<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number 33-43386
/ / Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Hardwick Holding Company
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(Exact name of registrant as specified in its charter)
Georgia 58-1408388
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
One Hardwick Square, P. O. Box 1367, Dalton, Georgia 30722-1367
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 217-3950
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) filed all
reports to be filed by Section 13 or 15(d) of the Securities
Exchange 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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. NOT APPLICABLE. Registrant is not required to be
registered under the Securities Exchange Act of 1934.
Aggregate market value of the voting stock held by non-
affiliates (which for purposes hereof are all holders other than
executive officers and directors) of the Registrant as of March
15, 1997; $17,737,180 based on 886,859 shares outstanding at
$20.00 per share (the last sale price known to the Registrant of
the Common Stock, for which there is no established public
trading market).
At March 15, 1997, there were issued 4,161,141 shares of
Common Stock, par value $0.50 per share, of which 4,031,597 were
outstanding.<PAGE>
ITEM 1. BUSINESS.
General
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Hardwick Holding Company ("Hardwick or Registrant or
Company") is a two-bank holding company headquartered in Dalton,
Georgia. Full-service banking and trust businesses are presently
conducted by its banking subsidiaries, Hardwick Bank & Trust
Company ("Hardwick Bank") and First National Bank of Northwest
Georgia ("Northwest Bank") (collectively referred to as the
"Banks"). Hardwick serves Whitfield, Gordon, Bartow and
surrounding counties in northwest Georgia. Northwest Bank
operates under the trade names "Calhoun First National Bank" in
Gordon County and "Peoples First National Bank" in Bartow County.
Through its bank subsidiaries, Hardwick provides such customary
types of banking services as checking accounts, savings accounts,
time deposits, safe deposit facilities and fund transfers.
Hardwick also finances commercial transactions, makes secured and
unsecured loans to individuals and provides other financial
services. Unless the context otherwise requires, the term
"Hardwick", "Company" or "Registrant," whenever used herein,
means Hardwick Holding Company, Hardwick Bank & Trust Company and
First National Bank of Northwest Georgia, collectively. The
principal executive offices of Hardwick are located at One
Hardwick Square, Dalton, Georgia 30722-1367 and its telephone
number at that address is (706) 217-3950.
Market
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The Banks conduct banking activities primarily in Whitfield,
Gordon, Bartow and surrounding counties in northwest Georgia.
Over 40% of the workforce in Hardwick's market area is employed
by companies in the carpet industry. Another significant portion
of Hardwick's customers are employed by industries directly or
indirectly related to the carpet industry. Other major employers
in the area include Anheuser-Bush, Inc., ConAgra Broiler Co.,
Outboard Marine Corporation and Torrington Industries.
Deposits
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The Banks offer a full range of depository accounts and
services to both consumers and businesses. At December 31, 1996,
Hardwick's deposit base, totaling approximately $394 million,
including approximately $86 million in noninterest-bearing
transaction accounts (22% of total deposits). Interest-bearing
transaction accounts were approximately $130 million (33% of
total deposits), which includes approximately $34 million in money
market accounts, approximately $28 million in savings deposits
and approximately $68 million in NOW accounts. Also included in
total deposits was approximately $126 million in time deposits
in amounts of less than $100,000 (32% of total deposits) and
approximately $52 million in time deposits of $100,000 or more
(13% of total deposits).
Loans
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The Banks make both secured and unsecured loans to
individuals, firms, corporations and governmental entities and
offer both consumer and commercial loans, including various types
of credit for the Banks' customers. The Banks also make direct
installment loans to consumers on both a secured and unsecured
basis. At December 31, 1996, real estate (including mortgage
construction loans), commercial (including agricultural loans),
consumer and other loans represented approximately 58%, 19%, 14%
and 9%, respectively, of Hardwick's total loan portfolio. The
real estate loans made by the Banks included real estate
construction, acquisition and development loans, as well as loans
for other purposes which are secured by real estate.
Lending Policy
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The current lending policy of the Banks is to offer
consumer, real estate and commercial credit services to
individuals and entities that meet the Banks' credit standards.
The Banks provide each lending officer with written guidelines
for lending activities. Lending authority is delegated by the
Board of Directors of the Banks to loan officers, each of whom is
limited in the amount of secured and unsecured loans which he can
make to a single borrower or related group of borrowers.
The Board of Directors of Hardwick is responsible for
approving and monitoring the Banks' loan policy. The procedures
to be followed are the responsibility of the Board of Directors
and management of each of the Banks. All extensions of credit
over $2,175,000 at Hardwick Bank and all extensions of credit
over $300,000 at Northwest Bank require approval by the Executive
Loan Committee.
2<PAGE>
Loan Review and Nonperforming Assets
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Loan review and nonperforming assets review are the specific
responsibility of the full-time loan review officer at each bank.
The loan review officer's responsibility is to assign a rating to
loans as they are made and to add to the troubled loans or watch
list of each bank as applicable. The loan review officer has the
responsibility of initially reviewing all credits of $200,000 or
more at the Banks. The loan review officer has the
responsibility of reviewing with the Executive Loan Committee of
the Board of Directors at least annually those credit
concentrations over $500,000 at Hardwick Bank. The loan review
officer of Northwest Bank has the responsibility of reviewing
each lending officer's entire portfolio at least once annually
and reviewing with the Executive Loan Committee of the Board of
Directors those credits of concern or of which have declining
trends as identified during the loan review process. The loan
review officers have the responsibility of reviewing with the
full Board of each bank on a quarterly basis the reserve for
possible loan losses and advising the Board as to the adequacy of
the reserve level based on both present and historical account
information.
Asset/Liability Management
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The Board of Directors of Hardwick is charged with
establishing policies to manage the assets and liabilities of the
Banks. The task of the Board of Directors of each Bank is to
manage asset growth, net interest margin, liquidity and capital.
This is accomplished by planning funds availability for increases
in loan demand and decreases in deposit liabilities. The
Executive Committee of the Boards of Directors of the Banks
regularly monitor changes in interest rates, which is necessary
to control interest rate risk. The asset/liability management
responsibilities include the maximization of earnings while
assuring liquidity for funding requirements and effectively
controlling interest rate risk.
Investment Portfolio
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The Banks' investment portfolio policy is to maximize income
consistent with liquidity, asset quality and regulatory
constraints. Individual transaction and portfolio composition
performance are reviewed and approved by the Executive Committee
of the Board of each Bank.
Employees
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Hardwick employs approximately 220 persons on a full-time
basis and 24 persons on a part-time basis. Hardwick is not a
party to any collective bargaining agreement, and it believes
that its employee relations are good.
Competition
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The banking business is highly competitive. Hardwick
competes with fourteen (14) other financial institutions in
Bartow, Gordon, Whitfield and surrounding counties in the
northwest Georgia area. The Banks also compete with other
financial service organizations, including finance companies,
credit unions and certain governmental agencies. To the extent
that banks must maintain noninterest-earning reserves against
deposits, they may be at a competitive disadvantage when compared
with other financial service organizations that are not required
to maintain reserves against substantially equivalent sources of
funds. Increased competition from investment bankers and brokers
and other financial service organizations may have a significant
impact on the competitive environment in which the Banks operate.
Supervision and Regulation
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Hardwick is a registered bank holding company subject to
regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve") under the Bank Holding Company Act
of 1956, as amended (the "Act"). As a bank holding company,
Hardwick is required to file with the Federal Reserve an annual
report of its operations at the end of each fiscal year and such
additional information as the Federal Reserve may require
pursuant to the Act. The Federal Reserve may also make
examinations of Hardwick.
The Act requires every bank holding company to obtain prior
approval of the Federal Reserve (i) before it may acquire direct
or indirect ownership or control of more than five percent (5%)
of the voting shares of any bank that is not already controlled;
(ii) before it or any of its subsidiaries, other than a bank, may
acquire all or substantially all of the assets of a bank; and
(iii) before it may merge or consolidate with any other bank
holding company. In addition, a bank holding company is
generally prohibited from engaging in nonbanking activities or
acquiring direct or indirect control of voting shares of any
company engaged in such activities. This prohibition does not
apply to activities found by the Federal Reserve, by order or
regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of
the activities that the Federal Reserve has determined by
3<PAGE>
regulation or order to be closely related to banking are making
or servicing loans and certain types of leases, performing
certain data processing services, acting as fiduciary or
investment or financial advisors, providing full-service
brokerage under certain conditions, underwriting bank eligible
securities, underwriting debt and equity securities on a limited
basis through separately capitalized subsidiaries, and making
investments in corporations or projects designed primarily to
promote community welfare.
The laws of Georgia require annual registration with the
Department of Banking and Finance (the "DBF") by all Georgia bank
holding companies. Such registration includes information with
respect to the financial condition, operations, management and
intercompany relationships of a bank holding company and its
subsidiaries and related matters. The DBF may also require such
other information as is necessary to keep itself informed as to
whether the provisions of Georgia law and the regulations and
orders issued thereunder by the DBF have been complied with, and
the DBF may make examinations of each bank holding company and
each bank subsidiary thereof other than a national bank.
Northwest Bank is a national bank chartered under the
National Bank Act and is subject to the supervision of and is
regularly examined by the Office of Comptroller of the Currency
(the "OCC"). The OCC regulates or monitors all areas of
Northwest Bank's operations and activities, including reserves,
loans, mergers, issuance of securities, payments of dividends,
interest rates and establishment of branches. Northwest Bank is a
member of the Federal Reserve System and is subject to the
regulation of the Federal Reserve Board.
Hardwick Bank, as a state bank, is subject to the
supervision of , and is regulated by, the Federal Deposit Insurance
Corporation (the "FDIC") and the DBF. Both
the FDIC and DBF must grant prior approval of any merger,
consolidation or other corporate reorganization involving state-
chartered banks.
The Banks are insured by the FDIC. The major functions of the
FDIC with respect to insured banks include paying depositors to the
extent provided by law if an insured bank is closed without adequate
provision having been made to pay claims of depositors, acting as
a receiver of state banks placed in receivership when appointed
receiver by state authorities and preventing the development or
continuance of unsound and unsafe banking practices. The FDIC
also has the authority to recommend to the appropriate federal
agency supervising an insured bank that the agency take informal
action against such institution and to act to implement the
enforcement action itself if the agency fails to follow the
FDIC's recommendation. The FDIC also has the authority to
examine all insured banks.
Hardwick is an "affiliate" of the Banks under the Federal
Reserve Act, which imposes certain restrictions on (i) loans by
the Banks to Hardwick, (ii) investments in the stock or
securities of Hardwick by the Banks, (iii) the Banks' taking the
stock or securities of an "affiliate" as collateral for loans by
the Banks to a borrower and (iv) the purchase of assets from
Hardwick by the Banks. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services.
The Federal Reserve and the OCC have implemented risk-based
rules for assessing bank and bank holding company capital
adequacy. These regulations establish minimum capital standards
in relation to assets and off-balance sheet exposures, as
adjusted for credit risk. Banks and bank holding companies are
required to have (1) a minimum standard of total capital (as
defined) to risk-rated assets of eight percent (8%); (2) minimum
Tier One Capital (as defined) to risk-rated assets of four
percent (4%); and (3) a minimum stockholders' equity to risk-
rated assets of four percent (4%). In addition, the Federal
Reserve has established a minimum three percent (3%) leverage
ratio of Tier One Capital to total quarterly average assets for
the most highly rated banks. "Tier One Capital" generally
consists of common equity, minority interests in equity accounts
of consolidated subsidiaries and certain perpetual preferred
stock less certain intangibles. The Federal Reserve and the OCC
will require a bank holding company to maintain a leverage ratio
greater than three percent (3%) if it is experiencing or
anticipating significant growth or is operating with less than
well diversified risks in the opinion of the Federal Reserve or
the OCC. The Federal Reserve and the OCC use the leverage ratios
in tandem with the risk-based ratio to assess capital adequacy of
banks and bank holding companies, as applicable.
In addition, effective December 19, 1992, a new Section 38
to the Federal Deposit Insurance Act implemented the prompt
corrective action provisions that Congress enacted as a part of
the Federal Deposit Insurance Corporation Improvement Act of 1991
( the "1991 Act"). The "prompt corrective action" provisions set
forth five regulatory zones in which all banks are placed largely
based on their capital positions. Regulators are permitted to
take increasingly harsh action as a bank's financial condition
declines. Regulators are also empowered to place in receivership
or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent. Better
capitalized institutions are generally subject to less onerous
regulation and supervision than banks with lesser amounts of
capital.
4
<PAGE>
The FDIC and the OCC have adopted regulations implementing
the prompt corrective action provisions of the 1991 Act, which
place financial institutions in the following five categories
based upon capitalization ratios: (1) a "well capitalized"
institution has a total risk-based capital ratio of at least 10%,
a Tier One risk-based ratio of at least 6% and a leverage ratio
of at least 5%; (2) an "adequately capitalized" institution has
a total risk-based capital ratio of at least 8%, a Tier One risk-
based ratio of at least 4% and a leverage ratio of at least 4%;
(3) an "undercapitalized" institution has a total risk-based
capital ratio of under 8%, a Tier One risk-based ratio of under
4% and a leverage ratio of under 4%; (4) a "significantly
undercapitalized" institution has a total risk-based capital
ratio of under 6%, a Tier One risk-based ratio of under 3% or a
leverage ratio of under 3%; and (5) a "critically
undercapitalized" institution has a leverage ratio of 2% or less.
Institutions in any of the three undercapitalized categories
would be prohibited from declaring dividends or making capital
distributions. The FDIC and OCC regulations also establish
procedures for "downgrading" an institution to a lower capital
category based on supervisory factors other than capital. Under
the FDIC and OCC regulations, both of the Banks were "well
capitalized" institutions at December 31, 1996.
Set forth below are pertinent capital ratios for Hardwick,
Hardwick Bank and Northwest Bank as of December 31, 1996:
<TABLE>
<CAPTION>
Hardwick Northwest
Minimum Capital Requirements Hardwick Bank Bank
<S> <C> <C> <C>
Tier 1 Capital to Risk-Based 12.34% 12.13% <F1> 11.68% <F1>
Assets: 4.00%
Total Capital to Risk-Based 13.60% 13.39% <F2> 12.94% <F2>
Assets: 8.00%
Leverage Ratio ( Tier 1 Capital to
Total Quarterly Average Assets): 3.00% 9.55% 9.30% <F3> 8.45% <F3>
________________________
<FN>
<F1> Minimum for "Well Capitalized" Banks = 6%
<F2> Minimum for "Well Capitalized" Banks = 10%
<F3> Minimum for "Well Capitalized" Banks = 5%
</FN>
</TABLE>
Payment of Dividends
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The Registrant is a legal entity separate and distinct from
the Banks. Most of the revenues of the Registrant 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 the Registrant to its
shareholders.
Hardwick Bank is a state-chartered bank which is regulated
by the DBF and the FDIC. Under the regulations of the DBF,
dividends may be declared out of the retained earnings of a state
bank without first obtaining the written permission of the DBF
only if the bank meets all of the following requirements:
(a) Total classified assets as of the most recent
examination of the bank do not exceed 80% of
equity capital (as defined by regulation);
(b) The aggregate amount of dividends declared or
anticipated to be declared in the calendar year does not
exceed 50% of the net profits after taxes but before
dividends for the previous calendar year; and
(c) The ratio of equity capital to adjusted assets shall
not be less than 6%.
Northwest Bank, as a National Banking Association, is
required by federal law to obtain the prior approval of the OCC
for payments of dividends if the total of all dividends declared
by the Board of Directors of such bank in any year will exceed
the total of (1) such bank's net profits (as defined and
interpreted by regulation) for that year, plus (2) the retained
net profits (as defined and interpreted by regulation) of the
preceding two years, less any required transfers to surplus.
5<PAGE>
The payment of dividends by the Registrant and the Banks may
also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory
guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which,
depending upon the financial condition of the bank, could include
the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such
practice. The OCC and the FDIC have issued policy statements
that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
During 1996, Hardwick Bank requested and received permission
from DBF to pay a special one-time dividend of $3,000,000 to
Hardwick. The purpose of the dividend was to pay off debt under
an existing line of credit and to be used to purchase treasury
stock.
At December 31, 1996, retained earnings available from the
Banks to pay dividends totaled approximately $3.1 million. For
1996, Hardwick's cash dividend declared to stockholders was 56%
of net income.
Monetary Policy
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The results of operations of Hardwick are affected by credit
policies of monetary authorities, particularly the Board of
Governors of the Federal Reserve System. The instruments of
monetary policy employed by the Federal Reserve include open
market operations in U. S. government securities, changes in the
discount rate on bank borrowings, and changes in reserve
requirements against bank deposits. In view of changing
conditions in the national economy and in the money markets, as
well as the effect of action by monetary and fiscal authorities,
including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels and
loan demand on the business and earnings of Hardwick.
