SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of The Securities Exchange Act of 1934
For Quarter Ended SEPTEMBER 30, 1997 Commission File Number 33-43386
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HARDWICK HOLDING COMPANY
------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1408388
- -------------------------------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
One Hardwick Square, P.O. Box 1367, Dalton, GA. 30722-1367
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 217-3950
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No__
_
Number of shares of common stock outstanding
at November 10, 1997
4,021,496 Shares
----------------
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
INDEX
Page No.
--------
PART I- FINANCIAL INFORMATION
Consolidated Statements of Financial
Position at September 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income
for the Three Months Ended September 30,
1997 and 1996 4
Consolidated Statements of Income
for the Nine Months Ended September 30,
1997 and 1996 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1997 and 1996 6-7
Notes to Unaudited Consolidated Financial Statements 8-10
Management's Discussion and Analysis of
Financial Position and Results of Operations 11-17
PART II- OTHER INFORMATION 18
SIGNATURES 19
2
<PAGE>
HARDWICK HOLDING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(unaudited)
-----------
<S> <C> <C>
Cash and due from banks $ 20,750 $ 26,797
Federal funds sold 4,281 7,000
---------- ---------
Total cash and cash equivalents 25,031 33,797
Investment securities, available-for-sale 121,779 120,166
Loans, net 297,946 271,470
Premises and equipment, net 14,297 15,114
Assets under capital lease, net 467 614
Accrued interest receivable 4,170 3,865
Excess of cost over fair value of
subsidiaries acquired, net of amortization 4,884 5,346
Other assets 1,751 1,689
---------- ---------
Total assets $ 470,325 $ 452,061
========== =========
Liabilities and Stockholders' Equity
Deposits-
Noninterest-bearing $ 82,755 $ 85,567
Interest-bearing 318,770 308,373
========== =========
Total deposits 401,525 393,940
Securities sold under agreements to repurchase 7,268 5,927
Other borrowed funds 3,250 306
Note payable to bank 2,100 0
Capital lease obligation 521 668
Other liabilities 5,211 4,243
---------- ---------
Total liabilities 419,875 405,084
---------- ---------
Commitments and contingencies (Notes 2 and 4)
Stockholders' equity-
Common stock, $.50 par value, 10,000,000 shares authorized,
4,161,141 and 4,125,141 shares issued; 4,021,496 and 3,999,229 shares
outstanding at September 30,1997 and December 31,1996, respectively 2,081 2,063
Additional paid-in capital 20,936 20,233
Retained earnings 30,328 26,845
Unrealized gains on securities available-for-sale net of tax 518 324
Less treasury stock, at cost, 139,645 and 125,912 shares at September 30,
1997 and December 31, 1996, respectively (2,546) (2,289)
Less deferred compensation from restricted stock plan (849) (199)
---------- ----------
Total stockholders' equity 50,450 46,977
---------- ---------
Total liabilities and stockholders' equity $ 470,325 $ 452,061
========== =========
</TABLE>
(See notes to consolidated financial statements.)
3<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------
September 30, September 30,
1997 1996
-------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,149 $ 6,324
Interest on investment securities-
Taxable 1,517 1,254
Nontaxable 244 387
Interest on fed funds sold 179 117
----------- -----------
Total interest income 9,089 8,082
----------- -----------
INTEREST EXPENSE:
Interest on deposits 3,665 3,185
Interest on securities sold under agreements to repurchase 74 28
Interest on other borrowed funds 9 8
Interest on note payable and capital lease obligations 39 32
----------- -----------
Total interest expense 3,787 3,253
----------- -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOAN LOSSES 5,302 4,829
PROVISION FOR LOAN LOSSES 25 150
----------- -----------
NET INTEREST INCOME 5,277 4,679
----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts 677 574
Securities (losses) gains, net 42 (2)
Other noninterest income 436 392
----------- -----------
Total noninterest income 1,155 964
----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,182 1,988
Net occupancy expense 790 852
Other noninterest expense 1,545 1,465
------------ -----------
Total noninterest expense 4,517 4,305
------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,915 1,338
PROVISION FOR INCOME TAXES 702 416
------------ -----------
NET INCOME $ 1,213 $ 922
============ ===========
NET INCOME PER SHARE $ 0.30 $ 0.23
============ ==========
</TABLE>
(See notes to consolidated financial statements.)
