SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of The Securities Exchange Act of 1934
For Quarter Ended JUNE 30, 1999 Commission File Number 33-43386
------------- --------
HARDWICK HOLDING COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-1408388
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Hardwick Square, P. O. Box 1367, Dalton, GA. 30722-1367
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 217-3950
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No__
Number of shares of common stock outstanding
at August 12, 1999
4,225,996 Shares
----------------
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HARDWICK HOLDING COMPANY AND SUBSIDIARIES
INDEX
PAGE NO.
PART I- FINANCIAL INFORMATION
Consolidated Statements of Financial
Position at June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income
for the Three Months Ended June 30,
1999 and 1998 4
Consolidated Statements of Income
for the Six Months Ended June 30,
1999 and 1998 5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30,
1999 and 1998 6-7
Notes to Unaudited Consolidated Financial Statements 8-14
Management's Discussion and Analysis of
Financial Position and Results of Operations 15-26
PART II- OTHER INFORMATION 27
SIGNATURES 28
2
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<PAGE>
HARDWICK HOLDING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1999 1998
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
CASH AND DUE FROM BANKS $ 20,275 $ 25,305
FEDERAL FUNDS SOLD 8,035 43,648
--------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS 28,310 68,953
INVESTMENT SECURITIES, AVAILABLE-FOR-SALE 162,869 144,169
LOANS, NET 298,237 298,478
PREMISES AND EQUIPMENT, NET 15,160 15,055
ASSETS UNDER CAPITAL LEASE, NET 124 222
ACCRUED INTEREST RECEIVABLE 4,340 4,184
EXCESS OF COST OVER FAIR VALUE OF
SUBSIDIARIES ACQUIRED, NET OF AMORTIZATION 3,689 3,978
OTHER ASSETS 3,444 1,881
--------------- ---------------
TOTAL ASSETS $ 516,173 $ 536,920
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS-
NONINTEREST-BEARING $ 98,146 $ 102,027
INTEREST-BEARING 338,862 340,509
--------------- ---------------
TOTAL DEPOSITS 437,008 442,536
FED FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 11,352 25,209
OTHER BORROWED FUNDS 8,119 8,156
CAPITAL LEASE OBLIGATION 154 264
OTHER LIABILITIES 4,693 4,638
--------------- ---------------
TOTAL LIABILITIES 461,326 480,803
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 4)
STOCKHOLDERS' EQUITY-
COMMON STOCK, $.50 PAR VALUE, 10,000,000 SHARES AUTHORIZED,
4,225,996 AND 4,187,746 SHARES ISSUED AND OUTSTANDING AT JUNE 30,
1999 AND DECEMBER 31,1998, RESPECTIVELY 2,113 2,094
ADDITIONAL PAID-IN CAPITAL 21,174 20,479
RETAINED EARNINGS 34,760 33,406
OTHER COMPREHENSIVE INCOME-UNREALIZED (LOSS) GAIN ON INVESTMENT
SECURITIES AVAILABLE-FOR-SALE, NET OF TAX (1,924) 1,104
LESS DEFERRED COMPENSATION FROM RESTRICTED STOCK PLAN (1,276) (966)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 54,847 56,117
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 516,173 $ 536,920
=============== ===============
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
</TABLE>
3
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------
JUNE 30, JUNE 30,
INTEREST INCOME: 1999 1998
----------------------------------------
<S> <C> <C>
INTEREST AND FEES ON LOANS $ 6,585 $ 7,209
INTEREST ON INVESTMENT SECURITIES-
TAXABLE 1,867 1,618
NONTAXABLE 406 293
INTEREST ON FEDERAL FUNDS SOLD AND BANK DEPOSITS 262 201
------------ ------------
TOTAL INTEREST INCOME 9,120 9,321
------------ ------------
INTEREST EXPENSE:
INTEREST ON DEPOSITS 3,389 3,829
INTEREST ON SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 105 43
INTEREST ON OTHER BORROWED FUNDS 109 113
INTEREST ON NOTE PAYABLE AND CAPITAL LEASE OBLIGATIONS 4 9
------------ ------------
TOTAL INTEREST EXPENSE 3,607 3,994
------------ ------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOAN LOSSES 5,513 5,327
PROVISION FOR LOAN LOSSES 75 150
------------ ------------
NET INTEREST INCOME 5,438 5,177
------------ ------------
NONINTEREST INCOME:
SERVICE CHARGES ON DEPOSIT ACCOUNTS 659 646
SECURITIES GAINS, NET 0 10
OTHER NONINTEREST INCOME 554 472
------------ ------------
TOTAL NONINTEREST INCOME 1,213 1,128
------------ ------------
NONINTEREST EXPENSE:
SALARIES AND EMPLOYEE BENEFITS 2,267 2,218
NET OCCUPANCY EXPENSE 799 829
OTHER NONINTEREST EXPENSE 1,719 1,553
------------ ------------
TOTAL NONINTEREST EXPENSE 4,785 4,600
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,866 1,705
PROVISION FOR INCOME TAXES 574 549
============ ============
NET INCOME $ 1,292 $ 1,156
============ ============
BASIC NET INCOME PER SHARE $ 0.31 $ 0.29
============ ============
DILUTED NET INCOME PER SHARE $ 0.31 $ 0.29
============ ============
(SEE NOTES TO CONSOLIDATED MENTS.)
