U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0-26551
CATAWBA VALLEY BANCSHARES, INC.
NORTH CAROLINA
56-2137427
1039 SECOND STREET, N.E.
HICKORY, NORTH CAROLINA 28601
(828) 431-2300
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
Check whether the Registrant (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 Bank 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 the 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. [X]
The Bank's revenues for the year ended December 31, 1999 were $8,898,287.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at December 31, 1999 was approximately $17,388,170.
The number of shares of the Registrant's Common Stock outstanding on December
31, 1999 was, 1,495,351
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Annual Report to Shareholders for the Fiscal Year
Ended December 31, 1999 (Part II)
2. Proxy Statement dated March 15, 2000 for the 2000 Annual
Meeting of Shareholders (Part III).
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE>
FORM 10-KSB CROSS REFERENCE INDEX
As indicated below, portions of (i) the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, and (ii) the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
April 25, 2000, filed with the Securities and Exchange Commission are
incorporated by reference into Parts II and III of this Report.
KEY
AR Annual Report to Shareholders for the fiscal year ended December 31, 1999.
Proxy Proxy Statement for the Annual Meeting of Shareholders to be
held April 25, 2000.
10-KSB 10-KSB for the year ended December 31, 1999.
<TABLE>
<CAPTION>
PART I PAGE DOCUMENT
- ------ ---- --------
<S> <C> <C> <C>
Item 1. Business 3 10-KSB
Item 2. Properties 3 10-KSB
Item 3. Legal Proceedings 4 10-KSB
Item 4. Submission of Matters to a Vote of Security Holders 4 10-KSB
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8 AR
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 10-KSB
3 AR
Item 7. Financial Statements and Supplementary Data 10 AR
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 14 10-KSB
PART III
Item 9. Directors, Executive Officers, Promoters, and Control
Persons; Compliance with Section 16(a) of Exchange Act 4 Proxy
Item 10. Executive Compensation 7 Proxy
Item 11. Security Ownership of Certain Beneficial Owners and
Management 3 Proxy
Item 12. Certain Relationships and Related Transactions 10 Proxy
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Index to Exhibits 14 10-KSB
(b) Reports on Form 8-K filed during the
three months ended December 31, 1999 14 10-KSB
</TABLE>
<PAGE>
PART I
ITEM 1 - BUSINESS
(a) (b) Catawba Valley Bancshares, Inc. (the parent holding company for Catawba
Valley Bank) is a North Carolina corporation whose only activity is it's
ownership of CatawbaValley Bank, a State-chartered Bank organized under
the laws of North Carolina on October 27, 199 and opened for business on
November 1, 1995. Catawba Valley Bancshares, Inc and Catawba Valley Bank
are collectively referred to here in as the "Bank". Deposits in the bank
are insured by the, Bank Insurance Fund ("BIF") Federal Deposit Insurance
Corporation (FDIC)
The Bank engages in general banking business in the City of Hickory and
portions of the four counties called the Unifour area (Catawba, Burke,
Caldwell and Alexander). Its operations are primarily retail-oriented and
aimed at individuals and small- to medium-sized businesses located in its
market area. The Bank provides most traditional commercial and consumer
banking services, including personal and commercial checking and savings
accounts, money market accounts, certificates of deposit, individual
retirement accounts and related business and individual banking services.
The Bank's lending activities include making commercial loans to
individuals and small- to medium-sized businesses located primarily in its
market area for various business purposes and various consumer-type loans
to individuals, including installment loans, equity lines of credit,
overdraft checking credit and credit cards. Also, the Bank makes
residential mortgage loans to its customers, which the Bank then sells to
another mortgage lender. The Bank issues ATM cards which allow its
customers to access their deposit accounts at the automated teller machines
of other banks who are linked to the STAR system. The Bank does not provide
trust services and leasing services, except through a correspondent bank.
The Bank operates three offices, each of which are full-service offices.
The Bank's main office is located at 1039 Second Street N.E., in Hickory
and the Bank's West Hickory branch is located at 1445 Second Avenue, NW.
The Bank also has a Newton branch office located at 2675 Norwest Boulevard,
Newton, North Carolina. The Bank recently created a subsidiary called
Valley Financial Services, Inc. that provides for various insurance and
other financial products through third party affiliations.
Commercial banking in Catawba County, and in North Carolina as a whole is
extremely competitive with state laws permitting statewide branching. The
Bank competes directly for deposits in its market area with other
commercial banks, credit unions, brokerage firms and all other
organizations and institutions engaged in money market transactions. In its
lending activities, the Bank competes with all other financial
institutions, as well as consumer finance companies, mortgage companies and
other lenders engaged in the business of extending credit. In the Bank's
market are, seven commercial banks operate with multiple offices. The
Bank's predominant competitors are Branch Bank and Trust Company and First
Union National Bank. These two institutions control approximately 75% of
the market's deposits.
Interest rates, both on loans and deposits, and prices of services are
significant competitive factors among financial institutions. Office
locations, office hours, customer service, community reputation and
continuity of personnel are also important competitive factors. The Bank's
predominant competitors have greater resources, broader geographic markets
and higher lending limits. They can offer more products, and can better
afford and make more effective use of media advertising, support services
and electronic technology than the Bank. The Bank depends on its reputation
as a community
<PAGE>
bank in its local market, direct customer contact, its ability to make
credit and other business decisions locally, and personalized service to
counter these competitive disadvantages.
As a state-chartered bank whose deposits are insured by the FDIC, the Bank
is subject to supervision, examination and regulation by the North Carolina
Sate Banking Commission, (the "Commission") and the FDIC. While the Bank is
not a member of the Federal Reserve System, the Bank is also subject to
certain regulations of the Board of Governors of the Federal Reserve
System, ("Federal Reserve"). Catawba Valley Bancshares, Inc. is registered
as a bank holding company with the Federal Reserve and the Commission. The
regulations of these agencies govern most aspects of the Bank's business,
including capital adequacy ratios, reserves against deposits, restrictions
on the rate of interest which may be paid on some deposit instruments,
limitations on the nature and amount of borrowings, dividends, loans that
may be made, the location of branch offices and the nature and scope of the
Bank's shareholders.
The Bank is periodically assessed insurance premiums by the FDIC in
connection with the insurance of its deposits. The Bank is required under
North Carolina law to maintain deposit insurance with the FDIC. Because the
FDIC insurance fund is fully funded, the Bank's assessment in 1997 was only
$4,333, its assessment in 1998 was $6852 and its assessment in 1999 was
$9,111. This insurance assessment may be increased within certain
parameters established by the FDIC's bank rating system.
As of December 31, 1999, the Bank employed 28 full time employees and 6
part-time employees. The Bank is not a party to a collective bargaining
agreement, and considers its relations with employees to be good.
(c))-(e) Not applicable.
ITEM 3 - LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Bank is a party, or of
which any of its property is the subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in the section captioned "Market for the Common Stock,
Stock Prices and Dividends" in the 1999 Annual Report to Shareholders (the
"Annual Report") is incorporated herein by reference.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in the section captioned "Management's Discussions and
analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference.
Certain of the information required to be provided pursuant to the disclosure
requirements under Guide 3 of the Guides for the preparation and Filing of
Reports and Registration Statements under the Securities Exchange Act of 1934 is
included in the Annual Report, which is incorporated herein by reference. The
remainder of this information is provided in the following tables
<TABLE>
<CAPTION>
TABLE ONE
- --------------------------
INTEREST INCOME AND AVERAGE BALANCES
-----------------------------------------------
(DOLLARS IN THOUSANDS)
1999
-----------------------------------------------
INTEREST
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST
------------- ------------ ------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
INTEREST-BEARING DEPOSITS IN BANKS(1) $ 7,978 $ 315 3.95%
INVESTMENT SECURITIES(2) 14,635 873 5.97%
FEDERAL FUNDS SOLD 2,004 117 5.86%
NET LOANS(3) 70,937 6,717 9.47%
------------- ------------ ------------
TOTAL INTEREST EARNING ASSETS 95,554 8,022
------------- ------------
YIELD ON AVERAGE INTEREST-
EARNING ASSETS 8.40%
============
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 3,062
PREMISES AND EQUIPMENT 2,376
OTHER 2,961
-------------
TOTAL NONINTEREST-EARNING ASSETS 8,399
-------------
TOTAL ASSETS $ 103,953
=============
INTEREST-BEARING LIABILITIES:
NOW ACCOUNTS $ 8,357 226 2.70%
MONEY MARKET AND SAVINGS 19,928 859 4.31%
TIME CERTIFICATES AND IRAS 52,471 2,939 5.60%
OTHER S-T BORROWINGS 2,500 55 2.20%
------------- ------------ ------------
TOTAL INTEREST-BEARING LIABILITIES: 83,256 4,079
------------- ------------
COST ON AVERAGE INTEREST-BEARING
LIABILITIES: 4.90%
============
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 5,645
OTHER LIABILITIES 383
-------------
TOTAL NONINTEREST-BEARING LIABILITIES 6,028
-------------
TOTAL LIABILITIES 89,284
SHAREHOLDERS' EQUITY 14,669
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 103,953
=============
NET INTEREST INCOME $ 3,943
============
NET YIELD ON INTEREST-EARNING ASSETS 4.13%
============
<CAPTION>
INTEREST INCOME AND AVERAGE BALANCES
-------------------------------------------------
(DOLLARS IN THOUSANDS)
1998
-------------------------------------------------
INTEREST
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST
-------------- ------------ -------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
INTEREST-BEARING DEPOSITS IN BANKS(1) $ 10,159 $ 504 4.96%
INVESTMENT SECURITIES(2) 8,965 500 5.58%
FEDERAL FUNDS SOLD 2,648 122 4.63%
NET LOANS(3) 50,936 4,899 9.62%
-------------- ------------ -------------
TOTAL INTEREST EARNING ASSETS 72,708 6,025
-------------- ------------
YIELD ON AVERAGE INTEREST-
EARNING ASSETS 8.29%
=============
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 919
PREMISES AND EQUIPMENT 1,684
OTHER 1,964
--------------
TOTAL NONINTEREST-EARNING ASSETS 4,567
--------------
TOTAL ASSETS $ 77,275
==============
INTEREST-BEARING LIABILITIES:
NOW ACCOUNTS $ 5,070 141 2.78%
MONEY MARKET AND SAVINGS 15,156 653 4.31%
TIME CERTIFICATES AND IRAS 41,702 2,473 5.93%
OTHER S-T BORROWINGS 0 0 0.00%
-------------- ------------ -------------
TOTAL INTEREST-BEARING LIABILITIES: 61,928 3,267
-------------- ------------
COST ON AVERAGE INTEREST-BEARING
LIABILITIES: 5.28%
=============
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 4,036
OTHER LIABILITIES 292
--------------
TOTAL NONINTEREST-BEARING LIABILITIES 4,328
--------------
TOTAL LIABILITIES 66,256
SHAREHOLDERS' EQUITY 11,019
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,275
==============
NET INTEREST INCOME $ 2,758
============
NET YIELD ON INTEREST-EARNING ASSETS 3.79%
=============
</TABLE>
1) INTEREST-BEARING DEPOSITS IN BANKS INCLUDE FHLB OVERNIGHT AND TIME DEPOSITS
WITH OTHER INSTITUTIONS.