Recent Legislation
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On April 19, 1995, the four federal bank regulatory agencies
adopted revisions to the regulations promulgated pursuant to the
Community Reinvestment Act (the "CRA"), which are intended to set
distinct assessment standards for financial institutions. The
revised regulation contains three evaluation tests: (i) a
lending test, which compares an institution's market share of
loans in low- and moderate-income areas to its market share of
loans in its entire service area and the percentage of a bank's
outstanding loans to low- and moderate-income areas or
individuals, (ii) a services test, which evaluates the provisions
of services that promote the availability of credit to low- and
moderate-income areas, and (iii) an investment test, which
evaluates an institution's record of investments in organizations
designed to foster community development, small and minority-
owned businesses and affordable housing lending, including state
and local government housing or revenue bonds. The regulations
are designed to reduce some paperwork requirements of the current
regulations and provide regulators, institutions and community
groups with a more objective and predictable manner with which to
evaluate the CRA performance of financial institutions. The rule
became effective on January 1, 1996, at which time evaluation
under streamlined procedures began for institutions with assets
of less than $250 million that are owned by a holding company
with total assets of less than $1 billion. It is not expected
that these regulations will have any appreciable impact upon
Hardwick and the Banks.
Congress and various federal agencies (including, in
addition to the bank regulatory agencies, HUD, the Federal Trade
Commission, and the Department of Justice) (collectively, the
"Federal Agencies") responsible for implementing the nation's fair
lending laws have been increasingly concerned that prospective
home buyers and other borrowers are experiencing discrimination
in their efforts to obtain loans. In recent years, the
Department of Justice has filed suit against financial
institutions, which it determined had discriminated, seeking
fines and restitution for borrowers who allegedly suffered from
discriminatory practices. Most, if not all, of these suits have
been settled (some for substantial sums) without a full
adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to
clarify what constitutes lending discrimination and specify the
factors the agencies will consider in determining whether lending
discrimination exists, announced a joint policy statement
detailing specific discriminatory practices prohibited under the
Equal Credit Opportunity Act and the Fair Housing Act. In the
policy statement, three methods of proving lending discrimination
were identified: (1) overt evidence of discrimination, when a
lender blatantly discriminates on a prohibited basis, (2)
evidence of disparate treatment, when a lender treats applicants
differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a
conscious intention to discriminate against a person, and (3)
evidence of disparate impact, when a lender applies a practice
uniformly to all applicants, but the practice has a
6<PAGE>
discriminatory effect, even where such practices are neutral on
their face and are applied equally, unless the practice can be
justified on the basis of business necessity.
On September 23, 1994, President Clinton signed the Reigle
Community Development and Regulatory Improvement Act of 1994 (the
"Regulatory Improvement Act"). The Regulatory Improvement Act
contains funding for community development projects through banks
and community development financial institutions and also
numerous regulatory relief provisions designed to eliminate
certain duplicative regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the Reigle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Federal Interstate Bill") which amended federal law to permit
bank holding companies to acquire existing banks in any state
effective September 29, 1995, and any interstate bank holding
company is permitted to merge its various bank subsidiaries into
a single bank with interstate branches after May 31, 1997.
States have the authority to authorize interstate branching prior
to June 1, 1997 or alternatively, to opt out of interstate
branching prior to that date. The Georgia Financial Institutions
Code was amended in 1994 to permit the acquisition of a Georgia
bank or bank holding company by out-of-state bank holding
companies beginning July 1, 1995. On September 29, 1995, the
interstate banking provisions of the Georgia Code were superseded
by the Federal Interstate Bill.
In 1996, the Georgia legislature adopted a bill (the
"Georgia Intrastate Bill") to permit, effective July 1, 1996, any
bank located in Georgia or group of affiliated banks under one
holding company to establish new or additional branch banks in up
to three additional counties any where within the state of
Georgia where the bank does not currently have operations. After
July 1, 1998, all restrictions on state wide branching will be
removed. Prior to adoption of the Georgia Intrastate Bill,
Georgia only permitted branching of banks within a county via
merger or consolidation with an existing bank or in certain other
limited circumstances.
FDIC Insurance Assessments
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The Banks are subject to FDIC deposit insurance assessments
for the Bank Insurance Fund ("BIF"). In the first six months of
1995, the Banks were assessed $.23 per $100 of deposits based
upon a risk-based system whereby banks are assessed on a sliding
scale depending upon their placement in nine separate supervisory
categories, from $.23 per $100 for the healthiest banks (those
with the highest capital, best management and best overall
condition) to as much as $.31 per $100 of deposits for the less-
healthy institutions, for an average $.25 per $100 of deposits.
On August 8, 1995, the FDIC lowered the BIF premium for healthy
banks 83% from $.23 per $100 in deposits to $.04 per $100 in
deposits while retaining the $.31 level for the riskiest banks.
The average assessment rate was therefore reduced from $.232 to
$.044 per $100 of deposits. The new rate took effect on
September 29, 1995. On September 15, 1995, the FDIC refunded
$218,000 to the Banks for premium overpayments in the second and
third quarters of 1995. On November 14, 1995, the FDIC again
lowered the BIF premium for healthy banks from $.04 per $100 of
deposits to $0 for the highest rated institutions (92% of the
industry). As a result, the Banks paid only the legally required
annual minimum payment of $2,000 per year for insurance beginning
in January 1996. Had the current rates been in effect for all of
1995 and 1994, the annual FDIC insurance premiums paid by the
Banks would have been reduced by $405,000 and $812,000,
respectively.
On September 29, 1996, the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 was enacted (the "1996 Act").
This act's chief accomplishment was to provide for the
recapitalization of the Savings Association Insurance
Fund ("SAIF") by levying a one-time special assessment on SAIF
deposits to bring the fund to a reserve ratio equal to $.25 per
$100 of insured deposits and to provide that beginning in 1997,
BIF assessments would be used to help pay off the $780 million in
annual interest payments on the $8 billion Financing Corporation
("FICO") bonds issued in the late 1980s as part of the government
rescue of the thrift industry. The law provides that BIF
assessments for FICO bond payments must be set at a rate equal to
20% of the SAIF rates for such assessments in 1997, 1998 and
1999. After 1999, all FDIC-insured institutions will pay the
same assessment rates. For the first six months of 1997, the
assessment for the FICO bond payments will be $.0132 per $100 of
deposits for BIF deposits and $.0648 per $100 of deposits for
SAIF deposits. The FDIC announced on November 26, 1996 that the
premium for the first six months of 1997 for deposit insurance
assessments would range from $0 to $.27 per $100 of deposits
with 94% of banks paying nothing for deposit insurance. One of
the provisions of the 1996 Act was to eliminate the minimum
$2,000 per year charge for deposit insurance. As a result, the
Banks will pay no premium for deposit insurance in the first six
months of 1997 and a first quarter FICO bond assessment of
$12,000. The 1996 Act also provided for certain limited regulatory
relief and modifications to certain out-of-date regulations.
7
<PAGE>
ITEM 2. PROPERTIES.
Hardwick Bank's main office is owned by the Bank and is
located at Hardwick Square in Dalton, Georgia, and consists of
approximately 60,000 square feet of usable office space.
Hardwick Bank has four branch offices, all of which are owned by
it, and one free standing automated teller machine, which is on
leased premises. The Cleveland Road branch is located at 1440
Cleveland Highway, Dalton, Georgia, and contains approximately
3,700 square feet of office space and one automated teller
machine. The East Side branch is located at 2500 E. Walnut
Avenue, Dalton, Georgia, and contains approximately 4,000 square
feet of office space. The East Side office has an automated
teller machine on the premises. The Westcott branch is located
at 905 Thornton Avenue, Dalton, Georgia, and contains
approximately 4,200 square feet of office space. The Westcott
branch also has an automated teller machine on the premises. The
Tunnel Hill Branch is located at 3617 Chattanooga Road, Tunnel
Hill, Georgia, and contains approximately 3,700 square feet of
office space as well as an automated teller machine. Hardwick
Bank's free standing automated teller machine is located at 1807
West Walnut Avenue, Dalton, Georgia, on leased premises in the
Dalton Shopping Center. The lease is scheduled to expire in
October 1998.
Northwest Bank's main banking office is owned by the Bank
and is located at 215 North Wall Street, Calhoun, Georgia, and
contains approximately 18,500 square feet of office space. An
automated teller machine is located on the premises of the main
office. Additional facilities at the main office include a
drive-in teller facility, a personnel center, an operations
center and a storage building totaling approximately 16,000
square feet. Northwest Bank has three branch offices. One
branch is located at Highway 53, Calhoun, Georgia, and contains
approximately 4,000 square feet of space and has an automated
teller machine on the premises. Northwest Bank has two branch
offices in Bartow County; the main branch is located at 314 E.
Main Street in Cartersville, Georgia, with approximately 18,000
square feet of office space as well as a 1,400-square-foot drive-
in banking facility and an automated teller machine. The other
Cartersville branch is located at U.S. HWY 41 and has
approximately 3,200 square feet of office space as well as an
automated teller machine. None of the properties of the Company
or its subsidiaries are subject to encumbrances. The Registrant
is not aware of any material pending legal proceedings to which
the Registrant or any of its subsidiaries is a party or to which
any of their property is subject.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its
property the subject of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of
the Registrant during the fourth quarter of its fiscal year.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Stock
- -----
There is no established public trading market for the
Registrant's common stock.
The Registrant purchased 67,249 shares of the Registrant's
stock in sixteen transactions during 1996, ranging from 50 shares
to 55,033 shares, in which 1,570 shares were purchased at $17.50
per share and 65,679 shares were purchased at $20.00 per share.
To the Registrant's knowledge, these were the only trades during
1996.
On December 5, 1996 Hardwick Holding Company made an offer
to purchase for cash from its shareholders up to 25,575 shares of
its common stock at a purchase price of $20.00 per share (the
"Tender Offer"). Under the terms of the Tender Offer,
shareholders who elected to tender their shares of Common Stock
were required to tender all shares of Common Stock owned by them,
provided, however, that the Company would not purchase more than
100 shares of Common Stock from any one shareholder. The purpose
of the Tender Offer was to encourage a sufficient number of the
Company's shareholders to tender all of their shares to cause the
number of shareholders of record to fall below 300, thus
permitting the Company to suspend its filings under the
Securities Exchange Act of 1934, as amended. Approximately 110
of the Company's 344 shareholders of record as of December 5,
1996 held fewer than 100 shares each. Due to lack of interest in
the Tender Offer, the Registrant terminated it effective
February 19, 1997. As a result, the primary goal of the Tender
Offer was not met.
Between February 20, 1997 and March 15, 1997, there were
3,632 shares of treasury stock purchased by the Registrant at
$20.00 per share. There were 342 holders of record of the
Registrant's common stock as of December 31, 1996, and at March
15, 1997, there were 338 holders of record of the Registrant's
common stock.
8
<PAGE>
The Registrant purchased 15,050 shares of the Registrant's
stock in sixteen transactions during 1995, ranging from 60 shares
to 3,000 shares, with a price range of $16.00 to $17.00 per
share. To the Registrant's knowledge, these were the only trades
during 1995.
Dividends
- ---------
The Registrant paid quarterly cash dividends of $.06 per
share on January 19, 1996, April 19, 1996, July 19, 1996 and
October 19, 1996, and on October 19, 1996, a special cash
dividend of $.20 per share was paid for a total of $.44 per
share for the year ended December 31, 1996. On November 20,
1996, the Registrant declared the dividend for the first quarter
of 1997 at $.06 per share for shareholders of record as of November
20, 1996, payable on January 19, 1997. The Registrant intends to
pay quarterly cash dividends in 1997. However, the amount and
frequency of dividends will be determined by the Registrant's
Board of Directors with the consideration of the earnings,
capital requirements and the financial condition of the
Registrant, and no assurances can be given that dividends will be
declared in the future.
9<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Total assets $ 452,061 444,817 427,892 425,631 429,972
Loans, net $ 271,470 239,189 227,844 212,030 234,320
Investment securities $ 120,166 135,306 140,894 154,425 113,038
Federal funds sold $ 7,000 11,000 2,500 5,800 21,820
Deposits $ 393,940 389,951 360,515 365,566 377,602
FHLB advances $ 306 381 0 0 0
Note payable $ 0 250 750 0 0
Stockholders' equity $ 46,977 46,830 43,380 42,345 39,875
OPERATING DATA
Interest income $ 32,273 31,526 28,413 29,334 32,208
Interest expense $ 13,169 13,062 10,173 11,081 14,445
Net interest income $ 19,104 18,464 18,240 18,253 17,763
Provision for loan losses $ 396 0 (600) 1,350 1,575
Net interest income after
provision for loan losses $ 18,708 18,464 18,840 16,903 16,188
Noninterest income $ 4,082 4,074 4,197 3,865 3,920
Noninterest expense $ 17,540 18,311 17,934 17,249 16,530
Income tax expense $ 1,680 1,004 1,352 850 841
Cumulative effect of change in
accounting principle $ 0 0 0 583 0
Net income $ 3,570 3,223 3,751 3,252 2,737
Net income per share $ .89 .79 .91 .79 <F1> .67
Dividends paid per share $ .44 .22 .20 .18 .16
SELECTED FINANCIAL RATIOS
AND OTHER DATA
Return on average assets 0.82% 0.75% 0.88% 0.75% 0.64%
Return on average equity 7.66% 7.14% 8.68% 7.90% 7.07%
Noninterest expense to average assets 4.04% 4.28% 4.19% 3.99% 3.89%
Equity to assets 10.39% 10.53% 10.14% 9.95% 9.26%
<FN>
<F1> NET INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE WAS $.65.
</FN>
</TABLE>
10
<PAGE>
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
RESULTS OF OPERATIONS
- ---------------------
Net Income
- ----------
Hardwick reported net income of $3,570,000 for 1996 compared
with net income in 1995 of $3,223,000. The increase in net income
is due primarily to an increase in net interest income and a
decrease in noninterest expense. Net interest income of the
Registrant increased approximately $640,000, or 3.47%, over 1995
net interest income. Noninterest expense decreased by
approximately $771,000, or 4.21%, less than noninterest expense for
1995. The decrease in noninterest expense was due to a decrease
in salary and employee benefits of approximately $656,000, a
7.29% decrease compared with 1995 salary and employee benefits.
Net occupancy expense decreased by approximately $182,000, or
5.08%, compared with 1995 net occupancy expense. All other
noninterest expense increased approximately $67,000, which was
primarily due to an increase in data processing and credit card
expense partially offset by a decrease in FDIC insurance
premiums. Data processing expense increased by approximately
$362,000, and credit card expense increased approximately
$112,000. FDIC insurance premiums were approximately $4,000 for
1996 as compared with $407,000 for 1995, a decrease of
approximately 99%.
During 1996, the Registrant recorded approximately $396,000
in provision for loan losses. The provision was a result of a
38.02% increase in nonperforming assets from December 31, 1995 to
December 31, 1996, of which loans past due ninety days and still
accruing increased by approximately $350,000, or 174%, during 1996.
Approximately 40% of the workforce in the Registrant's market
area are employed in the tufted carpet industry. In recent years,
the larger, vertically integrated manufacturers have increased
their market share, thereby negatively affecting the smaller
independent tufters, dyeing and finishing operators, which make
up a significant part of the Registrant's business. Any downturns
in the carpet industry could have a negative effect on the
results of operations of the Registrant. There was no loan loss
provision in 1995.
Loan loss reserves as a percent of loans (net of unearned
income and fees) were 2.44%, 2.69% and 2.8% at December 31, 1996,
1995 and 1994, respectively. Loan loss reserves at December 31,
1996, 1995 and 1994 were 6.5, 8.4 and 4.4, respectively, times
nonperforming assets.
At December 31, 1996, nonperforming assets were approximately
$1,049,000. Of the total nonperforming assets, approximately
$449,000 is carried as nonaccrual loans, approximately $551,000
is in loans 90 days past due and still accruing and approximately
$49,000 is carried in restructured loans.
Hardwick's 1995 net income of approximately $3,223,000
compares to net income of $3,751,000 for 1994. The financial
results were affected by the charge-off of computer software and
hardware of approximately $300,000, an increase in office
supplies and printing cost of approximately $136,000 associated
with a data processing conversion, and a decline in securities
gains of approximately $314,000. There was no provision for
loan losses in 1995 compared with a negative provision in 1994 of
approximately $600,000. Net interest income in 1995 was up
approximately $224,000, or 1.23%, compared with 1994 net interest
income.
Net Interest Income (Taxable Equivalent Basis)
- ----------------------------------------------
In 1996, Hardwick's net interest income was $20,023,000 on
average earning assets of $385,067,000, an increase of
approximately $730,000 compared with the net interest income of
$19,293,000 on average earning assets of $377,287,000 in the
prior year. The net interest margin for 1996 was 5.2% compared
with 5.1% for 1995, reflecting an increase of approximately .1%.
Net interest income in 1995 of $19,293,000 was up .9%, or
$173,000, over the $19,120,000 reported in 1994. The net
interest margin remained relatively unchanged at 5.1% for 1995
and 1994.
11<PAGE>
Net Yield on Earning Assets
- ---------------------------
Hardwick's net interest income is influenced by changes in
interest rates as well as volume. Average earning assets
increased approximately 2.1% during 1996, or approximately
$7,780,000. The average yield on interest-earning assets
remained relatively unchanged at 8.6%.
During 1996, average interest-bearing liabilities decreased
approximately .04%, or approximately $108,000, primarily due to
decreases in borrowings from the Federal Home Loan Bank, note
payable to bank, capital lease obligations, repurchase
agreements, savings deposits and interest-bearing transaction
accounts while being partially offset by increases in time
deposits. The average cost of interest-bearing liabilities
remained relatively the same at 4.3% for 1996 and 1995. Average
noninterest-bearing deposits have increased by approximately
$3,506,000, or 4.4%, from 1995 to 1996.