4<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine Months Ended
--------------------------------
September 30, September 30,
1997 1996
--------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 20,327 $ 18,383
Interest on investment securities-
Taxable 4,337 3,960
Nontaxable 843 1,219
Interest on fed funds sold and bank deposits 489 310
---------- ----------
Total interest income 25,996 23,872
---------- ----------
INTEREST EXPENSE:
Interest on deposits 10,475 9,613
Interest on securities sold under agreements to repurchase 179 90
Interest on other borrowed funds 21 23
Interest on note payable and capital lease obligations 79 73
---------- ----------
Total interest expense 10,754 9,799
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NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOAN LOSSES 15,242 14,073
PROVISION FOR LOAN LOSSES 400 225
---------- ----------
NET INTEREST INCOME 14,842 13,848
---------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts 2,003 1,718
Securities gains, net 62 8
Other noninterest income 3,610 1,355
---------- ----------
Total noninterest income 5,675 3,081
NONINTEREST EXPENSE:
Salaries and employee benefits 6,493 6,003
Net occupancy expense 2,399 2,538
Other noninterest expense 4,693 4,286
---------- ----------
Total noninterest expense 13,585 12,827
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 6,932 4,102
PROVISION FOR INCOME TAXES 2,241 1,246
---------- ----------
NET INCOME $ 4,691 $ 2,856
========== ==========
NET INCOME PER SHARE $ 1.17 $ 0.71
========== ==========
</TABLE>
(See notes to consolidated financial statements.)
5<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE> For the Nine Months
<CAPTION> Ended
September 30,
1997 1996
----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,691 $ 2,856
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 400 225
Provision for depreciation and amortization 1,815 1,832
Loss on disposition of premises and equipment 182 2
Accretion of investment security discounts 81 100
Deferred income tax (benefit) provision (171) 43
Securities gains, net (62) (8)
Increase in accrued interest receivable (305) 20
Increase in other assets (134) (487)
Increase in other liabilities 968 1,202
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Net cash provided by operating activities 7,465 5,875
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available-for-sale 15,674 25,417
Proceeds from sales of investment securities available-for-sale 28,110 21,043
Purchases of investment securities available-for-sale (45,179) (21,948)
Net cash flows from loans originated and principal collected on loans (26,888) (26,374)
Proceeds from disposal of premises and equipment 57 46
Proceeds from sale of other real estate 12 0
Purchases of premises and equipment (600) (514)
-------- ---------
Net cash used in investing activities (28,814) (2,330)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts, and savings accounts (15,332) (8,862)
Net cash flows from sales and maturities of certificates of deposit 22,917 235
Net increase (decrease) in fed funds purchased and securities sold
under agreement to repurchase 1,341 (1,275)
Increase (decrease) in other borrowed funds 2,944 (56)
Proceeds from note payable to bank 2,100 1,100
Payments on note payable to bank and capital lease obligations (147) (381)
Purchase of treasury stock, at cost (275) 0
Payments of cash dividends (965) (726)
-------- --------
Net cash provided by (used in) financing activities $ 12,583 $ (11,173)
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</TABLE>
6
<PAGE>
HARDWICK HOLDING COMPANY
& SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (8,766) $ (7,718)
CASH AND CASH EQUIVALENTS, beginning of period 33,797 42,271
---------- --------
CASH AND CASH EQUIVALENTS, end of period $ 25,031 $ 34,553
========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 9,882 $ 8,840
========== ========
Cash paid during the period for income taxes $ 2,661 $ 1,020
Noncash transactions during the period ended:
Transfer of premises and equipment to other assets $ - $ 211
========= ========
Increase in deferred compensation from issue of restricted stock $ 720 $ -
========= ========
</TABLE>
(See notes to consolidated financial statements.)