2) INVESTMENT SECURITIES INCLUDES STOCK IN FEDERAL HOME LOAN BANK.
3) NONACCRUING LOANS ARE INCLUDED IN THE AVERAGE LOANS BALANCE. INCOME
ON NONACCRUING LOANS IS RECOGNIZED ON A CASH BASIS.
<PAGE>
<TABLE>
<CAPTION>
TABLE TWO
- -----------------
RATE/VOLUME VARIANCE ANALYSIS
---------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1999 COMPARED TO 1998
-------------------------------
INTEREST VARIANCE
INCOME/ ATTRIBUTED
EXPENSE TO
VARIANCE RATE VOLUME
-------------- -------------- ---------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
INTEREST-EARNING DEPOSITS IN BANKS $ (189) $ (98) $ (91)
INVESTMENT SECURITIES 373 39 334
FEDERAL FUNDS SOLD (5) 31 (36)
LOANS(NET) 1,818 (84) 1,902
-------------- -------------- ---------------
TOTAL 1,997 (112) 2,109
-------------- -------------- ---------------
INTEREST-BEARINGS LIABILITIES:
NOW ACCOUNTS 85 (4) 89
MONEY MARKET AND SAVINGS ACCOUNTS 206 0 206
TIME CERTIFICATES AND IRAS 466 (145) 611
OTHER S-T BORROWINGS 55 11 44
-------------- -------------- ---------------
TOTAL 812 (138) 950
-------------- -------------- ---------------
NET INTEREST INCOME $ 1,185 $ 26 $ 1,159
============== ============== ===============
<CAPTION>
1998 COMPARED TO 1997
-------------------------------
INTEREST VARIANCE
INCOME/ ATTRIBUTED
EXPENSE TO
VARIANCE RATE VOLUME
--------------- -------------- --------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
INTEREST-EARNING DEPOSITS IN BANKS $ 260 $ 31 $ 229
INVESTMENT SECURITIES 151 (47) 198
FEDERAL FUNDS SOLD (3) (12) 9
LOANS(NET) 1,520 (137) 1,657
--------------- -------------- --------------
TOTAL 1,928 (165) 2,093
--------------- -------------- --------------
INTEREST-BEARINGS LIABILITIES:
NOW ACCOUNTS 46 (3) 49
MONEY MARKET AND SAVINGS ACCOUNTS 168 (62) 230
TIME CERTIFICATES AND IRAS 899 9 890
OTHER S-T BORROWINGS 0 0 0
--------------- -------------- --------------
TOTAL 1,113 (56) 1,169
--------------- -------------- --------------
NET INTEREST INCOME $ 815 $ (109) $ 924
=============== ============== ==============
</TABLE>
THE TABLE ABOVE SETS FORTH CERTAIN INFORMATION REGARDING
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE FOR THE PERIODS
INDICATED. FOR EACH CATEGORY OF INTEREST EARNING ASSETS AND
INTEREST BEARING LIABILITIES, INFORMATION IS PROVIDED ON
CHANGES ATTRIBUTABLE TO (1) CHANGES IN VOLUME (CHANGES IN
VOLUME MULTIPLIED BY OLD RATE); (2) CHANGES IN RATE (CHANGES IN
RATE MULTIPLIED BY OLD VOLUME). CHANGES DUE TO A COMBINATION OF
RATE AND VOLUME. VARIANCES CONSISTENTLY ON A PROPORTIONATE
BASIS.
<PAGE>
TABLE THREE
- --------------------
<TABLE>
<CAPTION>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
-----------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1999 1998
AMOUNT PERCENT AMOUNT PERCENT
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
MORTGAGE $ 137 10.22% $ 102 7.61%
CONSTRUCTION 120 8.95% 72 5.37%
HOME EQUITY 63 4.70% 46 3.43%
COMMERCIAL 734 54.74% 559 41.69%
INSTALLMENT 170 12.68% 128 9.55%
OTHER 44 3.28% 27 2.01%
UNALLOCATED 73 5.44% 116 8.65%
----------- ----------- --------- ------------
$ 1,341 100.00% $ 1,050 78.30%
=========== =========== ========= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE FOUR
- -------------------
DISTRIBUTION OF INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
--------------------------------------------------------------------------------------------------------------
1999 REPRICING SCHEDULE
------------------------------------------------
(DOLLARS IN THOUSANDS)
ONE YEAR ONE TO FIVE TO OVER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
------------ -------------- -------------- ------------ -----------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
INTEREST-BEARING DEPOSITS WITH
OTHER FINANCIAL INSTITUTIONS $ 4,227 $ 297 $ $ $ 4,524
FEDERAL FUNDS SOLD 1,498 1,498
INVESTMENT SECURITIES 164 8,224 6,631 2,658 17,677
LOANS:
ADJUSTABLE RATE LOANS:
MORTGAGE 2,907 2,907
CONSTRUCTION 11,290 11,290
HOME EQUITY 6,941 6,941
COMMERCIAL 23,446 23,446
INSTALLMENT 3,285 3,285
OTHER 1,114 1,114
FIXED RATE LOANS:
MORTGAGE 1,826 8,168 743 59 10,796
CONSTRUCTION 561 169 730
HOME EQUITY 79 768 847
COMMERCIAL 1,313 10,171 2,540 195 14,219
INSTALLMENT 1,219 6,290 515 8,024
OTHER 11 50 61
------------ -------------- --------------- ----------- -----------
TOTAL $ 59,802 $ 33,448 $ 11,197 $ 2,912 $ 107,359
============ ============== =============== =========== ===========
INTEREST-BEARING LIABILITIES:
SAVINGS, NOW,
MONEY MARKET $ 32,487 $ $ $ $ 32,487
TIME CERTIFICATE OF DEPOSITS
OVER $100,000 13,249 4,399 17,648
TIME CERTIFICATE OF DEPOSITS
UNDER $100,000 25,666 15,159 40,825
FEDERAL HOME LOAN BANK
ADVANCES 5,000 5,000
------------ -------------- --------------- ----------- -----------
TOTAL $ 76,402 $ 19,558 $ 0 $ 0 $ 95,960
============ ============== =============== =========== ===========
INTEREST SENSITIVITY GAP $ (16,600) $ 13,890 $ 11,197 $ 2,912 $ 11,399
------------ -------------- --------------- ----------- -----------
CUMULATIVE GAP $ (16,600) $ (2,710) $ 8,487 $ 11,399 $ 11,399
============ ============== =============== =========== ===========
RATIO OF INTEREST-SENSITIVE ASSETS
TO INTEREST-SENSITIVE LIABILITIES 78.27% 171.02% N/A N/A 111.88%
CUMULATIVE RATIO OF INTEREST-
SENSITIVE ASSETS TO INTEREST-
SENSITIVE LIABILITIES 78.27% 97.18% 108.84% 111.88% 111.88%
</TABLE>
THE COMPANY OWNS 2,710 SHARES OF FEDERAL HOME LOAN BANK STOCK VALUED
AT $ 271, 000. THIS IS INCLUDED IN WITH INVESTMENT SECURITIES SECTION
ABOVE.