During 1995, average interest-bearing liabilities increased
approximately .3% primarily due to increases in borrowings from
the Federal Home Loan Bank, note payable to bank, capital lease
obligations and time deposits while being partially offset by
decreases in repurchase agreements, savings deposits and
transaction accounts. The average cost of interest-bearing
liabilities increased from 3.4% in 1994 to 4.3% in 1995. Average
noninterest-bearing deposits decreased by approximately
$2,192,000 from 1994 to 1995 due to movements to interest-
bearing time deposit accounts.
Noninterest Income
- ------------------
Noninterest income increased approximately $8,000, or .2%,
during 1996, due primarily to an increase in trust income of
approximately $42,000, credit life commissions of approximately
$27,000 and other miscellaneous income of approximately $35,000
which was partially offset by a decrease in service charges on
deposit accounts of approximately $93,000 and a decrease in net
gains realized on the sale of investment securities of
approximately $2,000. Noninterest income decreased approximately
2.9% during 1995, due primarily to decreases in net gains on
sales and calls of investment securities, which was partially
offset by the net gain from abandonment of a capitalized lease
obligation.
Noninterest Expense
- -------------------
Noninterest expense for 1996 was $17,540,000 compared to
$18,311,000 for 1995, a decrease of 4.2%. The decrease in
noninterest expense was due to a decrease in salary and employee
benefits of approximately $656,000, a 7.29% decrease compared
with 1995 salary and employee benefits, and a decrease in net
occupancy expense of approximately $182,000, or 5.08%, compared
with 1995 net occupancy expense. All other noninterest expense
increased approximately $67,000, which was primarily due to an
increase in data processing and credit card expense, while being
partially offset by a decrease in FDIC insurance premiums. Data
processing expense increased by approximately $362,000, and credit
card expense increased approximately $112,000. FDIC insurance
premiums were approximately $4,000 for 1996 as compared with
$407,000 for 1995, a decrease of approximately 99%.
Net occupancy and equipment costs for 1996 were $3,402,000
compared to $3,584,000 in 1995, a decrease of approximately
$182,000, or 5.1%. The decreases in net occupancy costs reflect
savings on maintenance and repairs of having relatively new
systems hardware and related equipment.
Noninterest expense for 1995 was $18,311,000 compared to
$17,934,000 for 1994, an increase of 2.1%. The increase of
approximately $377,000 is primarily due to increases in salary
and employee benefits of approximately $642,000, office and
printing supplies of approximately $136,000, and the charge-off of
computer software and hardware in connection with the outsourcing
of data processing of approximately $300,000. The increases were
partially off-set by decreases in FDIC insurance premiums of
approximately $407,000 and a decrease in professional fees of
approximately $507,000. Net noninterest expense (defined as
noninterest expense, less noninterest income, as a percentage of
average assets) was 3.1%, 3.3% and 3.2% for 1996, 1995 and 1994,
respectively.
Income Taxes
- ------------
Hardwick recorded an income tax provision of $1,680,000,
$1,004,000, and $1,352,000 for 1996, 1995, 1994, respectively.
The provision as a percentage of income before taxes reflects
effective rates of 32.0%, 23.8%, and 26.5% for 1996, 1995, and
1994, respectively. Note 7 to Hardwick's consolidated
financial statements presents additional information.
12<PAGE>
Investment Securities Available for Sale
- ----------------------------------------
Investment securities available for sale decreased
approximately $15,040,000 during 1996 from $135,206,000 at
December 31, 1995 to $120,166,000 at December 31, 1996. At
December 31, 1996, there was a net unrealized gain, net of taxes, of
approximately $324,000 on securities available-for-sale compared
with a net unrealized gain, net of taxes, of approximately
$421,000 at December 31, 1995. As securities matured, their
proceeds were used to fund loans and provide liquidity.
Management anticipates that the majority of future investment
portfolio purchases will continue to be made in taxable
investment securities, concentrating on fixed and variable rate
securities that complement rate sensitivity and liquidity
considerations.
Loans
- -----
Net loans, the largest category of earning assets at
December 31, 1996, increased by approximately $32,281,000, or
13.5% when compared with net loans at December 31, 1995.
Average net loans represented 66.2% of total average earning
assets during 1996, while net loans at December 31, 1996
represented 60.1% of total assets.
During 1995, average loans increased approximately
$18,845,000, or 8.6%, from 1994 and represented 62.8% of average
interest-earning assets and 55.3% of average total assets. This
is indicative of the increase in loan demand that has been
experienced in the Hardwick market during 1995. All segments of
the loan portfolio experienced increases in outstanding balances
at December 31, 1995 when compared with December 31, 1994,
except for real estate loans.
At December 31, 1996, approximately 58.0% of Hardwick's loan
portfolio was collateralized by real estate. The Boards of
Directors of the Banks have given direction to the lending
personnel to obtain, when possible, real estate as the primary
collateral rather than blanket liens on accounts receivable,
inventories, furniture and fixtures, and equipment. Extensions
of credit are made based upon the ability of the customer to
repay from cash flows and not from the ultimate sale of the
underlying collateral. The value of real estate as the
underlying collateral is dependent upon the economic conditions
within Hardwick's market area. Hardwick places a strong emphasis
on obtaining real estate as primary collateral when making
commercial loans rather than accepting accounts receivable,
inventories and furniture and fixtures as primary collateral.
Commercial loans secured by real estate, particularly if
collateral-dependent, are subject to certain inherent risks.
Commercial real estate may be substantially illiquid, and
commercial real estate values are difficult to ascertain and are
subject to wide fluctuations depending upon economic conditions.
Certain risks are inherent within the different categories
of loans. Commercial, financial and agricultural loans of the
Registrant are concentrated in loans to the tufted carpet
industry and the businesses that are associated with supplying
that industry. The underlying collateral for these concentrated
credits may lose value in a short period of time should there be
a downturn in the local economy. The maximum loan-to-value
ratios, as prescribed by bank policy, are as follows: accounts
receivable-80%, inventory-50%, rolling stock-85%, general-purpose
equipment and machinery--80%, specialized equipment and machinery--
70%, listed stocks on the major exchanges--70%; margined and non-
margined stocks from 50% to 70%, subject to Federal Reserve
Regulation U requirements, mutual funds--50%, U.S. government
obligations--90%, U.S. government agencies and state and
political subdivisions--80%, cash surrender value of life
insurance policies--95%, Hardwick savings deposits--100% and other
federally insured savings deposits--90%.
Commercial real estate loans most often are collateralized
by the underlying properties which give rise to the credit
request. The values of the underlying properties are subject to
economic conditions and availability of space, be it
manufacturing, warehousing or office spaces, and these properties
traditionally hold their value while being used for their
designed purpose. Multipurpose properties traditionally hold
value more than those properties which are acquired and
constructed for specified industries. The Registrant's
subsidiary banks extend credit with both multipurpose and single-
purpose properties as collateral. The loan-to-value ratio range
for new construction loans is from 70% to 80% of the appraised
value or cost, whichever is less.
Consumer credit extended by Hardwick has the inherent risk
of a downturn in the carpet industry,which may affect the
customers' ability to pay as a result of job layoffs and cutbacks
in hours available to work. Consumer loans are made by the
Registrant's subsidiary banks on secured and unsecured bases.
Underlying collateral for consumer loans is made with a loan-to-
value ratio from 70% to 85%. When stocks, U. S. treasuries and
government agency securities, mutual funds and financial
institution instruments are pledged as collateral, the same loan-
to-value ratios apply as discussed above in the commercial,
financial and agricultural category.
13<PAGE>
Nonperforming Assets
- --------------------
Nonperforming assets, which include nonaccrual loans, loans
ninety (90) days past due and still accruing, restructured loans,
and potential problem loans, as well as other real estate,
totaled approximately $1,049,000 at December 31,1996, up
approximately $264,000 from 1995, an increase of approximately
33.6%. Nonperforming loans increased by approximately $289,000,
or 38.0%, during 1996. There was no other real estate at December
31, 1996, down approximately $25,000 or 100% compared to December
31, 1995. Management believes that the nonperforming assets have
been properly identified and that the necessary reserves to cover
potential losses are in place.
Management believes that the loan loss provision taken in
1996 was appropriate given the increase in loans ninety days past
due and still accruing of approximately $350,000 during the year.
The provision is based on management's regular evaluation of
current economic conditions, changes in the character and size of
the loan portfolio, underlying collateral values securing loans,
and other factors which deserve recognition in estimating credit
losses. The loan loss provision during 1996 was approximately
$396,000. There was no loan loss provision during 1995. There
was a negative provision of approximately $600,000 during 1994.
The ratio of nonperforming assets to total loans and other
real estate was .38% and .32% at December 31,1996 and 1995,
respectively.
At December 31,1996, the reserve for possible loan losses
was $6,778,000, or 2.4%, of net outstanding loans, as compared to
$6,614,000, or 2.7%, of net outstanding loans at December 31, 1995.
Management believes that the reserve for possible loan losses is
adequate to provide for credit risks inherent in the portfolio
and continues to review the impact of prevailing and expected
economic and business conditions in order to maintain a reserve
considered adequate in relation to loans outstanding.
While management uses available information to recognize
losses on loans, future unexpected additions to the reserve may
become necessary based on changes in economic conditions.
Additionally, regulatory agencies, as part of their normal
examination process, periodically review the Banks' reserves for
possible loan losses. Such agencies may require the Banks to
recognize additions to the reserve based on their judgment and
evaluation of information available to them at the time of their
examination.
Deposits
- --------
Hardwick's average interest-bearing deposits increased
approximately $13,882,000, or 4.9%, during 1996 compared with 1995.
Average time deposits increased $19,656,000, or 12.9%, during 1996.
Time deposits in denominations of $100,000 or more represented
13.2% of total deposits at December 31,1996 compared to 14.1% at
December 31,1995. Hardwick's large-denomination time deposits
are from customers within its local market area which provides
Hardwick with a greater degree of stability than is typically
associated with this source of funds.
The average balance of interest-bearing deposit accounts
other than time deposits, which include NOW, money market and
savings deposits, decreased by 4.5% in 1996 from 1995,
principally due to the movement into time deposits with higher
yields. Average noninterest-bearing demand deposit accounts
increased approximately $3,506,000 due to an overall increase in
average deposits. The relatively high increase in time deposits
is representative of the willingness of depositors to place their
investments for longer periods of time which reflects their
expectations of interest rates staying the same or possibly
decreasing.
During 1995, average interest-bearing deposits remained
relatively the same when compared with 1994. During the same
period, average time deposits increased approximately
$12,921,000, or 9.3%. The increase was primarily due to shifts
from NOW, money market and savings accounts. Average NOW, money
market and savings accounts decreased by approximately
$12,882,000, or 9.1%, from 1994.
CAPITAL RESOURCES
- -----------------
Hardwick 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 are required to maintain a minimum Tier 1 Leverage
Ratio of 3%. The required ratio is 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
14<PAGE>
acquisitions are expected to maintain a strong capital position
of 100 or 200 basis points above the minimum capital
levels without significant reliance on intangible assets.
The following tables represent Hardwick's regulatory capital
position at December 31,1996:
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
-------------------------
as of December 31, 1996
-----------------------
Amount Ratio
------ -------
(Dollars in thousands)
<S> <C> <C>
Tier 1 Capital $ 41,307 12.34%
Tier 1 Capital minimum requirement 13,385 4.00%
Excess 27,922 8.34%
Total Capital 45,522 13.60%
Total Capital minimum requirement 26,770 8.00%
Excess 18,752 5.60%
Risk-adjusted assets, net of goodwill
and excess allowance $ 334,625
Leverage Ratio
--------------
as of December 31,1996
----------------------
Amount Ratio
------ -----
(Dollars in Thousands)
Tier 1 Capital to adjusted total assets
(Leverage Ratio) $ 41,307 9.55%
Minimum leverage requirement 12,979 3.00%
Excess 28,328 6.55%
Average quarterly total assets, net of
goodwill <F1> $ 432,625
<FN>
<F1> Average total assets, net of goodwill, for the quarter ended December
31, 1996.
</FN>
</TABLE>
Liquidity
- ---------
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
given time.
At December 31,1996, cash equivalents decreased
approximately $8,474,000 from December 31,1995. Operating and
financing activities provided cash of approximately $7,283,000
and approximately $2,770,000, respectively, while investing
activities used cash of approximately $18,527,000. Operating
activities provided cash principally from net income of
approximately $3,570,000, depreciation and amortization of
approximately $2,500,000, provision for loan losses of
approximately $396,000 and the increase in other liabilities of
approximately $977,000. Financing activities provided
approximately $5,529,000, due to the sales of certificates of
deposits greater than the maturing of time deposits and increases in
federal funds purchased of approximately $2,600,000. Additionally,
financing activities principally used cash from a net decrease in
demand, NOW and savings deposits of approximately $1,540,000
while paying approximately $426,000 on note payable and capital
lease obligations, purchase of treasury stock of approximately
$1,341,000 and payment of cash dividends of approximately
$1,768,000.
Significant investing activities using cash included
purchases of investment securities available for sale of
approximately $35,889,000 and loans originated greater than
principal collected by approximately $32,677,000. Investing
activities providing cash included proceeds from maturities of
investment securities available for sale of approximately
$16,150,000 and sales of investment securities available for
sale of approximately $34,448,000. Purchases of premises and
equipment used cash of approximately $606,000.
15<PAGE>
Interest Rate Sensitivity
- -------------------------
The interest rate sensitivity of Hardwick's assets and
liabilities provides an indication of the extent to which
Hardwick's net interest income may be affected by interest rate
movements. An indicator of the rate sensitivity structure of a
financial institution's balance sheet is the difference between
its interest rate-sensitive assets and interest rate-sensitive
liabilities, which is referred to as the "gap." The table below
presents Hardwick's gap position at December 31, 1996 (dollars
in thousands):
<TABLE>
<CAPTION>
One Year
Within Through Over
One Year Five Years Five Years Total
-------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Interest-sensitive assets $ 110,202 193,059 102,153 405,414
Interest-sensitive liabilities 271,426 43,831 17 315,274
------------- --------- --------- --------
Periodic interest sensitivity gap $ (161,224) 149,228 102,136 90,140
============= ========= ========= ========
Cumulative net earning assets $ (161,224) (11,996) 90,140 90,140
============= ========= ========= ========
Cumulative ratio of earning assets
to interest-bearing
liabilities 40.6% 96.2% 128.6% 128.6%
============= ========= ========= ========
</TABLE>
At December 31,1996, Hardwick continues to be liability-
sensitive on a short-term basis and asset-sensitive on a long-
term basis. Liability sensitivity generally indicates that an
increase in interest rates would result in lower net interest
income and that a decrease in interest rates would result in
higher net interest income than would result if interest rates
remained constant. Conversely, asset sensitivity indicates that
rate increases would result in higher net interest income and
that decreases in interest rates would result in lower net
interest income.
However, since interest rates and yields do not adjust at
the same velocity, the interest rate sensitivity gap is only a
general indicator of the potential effects of interest rate
changes on net interest income. Management believes that
Hardwick's asset and liability mix is sufficiently balanced and
can be changed over time through the purchase and sale of
investment securities with varying maturity ranges, along with
the pricing of loans and deposits so that the effect of interest
rate movements in either direction is not significant over time.
For a more detailed gap analysis chart, see "Analysis of Interest
Rate Sensitivity."
Bank Premises and Equipment
- ---------------------------
During 1996, Hardwick's capital expenditures approximated
$606,000. Included was approximately $72,000 for buildings and
improvements, $475,000 for furniture, fixtures and office
equipment, which was principally additions to the retail platform
system, furniture and fixtures, wide area network hardware and
software and approximately $59,000 for automobiles. The
Registrant is projecting approximately $370,000 in capital
expenditures in 1997, comprised of approximately $225,000 for
automated teller machines, approximately $50,000 in building
improvements, approximately $50,000 in office and computer
equipment and approximately $45,000 for automobiles.
Inflation
- ---------
Inflation affects the growth in total assets in the banking
industry and causes a need to increase equity capital at higher
than normal rates to meet capital adequacy requirements. The
Registrant copes with the effects of inflation through the
management of its interest rate sensitivity gap position by
periodically reviewing and adjusting its pricing of services to
consider current costs and through managing its level of net
income relative to its dividend payout policy.
16
<PAGE>
Recent Accounting Pronouncements
- --------------------------------
In March 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The
statement was adopted by the Company on January 1, 1996. The
adoption of this standard did not have a significant impact on
the financial condition or results of operations of the Company.
In May 1995, the Financial Accounting Standards Board
issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." This statement amended SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities," generally requiring that
mortgage banking enterprises allocate the total cost of mortgage
loans between the mortgage servicing rights and the mortgage
loans. According to SFAS No. 122, this allocation is applicable
when the servicing rights have been acquired through either the
purchase or origination of mortgage loans and the loans are
either sold or securitized with the servicing rights retained.
As the Company does not originate mortgage loans for sale in the
secondary market, SFAS No. 122 did not have an impact on the
Company's financial condition or results or operations.
On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." This statement establishes financial
accounting and reporting standards for stock-based employee
compensation plans. Those plans include all arrangements by
which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock.
Adoption of this new standard did not have a material effect on
the Company's financial position or results of operations.