</TABLE>
4
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
INTEREST INCOME: 1999 1998
-----------------------------------
<S> <C> <C>
INTEREST AND FEES ON LOANS $ 13,172 $ 14,500
INTEREST ON INVESTMENT SECURITIES-
TAXABLE 3,599 3,097
NONTAXABLE 780 571
INTEREST ON FEDERAL FUNDS SOLD AND BANK DEPOSITS 524 341
------------ ------------
TOTAL INTEREST INCOME 18,075 18,509
INTEREST EXPENSE:
INTEREST ON DEPOSITS 6,820 7,583
INTEREST ON SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 217 99
INTEREST ON OTHER BORROWED FUNDS 223 225
INTEREST ON NOTE PAYABLE AND CAPITAL LEASE OBLIGATIONS 9 18
------------ ------------
TOTAL INTEREST EXPENSE 7,269 7,925
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOAN LOSSES 10,806 10,584
PROVISION FOR LOAN LOSSES 150 300
------------ ------------
NET INTEREST INCOME 10,656 10,284
------------ ------------
NONINTEREST INCOME:
SERVICE CHARGES ON DEPOSIT ACCOUNTS 1,314 1,294
SECURITIES GAINS, NET 0 18
OTHER NONINTEREST INCOME 1,281 1,145
------------ ------------
TOTAL NONINTEREST INCOME 2,595 2,457
NONINTEREST EXPENSE:
SALARIES AND EMPLOYEE BENEFITS 4,732 4,433
NET OCCUPANCY EXPENSE 1,564 1,619
OTHER NONINTEREST EXPENSE 3,436 3,090
------------ ------------
TOTAL NONINTEREST EXPENSE 9,732 9,142
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,519 3,599
PROVISION FOR INCOME TAXES 1,086 1,163
============ ============
NET INCOME $ 2,433 $ 2,436
============ ============
BASIC NET INCOME PER SHARE $ 0.59 $ 0.61
============ ============
DILUTED NET INCOME PER SHARE $ 0.58 $ 0.60
============ ============
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
</TABLE>
5
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX-MONTHS ENDED
JUNE 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
----------------------------
<S> <C> <C>
NET INCOME $ 2,433 $ 2,436
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
PROVISION FOR LOAN LOSSES 150 300
PROVISION FOR DEPRECIATION AND AMORTIZATION 1,263 1,192
LOSS ON DISPOSITION OF PREMISES AND EQUIPMENT 47 0
GAIN ON DISPOSITION OF OTHER REAL ESTATE OWNED (40) 0
AMORTIZATION (ACCRETION) OF INVESTMENT SECURITY DISCOUNTS AND PREMIUMS 49 (33)
DEFERRED INCOME TAX BENEFIT (173) (99)
SECURITIES GAINS, NET 0 (18)
INCREASE IN ACCRUED INTEREST RECEIVABLE (156) (583)
(INCREASE) DECREASE IN OTHER ASSETS (31) 90
(DECREASE) INCREASE IN OTHER LIABILITIES (103) 274
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,439 3,559
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES AVAILABLE-FOR-SALE 7,816 6,920
PROCEEDS FROM SALES OF INVESTMENT SECURITIES AVAILABLE-FOR-SALE 17,434 8,115
PURCHASES OF INVESTMENT SECURITIES AVAILABLE-FOR-SALE (48,587) (28,611)
NET CASH FLOWS FROM LOANS ORIGINATED AND PRINCIPAL COLLECTED ON LOANS 91 8,838
PROCEEDS FROM DISPOSAL OF OTHER REAL ESTATE 241 0
PURCHASES OF PREMISES AND EQUIPMENT (771) (860)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (23,776) (5,598)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET (DECREASE) INCREASE IN DEMAND DEPOSITS, NOW ACCOUNTS, AND SAVINGS
ACCOUNTS (4,364) 20,349
NET CASH FLOWS FROM SALES AND MATURITIES OF CERTIFICATES OF DEPOSIT (1,164) 4,021
NET (DECREASE) IN FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO
REPURCHASE (13,857) (14,799)
(DECREASE) IN OTHER BORROWED FUNDS (37) (37)
PAYMENTS ON CAPITAL LEASE OBLIGATIONS (110) (103)
PROCEEDS FROM ISSUANCE OF COMMON STOCK DUE TO EXERCISE OF STOCK OPTIONS 305 0
PAYMENTS OF CASH DIVIDENDS (1,079) (970)
------------ ------------
NET CASH (USED ) PROVIDED BY FINANCING ACTIVITIES $ (20,306) $ 8,461
------------ ------------
</TABLE>
6
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY
& SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-(CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------------------
1999 1998
--------------------------------------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (40,643) $ 6,422
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 68,953 38,515
================== ================
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,310 $ 44,937
================== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 7,463 $ 7,519
================== ================
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 1,055 $ 1,315
================== ================
NONCASH TRANSACTIONS DURING THE PERIOD ENDED:
INCREASE IN DEFERRED COMPENSATION FROM ISSUE OF RESTRICTED STOCK $ 410 $ 300
================== ================
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
7
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Hardwick Holding Company (HHC) and its wholly owned subsidiaries,
Hardwick Bank and Trust Company (HBT) and First National Bank of Northwest
Georgia (FNBNWG), collectively referred to as the "Company". All significant
intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
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.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for fair statement of the consolidated financial position
and the results of operations of the Company for the interim periods. The
results of operations for the six-month period ended June 30, 1999 are not
necessarily indicative of the results which may be expected for the entire year.
(2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a participant in financial instruments with off-balance sheet
risk. These instruments are entered into in the normal course of business to
meet the financing needs of its customers and to reduce the Company's own
exposure to fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The contract
amounts of these instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
counterparties to the financial instruments 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.
8
<PAGE>
<PAGE>
HBT and FNBNWG grant various types of loans and financial instruments to
customers within their 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 work force in
the Company's market area are 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 unfavorably affect 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 June
30, 1999, were approximately $72,310,000. HBT and FNBNWG evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral,
if deemed necessary by HBT and FNBNWG, is based on management's credit
evaluation of the customers. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, residential real estate,
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by HBT and FNBNWG
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The collateral varies but
may include accounts receivable, inventory, property, plant and equipment and
residential real estate for those commitments for which collateral is deemed
necessary. The Company had irrevocable standby letters of credit of
approximately $3,497,000 outstanding at June 30, 1999.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
9
<PAGE>
<PAGE>
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133". This Statement changed the effective date for SFAS NO. 133
to all fiscal quarters of all fiscal years beginning after June 15, 2000.
Earlier application is encouraged. Statement 133 cannot be applied
retroactively. Statement 133 must be applied to (A) derivative instruments and
(B) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1998 (and, at the
company's election, before January 1, 1999).
We have not yet quantified the impacts of adopting Statement 133 on our
financial statements and have not determined the timing of or method of our
adoption of Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," which is effective for the fiscal quarter
beginning after December 15, 1998. This statement amends FASB No. 65,
"Accounting for Certain Mortgage Banking Activities," to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. As the Company does not securitize its mortgage loans held for sale
or hold mortgage loans for sale, this statement does not apply.
(4) CONTINGENCIES
The Company is involved in litigation and other legal proceedings arising in the
course of its normal business activities. Although the ultimate outcome of these
matters cannot be determined at this time, it is the opinion of management that,
when resolved, none of these matters will have a significant effect on the
Company's financial condition or results of operations.
(5) EARNINGS PER SHARE
Earnings per share are calculated on the basis of basic and dilutive weighted
average number of shares outstanding. The basic weighted average number of
shares outstanding was 4,137,906 and 3,970,496 for the six-month period ending
June 30, 1999 and 1998, respectively. The diluted weighted average number of
shares outstanding was 4,162,623 and 4,046,534 for the six-month period ending
June 30, 1999 and 1998, respectively.