<PAGE>
<TABLE>
<CAPTION>
TABLE FIVE
- ---------------------
INVESTMENT SECURITIES
------------------------------------------------------------
INVESTMENTS HELD TO MATURITY
(DOLLARS IN THOUSANDS)
DUE ONE ONE YEAR FIVE YEARS
YEAR OR THROUGH THROUGH DUE AFTER MARKET
LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL VALUE
---------- ------------ ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
U.S. GOVT. CORPORATIONS
AND AGENCIES OBLIGATIONS $ $ 964 $ 153 $ 226 $ 1,343 $ 1,301
MORTGAGE-BACKED
SECURITIES 164 144 308 307
---------- ------------ ------------ ----------- -------- ---------
TOTAL $ 164 $ 964 $ 153 $ 370 $ 1,651 $ 1,608
WEIGHTED AVERAGE YIELDS:
U.S. GOVT. CORPORATIONS
AND AGENCIES OBLIGATIONS 6.06% 4.70% 4.70% 5.68% 5.69%
MORTGAGE-BACKED
SECURITIES 6.00% 7.25% 6.58% 6.59%
---------- ------------ ------------ ----------- -------- ---------
TOTAL 6.00% 6.06% 4.70% 5.69% 5.85% 5.87%
INVESTMENTS AVAILABLE FOR SALE
DUE ONE ONE YEAR FIVE YEARS
YEAR OR THROUGH THROUGH DUE AFTER
LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
---------- ------------- ------------ ------------ ----------
INVESTMENT SECURITIES:
U.S. GOVT. CORPORATIONS
AND AGENCIES OBLIGATIONS $ $ 7,260 $ 6,478 $ $ 13,738
MORTGAGE-BACKED
SECURITIES 2,017 2,017
---------- ------------- ------------ ------------ ----------
TOTAL $ 0 $ 7,260 $ 6,478 $ 2,017 $ 15,755
WEIGHTED AVERAGE YIELDS:
U.S. GOVT. CORPORATIONS
AND AGENCIES OBLIGATIONS 6.05% 6.08% 6.07% 6.07%
MORTGAGE-BACKED
SECURITIES 6.57% 6.57% 6.59%
---------- ------------- ------------ ------------ ---------- --------
TOTAL 0.00% 6.05% 6.08% 6.57% 6.13% 6.13%
</TABLE>
THE COMPANY OWNS 2,710 SHARES OF STOCK IN FEDEAL HOME LOAM BANK VALUED
AT $271,000. THIS ITEM IS EXCLUDED FROM THE ABOVE TABLE.
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
The information contained in the sections captioned "Balance Sheets",
"Statements of Operations", "Statements of Cash Flows", "Statements of
Stockholders' Equity", "Notes to Financial Statements" and "Independent
Auditors' Report" in the Annual Report is incorporated herein by reference.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
The information contained under the section captioned "PROPOSAL 2: ELECTION OF
DIRECTORS" in the Bank's definitive proxy statement dated March 15, 2000 for the
2000 Annual Meeting of Shareholders (the "Proxy Statement") is incorporated
herein by reference.
ITEM 10 - EXECUTIVE COMPENSATION
The information contained under the section captioned "PROPOSAL 2: ELECTION OF
DIRECTORS - Director Compensation" and "-Executive Compensation" in the Proxy
Statement is incorporated herein by reference.
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the section captioned "Voting Securities and
Beneficial Ownership Thereof" in the Proxy Statement is incorporated herein by
reference.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the section captioned "Indebtedness and
Transactions of Management" in the Proxy Statement is incorporated herein by
reference.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3(I) Articles of Incorporation of Catawba Valley Bancshares,
(incorporated by reference to the Bank's Registration
Statement on Form S-4 as filed with the Securities and
Exchange and Commission, March 25, 1999)
<PAGE>
3(ii) Bylaws of Catawba Valley Bancshares, Inc. (incorporated by
reference to the Bank's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission , March
25,1999)
10(I) 1996 Incentive Stock Option Plan, approved by shareholders on
May 14, 1996 (incorporated by reference to the Bank's
Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission March 25, 1999)
10(ii) 1997 Nonqualified Stock Option Plan for Directors, approved by
shareholders on April 22, 1997 (incorporated by reference to
the Bank's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission March 25, 1999)
10(iii) Employment and Change of Control Agreement between the Bank
and R. Steve Aaron dated January 1, 1999 (incorporated by
reference to the Bank's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission March 25,
1999)
13 1999 Annual Report to Shareholders
(B) REPORTS FILED ON FORM 8-K
There were No reports on Form 8-K filed.
<PAGE>
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Bank has duly caused this Report to be signed
on its behalf by the undersigned there-unto duly authorized.
CATAWBA VALLEY BANCSHARES, INC
Date: March 30,2000 By: /s/ R. Steve Aaron
------------------------
R. Steve Aaron
President and Chief Executive Officer
Date: March 30,2000 By: /s/ G. Marvin Lowder
-----------------------
G. Marvin Lowder
Vice President/Accounting
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and I the capacities and on the dates indicated.
/s/ Robert P. Huntley March 30, 2000
----------------------------
Robert P. Huntley, Director
/s/ Cloyd Hugh Propst, Jr. March 30, 2000
----------------------------
Cloyd Hugh Propst, Jr., Director
/s/ Howard L. Pruitt March 30, 2000
----------------------------
Howard L. Pruitt, Director
/s/ Hal F. Huffman, Jr. March 30, 2000
----------------------------
Hal F. Huffman, Jr., Director
/s/ Robert T. King March 30, 2000
----------------------------
Robert T. King, Director
/s/ William R. Sigmon March 30, 2000
----------------------------
William R. Sigmon, Jr., Director
/s/ R. Steve Aaron March 30, 2000
----------------------------
R. Steve Aaron, Director
/s/ W. Steve Ikerd March 30, 2000
----------------------------
W. Steve Ikerd, Director
/s/ Pat M. Moss March 30, 2000
----------------------------
Pat M. Moss, Director
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------ -------
13 1999 Annual Report to Shareholders
27 Financial Data Schedule
Sign of banking success
(Photo appears here) 1999
ANNUAL
REPORT
CATAWBA VALLEY
BANCSHARES,
INC.
<PAGE>
CATAWBA VALLEY BANCSHARES, INC.
- --------------------------------------------------------------------------------
PROFILE Catawba Valley Bancshares, Inc. is the parent holding company
of Catawba Valley Bank. Catawba Valley Bank is chartered under
the laws of the state of North Carolina to engage in general
banking business. Catawba Valley Bank offers a wide range of
retail and commercial banking services including numerous
deposit services, banking cards and alternative investment
products. These funds are used for the extension of credit
through home loans, commercial loans, consumer loans and other
installment credit such as home equity, auto, boat loans and
Check Reserve. Chartered in 1995, Catawba Valley Bank's
headquarters are located in Hickory, North Carolina. Catawba
Valley Bank operates 3 full service offices and a mortgage
center in Catawba County. The common stock of Catawba Valley
Bancshares, Inc. is traded under the symbol "CTVB." Catawba
Valley Bancshares, Inc. and Catawba Valley Bank are
collectively referred to herein as the "Bank."
- --------------------------------------------------------------------------------
MISSION Provide the people in the markets served by Catawba Valley
STATEMENT Bank with the finest in banking services and to do so with a
highly trained, motivated, friendly and properly rewarded
staff of professionals in a financially conservative manner,
at a fair profit to the Bank with appropriate rewards to its
shareholders.
- --------------------------------------------------------------------------------
TABLE OF Letter from the President........................... 1
CONTENTS
Selected Financial and Other Data................... 2
Management's Discussion............................. 3
Report of Independent Accountants................... 9
Financial Statements................................ 10
Notes to Financial Statements....................... 14
Directors........................................... 29
General Corporate Information....................... 30
<PAGE>
Dear Shareholders, Customers and Friends:
When Catawba Valley Bank opened its doors for business on November 1, 1995, our
products were the same as those offered by ten other banks in our market. We had
to separate ourselves from the competition if we were to succeed. After reading
this annual report, I am sure you will agree that Catawba Valley Bank has
accomplished its goal. Our success can be attributed to friendly, courteous
service and a hometown approach to banking. By focusing on what our customers
need, we have attracted a strong customer base.
The year 1999 was an exceptional year, with record deposit growth, dynamic loan
growth and record earnings. Deposits grew $23.2 million or 31%. Loan demand
during 1999 exceeded all expectations. The Bank's loans increased $23.1 million
or 38%. After tax profits increased 38% for a total profit of $1.0 million. This
profit level was achieved despite a substantial one time expense for Y2K and the
reorganization of the Bank into the holding company form of organization. Growth
in the loan portfolio required an addition of $291,000 to the Bank's loan loss
reserves.
This past year, the Bank expanded its service area and its products. The
Newton-Conover office was opened on March 15, 1999. This office has exceeded
projections and is expected to be a very successful location. Catawba Valley
Bank organized a subsidiary called Valley Financial Services, Inc. for the
purpose of providing non-insured investment products. These products include
mutual funds, bonds, stocks, annuities and insurance. Our licensed investment
counselor is available to assist anyone with these products.
As the Bank prepares to serve our customers in the 21st Century, we know that
changes will occur in how we do business. Catawba Valley Bank has introduced its
24 hour check card and Telabank voice response system in the first quarter of
2000. We have plans to introduce a internet banking package in the second
quarter of 2000. For those customers who want a friendly person to assist them,
we will be there, and for the person who wants to bank in the privacy of their
home or office, we plan to be there also.
The future of the Bank is bright. We plan to continue to grow, expand, and
increase our service to our customers through new products. Thank you for your
support.