17
<PAGE>
SELECTED STATISTICAL INFORMATION
AVERAGE BALANCE SHEETS, INTEREST RATES
AND INTEREST DIFFERENTIALS
<TABLE>
<CAPTION>
Years Ended December 31
------------------------
(Dollars in thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net <F1> $ 255,043 $ 236,985 $ 218,140
Taxable investment securities 91,785 102,837 121,365
Nontaxable investment securities 29,389 27,989 26,845
Federal funds sold and deposits in banks 8,850 9,476 7,067
------------ ----------- ----------
Total interest-earning assets 385,067 377,287 373,417
Cash and due from banks 22,394 22,626 22,824
Premises and equipment 15,869 17,198 16,704
Other assets 10,749 11,080 14,199
------------ ----------- ----------
Total assets $ 434,079 $ 428,191 $ 427,144
============ =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction accounts <F2> $ 93,810 $ 99,200 $ 106,808
Savings deposits 29,700 30,084 35,358
Time deposits 172,140 152,484 139,563
Federal funds purchased and securities
sold under agreements to repurchase 3,024 14,069 16,720
FHLB advances 346 2,785 -
Note payable 440 656 188
Capital lease obligation 757 1,047 795
------------ ----------- ----------
Total interest-bearing liabilities 300,217 300,325 299,432
Noninterest-bearing demand deposits 83,744 80,238 82,430
Other liabilities 3,485 2,496 2,049
------------ ----------- ----------
Total liabilities 387,446 383,059 383,911
Stockholders' equity 46,633 45,132 43,233
------------ ----------- ----------
Total liabilities and
stockholders' equity $ 434,079 $ 428,191 $ 427,144
============ =========== ==========
<FN>
<F1> Average loans are shown net of unearned discounts and deferred loan
fees and the reserve for possible loan losses. Nonperforming loans,
including nonaccrual loans are included but are not material.
<F2> Includes money market deposit accounts.
</TABLE>
18
<PAGE>
AVERAGE BALANCE SHEETS, INTEREST RATES
AND INTEREST DIFFERENTIALS (continued)
<TABLE>
<CAPTION
(Dollars in thousands) Years Ended December 31
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest earned on:
Loans, net <F1> <F2> $ 25,131 $ 23,927 $ 20,433
Taxable investment securities 5,273 5,649 6,339
Nontaxable investment securities <F1> 2,328 2,214 2,245
Federal funds sold 460 565 276
----------- --------- ---------
Total interest income 33,192 32,355 29,293
----------- --------- ---------
Interest paid on:
Transaction accounts <F3> 2,383 2,621 2,499
Savings deposits 757 853 866
Time deposits 9,780 8,577 6,175
Federal funds purchased and
securities sold under agreements to
repurchase 131 707 557
FHLB advances 28 182 -
Note payable 27 48 12
Capital lease obligation 63 74 64
----------- --------- ---------
Total interest expense 13,169 13,062 10,173
----------- --------- ---------
Net interest income $ 20,023 $ 19,293 $ 19,120
=========== ========= =========
Average percentage earned on:
Loans, net <F1> <F2> 9.9% 10.1% 9.4%
Taxable investment securities 5.7% 5.5% 5.2%
Nontaxable investment securities <F1> 7.9% 7.9% 8.4%
Federal funds sold 5.2% 6.0% 3.9%
Total interest income 8.6% 8.6% 7.8%
Average percentage paid on:
Transaction accounts <F3> 2.5% 2.6% 2.3%
Savings deposits 2.5% 2.8% 2.4%
Time deposits 5.7% 5.6% 4.4%
Federal funds purchased and
securities sold under agreements to 4.3% 5.0% 3.3%
repurchase
FHLB advances 8.1% 6.5% -
Note payable 6.1% 7.3% 6.4%
Capital lease obligation 8.3% 7.0% 8.0%
Total interest expense 4.4% 4.3% 3.4%
Net interest margin 5.2% 5.1% 5.1%
<FN>
<F1>Reflects taxable equivalent adjustments using a tax rate of 34% in
adjusting interest on nontaxable loans and securities to a fully
taxable basis.
<F2>Interest income includes loan fees as follows (in
thousands): 1996-$1,340, 1995-$1,290, 1994-$1,168.
<F3>Includes money market accounts.
</FN>
19
<PAGE>
AVERAGE BALANCE SHEETS, INTEREST RATES,
AND INTEREST DIFFERENTIALS (continued)
</TABLE>
<TABLE>
<CAPTION>
Due to
Increase Changes in
(Dollars in thousands) 1996 1995 (Decrease) Volume Rate <F1>
---- ---- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Interest earned on:
Loans, net <F2> $ 25,131 $ 23,927 $ 1,204 $ 1,824 $ (620)
Taxable investment securities 5,273 5,649 (376) (608) 232
Nontaxable investment securities <F2> 2,328 2,214 114 111 3
Federal funds sold 460 565 (105) (38) (67)
-------- -------- -------- ------- ------
Total interest income 33,192 32,355 837 1,289 (452)
-------- -------- -------- ------- ------
Interest paid on:
Transaction accounts <F3> 2,383 2,621 (238) (140) (98)
Savings deposits 757 853 (96) (11) (85)
Time deposits 9,780 8,577 1,203 1,101 102
Federal funds purchased and
securities sold under
agreements to repurchase 131 707 (576) (552) (24)
Other borrowed funds 28 182 (154) (159) 5
Note payable to bank 27 48 (21) (16) (5)
Capital lease obligation 63 74 (11) (20) 9
-------- -------- -------- ------- ------
Total interest expense 13,169 13,062 107 203 (96)
-------- -------- -------- ------- ------
Net interest income $ 20,023 $ 19,293 $ 730 $ 1,086 $ (356)
======== ======== ======== ======= ======
<FN>
<F1> The change in interest due to both rate and volume has been
allocated to the rate component.
<F2> Reflects taxable equivalent adjustments using a tax rate of 34% in
adjusting interest on nontaxable loans and securities to a fully taxable
basis.
<F3> Includes money market deposit accounts.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Due to
Increase Changes in
(Dollars in thousands) 1995 1994 (Decrease) Volume Rate <F1>
---- ---- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Interest earned on:
Loans, net <F2> $ 23,927 $ 20,433 $ 3,494 $ 1,771 $ 1,723
Taxable investment securities 5,649 6,339 (690) (963) 273
Nontaxable investment securities<F2> 2,214 2,245 (31) 96 (127)
Federal funds sold 565 276 289 93 196
-------- -------- -------- ------- ------
Total interest income 32,355 29,293 3,062 997 2,065
-------- -------- -------- ------- ------
Interest paid on:
Transaction accounts <F3> 2,621 2,499 122 (175) 297
Savings deposits 853 866 (13) (126) 113
Time deposits $ 8,577 $ 6,175 $ 2,402 $ 568 $ 1,834
Federal funds purchased and
securities sold under
agreements to repurchase 707 557 150 (87) 237
Other borrowed funds 182 0 182 0 182
Note payable to bank 48 12 36 29 7
Capital lease obligation 74 64 10 20 (10)
-------- -------- -------- ------- ------
Total interest expense 13,062 10,173 2,889 229 2,660
-------- -------- -------- ------- ------
Net interest income $ 19,293 $ 19,120 $ 173 $ 768 $ (595)
======== ======== ======== ======= ======
<FN>
<F1> The change in interest due to both rate and volume has been
allocated to the rate component.
<F2> Reflects taxable equivalent adjustments using a tax rate of 34% in
adjusting interest on nontaxable loans and securities to a fully taxable
basis.
<F3> Includes money market deposit accounts.
</FN>
</TABLE>
20
<PAGE>
INVESTMENT PORTFOLIO
The amortized cost and approximate fair values of investment securities
available for sale for the indicated years are
presented below (in thousands):
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 75,682 $ 58 $ (578) $ 75,162
Mortgage-backed and other debt and equity
securities 18,645 32 (172) 18,505
State and municipal 25,347 1,179 (27) 26,499
-------- ------- ----- -------
Total held to maturity $ 119,674 $ 1,269 $ (777) $120,166
======== ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,1995 December 31, 1994
---------------- -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 88,397 $ 88,138 $ 126,768 $ 128,123
Mortgage-backed and other debt securities 15,759 15,665 2,366 2,372
State and municipal 30,393 31,403 25,291 26,839
-------- -------- --------- ---------
Total investment securities $134,549 $135,206 $ 154,425 $ 157,334
</TABLE>
The following table shows the contractual maturities of investment
securities, based on their estimated fair values, at December 31, 1996
(in thousands) and the weighted average yields of securities. Maturities
of mortgage-backed securities have been determined based on the
contractual maturity of their underlying mortgage pools. The yields on
state and municipal securities are computed on a taxable equivalent basis
using the statutory federal income tax rate of 34%.
<TABLE>
<CAPTION>
Mortgage-
U.S. Backed
U.S. and Other
Treasury & Debt and State
Government Equity and
Agencies Securities Municipal Total
-------- ---------- --------- -----
<S> <S> <C> <C> <C> <C>
Within one year -amount 13,531 - 796 14,327
-yield 6.04% 6.49%
After one year but within five years -amount 55,989 3,925 4,874 64,788
-yield 5.71% 6.00% 6.62%
After five but within ten years -amount 5,642 9,021 16,383 31,046
-yield 6.88% 7.08% 7.95%
After ten years -amount - 5,559 4,446 10,005
-yield - 5.81% 8.16%
</TABLE>
21
<PAGE>
LOAN PORTFOLIO
Types of Loans
The amount of loans outstanding for the indicated years are shown in the
following table according to types of loans (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate loans $ 161,489 137,244 139,254 133,662 137,440
Commercial loans 53,836 53,989 51,149 45,113 46,414
Consumer loans 39,102 40,595 34,856 33,768 43,316
Other loans 24,214 14,362 9,805 7,280 14,682
---------- ---------- ---------- ---------- ----------
Total loans 278,641 246,190 235,064 219,823 241,852
Less: Unearned discounts and deferred
loan fees (393) (387) (654) (1,125) (2,296)
Reserve for loan losses (6,778) (6,614) (6,566) (6,668) (5,236)
---------- ---------- ---------- ---------- ----------
Net loans $ 271,470 239,189 227,844 212,030 234,320
========== ========== ========== ========= ==========
</TABLE>
ANALYSIS OF INTEREST RATE SENSITIVITY
The following table includes a listing of earning assets and
interest-bearing liabilities and the distribution according to
the earliest repricing opportunity or remaining maturity at
December 31,1996. Also included are the related periodic and
cumulative gaps for each period.
<TABLE>
<CAPTION>
One Over
Year Five Years
Within Through and
One Five Non-Rate
Year Years Sensitive Total
---- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans, net $ 88,875 128,271 61,102 278,248
Taxable investment securities 13,531 59,914 20,222 93,667
Nontaxable investment securities 796 4,874 20,829 26,499
Federal funds sold 7,000 - - 7,000
----------- ---------- ---------- ----------
Total earning assets 110,202 193,059 102,153 405,414
----------- ---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Transaction accounts <F1> 102,038 - - 102,038
Savings deposits 28,397 - - 28,397
Time deposits 134,567 43,354 17 177,938
Federal funds purchased and securities sold under
agreements to repurchase 5,927 - - 5,927
FHLB advances 306 - - 306
Capital lease obligations 191 477 - 668
----------- ---------- ---------- ----------
Total interest-bearing liabilities 271,426 43,831 17 315,274
Noninterest-bearing funds - - 85,567 85,567
----------- ---------- ---------- ----------
Total interest-bearing and noninterest-bearing funds 271,426 43,831 85,584 400,841
----------- ---------- ---------- ----------
GAP SUMMARY
Periodic net earning assets $ (161,224) 149,228 16,569 4,573
========== ========== ========== ==========
Ratio of earning assets to interest-bearing liabilities
and noninterest-bearing funds 40.6% 440.5% 119.4% 101.1%
========== ========== ========== ==========
Cumulative net earning assets $ (161,224) (11,996) 4,573 4,573
========== ========== ========== ==========
Cumulative ratio of earning assets to interest-
bearing liabilities and noninterest-bearing funds 40.6% 96.2% 101.1% 101.1%
========== ========== ========== ==========
<FN>
<F1> Includes NOW and money market accounts.
</FN>
</TABLE>
22
<PAGE>
The rate sensitivity analysis table is designed to
demonstrate Hardwick's sensitivity to changes in interest rates
by setting forth in comparative form the repricing maturities of
Hardwick's assets and liabilities for the period shown. A ratio
of greater than 100% of earning assets to interest-bearing
liabilities (more interest earning assets repricing in a given
period than interest-bearing liabilities) indicates that an
increase in interest rates would generally result in a increase
in net income for Hardwick and a decrease in interest rates will
result in a decrease in net income. Conversely, a ratio less
than 100% of earning assets to interest-bearing liabilities (less
interest-earning assets repricing in a given period than interest-
bearing liabilities) indicates that a decrease in rates would
generally result in an increase in net income and an increase in
interest rates would result in a decrease in net income. However,
shifts in the structure of interest-sensitive assets and
liabilities are made by management in response to interest rate
movements.
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following table represents information concerning
outstanding balances of nonperforming loans at December 31, 1996,
1995, 1994, 1993 and 1992. Nonperforming loans comprise (a)
loans on which recognition of interest income has been
discontinued ("nonaccrual loans"), (b) loans contractually past
due 90 days or more as to interest or principal payments which
are still accruing interest ("past-due loans"), and (c) loans,
the terms of which have been renegotiated to provide for an
extension of the original payment period and/or a reduction or
deferral of interest or principal because of a deterioration in
the financial position of the borrower ("restructured loans"):
<TABLE>
<CAPTION>
Nonaccrual Past-Due Restructured
Loans Loans Loans Total
----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1996 $ 449 551 49 1,049
December 31, 1995 $ 507 201 52 760
December 31, 1994 $ 1,401 16 55 1,472
December 31, 1993 $ 590 289 - 879
December 31, 1992 $ 1,931 83 - 2,014
</TABLE>
The components of nonperforming loan categories at December 31,
1996 are presented below (in thousands):
<TABLE>
<CAPTION
Nonaccrual Past-Due Restructured
Loans Loans Loans Total
<S> <C> <C> <C> <C>
Real estate loans $ 134 76 49 259
Commercial loans 315 435 - 750
Consumer loans - 40 - 40
------- ----- ----- -------
Total $ 449 551 49 1,049
======= ====== ===== =======
</TABLE>
Loans on which the accrual of interest has been discontinued
are designated as nonaccrual when doubt exists as to the full,
timely collection of interest or principal. Income on such loans
is then recognized only to the extent that cash is received in
excess of required principal payments and if the future
collection of principal is probable. Interest earned but not yet
collected at the date of placement into nonaccrual is reversed
from earnings in the period in which the nonaccrual status is
established. The decrease in nonaccrual loans from the level at
December 31, 1995 has been dispersed principally over the real
estate and commercial loan categories.
23
<PAGE>
Interest accruals are recorded on such loans 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 $123,000, $81,000, and
$63,000 in 1996, 1995, and 1994, respectively, which was
included in earnings only when collected. Nonaccrual loan
interest collected and reported in earnings was approximately
$153,000, $115,000 and $30,000 for 1996, 1995 and 1994,
respectively.
OTHER REAL ESTATE
Set forth below is a schedule of other real estate at
December 31, 1996, 1995, 1994, 1993 and 1992
(dollars in thousands):
<TABLE>
<CAPTION>
Loans Transferred To
Other Other Real Estate
Real Estate During the Period
Date Balance Ended
---- ------- -----
<S> <C> <C>
December 31, 1996 $ 0 $ 0
December 31, 1995 $ 25 $ 90
December 31, 1994 $ 15 $ 68
December 31, 1993 $ 238 $ 432
December 31, 1992 $ 1,471 $ 3,523
</TABLE>
Other real estate includes properties acquired through
foreclosure or acceptance of deeds in lieu of foreclosure. These
properties are recorded on the date acquired at the lower of the
loan balance or fair market value, less estimated costs to
dispose. After classifying these properties as other real estate,
any resulting loss is charged to expense in the consolidated
statement of income during the period in which the disposition
occurred.
During 1992, $3,523,000 was transferred to other real estate
from loans, comprised of $1,725,000 in a rental real estate
development, approximately $497,000 in five single-family homes,
$74,000 of consumer loans, $620,000 in non-carpet business loans
and approximately $607,000 in an in-substance foreclosure motel
property. Of the loans transferred, approximately $497,000 of
other real estate was added through the Company's acquisition of
Peoples Bartow Corporation. During 1992, $2,241,000 of other
real estate was sold in which a gain of $125,000 was recognized
during the period then ended.
Of the $432,000, in loans transferred to other real estate
in 1993, $170,000 was from real estate rental and development.
$152,000 was from consumer loans, and $110,000 was from non-
carpet related business loans. $786,000 in other real estate was
sold in which $246,000 was transferred to loans by financing the
sale. The sale met minimum down payment and projected cash flow
requirements. $59,000 in net gains were recognized during 1993.
Additional write-downs of $89,000 were recorded during 1993, with
no material amount in any one loan category. One credit in the
amount of $607,000 included as in-substance foreclosure at
December 31, 1992 was paid off with no loss on the transaction,
and another credit carried as insubstance foreclosure at December 31,
1992 in the amount of $183,000 was transferred into
nonaccrual loans as a result of the stream of income and payment
abilities established during the last year and a half in which no
income was recognized on that credit until the payment of
principal and interest was received.