10
<PAGE>
<PAGE>
(6) SEGMENT INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires disclosure of certain information related to the
Company's reportable operating segments. The reportable segments were determined
based on management's internal reporting approach, which is separated by each
subsidiary. The reportable segments are comprised of the two banks owned by the
holding company, as well as the holding company itself. Each bank provides a
wide array of banking services to consumer and commercial customers and earns
interest income from loans made to customers and investments in securities
available for sale. Each bank also recognizes certain fees related to deposit,
lending, and other services provided to customers. The holding company earns
income by providing loans to insiders, receiving dividends from the two banks,
and by providing management services to the banks. The holding company incurs no
interest expense, but does incur certain administrative expenses related to
operations. No transactions with a single customer contributed 10% or more to
the Company's total revenue. The accounting policies for each segment are the
same as those used by the Company. The segment results include certain overhead
allocations and intercompany transactions that were recorded at estimated market
prices. All intercompany transactions have been eliminated to determine the
consolidated balances. The results for the three reportable segments are
included in the following tables (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1999
-----------------------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
========= =========== ============ ============== ==============
<S> <C> <C> <C> <C> <C>
Total interest income $ 5,125 $ 3,929 $ 97 $ 31 $ 9,120
Total interest expense 2,088 1,550 0 31 3,607
Net interest income 3,037 2,379 97 0 5,513
Provision for loan losses 0 75 0 0 75
Net interest income after provision 3,037 2,304 97 0 5,438
Total noninterest income 856 357 1,600 1,600 1,213
Total noninterest expense 2,485 2,033 448 181 4,785
Income before taxes 1,408 628 1,249 1,419 1,866
Provision (benefit) for income taxes 384 235 (45) 0 574
Net income 1,024 393 1,294 1,419 1,292
Other significant items:
Total assets 298,905 208,833 55,833 47,398 516,173
Investment in subsidiaries 0 0 45,113 45,113 0
Depreciation, amortization, and
accretion (net) 206 315 90 0 611
Total expenditures for long-lived
assets 16 112 2 0 130
Revenues from external customers:
Total interest income 5,125 3,929 66 0 9,120
Total noninterest income 856 357 0 0 1,213
Total income 5,981 4,286 66 0 10,333
Revenues from affiliates:
Total interest income 0 0 31 31 0
Total noninterest income 0 0 1,600 1,600 0
Total income 0 0 1,631 1,631 0
</TABLE>
11
<PAGE>
<PAGE>
(6) SEGMENT INFORMATION-continued
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1999
-------------------------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
========= =========== ========== ============== ==============
S> <C> <C> <C> <C> <C>
Total interest income $ 5,066 $ 4,168 $ 94 $ 7 $ 9,321
Total interest expense 2,194 1,807 7 3,994
Net interest income 2,872 2,361 94 0 5,327
Provision for loan losses 75 75 0 0 150
Net interest income after provision 2,797 2,286 94 0 5,177
Total noninterest income 767 361 1,438 1,438 1,128
Total noninterest expense 2,406 1,955 409 170 4,600
Income before taxes 1,158 692 1,123 1,268 1,705
Provision (benefit) for income taxes 328 253 (32) 0 549
Net income 830 439 1,155 1,268 1,156
Other significant items:
<
Total assets 283,948 211,261 53,064 44,068 504,205
Investment in subsidiaries 0 0 45,027 45,027 0
Depreciation, amortization, and
accretion (net) 176 307 108 0 591
Total expenditures for long-lived
assets 81 665 0 0 746
Revenues from external customers:
Total interest income 5,066 4,168 87 0 9,321
Total noninterest income 767 361 0 0 1,128
Total income 5,833 4,529 87 0 10,449
Revenues from affiliates:
Total interest income 0 0 7 7 0
Total noninterest income 0 0 1,438 1,438 0
Total income 0 0 1,445 1,445 0
</TABLE>
12
<PAGE>
<PAGE>
(6)SEGMENT INFORMATION-continued
<TABLE>
<CAPTION>
For The Six Months Ended June 30, 1999
---------------------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
========= ========== =========== ============== ==============
<S> <C> <C> <C> <C> <C>
Total interest income $ 10,149 $ 7,798 $ 191 $ 63 $18,075
Total interest expense 4,163 3,169 0 63 7,269
Net interest income 5,986 4,629 191 10,806
Provision for loan losses 0 150 0 0 150
Net interest income after provision 5,986 4,479 191 0 10,656