R. Steve Aaron,
President and CEO
------
PAGE 1
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
SELECTED FINANCIAL AND OTHER DATA
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The following table sets forth certain financial data for the years ended
December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 3,943,471 $ 2,758,229 $ 1,942,918
Provision for loan losses 393,981 471,338 349,175
Non-interest income 876,034 738,141 443,422
Non-interest expenses 2,812,186 1,829,657 1,428,693
Net income 1,020,973 740,375 518,472
PER SHARE DATA (1)
Basic income $ .68 $ .61 .45
Diluted income .64 .57 .44
Book value 10.04 9.63 6.68
BALANCE SHEET
Total assets $ 118,238,365 $ 89,668,002 $ 64,883,493
Total deposits 97,980,884 74,821,049 57,107,496
Total loans 83,658,838 60,607,040 42,997,914
Allowance for loan losses 1,341,340 1,050,360 683,397
Investment securities 17,406,489 11,655,528 6,275,175
Total earning assets 111,371,347 87,916,453 63,616,473
Stockholders' equity 15,020,771 14,317,424 7,721,290
SELECTED OTHER DATA
Return on average assets .98% .96% 1.01%
Return on average equity 6.96% 6.72% 6.95%
Average equity to average assets 14.11% 14.25% 14.91%
Interest rate spread 4.08% 3.75% 4.06%
Net yield on average interest-earning
assets 3.97% 3.75% 4.06%
Average interest-earning assets to
average interest-bearing liabilities 116.21% 118.81% 119.69%
Ratio of non-interest expense to
average total assets 2.71% 2.37% 2.86%
Nonperforming loans to total loans .56% .50% .08%
Allowance for loan losses to total loans 1.60% 1.73% 1.59%
</TABLE>
(1) Adjusted to reflect the dilutive effect of a 10% stock dividend in 1999 and
a 25% stock dividend in 1998.
- --------------------------------------------------------------------------------
PAGE 2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (MD&A)
OVERVIEW
Catawba Valley Bancshares, Inc. (the parent holding company for Catawba Valley
Bank) is a North Carolina corporation whose only activity is its ownership of
Catawba Valley Bank, a state-chartered bank organized under the laws of North
Carolina in 1995 and headquartered in Hickory. Catawba Valley Bancshares, Inc.
and Catawba Valley Bank are collectively referred to herein as the "Bank." The
Bank provides a full range of banking services from three locations, two located
in Hickory and one in Newton.
The Bank's market area consists of the area within a 10-mile radius of the City
of Hickory, North Carolina, and includes parts of Catawba County, Burke County,
Caldwell County and Alexander County, North Carolina. The market area is located
in a region known as the Unifour Area of North Carolina. The Unifour Area serves
as the commercial hub for several prosperous towns. The Unifour Area is a very
strong and diversified economic area. This local economic strength, along with
the market's quick acceptance of the Bank, accounts for the rapid growth the
Bank has enjoyed.
Catawba Valley Bank earned $1.0 million or $.68 basic net income per share in
1999, compared to $740,000 or $.61 per share reported in 1998. The earnings
equate to a return on average assets of .98 percent for 1999 compared to .96
percent for 1998 and a return on average equity of 6.96 percent in 1999 versus
6.72 percent in 1998. The Bank's improved earnings were primarily due to an
increased loan portfolio, improved non-interest income and operating efficiency.
Expanded discussion of the Bank's operating results and financial condition are
presented in the following narrative and tables. The objective of this
discussion is to provide the reader with a clear, concise and complete
understanding of the financial condition and results of operations of Catawba
Valley Bank for 1999. The discussion should be read in conjunction with the
consolidated financial statements and related notes included herein on pages 10
through 28.
(Chart appears here. See the table below for plot points.)
YEAR END BALANCES ($ MILLIONS)
1996 1997 1998 1999
NET LOANS 24.6 42.3 59.5 82.3
DEPOSITS 29.8 57.1 74.8 97.9
ASSETS 37.4 64.9 89.7 118.2
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
NET INTEREST INCOME
The major component of the Bank's revenue is net interest income. The amount of
net interest income is based on a number of factors including the volumes of
interest-earning assets and interest-bearing liabilities and the interest rates
earned and paid. Net interest income equals the amount by which interest and
fees generated by earning assets exceed the interest costs of the funds used to
carry them.
For 1999 net interest income represented 82 percent of net revenues as compared
with 79 percent in 1998. Net interest income rose $1.2 million or 43 percent in
1999 and totaled $3.9 million as compared with $2.8 million in 1998. Strong
growth in earning assets, primarily loans and investments, accounted for the
earnings gain. The Bank experienced an increase in its average rate on earning
assets from 8.17 to 8.27 percent. The 10 basis point increase can be attributed
to the Bank being asset sensitive and the rate increases the Federal Reserve
implemented in the fall of 1999. Many of the Bank's loans use the prime rate as
an index. Consequently, loans will normally reprice mosre quickly than the
Bank's liabilities.
NON-INTEREST INCOME
Non-interest income rose $138,000 or 19 percent for the year. The increase is
attributed to gains in deposit account service charges (more accounts), other
fee income such as non-sufficient funds (NSF) charges, loan origination fees,
and income earned on residential mortgage loans that the Bank brokered.
Service charges on deposit accounts increased $58,000 or 25 percent as a result
of more deposit accounts. Higher revenues from NSF charges accounted for a
$28,000 increase in 1999 non-interest income. During 1999, the Bank brokered $23
million in residential mortgage loans and received $237,000 in fee income. This
was a 20 percent decrease from 1998.
NON-INTEREST EXPENSE
Total non-interest expense increased $1.0 million for the year. This increase
can be attributed to growth and the need for more employees to handle that
growth. $471,000 of the increase was related to salaries and benefits. The
balance of the increase was related to equipment costs, professional fees,
advertising and various other expenses. The Bank's directors approved an
incentive plan for the employees that paid out $151,000 in bonuses in 1999 based
on the performance of the Bank. Catawba Valley Bank continues to operate with an
efficiency ratio that compares very favorably with its peer banks.
INCOME TAXES
Having used all of its NOL (net operating losses) as credits against earnings in
1997, Catawba Valley Bank was fully taxed by state and federal governments in
1999 and 1998. The Bank's effective tax rate for 1999 was 37 percent and the
combined tax expense was $592,000. Efforts will be made to reduce the effective
tax rate as much as possible. Investments in securities will be in state tax
exempt bonds or tax exempt municipal bonds. Investments in other bonds must have
yield spreads that compensate for the tax effect.
- --------------------------------------------------------------------------------
PAGE 4
<PAGE>
EARNING ASSETS
Average earning assets in 1999 were $97.9 million, a 32 percent increase over
1998. A 39 percent increase in average loans, and a 59 percent increase in
average investment securities and average time deposits with other financial
institutions generated this change. Average earning assets represented 94
percent of average total assets during 1999, a 3 percent decrease from 1998.
(Chart appears here. See the table below for plot points.)
AVERAGE ASSETS ($ MILLIONS)
1996 1997 1998 1999
AVERAGE ASSETS 24.9 51.1 77.1 104.1
AVERAGE EARNING ASSETS 23.6 49.1 73.8 97.9
AVERAGE LOANS, GROSS 14.2 33.9 51.6 71.5
Loan growth continued to be the strength of the Bank's rapid growth. Net loans
increased $22.8 million or 38 percent in 1999 as compared to an increase of
$17.2 million or 41 percent in 1998. Both the commercial and consumer portfolios
increased, with commercial activity continuing to account for the majority of
the increase. Catawba Valley Bank's primary lending focus is to individuals and
small to medium size businesses. Residential construction lending is also a
significant part of the Bank's lending activity. The gross loans to deposit
ratio was 85 percent as of December 31, 1999 and 81 percent as of December 31,
1998.
Investment securities and time deposits are the second largest category of
earning assets. The total at year-end 1999 was $19.7 million, increasing $5.8
million from 1998.
Federal funds sold and interest-bearing balances with other banks totaled $4.5
million on December 31, 1999 which represented a 58 percent decrease from $10.7
million in 1998. These funds were transferred into investment securities to
obtain increased yields. Federal funds sold and bank deposits represent the most
liquid portion of assets and are used to fund loan demand and other cash needs
of the Bank.
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
INTEREST-BEARING LIABILITIES
Management has built most of the deposit base of the Bank from its local
customers' consumer and commercial deposits. The Bank does solicit deposits from
outside its primary market area when local deposits cannot keep up with loan
demand. Total deposits at December 31, 1999 were $98 million, an increase of 31
percent over year-end 1998. Catawba Valley Bank has $4 million of deposits from
outside its market area. The category showing the largest dollar growth was
certificates of deposit, which increased $12 million or 26 percent. Good growth
also occurred in money market deposits which increased 28 percent during the
year.
(Chart appears here. See the table below for plot points.)
1999 DEPOSIT MIX
DEMAND 7%
NOW 10%
MONEY MARKET 21%
SAVINGS 2%
LARGE CD'S 18%
SMALL CD'S 42%
Demand deposits, NOW accounts and savings increased 54 percent to $18.8 million
in 1999. Increasing demand deposit and savings account growth is a major goal of
management. Deposits in these accounts either earn no interest or earn at a
lower rate than do certificates of deposit. We are very pleased with the
progress the Bank has made in attracting these types of accounts.
Catawba Valley Bank established a line of credit with the Federal Home Loan Bank
of Atlanta during 1999. At December 31, 1999, the Bank had a balance of $5
million on this line.
CAPITAL ADEQUACY
The Bank maintains a strong level of capital as a margin of safety for its
depositors and shareholders. The original stock offering raised $7.7 million in
capital. A secondary stock offering completed in October 1998 raised an
additional $5.9 million in capital. As of December 31, 1999, stockholders'
equity was $15 million. At year-end 1999, the book value per share was $10.04.
The ratio of stockholders' equity to assets was 12.7 percent. In addition to an
overall equity to assets ratio requirement, regulators subject banks to
risk-based capital measures. The risk-based capital ratios measure the
relationship of capital to a combination of balance sheet and off-balance sheet
credit risk. The values of both balance sheet and off-balance sheet items are
adjusted to reflect credit risk.
- --------------------------------------------------------------------------------
PAGE 6
<PAGE>
Tier 1 Capital (consisting of stockholders' equity less ineligible intangible
assets) is required to be at least 8.0 percent of risk-weighted assets. The Tier
1 Capital Ratio for Catawba Valley Bank at the end of 1999 was 17.3 percent and
the total capital ratio was 18.9 percent. At the end of 1998, those ratios were
23.3 percent and 24.9 percent, respectively. These ratios will continue to
decrease as the Bank's capital is leveraged through asset growth.