Of the $68,000 in loans transferred to other real estate in
1994, there were four properties which were personal residence
mortgages. Nine different properties were sold during the year
for approximately $265,000 in which there was a net gain of
approximately $8,000. Additional write downs of approximately
$34,000 were made during 1994 involving three separate
properties, two of which were personal residences and one
property was unimproved commercial real estate.
Other real estate at December 31, 1995 of approximately
$25,000 was up $10,000 over the $15,000 from December 31, 1994.
During 1995, approximately $90,000 was transferred from loans to
other real estate. The transfer included two properties, one
valued at approximately $10,000 and the other valued at
approximately $80,000. The $10,000 property is a residence, and
the $80,000 was undeveloped land. During the year, the
undeveloped land was sold for $85,000, resulting in a gain of
approximately $5,000. The balance of other real estate was made
up of two personal residences of $10,000 and $15,000. During
1996, the two properties were sold for the carrying values,
resulting in no gain or loss for the Company.
24<PAGE>
SUMMARY OF LOAN EXPERIENCE
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts are presented in thousands)
<S> <C> <C> <C> <C> <C>
Average amount of net loans outstanding $ 255,043 236,985 218,140 223,650 244,591
========== ========== ========== ========== ==========
Amount of reserve for possible loan losses
at beginning of period $ 6,614 6,566 6,668 5,236 4,701
Reserves acquired incident to mergers - - - - 693
---------- ---------- ---------- ---------- ----------
Total reserves for possible loan losses 6,614 6,566 6,668 5,236 5,394
---------- ---------- ---------- ---------- ----------
Amount of loans charged off during period:
Real estate loans 157 171 111 572 988
Commercial loans 540 466 139 719 1,069
Consumer loans 202 569 271 544 1,199
Other loans - - - - 5
---------- ---------- ---------- ---------- ----------
Total loans charged off 899 1,206 521 1,835 3,261
---------- ---------- ---------- ---------- ----------
Amount of recoveries during period:
Real estate loans 58 117 279 817 282
Commercial loans 409 767 296 426 436
Consumer loans 200 370 444 674 810
Other loans - - - - -
---------- ---------- ---------- ---------- ----------
Total loans recovered 667 1,254 1,019 1,917 1,528
---------- ---------- ---------- ---------- ----------
Net loans (recovered) charged off during period 232 (48) (498) (82) 1,733
---------- ---------- ---------- ---------- ----------
Additions to reserve for possible loan losses
charged to operations 396 - (600) 1,350 1,575
---------- ---------- ---------- ---------- ----------
Amount of reserve for possible loan losses
at end of period $ 6,778 6,614 6,566 6,668 5,236
========== ========== ========== ========== ==========
Ratio of net (recoveries) charge-offs during
period to average net loans outstanding
for the period .09% (.02%) (0.23%) (0.04)% 0.71%
========== ========== ========== ========== ==========
Ratio of reserve for possible loan losses
at period-end to:
Total loans outstanding at period-end 2.44% 2.69% 2.80% 3.05% 2.18%
========== ========== ========== ========== ==========
Nonperforming assets at period-end <F1> 646.14% 842.55% 441.56% 596.96% 150.24%
========== ========== ========== ========== ==========
<FN>
<F1> Nonperforming assets included nonperforming loans and other real
estate
</FN>
</TABLE>
ALLOCATION OF RESERVE FOR POSSIBLE LOAN LOSSES
The reserve is based upon management's analysis of the
portfolio under current and expected economic conditions. This
analysis includes a study of loss experience, a loan-by-loan
review each month of all loans $50,000 or more at Northwest Bank,
a review of delinquencies and an estimate of the possibility of
loss in view of the risk characteristics of the portfolio. The
loan-by-loan review for Hardwick Bank covers all consumer-purpose
loans over $5,000 unsecured and all commercial loan concentrations
over $200,000, unsecured or secured. Hardwick has strict loan
underwriting standards which are carried out by lending personnel
and monitored by a loan review officer who has no loan
origination responsibilities. The purpose of the loan review
function is to determine the adequacy of the allowance and
related provision for loan losses to be reported by Hardwick.
25
<PAGE>
The review process described above places emphasis on
nonperforming and past-due loans and is designed to identify
potential charges to the reserve for possible loan losses as well
as to determine the adequacy of the reserve.
The allocation of the loan loss reserve is arrived at by
using the problem loan list at each of Hardwick's subsidiary
banks and by assigning ratings to the problem loan list as OAEM,
"other assets especially mentioned," Substandard and Doubtful.
The ratings are concurrent with the ratings used by bank
regulatory authorities for credits which are classified during
their examinations. Generally, the values assigned to those
ratings are 2%, 10% and 50%, times the balance of
the credit. Each of the loans on the problem loan list is
categorized by classification and the sum of the classification;
i.e., real estate, commercial; consumer and other loans are added
to determine the amount of the loan loss reserve allocated to
each classification. The remainder of the loan loss reserve not
allocated is for the coverage of loan losses which have not been
either specifically identified by management or by the regulatory
examination process and relate to downturns in the economy and
concentrations of credit in specific industries. The allocation
of the loan loss reserve is reviewed and approved by the Board of
Directors of each bank on a quarterly basis. With the current
procedures in place, management believes that the allocation has
been reasonably applied to the respective loan categories
(dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
% of % of % of
Loans in Loans in Loans in
Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans $ 1,043 21% 1,453 56% 1,675 59%
Commercial loans 2,241 46% 2,304 22% 1,561 22%
Consumer loans 1,641 33% 993 16% 800 14%
Other loans - - 186 6% 104 5%
Unallocated 1,853 N/A 1,678 N/A 2,426 N/A
-------- ------ -------- ------ ------- -------
Total $ 6,778 100% 6,614 100% 6,566 100%
======== ====== ======== ====== ======= =======
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
% of % of
Loans in Loans in
Amount Category Amount Category
------ -------- ------ --------
Real estate loans $ 1,860 62% 1,782 57%
Commercial loans 1,420 22% 1,503 24%
Consumer loans 1,433 14% 148 17%
Other loans 235 2% 37 2%
Unallocated 1,720 N/A 1,766 N/A
--------- ------- -------- ------
Total $ 6,668 100% 5,236 100%
========= ======= ======== ======
</TABLE>
26<PAGE>
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
Over one
One year year through Over
Loan Category <F1> <F2> <F3> or less five years five years Total
- ------------------------- ------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Real estate $ 39,831 74,079 47,579 161,489
Commercial 24,225 21,207 8,404 53,836
Consumer and other loans 24,819 32,985 5,119 62,923
--------- --------- -------- ----------
Total $ 88,875 128,271 61,102 278,248
========= ========= ======== ==========
Loans due after one year:
Having predetermined interest rates $ 132,203
Having floating interest rates 57,170
----------
Total $ 189,373
==========
<FN>
<F1> Scheduled repayments are reported in the maturity category in which
the payment is due.
<F2> Demand loans having no stated schedule of repayments and no stated
maturity, as well as overdrafts, are included in the due in one year
or less category.
<F3> Determination of maturities is based on contract terms. The
Registrant's subsidiary banks have loans which, from time to time, are
rolled over, the approval of which is generally made at the original
approval date of the credit. If handled as a change in terms, the credit
is subject to the same review and approval process as a new credit.
Maturities are revised when a loan is rolled over.
</FN>
</TABLE>
DEPOSITS
The average amounts of deposits for the years indicated are presented
below:
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Noninterest-bearing demand deposits $ 83,744 80,238 82,430
---------- ---------- ---------
Interest-bearing demand and
money market deposits 93,810 99,200 106,808
Savings deposits 29,700 30,084 35,358
Time deposits 172,140 152,484 139,563
---------- ---------- ---------
Total interest-bearing deposits 295,650 281,768 281,729
---------- ---------- ---------
Total average deposits $ 379,394 362,006 364,159
========== ========== =========
</TABLE>
27<PAGE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
The maturities of time deposits of $100,000 or more as of December 31,1996
are presented below (in thousands):
3 months or less $ 16,428
Over 3 months through 6 months 16,620
Over 6 months through 12 months 9,549
Over 12 months 9,562
--------
Total outstanding $ 52,159
========
RETURN ON EQUITY AND ASSETS
Certain financial ratios are presented below:
<TABLE>
<CAPTION>
Years ended December 31
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on average assets 0.82% 0.75% 0.88%
======= ======= =======
Return on average equity 7.66% 7.14% 8.68%
======= ======= =======
Dividend payout ratio 56.27% 27.86% 21.94%
======= ======= =======
Average equity to average assets 10.74% 10.54% 10.12%
======= ======= =======
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and the report of independent public
accountants identified in Item 14(a) are included in this report
beginning at page F-1.
28<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent
Public Accountants F-1
Consolidated Balance Sheets
December 31, 1996 and 1995 F-2
Consolidated Statements of Income for the
Years Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31, 1996, 1995 and F-5
1994
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-8
<PAGE>
Hardwick Holding Company
and Subsidiaries
Consolidated Financial Statements as of
December 31, 1996, 1995, and 1994
Together With
Auditors' Report
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Hardwick Holding Company:
We have audited the accompanying consolidated balance sheets of
HARDWICK HOLDING COMPANY (a Georgia corporation) AND SUBSIDIARIES
as of December 31, 1996 and 1995 and the related consolidated
statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Hardwick Holding Company and subsidiaries as of December 31, 1996
and 1995 and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 14, 1997
F-1
<PAGE>
HARDWICK HOLDING COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1996 1995
---------- ---------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 26,797 $ 31,171
FEDERAL FUNDS SOLD 7,000 11,100
--------- ---------
Total cash and cash equivalents 33,797 42,271
INVESTMENT SECURITIES, available for sale 120,166 135,206
LOANS, net 271,470 239,189
PREMISES AND EQUIPMENT, net 15,728 17,227
ACCRUED INTEREST RECEIVABLE 3,865 3,674
EXCESS OF COST OVER FAIR VALUE OF SUBSIDIARIES ACQUIRED, net
5,346 5,961
OTHER ASSETS 1,689 1,289
--------- ---------
Total assets $452,061 $444,817
F-2<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing $ 85,567 $ 84,104
Interest-bearing 308,373 305,847
--------- ---------
Total deposits 393,940 389,951
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 3,327 3,536
FEDERAL FUNDS PURCHASED 2,600 0
CAPITAL LEASE OBLIGATION 668 844
FEDERAL HOME LOAN BANK ADVANCES 306 381
NOTE PAYABLE 0 250
OTHER LIABILITIES 4,243 3,025
--------- ---------
Total liabilities 405,084 397,987
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 4, 6, 11, 13, and 14)
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value; 10,000,000 shares authorized,
4,125,141 shares issued, 3,999,229 and 4,066,478 shares
outstanding at December 31, 1996 and 1995, respectively 2,063 2,063
Additional paid-in capital 20,233 20,233
Retained earnings 26,845 25,284
Unrealized gain on securities available for sale, net of taxes 324 421
Treasury stock, at cost, 125,912 and 58,663 shares at
December 31, 1996 and 1995, respectively (2,289) (948)
Deferred compensation (199) (223)
-------- --------
Total stockholders' equity 46,977 46,830
-------- --------
Total liabilities and stockholders' equity $452,061 $444,817
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
F-3<PAGE>
HARDWICK HOLDING COMPANY
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994
------ ------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $24,972 $23,744 $20,231
Interest on investment securities:
Taxable 5,273 5,649 6,339
Nontaxable 1,568 1,568 1,567
Interest on federal funds sold 460 565 276
------- ------- -------
Total interest income 32,273 31,526 28,413
INTEREST EXPENSE: ------- ------- -------
Interest on deposits 12,920 12,051 9,540
Interest on federal funds purchased and securities sold
under agreements to repurchase 131 707 557
Interest on other borrowings 118 304 76
------- ------- -------
Total interest expense 13,169 13,062 10,173
------- ------- -------
NET INTEREST INCOME 19,104 18,464 18,240
PROVISION FOR LOAN LOSSES 396 0 (600)
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 18,708 18,464 18,840
------- ------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 2,327 2,420 2,408
Securities gains, net 8 10 324
Trust department income 382 340 342
Other noninterest income 1,365 1,304 1,123
------- ------- -------
Total noninterest income 4,082 4,074 4,197
------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 8,342 8,998 8,356
Net occupancy expense 3,402 3,584 3,549
Professional fees 604 548 1,055
FDIC insurance premiums 4 407 814
Office supplies and printing 459 542 406
Other noninterest expense 4,729 4,232 3,754
------- ------- -------
Total noninterest expense 17,540 18,311 17,934
------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,250 4,227 5,103
PROVISION FOR INCOME TAXES 1,680 1,004 1,352
------- ------- -------
NET INCOME $ 3,570 $ 3,223 $ 3,751
======= ======= =======
NET INCOME PER SHARE $ 0.89 $ 0.79 $ 0.91
WEIGHTED AVERAGE SHARES OUTSTANDING 4,033 4,071 4,109
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-4<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized Gain
Additional (Loss) on Securities
Common Paid-In Retained Available for Sale, Treasury Deferred
Stock Capital Earnings Net of Taxes Stock Compensation Total
------- ---------- -------- --------------------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 $2,063 $20,251 $20,031 $ 554 $ 0 $ 0 $42,899
Net income 0 0 3,751 0 0 0 3,751
Cash dividends, $.20 per share 0 0 (823) 0 0 0 (823)
Purchase of 64,863 shares of
treasury stock 0 0 0 0 (1,034) 0 (1,034)
Change in unrealized gain (loss)
on securities available for sale,
net of taxes 0 0 0 (1,413) 0 0 (1,413)
----- ----- ------ ------- ------ ----- -------
BALANCE, December 31, 1994 2,063 20,251 22,959 (859) (1,034) 0 43,380
Net income 0 0 3,223 0 0 0 3,223
Cash dividends, $.22 per share 0 0 (898) 0 0 0 (898)
Purchase of 15,050 shares of
treasury stock 0 0 0 0 (251) 0 (251)
Exercise of stock options 0 (22) 0 0 97 0 75
Issuance of treasury stock as
restricted stock 0 4 0 0 240 (244) 0
Amortization of compensation
element of restricted stock 0 0 0 0 0 21 21
Change in unrealized gain (loss)
on securities due to
reclassification of securities
from held to maturity to
available for sale, net of
taxes 0 0 0 577 0 0 577
Change in unrealized gain (loss)
on securities available for
sale, net of taxes 0 0 0 703 0 0 703
----- ----- ------ ------ ------ ----- -------
BALANCE, December 31, 1995 2,063 20,233 25,284 421 (948) (223) 46,830
Net income 0 0 3,570 0 0 0 3,570
Cash dividends declared, $.50
per share 0 0 (2,009) 0 0 0 (2,009)
Purchase of 67,249 shares of
treasury stock 0 0 0 0 (1,341) 0 (1,341)
Amortization of compensation
element of restricted stock 0 0 0 0 0 24 24
Change in unrealized gain (loss)
on securities available for
sale, net of taxes 0 0 0 (97) 0 0 (97)
------ ------ ------ ------- ------ ---- ------
BALANCE, December 31, 1996 $2,063 $20,233 $26,845 $ 324 $(2,289) $(199) $46,977
===== ====== ====== ======= ====== ==== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5<PAGE>
HARDWICK HOLDING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,570 $ 3,223 $ 3,751
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 396 0 (600)
Provision for depreciation and amortization 2,476 2,686 2,614
Amortization of deferred compensation 24 21 0
Provision for write-downs of other real estate 0 0 30
Gain on sale of other real estate, net 0 (5) (8)
(Gain) loss on disposal of premises and equipment (9) 91 0
Premium amortization (discount accretion) of investment securities, net 174 (65) (39)
Deferred income tax (benefit) provision (66) 364 300
Securities gains, net (8) (10) (324)
(Increase) decrease in accrued interest receivable (191) 270 (333)
(Increase) decrease in other assets (60) (17) 223
Increase (decrease) in other liabilities 977 948 (132)
-------- -------- -------
Net cash provided by operating activities 7,283 7,506 5,482
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held to
maturity 0 20,952 19,014
Proceeds from maturities of investment securities available for sale 16,150 5,840 7,800
Proceeds from sales of investment securities available for sale 34,448 13,610 12,072
Purchases of investment securities held to maturity 0 (2,401) (15,133)
Purchases of investment securities available for sale (35,889) (30,501) (11,461)
Net cash flows from loans originated and principal collected on loans (32,677) (11,435) (15,282)
Purchases of premises and equipment (606) (1,653) (1,283)
Proceeds from disposal of premises and equipment 42 0 0
Proceeds from disposal of other real estate 5 85 268
-------- -------- -------
Net cash used in investing activities (18,527) (5,503) (4,005)
-------- -------- -------
F-6<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts, and
savings accounts $ (1,540) $ (3,238) $ 8,163
Net cash flows from sales (maturities) of certificates of deposit 5,529 32,674 (13,214)
Net increase in federal funds purchased 2,600 0 0
Net (decrease) increase in securities sold under agreements to repurchase (209) (16,980) 5,963
Proceeds from note payable 0 0 750
(Repayments of) proceeds from FHLB advances (75) 381 0
Payments on note payable (250) (500) 0
Principal payments on capital lease obligation (176) (216) (304)
Cash dividends on common stock (1,768) (898) (823)
Purchase of treasury stock (1,341) (251) (1,034)
Proceeds from exercise of stock options 0 75 0
-------- -------- -------
Net cash provided by (used in) financing activities 2,770 11,047 (499)
-------- -------- -------
Net (decrease) increase in cash and cash equivalents (8,474) 13,050 978
Cash and cash equivalents, beginning of year 42,271 29,221 28,243
-------- -------- -------
Cash and cash equivalents, end of year $33,797 $42,271 $29,221
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 12,843 $12,232 $10,061
======== ======= =======
Income taxes $ 1,020 $ 1,080 $ 1,255
======== ======== =======
Noncash transactions during the year for:
Transfer from premises and equipment to other assets $ 211 $ 0 $ 0
======== ======= =======
Transfer from loans to other assets $ 0 $ 90 $ 68
======== ======= =======
Transfer of investment securities held to
maturity to available for sale
$ 0 $88,818 $ 0
========= ======= =======
Purchase of assets under capital lease $ 0 $ 980 $ 0
========= ======= =======
Dividends declared but not paid $ 241 $ 0 $ 0
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Hardwick Holding Company ("HHC") and its wholly owned
subsidiaries, Hardwick Bank and Trust Company ("HBT"), First National
Bank of Northwest Georgia ("FNB"), and Pentz Street Corporation (formerly
known as Hardwick Service Corporation), collectively referred to as the
"Company." All significant intercompany balances and transactions have
been eliminated.