7
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
include the accounts of Hardwick Holding Company (HHC) and its
wholly owned subsidiaries, Hardwick Bank and Trust Company (HBT)
and First National Bank of Northwest Georgia (FNBNWG),
collectively referred to as the "Company". All significant
intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts
of assets and liabilities and 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,
although, in the opinion of management, such differences would
not be significant.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary for
fair statement of the consolidated financial position and the
results of operations of the Company for the interim periods.
The results of operations for the nine month period ended
September 30, 1997 are not necessarily indicative of the results
which may be expected for the entire year.
(2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a participant in financial instruments with off-
balance-sheet risk. These instruments are entered into in the
normal course of business to meet the financing needs of its
customers and to reduce the Company's own exposure to
fluctuations in interest rates. These financial instruments
include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The contract
amounts of these instruments reflect the extent of involvement
the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of
nonperformance by the counterparty to the financial instrument
for commitments to extend credit and standby letters of credit is
represented by the contractual amount of these instruments. The
Company uses the same credit and collateral policies in making
commitments and conditional obligations as it does for on-
balance-sheet instruments.
HBT and FNBNWG grant various types of loans and financial
instruments to customers within their respective market areas
8<PAGE>
(primarily Northwest Georgia). Although the Company has a
diversified loan portfolio, a significant portion of the
Company's loans originate from customers that are directly or
indirectly related to the carpet industry. Notably,
approximately 40% of the work force in the Company's market area
is employed by companies directly related to the carpet industry.
Adverse economic trends in the carpet industry could impair these
customers' ability to repay their obligations and result
unfavorably on the results of operations of the Company.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend
credit at September 30, 1997, were approximately $88,743,000.
HBT and FNBNWG evaluate each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by HBT and FNBNWG, upon extension of credit is based on
management's credit evaluation of the customers. Collateral held
varies but may include accounts receivable, inventory, property,
plant and equipment, residential real estate, and income-
producing commercial properties.
Standby letters of credit are conditional commitments issued by
HBT and FNBNWG to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial
paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The
collateral varies but may include accounts receivable, inventory,
property, plant and equipment and residential real estate for
those commitments for which collateral is deemed necessary. The
Company had irrevocable standby letters of credit of
approximately $2,233,000 outstanding at September 30, 1997.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued SFAS
No. 128, "Earnings Per Share" and SFAS No. 129, "Disclosure of
Information About Capital Structure". These standards are
effective for reporting periods ending after December 15, 1997.
The adoption by the Company will not have a significant effect on
the Company's financial condition or results of operations.
The FASB has issued SFAS No. 130, "Reporting Comprehensive
Income"; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". These standards are
effective for financial statements for periods beginning after
December 15, 1997. The adoption by the Company will not have a
significant effect on the Company's financial condition or
results of operations.
9<PAGE>
(4) CONTINGENCIES
The Company is involved in litigation and other legal proceedings
arising in the course of its normal business activities.
Although the ultimate outcome of these matters cannot be
determined at this time, it is the opinion of management that
none of these matters, when resolved, will have a significant
effect on the Company's financial condition or results of
operations.
(5) EARNINGS PER SHARE
Earnings per share is calculated on the basis of weighted average
number of shares outstanding, which was 4,016,193 for the nine
month period ended September 30, 1997 and 4,048,172 for the nine
month period ended September 30, 1996.