The ability to grow is directly related to capital. The internal capital
generation rate of the Bank is expected to be adequate to meet the growth needs
for the next several years. Management will look for every opportunity to grow
the Bank through branch acquisitions or establishing new branches when it is
economically feasible.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the expense of providing an allowance or
reserve for anticipated losses on loans. The amount charged to expense each year
is dependent on many factors including loan growth, net charge-offs, changes in
the composition of the loan portfolio, delinquencies, management's assessment of
the loan portfolio, past loan loss experience, and economic factors.
The provision for loan loss expense was $394,000 in 1999. The Bank experienced
$103,000 in net charge-offs during 1999. The allowance for loan losses continues
to grow and totaled $1.3 million at December 31, 1999, representing 1.6 percent
of the year-end loan balance. This percentage level equals the average for state
banks in North Carolina.
ASSET AND LIABILITY MANAGEMENT
INTEREST RATE RISK
One of the primary objectives of asset and liability management is to maximize
net interest income while minimizing the earnings risk associated with changes
in interest rates. Management seeks to manage its assets and liabilities in a
manner that will limit interest rate risk and thus stabilize long-term earnings.
Fluctuations in market interest rates do not necessarily have a significant
impact on net interest income, depending on the rate sensitivity position of the
Bank. A rate sensitive asset is a loan or investment that can be repriced within
a certain time interval. When a proper balance between rate sensitive assets and
rate sensitive liabilities exists, market interest rate fluctuations should not
have a significant impact on earnings.
Management uses an earnings simulation model to estimate the amount of earnings
at risk due to changes in interest rates. This model is updated quarterly and is
based on three different rate scenarios. The results of the December 31, 1999
model indicate the Bank's earnings would be impacted less than 6.5 percent if
interest rates went up or down 200 basis points. Management believes that any
change in interest rates, either rise or fall, will not materially affect
earnings.
RECENT ACCOUNTING DEVELOPMENTS
In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Based on its operations at December
31, 1999, management does not expect this standard to have a material effect on
the Bank's financial statements upon adoption.
- --------------------------------------------------------------------------------
PAGE 7
<PAGE>
MARKET FOR COMMON STOCK
As of December 31, 1999, there were 1,779 shareholders of record of Catawba
Valley Bancshares, Inc. stock. The stock is listed on the National Daily
Quotation Service "Bulletin Board" with J.C. Bradford and Company as the market
maker. The table below lists the high and low prices that the market maker
quoted and at which trades were completed during each quarter. Catawba Valley
Bancshares, Inc. stock is considered to be a thinly traded stock with only a few
thousand shares traded each quarter.
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ------------------------------
Period High Low High Low
------ --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
First Quarter $ 22.96 $ 20.00 $ 13.18 $ 12.73
Second Quarter 23.18 21.02 18.27 17.45
Third Quarter 21.36 15.46 19.64 18.64
Fourth Quarter 17.50 15.00 20.00 18.18
</TABLE>
The prices have been adjusted to reflect the impact of a 10% stock dividend paid
on November 30, 1999.
- --------------------------------------------------------------------------------
PAGE 8
<PAGE>
(Dixon Odom PLLC Letterhead)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Catawba Valley Bancshares, Inc. and Subsidiary
Hickory, North Carolina
We have audited the accompanying consolidated balance sheet of Catawba Valley
Bancshares, Inc. and Subsidiary as of December 31, 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of Catawba Valley Bancshares, Inc. and Subsidiary as of December 31, 1998 and
for each of the years in the two year period then ended were audited by other
auditors whose report dated January 22, 1999 expressed an unqualified opinion on
those statements
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Catawba
Valley Bancshares, Inc. and Subsidiary as of December 31, 1999, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ DIXON ODOM PLLC
January 28, 2000
Sanford, North Carolina
------
PAGE 9
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,213,121 $ 911,275
Interest-bearing deposits in banks 3,026,931 8,174,944
Federal funds sold 1,497,543 2,509,567
Time deposits in banks 2,277,968 2,476,956
Investment securities available for sale (Note C) 15,755,543 9,564,531
Investment securities held to maturity (fair values of
$1,607,909 and $1,857,317 at December 31, 1999
and 1998, respectively) (Note C) 1,650,946 1,833,472
Loans (Note D) 83,658,838 60,607,040
Less allowance for loan losses 1,341,340 1,050,360
---------------- ----------------
Net loans 82,317,498 59,556,680
Stock in the Federal Home Loan Bank, at cost 271,000 194,800
Bank premises and equipment (Note E) 2,801,766 1,950,087
Other assets 3,426,049 2,495,690
---------------- ----------------
Total assets $ 118,238,365 $ 89,668,002
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand $ 7,021,108 $ 4,269,142
Money market and NOW accounts 30,665,088 22,880,065
Savings 1,821,626 1,203,456
Time, $100,000 and over 17,648,470 14,319,370
Other time 40,824,592 32,149,016
---------------- ----------------
Total deposits 97,980,884 74,821,049
Borrowings (Note G) 5,000,000 -
Accrued expenses and other liabilities 236,710 529,529
---------------- ----------------
Total liabilities 103,217,594 75,350,578
---------------- ----------------
Stockholders' equity: (Notes I and L)
Preferred stock, 1999, no par value, 1,000,000 shares
authorized; none issued; 1998, none authorized - -
Common stock, 1999, $1 par value, 9,000,000 shares
authorized, 1,495,351 shares issued and outstanding;
1998, $5 par value, 20,000,000 shares authorized,
1,351,910 shares issued and outstanding 1,495,351 6,759,550
Additional paid-capital 13,602,333 6,979,408
Retained earnings 301,140 573,868
Accumulated other comprehensive income (loss) (378,053) 4,598
---------------- ----------------
Total stockholders' equity 15,020,771 14,317,424
---------------- ----------------
Total liabilities and stockholders' equity $ 118,238,365 $ 89,668,002
================ ================
Commitments (Notes H and J)
</TABLE>
- --------------------------------------------------------------------------------
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PAGE 10
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME
Loans $ 6,716,691 $ 4,898,829 $ 3,378,553
Investment securities 873,199 500,098 349,744
Federal funds sold 117,163 122,191 124,545
Time deposits with banks 134,811 132,570 45,231
Interest-bearing deposits with banks 180,389 371,584 198,961
--------------- ---------------- ----------------
Total interest income 8,022,253 6,025,272 4,097,034
--------------- ---------------- ----------------
INTEREST EXPENSE
Time deposits, $100,000 and over 902,002 747,945 522,578
Other deposits 3,122,024 2,519,098 1,631,538
Borrowings 54,756 - -
--------------- ---------------- ----------------
Total interest expense 4,078,782 3,267,043 2,154,116
--------------- ---------------- ----------------
Net interest income 3,943,471 2,758,229 1,942,918
Provision for loan losses 393,981 471,338 349,175
--------------- ---------------- ----------------
Net interest income after provision for
loan losses 3,549,490 2,286,891 1,593,743
--------------- ---------------- ----------------
NON-INTEREST INCOME
Service charges on deposit accounts 286,932 229,029 154,396
Other 589,102 509,112 289,026
--------------- ---------------- ----------------
Total non-interest income 876,034 738,141 443,422
--------------- ---------------- ----------------
NON-INTEREST EXPENSES
Compensation and employee benefits 1,393,973 922,644 647,470
Occupancy and equipment 403,844 269,647 242,010
Professional fees 167,715 102,292 49,268
Stationery, printing and supplies 86,395 44,079 35,573
Advertising and business promotion 146,775 91,849 76,907
Data processing 252,199 167,682 75,368
Other 361,285 231,464 302,097
--------------- ---------------- ----------------
Total non-interest expenses 2,812,186 1,829,657 1,428,693
--------------- ---------------- ----------------
Income before income taxes 1,613,338 1,195,375 608,472
Income taxes (Note K) 592,365 455,000 90,000
--------------- ---------------- ----------------
Net income $ 1,020,973 $ 740,375 $ 518,472
=============== ================ ================
NET INCOME PER COMMON SHARE
Basic $ .68 $ .61 $ .45
=============== ================ ================
Diluted $ .64 $ .57 $ .44
=============== ================ ================
</TABLE>
- --------------------------------------------------------------------------------
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PAGE 11
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common stock Additional Retained other
--------------------------- paid-in earnings comprehensive Total
Shares Amount capital (deficit) income (loss) equity
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996 700,240 $ 3,501,200 $ 3,906,111 $ (216,213) $ 5,996 $ 7,197,094
Net income - - - 518,472 - 518,472
Other comprehensive loss - - - - (1,524) (1,524)
Stock split effected in the
form of a 20% dividend 140,048 700,240 (700,240) - - -
Stock options exercised 600 3,000 4,248 - - 7,248
------------ ------------ ------------ ------------ ------------- ------------
BALANCE AT DECEMBER 31,
1997 840,888 4,204,440 3,210,119 302,259 4,472 7,721,290
Net income - - - 740,375 - 740,375
Other comprehensive income - - - - 126 126
Stock split effected in the
form of a 25% dividend 210,222 1,051,110 (582,344) (468,766) - -
Sale of common stock 300,800 1,504,000 4,351,633 - - 5,855,633
------------ ------------ ------------ ------------ ------------- ------------
BALANCE AT DECEMBER 31,
1998 1,351,910 6,759,550 6,979,408 573,868 4,598 14,317,424
Net income - - - 1,020,973 - 1,020,973
Other comprehensive loss - - - - (382,651) (382,651)
Stock options exercised 7,500 37,500 27,525 - - 65,025
Formation of Catawba
Valley Bancshares, Inc.