NATURE OF OPERATIONS
The Company operates nine locations in suburban communities in northwest
Georgia. The Company's primary business is providing loan and deposit
services to customers who are predominately small and middle-market
businesses and individuals.
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 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.
INVESTMENT SECURITIES
Investment securities are classified as available for sale and
are carried at estimated fair value with unrealized gains and
losses, net of any tax effect added to or deducted from total
stockholders' equity.
Premiums and discounts related to securities are amortized or accreted
over the life of the related security as an adjustment to the yield using
the effective interest method and prepayment assumptions. Dividend and
interest income is recognized when earned.
Gains or losses on disposition of securities are determined using the
specific identification method and are recognized on the settlement date.
The financial statement impact of settlement date accounting versus trade
date accounting is immaterial.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold.
F-8<PAGE>
LONG-LIVED ASSETS
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation. For financial reporting purposes, depreciation is
computed using the straight-line method. The Company uses the
following depreciable lives:
Premises and improvements 20 to 40 years
Automobiles, computer equipment, and 3 to 6 years
office machines
Furniture and fixtures 10 years
Certain leases are capitalized as assets for financial reporting
purposes. Assets under capital lease are depreciated over the life
of the related lease using the straight-line method.
Renewals and betterments are capitalized and depreciated over their
estimated useful lives. Repairs, maintenance, and minor
improvements are charged to net occupancy expense as incurred. When
property is replaced or otherwise disposed of, the cost of such
assets and related accumulated depreciation are removed from the
respective accounts. Gains or losses on disposition, if any, are
recorded in the accompanying consolidated statements of income.
EXCESS OF COST OVER FAIR VALUE OF SUBSIDIARIES ACQUIRED
("GOODWILL")
Goodwill is being amortized over various periods from 15 to 40
years. The charge to other noninterest expense for the amortization
of the goodwill for the years ended December 31, 1996, 1995, and 1994
was $615,000, $625,000, and $627,000, respectively. At December 31,
1996 and 1995, accumulated amortization of the goodwill was
$5,541,000 and $4,926,000,respectively.
Long-lived assets, including any related goodwill, are evaluated
regularly for other than temporary impairment. If circumstances
suggest that the asset values may be impaired, an assessment of the
assets' estimated fair value is performed and an impairment
loss is recognized in income from operations at the amount in
which the assets' fair value exceeds the assets' carrying value. The
Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996;
this adoption did not have a significant impact on the financial
condition or results of operations of the Company.
LOANS AND RESERVE FOR LOAN LOSSES
Loans are recorded net of unearned discount, deferred loan fees, and
reserve for loan losses. Interest income and unearned discount are
recognized over the term of the loan on a level-yield basis.
Fees associated with the loan origination directly correspond to the
costs of originating said loans and are consequently recognized
in income as origination costs are incurred. Interest income on
all classifications of loans is accrued based on the outstanding
principal amounts, except for those classified as nonaccrual
loans. The accrual of interest is discontinued when a loan
becomes contractually delinquent for 90 days or when other factors
indicate that collectibility is doubtful. Cash receipts
on nonaccrual loans are applied to reduce principal balances or
F-9<PAGE>
are recorded as interest income, depending on management's assessment of
the ultimate collectibility of the loan.
The reserve for loan losses is established through a provision for loan
losses charged to expense. The reserve represents an amount which, in
management's judgment, will be adequate to absorb losses on existing
loans that may become uncollectible. Management's judgment in
determining the adequacy of the reserve is based on evaluations of the
collectibility of loans. These evaluations take into consideration such
factors as the balance of impaired loans (which are defined as all
nonaccrual loans, except residential mortgages and groups of small
homogenous loans), changes in the nature and volume of the loan portfolio,
current economic conditions that may affect the borrower's ability to
pay, and review of specific problem loans. Periodic revisions are made
to the reserve when circumstances which necessitate such revisions become
known.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into sales of securities under agreements to
repurchase. The securities collateralizing these agreements are
controlled by the counterparty for the term of the agreement. During
fiscal years 1996 and 1995, the maximum balance outstanding at anytime
was $5,189,000 and $35,412,000, respectively, and the average balance
outstanding was $1,816,000 and $12,549,000, respectively.
FEDERAL FUNDS PURCHASED
The Company periodically purchases federal funds from the Federal
Reserve Bank to meet its daily reserve requirement. During
fiscal years 1996 and 1995, the maximum balance outstanding at anytime
was $7,200,000 and $7,000,000, respectively, and the average balance
outstanding was $224,000 and $1,520,000, respectively.
INCOME TAXES
Deferred tax assets and liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using enacted tax rates. Deferred income tax expense or
benefit is based on the changes in the underlying difference between the
book and tax bases of assets and liabilities from year to year.
NET INCOME PER SHARE
Net income per share is calculated using the weighted average number of
common shares outstanding, including common stock equivalents, which were
4,032,886, 4,071,384, and 4,108,931 for the years ended December 31,
1996, 1995, and 1994, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 and 1994 financial
statements to conform with the 1996 presentation.
F-10<PAGE>
2. INVESTMENT SECURITIES
The amortized cost, estimated fair value, and gross unrealized gains and
losses in the Company's investment securities at December 31, 1996 and
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies $ 75,682 $ 58 $(578) $ 75,162
Obligations of states and
political subdivisions 25,347 1,179 (27) 26,499
Mortgage-backed securities 16,956 32 (172) 16,816
Other debt and equity
securities 1,689 0 0 1,689
--------- -------- ----- ---------
$ 119,674 $ 1,269 $(777) $ 120,166
========= ======== ===== =========
1995
----------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------
U.S. Treasury and other U.S.
government agencies $ 88,397 $ 229 $(488) $ 88,138
Obligations of states and
political subdivisions 30,393 1,195 (185) 31,403
Mortgage-backed securities 14,125 1 (95) 14,031
Other debt and equity
securities 1,634 0 0 1,634
--------- -------- ----- ---------
$ 134,549 $ 1,425 $(768) $ 135,206
========= ======== ===== =========
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1996 by date of contractual maturity are shown below (in
thousands). Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
F-11<PAGE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less $ 14,321 $ 14,327
Due one year to five years 61,342 60,863
Due five years to ten years 21,275 22,025
Due after ten years 4,091 4,446
-------- --------
101,029 101,661
Mortgage-backed securities 16,956 16,816
Other debt and equity securities 1,689 1,689
-------- --------
$ 119,674 $ 120,166
======== =========
</TABLE>
Mortgage-backed securities mature monthly through the year 2005.
Proceeds from sales of investments in debt securities during 1996, 1995,
and 1994 were $34,448,000, $13,610,000, and $12,072,000, respectively.
Gross gains of approximately $106,000, $23,000, and $324,000 and gross
losses of approximately $98,000, $13,000, and $0 were realized on such
sales in 1996, 1995, and 1994, respectively.
Securities with a carrying value of$66,796,000 and $79,794,000 were
pledged to secure various deposits and securities sold under agreements
to repurchase at december 31, 1996 and 1995, respectively.
3. LOANS AND RESERVE FOR LOAN LOSSES
At December 31, 1996 and 1995, the Company's loan portfolio consists
of the following (in thousands):
1996 1995
-------- --------
Real estate loans $161,489 $137,244
Commercial loans 53,836 53,989
Consumer loans 39,102 40,595
Other loans 24,214 14,362
-------- --------
Total loans 278,641 246,190
Less:
Unearned discount (393) (387)
Reserve for loan losses (6,778) (6,614)
-------- --------
$271,470 $239,189
======== =========
Total nonaccrual and restructured loans at December 31, 1996 and 1995
were $498,000 and $559,000, respectively. The gross amount of interest
income that would have been recorded in 1996, 1995, and 1994 on
nonaccrual and restructured loans at December 31, 1996, 1995, and 1994,
if all such loans had been accruing interest at the contractual rate, was
$123,000, $81,000, and $63,000, respectively, while interest income
actually recognized was $153,000, $115,000, and $30,000, respectively.
F-12<PAGE>
At December 31, 1996 and 1995, the recorded investment in impaired loans
was $449,000 and $507,000, respectively, and the related valuation
allowance was $107,000 and $39,000, respectively. This valuation
allowance is included in the reserve for loan losses in the accompanying
consolidated balance sheets. The average balance of impaired loans
during 1996 and 1995 was $1,153,000 and $589,000, respectively.
A summary of transactions in the reserve for loan losses for the years
ended December 31, 1996, 1995, and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year $6,614 $6,566 $6,668
Provision for loan losses 396 0 (600)
Recoveries of loans previously charged off 667 1,254 1,019
Charge-offs (899) (1,206) (521)
------ ------ ------
Balance, end of year $6,778 $6,614 $6,566
====== ====== ======
</TABLE>
4. PREMISES AND EQUIPMENT
A summary of the carrying value of premises and equipment at December 31,
1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land and land improvements $ 5,526 $ 5,548
Premises and improvements 12,773 12,966
Furniture, fixtures, and equipment 5,957 5,619
Leasehold improvements 16 16
Equipment under capital lease 980 980
Construction in progress 36 101
------- -------
25,288 25,230
Accumulated depreciation (9,560) (8,003)
------- -------
$15,728 $17,227
======= =======
</TABLE>
During 1995, the Company began leasing certain computer equipment under
five-year noncancelable leases expiring in 2000. The assets acquired
under the lease agreements have been capitalized in the accompanying
consolidated balance sheets and at December 31, 1996 and 1995 had a net
book value of $614,000 and $817,000, respectively. Using an interest
rate of approximately 7%, the related capital lease obligation is
reflected in the accompanying consolidated balance sheets based on the
present value of the future minimum lease payments. Amortization expense
of these assets under capital lease was $203,000 and $163,000 during 1996
and 1995, respectively, and is included in net occupancy expense in the
accompanying consolidated statements of income.
F-13<PAGE>
Future minimum lease payments for assets under capital lease and
the present value of minimum lease payments at December 31, 1996
are as follows (in thousands):
1997 $239
1998 239
1999 239
2000 51
-----
Total minimum lease payments 768
Less amount representing interest (100)
------
Present value of minimum lease payments $668
=====
5. TIME DEPOSITS
At December 31, 1996 and 1995, time deposits equal to or greater than
$100,000 were approximately $52,159,000 and $54,973,000, respectively.
During 1996 and 1995, the weighted average interest rate of total time
deposits was 4.7% and 5.6%, respectively. As of December 31, 1996,
expected maturities of total time deposits by contractual maturity date
are as follows (in thousands):
CARRYING
VALUE
--------
1997 $137,096
1998 23,699
1999 7,694
2000 5,480
2001 3,952
Thereafter 17
-------
$177,938
========
6. NOTE PAYABLE AND FEDERAL HOME LOAN BANK ("FHLB") ADVANCES
FNB maintains an agreement with the FHLB of Atlanta. Under this
agreement, the FNB can borrow up to $7,250,000. At December 31, 1996 and
1995, the total amounts outstanding under this agreement were $306,000
and $381,000, respectively. The weighted average interest rate on FHLB
advances was 8.08% at both December 31, 1996 and 1995. Maximum
borrowings during the years ended December 31, 1996 and 1995 were
$381,250 and $450,000, respectively. The advances are due on January 25,
2001 and are collateralized by a blanket pledge of FNB's loans secured by
1-4 unit residential property, which at December 31, 1996 totaled
approximately $45,357,000.
During 1996, the Company repaid all amounts due under a $1,500,000
unsecured line of credit. As of December 31, 1995, the Company's
obligation under this credit line was $250,000, and the weighted average
interest rate charged on the line for the years ended December 31, 1996
and 1995 was 6.69% and 6.94%, respectively.
F-14<PAGE>
7. Income taxes
The components of the provision for income taxes in 1996, 1995, and
1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current provision $ 1,746 $ 640 $ 1,052
Deferred (benefit) provision (66) 364 300
------- ------- -------
Provision for income taxes $ 1,680 $ 1,004 $ 1,352
======= ======= =======
</TABLE>
The components of the net deferred tax asset at December 31, 1996
and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets related to:
Allowance for loan losses $1,671 $1,595
Other 140 94
------ ------
Total deferred tax assets 1,811 1,689
------ ------
Deferred tax liabilities related to:
Excess of book over tax basis of premises and
equipment (1,219) (1,199)
Unrealized gain on securities available for sale (168) (236)
Other (87) (51)
------ ------
Total deferred tax liabilities (1,474) (1,486)
------ ------
Net deferred tax asset $ 337 $ 203
====== ======
</TABLE>
No valuation allowances for deferred tax assets have been recorded as of
December 31, 1996 and 1995 based on management's assessment that it is
more likely than not that these assets will be realized. This assessment
is based primarily on the level of historical taxable income and
projection for future taxable income over the period in which the
deferred tax assets are deductible.
The provision for income taxes shown in the accompanying consolidated
statements of income is less than the amount computed by multiplying
income before provision for income taxes by the 34% statutory federal
income tax rate. A reconciliation of this difference is as follows (in
thousands):
F-15<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rate $1,785 $1,437 $1,735
Increase (decrease) resulting from tax effects of:
Tax-exempt interest, net of disallowance (568) (611) (628)
Amortization of goodwill 213 213 213
Other, net 250 (35) 32
------ ------ ------
Provision for income taxes $1,680 $1,004 $1,352
====== ====== ======
</TABLE>
8. STOCK PLANS
INCENTIVE STOCK OPTION PLANS
The Company has in place two incentive stock option plans ("1988 Plan"
and "1993 Plan") for officers under which an aggregate of 200,000 shares
of common stock are authorized for grant. Options granted are at no less
than the fair market value of a share of stock on the grant date. The
1988 Plan allows for the exercise of granted options beginning five years
after the grant date. Options not exercised expire ten years after the
grant date. The 1993 Plan allows for the exercise of granted options
ratably over the five-year vesting period. Options not exercised expire
five years after the grant date.
The Company adopted the disclosure provisions in SFAS No. 123,
"Accounting for Stock-Based Compensation," on January 1, 1996. As
permitted by the provisions of SFAS No. 123, the Company applies APB
Opinion No. 25 and related interpretations in accounting for its stock
option plans and, accordingly, does not recognize compensation cost.
A summary of the changes in common stock options during the three-year
period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Outstanding Options
-------------------
Weighted Exercise
average Exercisable price per
Number price options share
------- -------- ----------- ----------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 173,750 $12.12 0 $12.00, $13.50
Granted 18,750 16.25 0 16.25
Options which became exercisable - - 161,250 12.00-16.25
Canceled (16,250) 12.92 (16,250) 12.00,13.50
-------- --------
Outstanding at December 31, 1994 176,250 12.48 145,000 12.00-16.25
Options which became exercisable - - 3,750 16.25
Exercised (6,250) 12.00 (6,250) 12.00
-------- --------
Outstanding at December 31, 1995 170,000 12.50 142,500 12.00-16.25
Options which became exercisable - - 3,750 16.25
-------- --------
Outstanding at December 31, 1996 170,000 $12.50 146,250 $12.00-$16.25
======== =========
</TABLE>
F-16<PAGE>
The weighted average exercise price of exercisable options at December 31,
1996, 1995, and 1994 is $12.33, $12.22, and $12.15, respectively.
The weighted average remaining contractual life of options outstanding at
December 31, 1996 is approximately 2.7 years.
RESTRICTED STOCK PLAN
In December 1994, the board of directors approved the Hardwick Holding
Company Restricted Stock Award Agreement (the "Agreement"). The
Agreement provides for the award of up to an aggregate of 120,000 shares
of the Company's common stock to certain key employees. The number of
shares awarded annually is dependent upon the Company's profitability.
Participants under the Agreement are entitled to cash dividends and to
vote their respective shares. Restrictions generally limit the sale or
transfer of the shares and expire ten years from the award date.
During 1995, 15,000 shares of restricted stock were awarded to key
employees. The Company recorded deferred compensation of approximately
$244,000 based on the estimated market price at the award date. Deferred
compensation is being amortized over the vesting period of ten years.
The Company recognized in fiscal years 1996 and 1995 approximately
$24,000 and $21,000, respectively, in compensation expense related to the
restricted stock awards.