10<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
POSITION AND RESULTS OF OPERATIONS
----------------------------------
FINANCIAL POSITION
- ------------------
Total assets increased by approximately $18,264,000 from
approximately $452,061,000 at December 31, 1996, to approximately
$470,325,000 at September 30, 1997. The principal fluctuations
were in loans, cash and due from banks, federal funds sold and
investment securities available for sale. Loans increased by
approximately $26,476,000 from approximately $271,470,000 at
December 31, 1996 to approximately $297,496,000 at September 30,
1997, an increase of 9.6%. The increase was partially offset by a
decrease in cash and due from banks of approximately $6,047,000
or 22.6% from approximately $26,797,000 at December 31, 1996, to
approximately $20,750,000 at September 30, 1997. There was also a
decrease in federal funds sold of approximately $2,719,000 or
38.8% to approximately $4,281,000 at September 30, 1997, from
approximately $7,000,000 at December 31, 1996. Investment
securities available-for-sale increased approximately $1,613,000
or 1.3% to approximately $121,779,000 at September 30, 1997, from
approximately $120,166,000 at December 31, 1996. HHC's cash and
cash equivalents reflected a net decrease of approximately
$8,766,000 or 25.9% for the nine month period ended September 30,
1997.
Savings and other interest-bearing deposit accounts increased
approximately $10,397,000 or 3.4% during the nine-months ended
September 30, 1997, to approximately $318,770,000. It is
management's opinion that HHC maintains competitive deposit rates
while exercising prudent strategies in competing with local
institutions. Average rates paid on deposits for the current
period were approximately 4.45% compared with approximately 4.37%
for the same period in the preceding year.
At September 30, 1997, HHC's financial position continued to
reflect strong equity and liquidity, with an equity to assets
ratio of 10.7%. At September 30, 1997, 61% of HHC's loans were
in real estate loans (including mortgage and construction loans),
18% in commercial loans (including agricultural loans), 12% in
consumer loans (including credit cards) and other loans were 9%.
HHC's loan to deposit ratio was 76% at September 30, 1997, and
50% of all deposits were invested in time certificates of
deposit.
In the event of higher than anticipated requirements related to
loan commitments or deposit withdrawals, HHC's bank subsidiaries
maintain federal funds lines with regional banks. Also, the bank
subsidiaries of the Company have become members of the Federal
Home Loan Bank and have credit lines to draw from. At September
30, 1997 approximately $2,944,000 was outstanding under the
Federal Home Loan Bank lines of credit.
11
<PAGE>
The following table represents the changes in consolidated
stockholders' equity for the nine-months ended September 30,
1997:
Balance, December 31, 1996 $ 46,977,000
Net income 4,691,000
Change in unrealized gains (losses) on securities
available-for-sale, net of tax 194,000
Purchase of treasury stock (275,000)
Amortization of deferred compensation-restricted 70,000
stock plan
Dividends declared (1,207,000)
------------
Balance, September 30, 1997 $ 50,450,000
============
RESULTS OF OPERATIONS
- ---------------------
For the three-months ended September 30, 1997 and 1996:
Net Interest Income
- -------------------
Net interest income after provision for loan losses for the
three-month period ended September 30, 1997 was approximately
$5,277,000 which was $598,000 or 12.8% greater than the
$4,679,000 for the same period the year before. The net interest
income for the current period contained loan loss provisions of
approximately $25,000 compared with $150,000 for the previous
year. Total interest income increased by approximately
$1,007,000 or 12.5% while total interest expense increased
approximately $534,000 or 16.4% for the three month period ended
September 30, 1997, as compared to the comparable three-months
ended in the previous year.
Yields on interest-bearing assets averaged 8.4% for the current
period compared to 8.3% for the same period the year before.
Total average interest-bearing assets increased by approximately
$48,239,000 or 12.6% for the current period when compared with
the three-months ended September 30, 1996. Average loans for the
three-months ended September 30, 1997, increased approximately
$48,691,000 or 19.4% more than the average loans for the three-
months ended September 30, 1996. The average yield on loans for
the three-months ended September 30, 1997, was 9.6%, compared
with 9.8% for the three-months ended September 30, 1996.