(Note A) - (5,437,640) 5,437,640 - - -
10% stock dividend 135,941 135,941 1,157,760 (1,293,701) - -
------------ ------------ ------------ ------------ ------------- ------------
BALANCE AT DECEMBER 31,
1999 1,495,351 $ 1,495,351 $ 13,602,333 $ 301,140 $ (378,053) $ 15,020,771
============ ============ ============ ============ ============= ============
</TABLE>
- --------------------------------------------------------------------------------
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PAGE 12
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,020,973 $ 740,375 $ 518,472
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 217,279 156,866 124,200
Deferred income taxes (55,000) (122,000) (174,000)
Provision for loan losses 393,981 471,338 349,175
(Gain) loss on sale of assets (1,014) - 2,773
Change in assets and liabilities:
Increase in other assets (291,691) (202,544) (115,361)
Increase (decrease) in other liabilities (292,819) 474,822 (290,436)
--------------- -------------- ---------------
Net cash provided by operating activities 991,709 1,518,857 414,823
--------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in time deposits in banks 198,988 (1,393,980) (299,976)
Purchase of securities available for sale (9,744,438) (9,286,185) (2,725,289)
Purchase of securities held to maturity (465,047) (381,514) (2,303,985)
Purchases of Federal Home Loan Bank stock (76,200) (104,200) (90,600)
Proceeds from maturities and calls of
investment securities available for sale 2,956,127 2,605,389 340,780
Proceeds from maturities and calls of
investment securities held to maturity 645,746 1,762,085 2,821,380
Proceeds from sales of investment securities
available for sale - - 1,358,538
Increase in other assets (385,914) (618,270) (962,873)
Net increase in loans (23,154,799) (17,713,501) (18,080,368)
Purchases of premises and equipment (1,087,821) (659,616) (189,569)
Proceeds from sales of premises and equipment 38,598 - -
--------------- -------------- ---------------
Net cash used by investing activities (31,074,760) (25,789,792) (20,131,962)
--------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 23,159,835 17,713,553 27,282,516
Proceeds from borrowings 5,000,000 - -
Proceeds from issuance of common stock 65,025 5,855,633 7,248
--------------- -------------- ---------------
Net cash provided by financing activities 28,224,860 23,569,186 27,289,764
--------------- -------------- ---------------
Net increase (decrease) in cash and cash
equivalents (1,858,191) (701,749) 7,572,625
Cash and cash equivalents, beginning of year 11,595,786 12,297,535 4,724,910
--------------- -------------- ---------------
Cash and cash equivalents, end of year $ 9,737,595 $ 11,595,786 $ 12,297,535
=============== ============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 4,075,787 $ 3,268,233 $ 2,156,458
=============== ============== ===============
Income taxes paid $ 794,500 $ 204,500 $ 268,000
=============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PAGE 13
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND OPERATIONS
On June 30, 1999, Catawba Valley Bancshares, Inc. (the "Holding Company") was
formed as a holding company for Catawba Valley Bank. Upon formation, one share
of the Holding Company's $1 par value common stock was exchanged for each of the
then outstanding 1,359,410 shares of Catawba Valley Bank's $5 par value common
stock. The Holding Company currently has no operations and conducts no business
on its own other than owning Catawba Valley Bank.
Catawba Valley Bank was incorporated October 3, 1995 and began banking
operations on November 1, 1995. Catawba Valley currently has three locations in
Catawba County, North Carolina, and is engaged in commercial and retail banking,
operating under the banking laws of North Carolina and the rules and regulations
of the Federal Deposit Insurance Corporation and the North Carolina Commissioner
of Banks. Catawba Valley Bank undergoes periodic examinations by those
regulatory authorities.
Valley Financial Services, Inc. is a wholly-owned subsidiary of Catawba Valley
Bank whose principal business activity is that of an agent for various insurance
products and non-bank investment products and services.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Catawba Valley Bancshares, Inc., Catawba Valley Bank and Valley Financial
Services, Inc., together referred to as the "Bank." All significant intercompany
transactions and balances are eliminated in consolidation.
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 and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for losses on loans.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and amounts due from banks, federal funds sold and
interest-bearing deposits in other banks.
- --------------------------------------------------------------------------------
PAGE 14
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES HELD TO MATURITY
Bonds and notes for which the Bank has the positive intent and ability to hold
to maturity are reported at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method over the period to
maturity.
SECURITIES AVAILABLE FOR SALE
Available-for-sale securities are reported at fair value and consist of bonds
and notes not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses on available-for-sale securities
are reported as a net amount in other comprehensive income. Gains and losses on
the sale of available-for-sale securities are determined using the
specific-identification method. Declines in the fair value of individual
held-to-maturity and available-for-sale securities below their cost that are
other than temporary would result in write-downs of the individual securities to
their fair value. Such write-downs would be included in earnings as realized
losses. Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, net of unamortized deferred
loan fees and costs on original loans, reduced by an allowance for loan losses.
Interest on loans is calculated by using the simple interest method on daily
balances of the principal amount outstanding. Loan origination fees and costs
are deferred and included in income and expense using a method that approximates
the level yield method.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collection of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions and trends that may affect the borrowers' ability to
pay.
Loans are considered impaired when it is probable that all amounts due under the
contractual terms of the loan will not be collected. The measurement of impaired
loans that are collateral dependent is based on the fair value of the
collateral. The measurement of other impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate. If a recorded investment in the loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for loan losses. The Bank had no impaired loans during the years
ended December 31, 1999 and 1998.
- --------------------------------------------------------------------------------
PAGE 15
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Bank uses several factors in determining if a loan is impaired. The internal
asset classification procedures include a thorough review of significant loans
and lending relationships and include the accumulation of related data. This
data includes loan payment status, borrowers' financial data and borrowers'
operating factors such as cash flows, operating income or loss, etc.
NONACCRUAL LOANS
Loans that are past due ninety (90) days or more as to principal or interest, or
where reasonable doubt exists as to timely collection, are generally classified
as nonaccrual loans unless they are well collateralized and in process of
collection. The Bank had approximately $207,000 and $2,000 of loans classified
as nonaccrual at December 31, 1999 and 1998, respectively.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the terms of the
respective leases or the estimated useful lives of the improvements, whichever
is shorter. Repairs and maintenance costs are charged to operations as incurred,
and additions and improvements to premises and equipment are capitalized. Upon
sale or retirement, the cost and related accumulated depreciation are removed
from the accounts and any gains or losses are reflected in current operations.
STOCK IN FEDERAL HOME LOAN BANK OF ATLANTA
As a requirement for membership, the Bank invests in stock of the Federal Home
Loan Bank of Atlanta ("FHLB"). This investment is carried at cost.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance if it is more likely than not
that the tax benefits will not be realized.
- --------------------------------------------------------------------------------
PAGE 16
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK COMPENSATION PLANS
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an employee must pay to acquire the stock. Stock options issued under the Bank's
stock option plans have no intrinsic value at the grant date and, under Opinion
No. 25, no compensation cost is recognized for them. The Bank has elected to
continue with the accounting methodology in Opinion No. 25 and, as a result, has
provided pro forma disclosures of net income and earnings per share and other
disclosures as if the fair value based method of accounting had been applied.
PER SHARE DATA
During 1999 the Bank paid a 10% stock dividend. During 1998 the Bank effected a
five-for-four stock split in the form of a 25% stock dividend, and during 1997
the Bank effected a six-for-five stock split in the form of a 20% stock
dividend. Basic and diluted net income per share is computed based on the
weighted average number of shares outstanding during each period after
retroactively adjusting for the stock dividends. Diluted net income per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the net income of
the Bank.
Basic and diluted net income per share have been computed based upon net income
as presented in the accompanying consolidated statements of operations divided
by the weighted average number of common shares outstanding or assumed to be
outstanding as summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Weighted average number of common
shares used in computing basic net
income per share 1,492,887 1,211,367 1,155,465
Effect of dilutive stock options 94,075 82,662 18,318
--------------- ---------------- ----------------
Weighted average number of common
shares and dilutive potential common
shares used in computing diluted net
income per share 1,586,962 1,294,029 1,173,783
=============== ================ ================
</TABLE>
- --------------------------------------------------------------------------------
PAGE 17
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Bank adopted the provisions of SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes requirements for the
disclosure of comprehensive income in the Bank's financial statements.
Comprehensive income is defined as net income plus transactions and other
occurrences which are the result of nonowner changes in equity. As required by
SFAS No. 130, prior period financial statements have been reclassified to
reflect application of the provisions of this statement.
Other comprehensive income is defined as comprehensive income exclusive of net
income. Unrealized gains (losses) on available for sale securities represent the
sole component of the Bank's other comprehensive income. Other comprehensive
income (loss) consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Unrealized holding gains (losses), net
of reclassification adjustments for
realized gains (losses) $ (580,405) $ 126 $ 1,476
Income tax (expense) benefit related
to other comprehensive income (loss) 197,754 - (3,000)
--------------- --------------- ---------------
Other comprehensive income (loss) $ (382,651) $ 126 $ (1,524)
=============== =============== ===============
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
FASB STATEMENT ON ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. In June 1999, this Statement was amended by
SFAS No. 137 to defer the effective date to fiscal years beginning after June
15, 2000. This Statement establishes accounting and reporting standards for
derivative instruments and hedging activities, including certain derivative
instruments embedded in other contracts, and requires that an entity recognize
all derivatives as assets or liabilities in the statement of financial condition
and measure them at fair value. If certain conditions are met, an entity may
elect to designate a derivative as follows: (a) a hedge of exposure to changes
in the fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of an unrecognized
firm commitment, an available-for-sale security, a foreign currency denominated
forecasted transaction, or a net investment in a foreign operation. The
Statement generally provides for matching the timing of the recognition of the
gain or loss on derivatives designated as hedging instruments with the
recognition of the changes in the fair value of the item being hedged. Depending
on the type of hedge, such recognition will be in either net income or other
comprehensive income. For a derivative not designated as a hedging instrument,
changes in fair value will be recognized in net income in the period of change.