9. EMPLOYEE BENEFIT PLANS
The Company has established a contributory defined contribution plan (the
"Plan") which covers substantially all salaried employees. Employees
have the option to contribute up to 6% of their annual salaries to the
Plan. The Company matches 50% of employee contributions. The Company
makes a discretionary contribution based on 4% of a qualifying employee's
base salary, as defined under the Plan.
The Company's discretionary and matching contributions to the Plan were
$324,000, $351,000, and $340,000 in 1996, 1995, and 1994, respectively.
The assets of the plan have a market value of $7,095,000 and are
maintained by the trust department of HBT.
10. LIMITATION ON SUBSIDIARY DIVIDENDS
Substantially all of HHC's retained earnings are undistributed earnings
of its banking subsidiaries, which are restricted as to payment to HHC by
various regulations administered by bank regulatory authorities. For
state banks, such as HBT, the limitation on dividends payable is equal to
50% of the preceding year's net income. For national banks, such as FNB,
the limitation on dividends payable is equal to net income in the current
year combined with its retained net income of the preceding two years.
In 1996, 1995, and 1994, HBT paid dividends to HHC of $4,400,000,
$1,500,000, and $1,500,000, respectively. In 1996, 1995, and 1994, FNB
paid dividends to HHC of $1,000,000, $750,000, and $0, respectively.
During fiscal year 1996, HBT obtained regulatory approval to pay
dividends to HHC in excess of the predetermined formula previously
defined. At December 31, 1996, HBT could have paid additional dividends
to HHC of $54,000 based on the revised level of dividends approved by the
F-17<PAGE>
regulators.
Retained earnings of HBT and FNB available for payment of
cash dividends to HHC under the applicable regulations totaled
approximately $3,100,000 at December 31, 1996.
Dividends received by HHC from HBT and FNB are available for use
to service debt obligations, pay other expenses, and distribute as
dividends to stockholders of HHC.
11. REGULATORY REQUIREMENTS
The Federal Reserve Board requires member banks to maintain reserves
based on their average deposits in the form of vault cash and average
deposit balances at the Federal Reserve Banks. For the year ended
December 31, 1996, the Company's aggregate reserve requirement averaged
approximately $7,420,000.
The Company is subject to various regulatory capital requirements which
involve quantitative measures of the Company's assets, liabilities, and
certain off-balance sheet items. The Company's capital amounts and
classification are subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Quantitative
measures established by regulation to ensure capital adequacy require
that the Company maintain amounts and ratios of Tier 1 and total capital
to risk-weighted assets and of Tier 1 capital to quarterly average total
assets. Management believes that as of December 31, 1996, the Company
meets all capital adequacy requirements to which it is subject. A
summary of Tier 1 and total capital (actual, required, and to be well
capitalized) and the Tier 1 leverage ratio of the Company and its
significant subsidiaries as of December 31, 1996 and 1995 is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Required for
Capital
Adequacy Required to Be
Actual Purposes Well Capitalized
------------------- ------------------ ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Tier 1 capital:
HHC $41,307 12.34% $13,385 4.00% $20,077 6.00%
HBT 24,454 12.13 8,063 4.00 12,095 6.00
FNB 14,760 11.68 5,055 4.00 7,583 6.00
Total capital:
HHC 45,522 13.60 26,770 8.00 33,463 10.00
HBT 26,996 13.39 16,126 8.00 20,158 10.00
FNB 16,351 12.94 10,110 8.00 12,638 10.00
Tier 1 leverage:
HHC 41,307 9.55 12,979 3.00 21,631 5.00
HBT 24,454 9.30 7,890 3.00 13,150 5.00
FNB 14,760 8.45 5,243 3.00 8,739 5.00
</TABLE>
F-18<PAGE>
<TABLE>
<CAPTION>
Required for
Capital
Adequacy Required to Be
Actual Purposes Well Capitalized
------------------- ------------------ ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995:
Tier 1 capital:
HHC $40,448 13.53% $ 11,959 4.00% $17,938 6.00%
HBT 25,646 14.91 6,881 4.00 10,322 6.00
FNB 14,028 11.12 5,047 4.00 7,571 6.00
Total capital:
HHC 44,221 14.79 23,917 8.00 29,897 10.00
HBT 27,760 16.14 13,763 8.00 17,204 10.00
FNB 15,615 12.38 10,094 8.00 12,618 10.00
Tier 1 leverage:
HHC 40,448 9.44 17,372 4.00 21,715 5.00
HBT 25,646 10.05 10,203 4.00 12,753 5.00
FNB 14,028 8.10 5,205 3.00 8,675 5.00
</TABLE>
12. RELATED-PARTY TRANSACTIONS
In the normal course of business, HHC's subsidiary banks have granted
loans to the Company's executive officers and directors. Loans to
executive officers and directors and their related interests are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time of origination for comparable transactions
with unrelated persons and do no involve more than normal risk of
collectibility. Outstanding loans to executive officers and directors,
as well as entities in which the executive officers and directors have a
financial interest, were $8,495,000 and $5,394,000 at December 31, 1996
and 1995, respectively.
The following table summarizes the change in these loans for the year
ended December 31, 1996 (in thousands):
Balance at beginning of year $5,394
New loans 3,980
Repayments (879)
------
Balance at end of year $8,495
======
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
CONCENTRATIONS OF CREDIT
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 the Company's 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 accompanying consolidated balance sheets. The
F-19<PAGE>
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.
The Company grants various types of loans and financial instruments to
customers within its respective market areas (primarily northwest
Georgia). Although the Company has a diversified loan portfolio, a
significant portion of the Company's loans originates from customers that
are directly or indirectly related to the carpet industry. Notably,
approximately 40% of the workforce 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 December 31, 1996 and 1995 were
$73,870,000 and $52,888,000, respectively. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary, 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 the
Company 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, residential real
estate, and income-producing commercial properties for those commitments
for which collateral is deemed necessary. The Company had $1,059,000 and
$1,192,000 in standby letters of credit outstanding at December 31, 1996
and 1995, respectively.
14. 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.
F-20<PAGE>
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 33,797 $ 33,797 $ 42,271 $ 42,271
Investment securities 120,166 120,166 135,206 135,206
Loans 271,470 270,761 239,189 239,572
Accrued interest receivable 3,865 3,865 3,674 3,674
Financial liabilities:
Deposits 93,940 393,705 389,951 389,452
Securities sold under agreements to
repurchase 3,327 3,327 3,536 3,536
Federal funds purchased 2,600 2,600 0 0
Capital lease obligation 668 668 844 844
FHLB advances 306 305 381 378
Note payable 0 0 250 250
Accrued interest payable 2,381 2,381 2,078 2,078
</TABLE>
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
- -- Cash and cash equivalents are valued at their carrying amounts
reported in the consolidated balance sheets, which are reasonable
estimates of fair value due to the relatively short period to
maturity of these instruments.
- -- Investment securities are valued at quoted market prices where
available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
- -- Loans are valued on the basis of estimated cash flows, discounted
using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities. The carrying amount of accrued interest receivable
approximates its fair value.
- -- Deposits with no defined maturity, such as demand deposits, savings
accounts, NOW, and money market accounts, have a fair value equal
to the amount payable on demand which is equal to their respective
carrying amounts. Fair values of certificates of deposit are
estimated using a discounted cash flow calculation using the rates
currently offered for deposits of similar remaining maturities. The
intangible value of long-term relationships with depositors is not
taken into account in estimating the fair value disclosed. The
carrying amount of accrued interest payable approximates its fair
value.
F-21<PAGE>
- -- Securities sold under agreements to repurchase and federal funds
purchased are valued at their carrying amounts reported in the
consolidated balance sheets, which are reasonable estimates of fair
value due to the relatively short period to maturity of these
instruments.
- -- Fair values of the capital lease obligation, FHLB advances, and note
payable are estimated using a discounted cash flow calculation using
the Company's current incremental borrowing rates for similar types
of instruments.
- -- Off-balance sheet instruments include commitments to extend credit
and standby letters of credit. The fair value of such instruments is
based on fees currently charged for similar arrangements in the
marketplace, adjusted for changes in terms and credit risk as
appropriate. The carrying values of these unamortized fees and hence
the fair values of the related commitments were not significant as of
December 31, 1996 and 1995.
16. HARDWICK HOLDING COMPANY (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
HARDWICK HOLDING COMPANY (PARENT COMPANY ONLY)
BALANCE SHEETS--DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1996 1995
---- ----
<S> <C> <C>
Cash on deposit in subsidiary bank $ 1,392 $ 121
Premises and equipment, net 321 101
Investment in subsidiaries:
Banking subsidiaries 45,421 46,644
Nonbanking subsidiary 0 140
Other assets 431 441
------ -------
Total assets $ 47,565 $ 47,447
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 588 $ 367
Note payable 0 250
-------- --------
Total liabilities 588 617
-------- --------
Stockholders' equity:
Common stock, $.50 Par value; 10,000,000
shares authorized, 4,125,141 shares
issued, 3,999,229 and 4,066,478 shares
outstanding at December 31, 1996 and
1995, respectively 2,063 2,063
Additional paid-in capital 20,233 20,233
Retained earnings 26,845 25,284
Unrealized gain on bank securities available
for sale, net of taxes 324 421
Treasury stock, at cost, 125,912 and
58,663 shares at December 31, 1996 and
1995, respectively (2,289) (948)
Deferred compensation (199) (223)
------- -------
Total stockholders' equity 46,977 46,830
------- -------
Total liabilities and stockholders' equity $47,565 $47,447
======= =======
</TABLE>
F-22<PAGE>
HARDWICK HOLDING COMPANY (PARENT COMPANY ONLY)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating income:
Interest on deposits in subsidiary bank $ 11 $ 12 $ 9
Dividends from banking subsidiaries 5,400 2,250 1,500
Consulting fees from subsidiaries 591 586 523
-------- -------- --------
Total operating income 6,002 2,848 2,032
-------- -------- --------
Operating expense:
Interest on note payable 27 48 11
Net occupancy expense 87 84 97
Other operating expense 1,238 1,496 1,207
-------- -------- --------
Total operating expense 1,352 1,628 1,315
-------- -------- --------
Income before income tax benefit and
equity in undistributed earnings of subsidiaries 4,650 1,220 717
Income tax benefit 91 301 233
-------- -------- --------
Income before equity in undistributed
earnings of subsidiaries 4,741 1,521 950
(Distributions in excess of earnings) equity
in undistributed earnings of subsidiaries (1,171) 1,702 2,801
-------- -------- --------
Net income $3,570 $3,223 $3,751
======== ======== ========
</TABLE>
F-23<PAGE>
HARDWICK HOLDING COMPANY (PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $3,570 $3,223 $3,751
Adjustments to reconcile net income to net cash
provided by operating activities:
Distributions in excess of earnings (equity in
undistributed earnings) of subsidiaries 1,171 (1,702) (2,801)
Provision for depreciation and amortization 183 155 126
(Gain) loss on disposal of premises and
equipment (85) 9 0
Decrease (increase) in other assets 10 (138) (43)
(Decrease) increase in accounts payable and
accrued liabilities (20) 159 (7)
------ ------ ------
Net cash provided by operating activities 4,829 1,706 1,026
------ ------ ------
Cash flows from investing activity:
Purchases of premises and equipment (199) (32) (43)
------ ------ ------
Cash flows from financing activities:
Proceeds from note payable 0 0 750
Payments on note payable (250) (500) 0
Cash dividends on common stock (1,768) (898) (823)
Purchase of treasury stock (1,341) (251) (1,034)
Proceeds from sale of treasury stock 0 75 0
------ ------ ------
Net cash used in financing activities (3,359) (1,574) (1,107)
------ ------ ------
Net increase (decrease) in cash 1,271 100 (124)
Cash, beginning of year 121 21 145
------ ------ ------
Cash, end of year $1,392 $ 121 $ 21
====== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 27 $ 48 $ 11
====== ======= =======
Income taxes received from subsidiaries $1,020 $ 1,080 $ 1,407
Income taxes paid by parent company 1,020 1,080 1,255
------ ------- -------
Net income taxes received by parent company $ 0 $ 0 $ 152
====== ======= =======
Dividends declared but not paid $ 241 $ 0 $ 0
======= ======= =======
</TABLE>
F-24<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the Registrant's two most recent fiscal years, the
Registrant did not change accountants and had no disagreement
with its accountants on any matters of accounting principle or
practices or financial statement disclosure.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Registrant,
their respective ages, directorships in any publicly owned
companies, positions held by each with the Registrant, their
principal occupations and the number of shares of the
Registrant's common stock owned beneficially by each director and
executive officer as of March 15,1997 are as follows. Except as
otherwise indicated, each director and executive officer has been
or was engaged in his present or last principal employment in
the same or a similar position for more than five years. Unless
otherwise stated, percentages of shares beneficially owned are
based on 4,032,147 shares outstanding on March 15, 1997.
<TABLE>
<CAPTION>
Number of Shares Owned
Name (Age) and Business Background (Percent of Class)
- ---------------------------------- ----------------------
<S> <C>
Kenneth E. Boring (72) 1,660,000 (41.2%) <F1>
Chairman and Chief Executive Officer of Hardwick since March 1981;
Hardwick Bank since May 1984 and, since 1986, Chairman of
Northwest Bank; Partner in Boring and Boring, which is engaged in
real estate investment; Partner in Boring, Boring, and Minor, which
is engaged in real estate investment; Vice President and co-owner
of Dalton Aircraft, Inc., an aircraft rental and service firm.
James M. Boring, Jr. (75) 1,295,032 (32.1%) <F2>
President and Director of Hardwick since March 1981; Director of
Hardwick Bank since February 1977; Director of Northwest Bank since
Boring, which is engaged in real estate investment; Partner in Boring,
Boring and Minor, which is engaged in real estate investment;
President and co-owner of Dalton Aircraft, Inc., an aircraft rental
and service firm.
Thomas H. Bond (67) 1,000 *
Director of Hardwick since April 1988; Director of Northwest Bank
since January 1988; retired banker.
Wayne R. Broaddus (64) 5,307* <F3>
Director of Hardwick since December 1994; President & CEO of
Associated Aggregates International, Inc.
Robert M. Chandler (48) 35,434 * <F4>
Director of Hardwick from February 1985 through March 1988;
Director of Hardwick Bank since December 1985; Vice
President, Queen Carpet Corp. (Patcraft Division), a
manufacturer of carpet.
Richard R. Cheatham (53) 1,595,300 (39.6%) <F5>
Director of Hardwick since February 1995; Vice Chairman of
Hardwick since April 1995; Partner, Kilpatrick Stockton LLP,
Attorneys at Law.
David J. Lance (42) 41,225 (1.0%) <F6>
Director of Hardwick since April 1988; President,
Director of Northwest Bank since October 1980; Chief
Executive Officer of Northwest Bank since May 1984.
Norman D. McCoy (56) 5,860 *
Director of Hardwick since March 1981;
President and Chief Executive Officer of Dalton Supply Co.,
Inc., a wholesale distributor of industrial supplies.
30<PAGE>
Marshall R. Mauldin (51) 47,030 (1.2%) <F7>
Director of Hardwick since March 1981; President, Chief
Executive Officer and Director of Hardwick Bank since
January 1990; Director and Executive Vice President of
Executive Vice President and Director of Northwest Bank from July
1986 through December 1989.
Michael Robinson (48) 38,350 *<F8>
Executive Vice President of Hardwick since 1990;
Secretary, Treasurer and Director of Hardwick since
Bank since 1986 and Director of Hardwick Bank since 1988;
Vice President of Hardwick Bank from 1981 through 1989.
Stanley A. Crawford (52) 0
Executive Vice President of Hardwick Bank since
September 1992; Previously City President of NationsBank
Dalton, Ga.
Leon M. Ham, III (68) 15,000 *
Director of Hardwick since April 1996; Director of Hardwick
Bank since February 1981; and President and CEO of Carteret
Corporation, a textile sales company dealing in yarns and fibers.
All Executive Officers and Directors as a Group 3,144,738 (78.0%)
(12 Persons)
______________________________
* Represents less than one percent of class.
<FN>
<F1> Includes 670,000 shares owned directly; 15,000 shares owned
through an Individual Retirement Account ("IRA"), 881,700 shares
owned by a family trust of which Mr. Boring serves as Trustee and
has sole voting power, 28,100 shares owned by Mr. Boring as
custodian for his daughters and 65,200 shares owned by his wife.
<F2> Includes 1,239,275 shares owned directly, 3,257 shares owned
through an IRA and 52,500 shares owned by his wife.
<F3> Includes 5,307 shares owned through an IRA.
<F4> Includes 21,341 shares owned directly, 800 shares owned
through an IRA, 3,841 shares owned by his wife, 660 shares owned
by his wife through an IRA, and 8,792 shares owned as custodian
for his son and daughter.
<F5> Includes 1,594,800 shares included in the beneficial
ownership of Kenneth E. Boring, which may be voted by proxy
pursuant to a revocable proxy from Kenneth E. Boring, 250 shares
owned through an IRA and 250 shares owned by his wife through an
IRA.
<F6> Includes 250 shares owned directly, 1,900 shares owned
through an IRA, and 825 shares owned by his wife, 21,250 shares
vested under incentive stock options and 17,000 shares under a
restrictive stock award agreement.