Earnings from the loan portfolio have also been adversely
effected by the Company's level of nonperforming assets.
Nonaccrual loans and accruing loans contractually past due ninety
days or more were approximately $814,000 at September 30, 1997,
as compared to approximately $1,000,000 at December 31, 1996,
representing a decrease of approximately $186,000 or 18.6%.
Nonaccrual loans have increased approximately $60,000 or 13.4%
for the three month period ended September 30, 1997, to
approximately $509,000 compared to approximately $449,000 at
12<PAGE>
December 31, 1996. Interest accruals on nonaccrual loans are
recorded only when they are fully current with respect to
interest and principal and when in the judgment of management,
the loans are estimated to be fully collectible as to both
principal and interest. Interest income on nonaccrual loans
which would have been reported on an accrual basis amounted to
approximately $19,000 during the three month period ended
September 30, 1997. Nonaccrual loan interest collected and
reported in the three month period ended September 30, 1997, was
approximately $1,000.
Rates paid on interest-bearing liabilities averaged 4.6% for the
three-months ended September 30, 1997, compared with 4.4% for the
three-months ended September 30, 1996. Rates paid in the current
three month period on average have increased approximately .2%
from rates paid on average for the year ended December 31, 1996.
Management's liability pricing strategies include competitive
deposit rates with increased awareness of cash flow needs within
the balance sheet. Management anticipates rates to increase
slightly during the remainder of the year.
Noninterest Income
- ------------------
Total other noninterest income increased approximately $191,000
for the three-months ended September 30, 1997, as compared with
the three-months ended September 30, 1996. The increase is
primarily due to an increase in service charges on deposits of
approximately $103,000; an increase in net gains on sales of
investment securities available-for-sale of approximately $42,000
compared with a net loss of approximately $2,000 in the same
period a year ago and an increase in various other noninterest
income of approximately $44,000 when compared with the three
months ended September 30, 1996.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by approximately $212,000,
or 4.9% for the three-months ended September 30, 1997, as
compared to the same period ended in the preceding year. The
increase is due principally to increases of approximately
$194,000 in salary and employee benefits and approximately
$80,000 in other expense. The increase was partially offset by a
decrease in net occupancy expense of approximately $62,000 The
increase in salary and employee benefits is due principally to
general rate increases and the increase in the cost of providing
the Company's health care plan. The increase in other expense
was primarily due to office supplies and printing of
approximately $16,000; advertising of approximately $17,000;
outside data processing of approximately $43,000 while other
miscellaneous expenses accounted for the remaining approximate
$4,000 of the increase.
13
<PAGE>
INCOME TAX PROVISION
The effective tax rates reported for the three-months ended
September 30, 1997 and 1996, were 36.7% and 31.1%, respectively.
RESULTS OF OPERATIONS
For the nine-months ended September 30, 1997 and 1996:
Net Interest Income
- -------------------
Net interest income after provision for loan losses for the nine-
month period ended September 30, 1997 was approximately
$14,842,000 which was approximately $994,000 or 7.2% greater than
the $13,848,000 for the same period the year before. Total
interest income increased by approximately $2,124,000 or 8.9%
while total interest expense increased approximately $955,000 or
9.7% for the nine-month period ended September 30, 1997 as
compared to the nine-months ended in the previous year. There
was approximately $400,000 in provision for loan losses for the
current period as compared with approximately $225,000 in the
nine-month period ended September 30, 1996.
Yields on interest-bearing assets averaged 8.3% relatively
unchanged when compared with the same period the year before.
Total average interest-bearing assets increased by approximately
$27,437,000 or 7.0% for the current period when compared with the
nine-months ended September 30, 1996. Average loans for the
nine-months ended September 30, 1997 increased approximately
$22,752,000 or 8.6% more than the average loans for the nine-
months ended September 30, 1996. The average yield on loans for
the nine-months ended September 30, 1997 was 9.4% compared with
9.6% for the nine-months ended September 30, 1996.