Management anticipates that the Statement will have no material effect on the
consolidated financial statements.
- --------------------------------------------------------------------------------
PAGE 18
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation. The reclassifications had no effect on net
income or stockholders' equity as previously reported.
NOTE C - INVESTMENT SECURITIES
The amortized cost and estimated market values of securities available for sale
at December 31 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1999
U.S. Government agencies $ 13,463,229 $ - $ 523,004 $ 12,940,225
Mortgage-backed securities 2,865,121 2,426 52,229 2,815,318
---------------- -------------- -------------- ---------------
$ 16,328,350 $ 2,426 $ 575,233 $ 15,755,543
================ ============== ============== ===============
1998
U.S. Government agencies $ 6,703,772 $ 14,995 $ 20,376 $ 6,698,391
Mortgage-backed securities 2,853,161 14,381 1,402 2,866,140
---------------- -------------- -------------- ---------------
$ 9,556,933 $ 29,376 $ 21,778 $ 9,564,531
================ ============== ============== ===============
</TABLE>
The amortized cost and estimated market values of securities held to maturity at
December 31 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1999
U.S. Government agencies $ 1,342,638 $ - $ 41,493 $ 1,301,145
Mortgage-backed securities 308,308 1,424 2,968 306,764
---------------- -------------- -------------- ---------------
$ 1,650,946 $ 1,424 $ 44,461 $ 1,607,909
================ ============== ============== ===============
1998
U.S. Government agencies $ 1,379,518 $ 15,465 $ - $ 1,394,983
Mortgage-backed securities 453,954 8,380 - 462,334
---------------- -------------- -------------- ---------------
$ 1,833,472 $ 23,845 $ - $ 1,857,317
================ ============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
PAGE 19
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE C - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair values of securities available for sale
and held to maturity at December 31, 1999 are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for sale Held to maturity
--------------------------------- ----------------------------------
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 164,082 $ 161,114
Due after one year through
five years 7,559,822 7,259,983 963,654 942,895
Due after five years through
ten years 6,720,349 6,478,263 153,017 145,893
Due after ten years 2,048,179 2,017,297 370,193 358,007
-------------- --------------- --------------- ---------------
$ 16,328,350 $ 15,755,543 $ 1,650,946 $ 1,607,909
============== =============== =============== ===============
</TABLE>
NOTE D - LOANS AND ALLOWANCES FOR LOAN LOSSES
Loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Commercial $ 37,664,504 $ 28,065,769
Real estate:
Construction and land development 12,019,744 7,211,169
Residential, 1-4 families 13,702,774 10,462,635
Residential, home equity 7,788,222 5,507,323
Installment 11,308,886 8,544,178
Other 1,174,708 815,966
----------------- ----------------
$ 83,658,838 $ 60,607,040
================= ================
</TABLE>
- --------------------------------------------------------------------------------
PAGE 20
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE D - LOANS AND ALLOWANCES FOR LOAN LOSSES (CONTINUED)
A summary of the activity in the allowance for loan losses for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, beginning of the year $ 1,050,360 $ 683,397 $ 407,723
Provision for loan losses 393,981 471,338 349,175
Charge offs (198,610) (106,000) (79,521)
Recoveries 95,609 1,625 6,020
--------------- ----------------- ----------------
Balance, end of year $ 1,341,340 $ 1,050,360 $ 683,397
=============== ================= ================
</TABLE>
The Bank has granted loans to certain directors and executive officers of the
Bank and to their associates. During 1999 and 1998, $2,131,000 and $1,269,000,
respectively, in new loans were made and repayments of $757,000 and $1,028,000,
respectively, were collected, resulting in a balance of $3,133,000 and
$1,759,000 at December 31, 1999 and 1998, respectively.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Land $ 497,704 $ 495,663
Leasehold improvements 102,215 32,699
Equipment and fixtures 1,115,864 681,769
Buildings 1,533,539 766,220
----------------- ----------------
3,249,322 1,976,351
Less accumulated depreciation and amortization 465,234 276,312
----------------- ----------------
2,784,088 1,700,039
Construction in progress 17,678 250,048
----------------- ----------------
$ 2,801,766 $ 1,950,087
================= ================
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1999,
1998, and 1997 amounted to $198,558, $128,005 and $103,218, respectively.
NOTE F - DEPOSITS
The scheduled maturities of time deposits at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 12,798,464
2001 26,116,687
2002 19,557,911
----------------
$ 58,473,062
================
</TABLE>
- --------------------------------------------------------------------------------
PAGE 21
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE G - BORROWINGS
At December 31, 1999, the Bank had received an advance of $5,000,000 under its
$12,300,000 line of credit with the Federal Home Loan Bank of Atlanta. This
advance had an interest rate of 6.16% at December 31, 1999 and is due on October
30, 2000. All advances are secured by a blanket floating lien on the Bank's
one-to-four family residential mortgage loans.
NOTE H - LEASE
The Bank has a noncancelable operating lease for a branch location that expires
in 2000. The lease has three five-year renewal options based on market rates.
The Bank has another noncancelable operating lease for a location for its
mortgage banking operations that expires in 2004. Future minimum lease payments
under these leases for years subsequent to December 31, 1999 are as follows:
2000 $ 36,857
2001 18,000
2002 18,000
2003 18,000
2004 1,500
---------
$ 92,357
=========
Total rental expense related to the operating lease was $48,107, $33,094, and
$31,116 for the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE I - STOCK OPTION PLANS
The Bank maintains an incentive stock option plan (the "Employee Plan") which is
intended to attract and induce continued employment of key employees and to
provide them an opportunity to acquire a proprietary interest in the Bank and to
align their long-term interests with that of the stockholders. The Employee Plan
was ratified by the stockholders prior to implementation. Non-employee directors
do not participate in the Employee Plan. The exercise price of each share of
common stock covered by an option is equal to the fair market value per share of
the Bank's common stock on the date the option is granted. Employees vest in the
options at 20% each year of continuous employment. Options under the Employee
Plan expire ten years after the grant date.
During 1997 the Bank created a nonqualified stock option plan for directors (the
"Director Plan") which is intended to attract capable individuals to serve on
the Board of Directors of the Bank. The Director Plan was ratified by the
shareholders prior to implementation. Employee directors do not participate in
the Director Plan. The exercise price of each share of common stock covered by
an option is equal to the fair market value per share of the Bank's common stock
on the date the option is granted. Options under the Director Plan fully vest at
the date of grant and expire ten years after the grant date.
- --------------------------------------------------------------------------------
PAGE 22
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE I - STOCK OPTION PLANS (CONTINUED)
The following information regarding shares authorized, granted, and exercised,
and exercise prices has been restated to reflect the effect of the 10%, 25% and
20% stock dividends paid in 1999, 1998, and 1997, respectively.
In 1996, 115,540 shares were authorized for grant under the Employee Plan. Under
this Plan, 82,500 options were granted in 1996 with an exercise price of $7.88,
25,438 options were granted in 1998 with an exercise price of $15.27, and 1,650
options were granted in 1999 with an exercise price of $21.82. No options were
exercised during 1998 and 8,250 options were exercised during 1999 at an
exercise price of $7.88. At December 31, 1999 and 1998, respectively, 47,589 and
30,000 options were exercisable at weighted average exercise prices of $9.36 and
$8.67. The weighted average remaining contractual lives of the outstanding
options under the Employee Plan were 86 and 96 months at December 31, 1999 and
1998, respectively.
Under the Director Plan, 115,540 shares were authorized for grant and issued
during 1997. At December 31, 1999 and 1998, 114,715 options with an exercise
price of $8.78 were outstanding and exercisable, as 825 options were exercised
during 1997. The weighted average remaining contractual lives of the outstanding
options under the Director Plan were 89 and 104 months at December 31,1999 and
1998, respectively.
Had compensation costs for the Bank's stock option plans been determined based
on the fair value at the grant date for awards in 1999 and 1998, the Bank's net
income and net income per share would have changed to the pro forma amounts
indicated as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Net income as reported $ 1,020,973 $ 740,375
Net income pro forma 910,156 661,634
Basic net income per common share
As reported .68 .61
Pro forma .61 .55
Diluted net income per common share
As reported .64 .57
Pro forma .57 .51
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1999 and 1998, respectively: dividend yield of 0.0%; expected
volatility of 29% and 37%; risk free interest rate of 5.50% and 6.25%; and
weighted average expected lives of seven years.
- --------------------------------------------------------------------------------
PAGE 23
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE J - OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The
contract or notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of conditions established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank, upon extension of credit is based on management's
credit evaluation of the borrower. Collateral obtained varies but may include
real estate, stocks, bonds, and certificates of deposit.
A summary of the contract amount of the Bank's exposure to off-balance sheet
risk as of December 31, 1999 is as follows:
Financial instruments whose contract amounts represent credit risk:
Undisbursed lines of credit $ 22,259,000
Commitments to extend credit 1,000,000
NOTE K - INCOME TAXES
The components of income tax expense (benefit) for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- -----------------
<S> <C> <C> <C>
Current $ 647,365 $ 577,000 $ 264,000
Deferred (55,000) (122,000) (174,000)
--------------- ---------------- ----------------
$ 592,365 $ 455,000 $ 90,000
=============== ================ ================
</TABLE>
The difference between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate of 34% was primarily a result of
state income taxes for the years ended December 31, 1999 and 1998. The
difference between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate of 34% was primarily a result of
the changes in valuation allowance on the net deferred tax assets during the
year ended December 31, 1997.