<F7> Includes 8,360 shares owned directly and 420 shares owned
through an IRA, 21,250 shares vested under incentive stock
options and 17,000 shares under a restrictive stock award
agreement.
<F8> Includes 100 shares owned directly, 21,250 shares vested
under incentive stock options and 17,000 shares under a
restrictive stock award agreement.
</FN>
</TABLE>
___________________________
Directors are elected at each annual meeting of shareholders and
hold office until the next annual meeting and until their
successors are elected and qualified. The executive officers are
elected by the Board of Directors and serve at the will of the
Board. There are no family relationships among executive
officers and directors except for James M. Boring, Jr. and
Kenneth E. Boring, who are brothers.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Compensation
There is shown below information concerning the annual and
long term compensation for services in all capacities to the
Company for the fiscal years ended December 31, 1996, 1995,
and 1994 of those persons who were at December 31,1996 (1) the
Chief Executive Officer and (2) the four other most highly
compensated officers of Hardwick and its subsidiaries whose total
salary and bonuses during 1996 exceeded $100,000 (the "Named
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Position ---------------------------------------------------- All Other
- --------------------------- Year Salary Bonus Other Compensation
---- ------ ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Kenneth E. Boring 1996 $ 120,000 $ 20,400 $ 29,424 $10,094
Chairman of the Board and Chief 1995 120,000 24,000 22,349 8,414
Executive Officer, Hardwick 1994 114,000 13,883 14,127 8,592
James M. Boring, Jr. 1996 $ 90,000 $ 13,500 $ 24,688 $7,714
President, Hardwick 1995 100,000 20,000 15,409 7,014
1994 80,000 9,600 17,174 6,272
Marshall R. Mauldin 1996 $ 120,000 $ 20,400 $ 18,146 $10,094
President and CEO, Hardwick Bank 1995 120,000 24,000 15,947 8,414
1994 114,000 13,883 13,937 8,952
David J. Lance 1996 $ 120,000 $ 20,400 $ 22,852 $10,088
President and CEO, Northwest 1995 120,000 24,000 17,327 8,414
Bank 1994 114,000 13,883 15,711 8,952
Michael Robinson 1996 $ 120,000 $ 20,400 $ 23,249 $10,256
Executive Vice President and 1995 120,000 24,000 18,188 8,414
CFO, Hardwick 1994 114,000 13,883 14,306 8,952
Stanley A. Crawford 1996 $ 93,000 $ 17,670 $ 20,267 $7,695
Executive Vice President 1995 93,000 16,740 16,899 6,524
Hardwick Bank 1994 90,000 12,600 8,202 7,064
</TABLE>
32
<PAGE>
Options, Exercises and Fiscal Year-End Values
Shown below is information with respect to unexercised
options to purchase the Registrant's common stock granted to the
Named Officers under the Company's Incentive Stock Option Plan
and held by them at December 31, 1996. There were 6,250 grants
issued in December 1994, to David J. Lance, Marshall R.
Mauldin and Michael Robinson which vest 20% each year over a
five-year period, including 1994, and are exercisable five years
after they vest. None of the Named Officers exercised any stock
options during 1996.
<TABLE>
<CAPTION>
No. Of Shares Underlying Value of Unexercised
Unexercised Options Held at In the Money Options at
December 31, 1996 December 31, 1996
----------------- -----------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth E. Boring None None None None
James M. Boring, Jr. None None None None
Stanley A. Crawford None 12,500 None $100,000
Marshall R. Mauldin 22,500 2,500 $164,063 $ 9,375
David J. Lance 22,500 2,500 $164,063 $ 9,375
Michael Robinson 22,500 2,500 $164,063 $ 9,375
</TABLE>
Of the Named Officers, Marshall R. Mauldin, David J. Lance
and Michael Robinson each have 18,750 grants under the 1988 plan
at a grant price of $12.00 and received the 6,250 grants in
December 1994 under the 1993 plan at a grant price of $16.25.
Stanley A. Crawford has 12,500 grants under the 1988 plan at a
grant price of $12.00 which are exercisable on September 27,
1997.
During 1994, the Company approved a restricted stock award
agreement covering Marshall R. Mauldin, David J. Lance and
Michael Robinson. The provisions include awards of up to 40,000
shares each in stock of the Registrant over a ten-year period
based upon financial performance of the Registrant. The awards
began in 1996, and as of March 15, 1997, the award of 17,000
shares each has been made to each of the named officers. The
Named Officers will have voting rights and receive the payment of
shareholder dividends on each share; however, each certificate
awarded is restricted from transfer for a period of ten years.
The plan provides that in the event there is a change in control
of ownership of the Registrant, the Named Officers covered under
the restricted stock award agreement would be entitled to an
amount equal to 2.99 times the compensation paid for the
preceding calendar year, less the market value of the shares
covered by awards then in existence, at which time the
restrictive legend would be terminated.
The vested shares in the plans as discussed above and the
awards granted as of March 15, 1997 have been included in the
ownership section above for the purposes of stock percentage
ownership by directors and executive officers.
Director Compensation
During 1996, each nonemployee director of Hardwick was paid
$400 for regular and committee meetings attended for their
services as directors.
33<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table provides the number of shares and
percentage of outstanding shares of the Registrant's common stock
which were owned at March 15, 1997 by each person known to the
Registrant to own beneficially more than 5% of the Registrant's
common stock. Percentages of shares beneficially owned are based
on 4,035,229 shares outstanding at March 15, 1997. For
information concerning beneficial ownership of the Registrant's
common stock by directors and management, see Item 10 above.
<TABLE>
<CAPTION>
Number of
Name and Address of Shares Percent of
Beneficial Owner Owned Class
---------------- ----- -----
<S> <C> <C>
Kenneth E. Boring 1,660,000 41.2% <F1>
314 N. Selvidge Street
Dalton, GA 30720
James M. Boring, Jr. 1,295,032 32.1% <F2>
314 N. Selvidge Street
Dalton, GA 30720
Boring Family Trust 881,700 21.9% <F3>
314 N. Selvidge Street
Dalton, GA 30720
Richard R. Cheatham 1,595,300 39.6% <F4>
1100 Peachtree Street, Suite 2800
Atlanta, GA 30309
______________________________________
<FN>
<F1> Includes 670,000 shares owned directly, 15,000 shares owned
through an IRA, 881,700 shares owned by a family trust which
Mr. Boring serves as trustee and has sole voting power, and
28,100 shares owned by Mr. Boring as custodian for his daughters
and 65,200 shares owned by his wife.
<F2> Includes 1,239,275 shares owned directly, 3,257 shares owned
through an IRA, and 52,500 shares owned by Mr. Boring's wife.
<F3> Included in the beneficial ownership of Kenneth E. Boring.
See footnote (1) above.
<F4> Includes 1,594,800 shares included in the beneficial
ownership of Kenneth E. Boring, which may be voted by proxy
pursuant to a revocable proxy from Kenneth E. Boring, 250 shares
owned through an IRA and 250 shares owned by his wife through an
IRA. See footnote (1) above.
</FN>
</TABLE>
34<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Banks have had, and expect to have in the future,
banking transactions in the ordinary course of business with
directors and officers of the Registrant and their associates,
including corporations in which such officers or directors are
shareholders, directors and/or officers, on the same terms
(including interest rates and collateral) as those prevailing at
the time for comparable transactions with other persons. Such
transactions have not involved more than the normal risk of
collectibility or presented unfavorable features. Loans to
executive officers and directors and related parties represented
18.1% of total shareholders' equity of Hardwick at December 31,
1996. See Note 12 under notes to consolidated financial
statements of the Company.
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
The following financial statements and notes thereto of the
Registrant are incorporated by reference into Item 8 of this
report;
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
-----------------------------
No financial statement schedules are required to be filed as
part of this Report on Form 10-K;
3. Exhibits.
--------
The following exhibits are required to be filed with the
Report by Item 601 of Regulation S-K:
3.1 Articles of Incorporation of the Registrant, as Amended
(included as Exhibit 3.1 to Registrant's Registration Statement
on Form S-4, Commission File No. 33-43386, previously filed with
the Commission and incorporated herein by reference).
3.2 Amended and restated bylaws of the Registrant (included
as Exhibit 3.2 to Registrant's Registration Statement on Form S-
4, Commission File No. 33-43386, previously filed with the
Commission and incorporated herein by reference).
4.1 See exhibits 3.1 and 3.2 for provisions of Articles of
Incorporation and Bylaws, as amended, which define the rights of
the holders of common stock of the Registrant.
10.1 Incentive Stock Option Plan of the Registrant as
adopted March 16, 1988 (included as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-4, Commission File
No. 33-43386, previously filed with the Commission and
incorporated herein by reference).
10.2 Incentive Stock Option Plan of the Registrant as
adopted July 14, 1993 (included as Exhibit 10.2 to the
Registrant's Form 10-K for December 31, 1994, previously filed
with the Commission and incorporated herein by reference).
10.3 Restricted Stock Award Agreement as adopted December 14,
1994 (included as Exhibit 10.3 to the Registrant's Form 10-K
for December 31, 1994, previously filed with the Commission and
incorporated herein by reference).
35
<PAGE>
21 List of subsidiaries of Registrant.
24.0 A Power of Attorney is set forth on the signature pages to
this Form 10-K.
(b) Reports on Form 8-K.
None
(c) The Registrant submits herewith as exhibits to this report
on Form 10-K the exhibits required by Item 601 of Regulation S-K,
subject to Rule 12b-32 under the Securities Exchange Act of 1934.
(d) All financial statement schedules are omitted because the
data is either not applicable or the required information is
provided in the consolidated financial statements or related
notes thereto.
27 Financial Data Schedule (FOR SEC USE ONLY).
36<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dalton,
State of Georgia, on the 27th day of March 1997.
HARDWICK HOLDING COMPANY
(Registrant)
By:/s/ Michael Robinson
Michael Robinson
Title: Executive Vice President
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY AND SIGNATURES
Know all men by these presents, that each person whose
signature appears below constitutes and appoints Kenneth E.
Boring or Michael Robinson, or either of them, as attorney-in-
fact, with each having the power of substitution, for him in any
and all capacities, to sign any amendments to this Report on Form
10-K and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes,
may do or cause to be done by virtue hereof.
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 in the capacities set forth
and on the 27th day of March 1997.
Signature Title
/s/ Kenneth E. Boring Chairman and Chief
Kenneth E. Boring Executive Officer;
Director (Principal
Executive Officer)
/s/ James M. Boring, Jr. President; Director
James M. Boring, Jr.
/s/ Thomas H. Bond Director
Thomas H. Bond
/s/ Wayne R. Broaddus
Wayne R. Broaddus Director
/s/ Robert M. Chandler Director
Robert M. Chandler
<PAGE>
/s/ Richard R. Cheatham Director
Richard R. Cheatham
/s/ Leon M. Ham III Director
Leon M. Ham III
/s/ David J. Lance Director
David J. Lance
/s/ Norman McCoy Director
Norman McCoy
/s/ Marshall R. Mauldin Director
Marshall R. Mauldin
/s/ Michael Robinson Executive Vice
Michael Robinson President, Secretary
and Treasurer
(Principal Financial
and Accounting
Officer); Director
<PAGE>
EXHIBIT INDEX
21 List of subsidiaries of Registrant
27 Financial Data Schedule
99 Proxy Information
EXHIBIT 21
Hardwick Bank & Trust Company
One Hardwick Square
Dalton, GA 30720
100% Owned
First National Bank of Northwest Georgia
215 North Wall Street
Calhoun, GA 30701
100% Owned
Pentz Street Corporation
One Hardwick Square
Dalton, GA 30720
100% Owned
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000787465
<NAME> HARDWICK HOLDING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,774
<INT-BEARING-DEPOSITS> 23
<FED-FUNDS-SOLD> 7,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 120,166
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 278,248
<ALLOWANCE> 6,778
<TOTAL-ASSETS> 452,061
<DEPOSITS> 393,940
<SHORT-TERM> 6,118
<LIABILITIES-OTHER> 4,243
<LONG-TERM> 783
0
0
<COMMON> 2,063
<OTHER-SE> 44,914
<TOTAL-LIABILITIES-AND-EQUITY> 452,061
<INTEREST-LOAN> 24,972
<INTEREST-INVEST> 7,301
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 32,273
<INTEREST-DEPOSIT> 12,920
<INTEREST-EXPENSE> 13,169
<INTEREST-INCOME-NET> 19,104
<LOAN-LOSSES> 396
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 17,540
<INCOME-PRETAX> 5,250
<INCOME-PRE-EXTRAORDINARY> 5,250
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,570
<EPS-PRIMARY> .89
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.6
<LOANS-NON> 449
<LOANS-PAST> 551
<LOANS-TROUBLED> 49
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,614
<CHARGE-OFFS> 899
<RECOVERIES> 667
<ALLOWANCE-CLOSE> 6,778
<ALLOWANCE-DOMESTIC> 6,778
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
SUPPLEMENTAL INFORMATION
ENCLOSED HEREWITH ARE FOUR COPIES OF THE FOLLOWING WHICH WILL BE MAILED
TO OUR SHAREHOLDERS:
1. Letter from the Chairman and CEO.
2. Selected Financial Information.
3. Audited Financial Statements with Accountants' Report.
4. Notice of Annual Shareholders' Meeting.
5. Proxy.
<PAGE>
March 31, 1997
To our shareholders:
The Company had earnings of $3,570,000 for the year ended
December 31, 1996, with an ROA of .82% and ROE of 7.66%. Total
assets at December 31, 1996 were $452,061,000. Total
shareholders' equity was $46,977,000 at December 31, 1996 or a
book value of $11.75 per share of common stock outstanding, with
an equity to total assets ratio of 10.39%. On October 19, 1996,
the Company paid a special dividend of $.20 per share to
celebrate 20 years of ownership of the Company by the existing
shareholder group. Total dividends paid for the year were at
$.44 per share.
Our Company continues to use a conservative approach to
doing business through our underwriting practices and philosophy.
Loan loss reserves at December 31, 1996 were $6,778,000
representing a ratio of reserves to loans, net of unearned
income of 2.44%. Our reserves were 6.46 times greater than the
$1,049,000 of nonperforming assets at December 31, 1996.
During 1996, we have enjoyed a full year of processing with
our outsourcing Company which has enabled our officers and
employees to concentrate on doing banking business and serving
our customers. This is in continuation of our commitment to
maintain state-of-the-art delivery systems for our customers. Our
Company serves Bartow, Gordon, Whitfield and surrounding
counties, which our staff, managment and the Board of Directors
believe to be one of the most progressive areas within the
growing Southeast region of our country. It is our intention to
be a part of the progressive movement to maximize the return on
your investment in the Company.
___________________________________
Kenneth E. Boring, Chairman and CEO
<PAGE>
Hardwick Holding Company
Hardwick Square
Post Office Box 1367
Dalton, Georgia 30722-1367
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 21, 1997
The annual meeting of the shareholders of Hardwick Holding
Company (the "Company") will be held on Friday, April 21,1997 at
4:00 p.m. Dalton, Georgia, time at the Northwest Georgia Trade
and Convention Center, Room A-3, 2211 Dug Gap Battle Road,
Dalton, Georgia 30720 for the purpose of considering and voting
upon:
1. The election of 11 directors to constitute the Board
of Directors and to serve until the next annual meeting and until
their successors are elected and qualified.
2. Such other matters as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business
March 31, 1997, will be entitled to notice of and to vote at the
meeting or any adjournment thereof.
A proxy solicited by the Board of Directors is enclosed
herewith. Please sign, date and return the Proxy promptly in the
enclosed envelope. If you attend the meeting, you may, if you
wish, withdraw your Proxy and vote in person.
By Order of the Board of Directors
______________________________________
Michael Robinson, Secretary
Dalton, Georgia
March 31, 1997
<PAGE>
PROXY
HARDWICK HOLDING COMPANY
Dalton, Georgia
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, AND NOT
REVOKED, THE SHARES IT REPRESENTS WILL BE VOTED AT THE MEETING IN
ACCORDANCE WITH THE CHOICE SPECIFIED BELOW, AND IF NO CHOICE IS
SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS,
EXCEPT TO THE EXTENT AUTHORITY TO DO SO IS WITHHELD AS TO ANY ONE
OR MORE DIRECTORS.
The undersigned shareholders of Hardwick Holding Company
(the "Company") hereby appoint Kenneth E. Boring and James M.
Boring, Jr., or either of them, with full power of substitution to
each, the proxies of the undersigned to vote, as designated
below, the shares of the undersigned at the annual meeting of
shareholders to be held on April 21, 1997 and any adjournment
thereof.
(a) THE ELECTION OF DIRECTORS
_____ For all nominees listed below (except as marked to the
contrary below).
_____WITHHOLD AUTHORITY to vote for all nominees listed
below.
Thomas H. Bond Leon M. Ham III
James M. Boring, Jr. David J. Lance
Kenneth E. Boring Marshall R. Mauldin
Wayne R. Broaddus Norman McCoy
Robert M. Chandler Michael Robinson
Richard R. Cheatham
<PAGE>
Hardwick Holding Company
Proxy-Annual Meeting
April 21, 1997
Page Two
(b) IN ACCORDANCE WITH THEIR BEST JUDGMENT with respect to
any other matters which may properly come before the meeting and
any adjournment thereof.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE
PROPOSALS AS STATED ABOVE.
Please date and sign this Proxy exactly as your name appears
below:
Dated: __________________,1997
____________________________
____________________________