Interest accruals on nonaccrual loans are recorded only when they
are fully current with respect to interest and principal and when
in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest. Interest
income on nonaccrual loans which would have been reported on an
accrual basis amounted to approximately $32,000 during the nine-
month period ended September 30, 1997. Nonaccrual loan interest
collected and reported in the nine-month period ended September
30, 1997, was approximately $8,000.
Rates paid on interest-bearing liabilities averaged 4.5% for the
nine-months ended September 30, 1997 compared with 4.4% for the
nine-months ended September 30, 1996. Rates paid in the current
nine-month period on average are approximately .1% higher than
rates paid on average for the year ended December 31, 1996.
Management's liability pricing strategies include competitive
deposit rates with increased awareness of cash flow needs within
the balance sheet. Management anticipates rates to increase
slightly during the remainder of the year.
14<PAGE>
Noninterest Income
- ------------------
Total noninterest income increased approximately $2,594,000 for
the nine-months ended September 30, 1997, as compared with the
nine-months ended September 30, 1996. The increase is primarily
due to a settlement of litigation with a vendor of approximately
$2,127,000 which was included in other noninterest income
Service charges on deposits increased by approximately $285,000.
There was a change in net gains from sales and calls of
investment securities available-for-sale of approximately
$54,000. The other noninterest income increase was due
principally to an increase in credit life commissions of
approximately $32,000; other fee income of approximately $36,000
and an increase in trust income of approximately $33,000 and
other various income accounts of approximately $27,000.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by approximately $758,000,
or 5.9% for the nine- months ended September 30, 1997, as
compared to the same period ended in the preceding year. The
increase is due principally to increases of approximately
$490,000 in salary and employee benefits and approximately
$407,000 in other expense. The increase was partially offset by
a decrease in net occupancy expense of approximately $139,000
The increase in salary and employee benefits is due principally
to general rate increases and the increase in the cost of
providing the Company's health care plan. The increase in other
expense was made up of approximately $182,000 in losses on
disposition of fixed assets, credit card fee expense of
approximately $63,000, outside data processing of approximately
$82,000 and advertising of approximately $38,000, product
promotions of approximately $26,000 and other miscellaneous
expenses had a net increase of approximately $16,000.
INCOME TAX PROVISION
The effective tax rates reported for the nine-months ended
September 30, 1997 and 1996 were 32.3% and 30.4%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is achieved through the continual maturing of interest-
earning assets, as well as by investing in short term marketable
securities. Liquidity is also available through deposit growth,
borrowing capacity, loan sales and repayments of principal on
loans and securities.
High levels of liquidity are normally obtained at a net interest
cost due to lower yields on short term, liquid earning assets and
higher interest expense usually associated with the extension of
deposit maturities. The trade-off of the level of desired
liquidity versus its cost is evaluated in determining the
appropriate amount of liquidity at any one time.
15<PAGE>
For the nine-months ended September 30, 1997, cash and cash
equivalents decreased approximately $8,766,000 or 25.9% from
December 31, 1996. Operating and financing activities provided
cash and cash equivalents of approximately $7,465,000 and
$12,583,000 respectively while investing activities used
approximately $28,814,000. Net income of approximately
$4,691,000, provision for loan losses of approximately $400,000;
depreciation and amortization not requiring the use of cash of
approximately $1,815,000, losses on disposition of premises and
equipment of approximately $182,000 and an increase in other
liabilities of approximately $968,000 were the principal sources
of funds provided from operating activities while being partially
offset by an increase in other assets of approximately $134,000
and a deferred tax benefit of approximately $171,000.
Funds provided by financing activities were principally from
proceeds from net cash flows from sales and maturities of
certificates of deposit of approximately $22,917,000; net
increase in fed funds sold and repurchase agreements of
approximately $1,341,000; an increase in other borrowed funds of
approximately $2,944,000 and proceeds from a note payable to bank
of approximately $2,100,000. Funds provided were partially
offset by net decreases in NOW accounts, demand deposits and
savings accounts of approximately $15,332,000, purchases of
treasury stock of approximately $275,000, payments on capital
lease obligations of approximately $147,000 and payments of cash
dividends of approximately $965,000.