- --------------------------------------------------------------------------------
PAGE 24
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE K - INCOME TAXES (CONTINUED)
Significant components of deferred tax assets and liabilities, included in other
assets, at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 453,000 $ 344,000
Pre-opening costs 13,000 29,000
Unrealized investment loss 195,000 -
Other - 27,000
----------------- ----------------
Total deferred tax assets 661,000 400,000
----------------- ----------------
Deferred tax liabilities:
Depreciation 25,000 13,000
Unrealized investment gain - 3,000
Deferred loan fees 4,000 5,000
----------------- ----------------
Total deferred tax liabilities 29,000 21,000
----------------- ----------------
Net deferred tax asset $ 632,000 $ 379,000
================= ================
</TABLE>
NOTE L - REGULATORY RESTRICTIONS
The Bank, as a North Carolina banking corporation, may pay dividends only out of
undivided profits as determined pursuant to North Carolina General Statutes
Section 53-87. However, regulatory authorities may limit payment of dividends by
any bank when it is determined that such a limitation is in the public interest
and is necessary to ensure financial soundness of the Bank.
The Bank is subject to various regulatory capital requirements administered by
the banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital to average assets (as
defined). Management believes that as of December 31, 1999, the Bank meets all
capital adequacy requirements to which it is subject.
- --------------------------------------------------------------------------------
PAGE 25
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE L - REGULATORY RESTRICTIONS (CONTINUED)
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be well capitalized, the
Bank must maintain minimum total risk-based, Tier I risk-based, and Tier 1
leverage ratios as set forth in the table below. There are no conditions or
events since the notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and ratios are also presented in the
following table.
<TABLE>
<CAPTION>
Actual For capital adequacy Well capitalized
---------------------------- ---------------------------- ----------------------------
Amount Percent Amount Percent Amount Percent
------------- -------- ------------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
1999
Total Capital (to Risk
Weighted Assets) $ 16,362,000 18.89% $ 6,931,000 8.00% $ 8,664,000 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 15,021,000 17.33% 3,465,000 4.00% 5,198,000 6.00%
Tier I Capital (to Average
Assets) 15,021,000 12.92% 4,649,000 4.00% 5,811,000 5.00%
1998
Total Capital (to Risk
Weighted Assets) $ 15,368,000 24.99% $ 4,920,000 8.00% $ 6,150,000 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 14,313,000 23.27% 2,460,000 4.00% 3,690,000 6.00%
Tier I Capital (to Average
Assets) 14,313,000 16.76% 3,415,000 4.00% 4,268,000 5.00%
</TABLE>
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows.
In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
- --------------------------------------------------------------------------------
PAGE 26
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS AND TIME DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS
The carrying amounts reported in the balance sheet for cash, short-term
instruments and time deposits approximate those assets' fair value.
INVESTMENT SECURITIES
Fair values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
FEDERAL HOME LOAN BANK STOCK
The carrying value of Federal Home Loan Bank stock approximates fair value based
on the redemption provisions of the Federal Home Loan Bank.
LOANS RECEIVABLE
The fair values for loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with similar terms. The
carrying amount of accrued interest approximates its fair value.
DEPOSITS
The fair values disclosed for deposits with no stated maturity (e.g., interest
and non-Interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for deposits with a
stated maturity date (time deposits) are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on these
accounts to a schedule of aggregated expected monthly maturities on time
deposits.
BORROWINGS
The fair values are based on discounting expected cash flows at the interest
rate for debt with the same or similar remaining maturities and collected
requirements.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
With regard to financial instruments with off-balance sheet risk discussed in
Note J, it is not practicable to estimate the fair value of future financing
commitments.
- --------------------------------------------------------------------------------
PAGE 27
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table reflects the estimated fair values and carrying values at
December 31:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- ----------------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,737,595 $ 9,737,595 $ 11,595,786 $ 11,595,786
Time deposits with other
financial institutions 2,277,968 2,277,968 2,476,956 2,476,956
Securities available for sale 15,755,543 15,755,543 9,564,531 9,564,531
Securities held to maturity 1,650,946 1,607,909 1,833,472 1,857,317
Federal Home Loan Bank stock 271,000 271,000 194,800 194,800
Loans receivable, net 82,317,498 81,792,000 59,556,680 59,574,862
Deposits with no stated maturity 39,507,822 39,507,822 28,352,663 28,352,663
Deposits with stated maturity 58,473,062 58,456,000 46,468,386 46,807,605
Advances from the Federal
Home Loan Bank of Atlanta 5,000,000 5,000,000 - -
</TABLE>
- --------------------------------------------------------------------------------
PAGE 28
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
DIRECTORS
- --------------------------------------------------------------------------------
W. Steve Ikerd - Chairman
President - Ikerd Enterprises
Robert T. King - Vice Chairman
Retired Textile Executive - Investor
Robert P. Huntley
Certified Public Accountant
Real-estate Developer
Cloyd H. Propst Jr.
Co-owner Hickory Sand Co.
(Utility Contractor)
Howard L. Pruitt
Southwood Furniture Co. - Secretary
Real-estate Developer
R. Steve Aaron
President/CEO - Catawba Valley Bank
Hal F. Huffman, Jr.
Owner and President - ACE Hardware, Inc.
Pat M. Moss
Alderwoman, City of Hickory
President - Trehan Corp. (farming operation)
William R. Sigmon, Jr.
Physician and President - Sigmon Radiation Oncology, PA
- --------------------------------------------------------------------------------
PAGE 29
<PAGE>
CATAWBA VALLEY BANCSHARES, INC. AND SUBSIDIARY
GENERAL CORPORATE INFORMATION
- --------------------------------------------------------------------------------
CATAWBA VALLEY BANCSHARES, INC.
CATAWBA VALLEY BANK
Main Office: 1039 Second Street, NE
Hickory, North Carolina 28601
(828) 431-2300
Branches:
1445 Second Avenue, NW 2675 NW Boulevard
Hickory, North Carolina 28601 Newton, North Carolina 28658
(828) 431-2333 (828) 464-9911
BANK OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
R. Steve Aaron Joe S. Tripp Carole F. Teague
President, Chief Executive Officer Vice President/Lending Vice President/Retail Services
N. Jack Rector G. Marvin Lowder David A. Kozak
Vice President/Lending Vice President/Accounting Vice President/Branch Manager
S. Warren Wilson
Vice President/ Branch Manager
</TABLE>
INDEPENDENT AUDITORS
Dixon Odom PLLC
408 Summit Drive
Sanford, NC 27330
SPECIAL COUNSEL
Anthony Gaeta, Jr., P.A.
808 Salem Woods Drive
Suite 201
Raleigh, North Carolina 27615
STOCK TRANSFER AGENT
First-Citizens Bank & Trust Company
100 East Tryon Street
Raleigh, North Carolina 27603
NOTICE OF ANNUAL MEETING
The annual Meeting of the shareholders of Catawba Valley Bancshares, Inc. will
be held on April 25th, 2000, at 2:00 p.m. in the conference Room at J. C.
Bradford & Co., 400 Second Avenue, N.W. Hickory, North Carolina.
A copy of the Catawba Valley Bancshares, Inc. Annual Report on Form 10-KSB as
filed with the Securities Exchange Commission will be furnished without charge
to the stockholders as of the record date, upon written request to G. Marvin
Lowder, Vice President and Treasurer, Catawba Valley Bank, Post Office Box 2328,
Hickory, North Carolina 28603
THIS ANNUAL REPORT SERVES AS THE ANNUAL FINANCIAL DISCLOSURE STATEMENT FURNISHED
PURSUANT TO THE FEDERAL DEPOSIT INSURANCE CORPORATION'S RULES AND REGULATIONS.
THIS STATEMENT HAS NOT BEEN REVIEWED OR CONFIRMED FOR ACCURACY OR RELEVANCE BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION.
- --------------------------------------------------------------------------------
PAGE 30
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,213
<INT-BEARING-DEPOSITS> 3,027
<FED-FUNDS-SOLD> 1,498
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,756
<INVESTMENTS-CARRYING> 1,651
<INVESTMENTS-MARKET> 1,608
<LOANS> 83,659
<ALLOWANCE> (1,341)
<TOTAL-ASSETS> 118,238
<DEPOSITS> 97,981
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 237
<LONG-TERM> 0
0
0
<COMMON> 1,495
<OTHER-SE> 13,526
<TOTAL-LIABILITIES-AND-EQUITY> 118,238
<INTEREST-LOAN> 6,717
<INTEREST-INVEST> 873
<INTEREST-OTHER> 432
<INTEREST-TOTAL> 8,022
<INTEREST-DEPOSIT> 4,024
<INTEREST-EXPENSE> 55
<INTEREST-INCOME-NET> 3,943
<LOAN-LOSSES> 394
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,812
<INCOME-PRETAX> 1,613
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,021
<EPS-BASIC> .68
<EPS-DILUTED> .64
<YIELD-ACTUAL> 3.68
<LOANS-NON> 207
<LOANS-PAST> 554
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,241
<ALLOWANCE-OPEN> 1,050
<CHARGE-OFFS> 199
<RECOVERIES> 96
<ALLOWANCE-CLOSE> 1,341
<ALLOWANCE-DOMESTIC> 1,341
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>