111,919
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<INTEREST-TOTAL> 5,778
<INTEREST-DEPOSIT> 2,892
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 2,886
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,012
<INCOME-PRETAX> 1,146
<INCOME-PRE-EXTRAORDINARY> 0
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<EPS-BASIC> .53
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<LOANS-PAST> 23
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 855
<ALLOWANCE-OPEN> 1,050
<CHARGE-OFFS> 179
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