The cash used in investing activities was principally due to
purchases of investment securities available-for-sale of
approximately $45,179,000; net cash flows from loans originated
and principal collected on loans of approximately $26,888,000 and
purchases of premises and equipment of approximately $600,000.
Investing activities providing funds were proceeds from the
maturities and calls of investment securities available-for-sale
of approximately $15,674,000 and sales of investments securities
available-for-sale of approximately $28,110,000.
Capital Resources
- -----------------
HHC and its subsidiary banks are subject to a minimum Tier 1
capital to risk-weighted assets ratio of 4% and a total capital
(Tier 1 plus Tier 2) to risk-weighted assets ratio of 8%. The
Federal Reserve Board ("Board") has also established an
additional capital adequacy guideline referred to as the Tier 1
leverage ratio that measures the ratio of Tier 1 Capital to
average quarterly assets. The most highly rated bank holding
companies will be required to maintain a minimum Tier 1 leverage
ratio of 3%. The required ratio will be based on the Board's
assessment of the individual bank holding company's asset
quality, earnings performance, interest-rate risk and liquidity.
Bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels
without significant reliance on intangible assets.
16<PAGE>
The following tables represent HHC's regulatory capital position
at September 30, 1997:
Risk Based Capital Ratios: Amount Ratio
----------- --------
Tier 1 Capital $ 45,048 12.40%
Tier 1 Capital minimum $ 14,531 4.00%
requirement --------- --------
Excess $ 30,517 8.40%
========= ========
Total Capital $ 49,617 13.66%
Total Capital minimum requirement $ 29,061 8.00%
--------- --------
Excess $ 20,556 5.66%
========= ========
Risk adjusted assets net of
goodwill and excess loan
loss allowance $ 363,263
Leverage Ratio:
Tier 1 Capital to adjusted total $ 45,048 9.66%
assets ("Leverage Ratio")
Minimum leverage requirement $ 13,990 3.00%
-------- -------
Excess $ 31,058 6.66%
======== =======
Average total assets, net of $ 466,342
goodwill (1)
(1) Average total assets, net of goodwill for the three-months
ended September 30, 1997.
HHC is a legal entity separate and distinct from the Banks. Most
of the revenues of HHC result from dividends paid to it by the
Banks. There are statutory and regulatory requirements
applicable to the payment of dividends by the subsidiary banks as
well as by HHC to its shareholders. HHC paid cash dividends of
$242,000 or $.06 per share in the first quarter of 1997, that had
been declared at December 31, 1996. HHC paid $241,000 or $.06
per share in cash dividends during the second quarter of 1997
that had been declared at March 31, 1997. HHC paid $482,000 or
$.12 per share in cash dividends during the third quarter of
1997, that had been declared at June 30, 1997 and HHC declared
$484,000 or $.12 per share of common stock at September 30, 1997
which was paid on October 19, 1997.
17
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
- -----------------------------------------
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
HHC is not aware of any material pending legal proceedings to
which HHC or any of its subsidiaries is a party or to which any
of their property is subject.
ITEM 2. CHANGES IN SECURITIES -None
- ------ ---------------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -None
- ------ -------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS-
- ------ ----------------------------------------------------
None
ITEM 5. OTHER INFORMATION -None
- ------ -----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibit 27-Financial Data Schedule (for SEC use only).
(b) Form 8-K -None.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized.
CORPORATION HARDWICK HOLDING COMPANY
- ----------- ------------------------
Date: November 10, 1997 By:/s/ Michael Robinson
- ----- ----------------- ---------------------
Michael Robinson
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
19
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<NAME> HARDWICK HOLDING COMPANY
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
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0
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