Total noninterest income 1,807 788 3,195 3,195 2,595
Total noninterest expense 4,915 4,072 1,113 368 9,732
Income before taxes 2,878 1,195 2,273 4,344 3,519
Provision (benefit) for income taxes 794 452 (160) 0 1,086
Net income 2,084 743 2,433 2,827 2,433
Other significant items:
Total assets 298,905 208,833 55,833 47,398 16,173
Investment in subsidiaries 0 0 45,113 45,113 0
Depreciation, amortization, and
accretion (net) 374 605 333 0 1,312
Total expenditures for long-lived
assets 64 697 10 0 771
Revenues from external customers:
Total interest income 10,149 7,798 128 0 18,075
Total noninterest income 1,807 788 0 0 2,595
Total income 11,956 8,586 128 0 20,670
Revenues from affiliates:
Total interest income 0 0 63 63 0
Total noninterest income 0 0 4,820 4,820 0
Total income 0 0 4,831 4,831 0
</TABLE>
13
<PAGE>
<PAGE>
(6) SEGMENT INFORMATION-continued
<TABLE>
<CAPTION>
For The Six Months Ended June 30, 1998
-----------------------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
========== ========== ========== ============== ==============
<S> <C> <C> <C> <C> <C>
Total nterest income $ 10,154 $ 8,181 $ 186 $ 12 $ 18,509
Total interest expense 4,364 3,573 0 12 7,925
Net interest income 5,790 4,608 186 0 10,584
Provision for loan losses 150 150 0 0 300
Net interest income after provision 5,640 4,458 186 0 10,284
Total noninterest income 1,665 792 2,995 2,995 2,457
Total noninterest expense 4,804 3,864 814 340 9,142
Income before taxes 2,501 1,386 2,367 2,655 3,599
Provision (benefit) for income taxes 725 507 (69) 0 1,163
Net income 1,776 879 2,436 2,655 2,436
Other significant items:
Total assets 283,948 211,261 53,064 44,068 504,205
Investment in subsidiaries 0 0 45,027 45,027 0
Depreciation, amortization, and
accretion (net) 391 618 150 0 1,159
Total expenditures for long-lived
asset 139 721 0 0 860
Revenues from external customers:
Total interest income 10,154 8,181 174 0 18,509
Total noninterest income 1,665 792 0 0 2,457
Total income 11,819 8,973 174 0 20,966
Revenues from affiliates:
Total interest income 0 0 12 12 0
Total noninterest income 0 0 2,995 2,995 0
Total income 0 0 3,007 3,007 0
</TABLE>
14
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION
- ------------------
Total assets decreased by approximately $20,747,000 from approximately
$536,920,000 at December 31, 1998, to approximately $516,173,000 at June 30,
1999. The principal fluctuations were in federal funds sold, cash and due from
banks, investment securities available-for-sale and other assets. Federal funds
sold decreased approximately $35,613,000 from approximately $43,648,000 at
December 31, 1998 to approximately $8,035,000 at June 30, 1999, a decrease of
81.6%. Cash and due from banks decreased approximately $5,030,000 from
approximately $25,305,000 at December 31, 1998 to approximately $20,275,000 at
June 30, 1999, a decrease of 19.9%. The decreases were partially offset by an
increase in investment securities available-for-sale of approximately
$18,700,000 from approximately $144,169,000 at December 31, 1998 to
approximately $162,869,000 at June 30, 1999, an increase of 13.0%. Other assets
increased by approximately $1,563,000 from approximately $1,881,000 at December
31, 1998 to approximately $3,444,000 at June 30, 1999. HHC's cash and cash
equivalents reflected a decrease of approximately $40,643,000 or 58.9% for the
six-month period ended June 30, 1999. This decrease is due to the pick up of a
new account during December with large balances deposited at one of the banks
along with the accounts for property tax payments at both banks which are
subsequently withdrawn during January of each year.
Savings and other interest-bearing deposit accounts decreased approximately
$1,647,000 or 0.5% during the six months ended June 30, 1999, to approximately
$338,862,000. It is management's opinion that HHC maintains competitive deposit
rates while exercising prudent strategies in competing with local institutions.
Average rates paid on deposits for the current period were approximately 4.0%
compared with approximately 4.5% for the same period in the preceding year.
At June 30, 1999, HHC's financial position continued to reflect strong equity
and liquidity, with an equity to assets ratio of 10.6%. At June 30, 1999, 60% of
HHC's loans were in real estate loans (including mortgage and construction
loans), 23% in commercial loans (including agricultural loans), 8% in consumer
loans (including credit cards) and other loans were 9%. HHC's loan to deposit
ratio was approximately 70% at June 30, 1999, and 45% of all deposits were
invested in time certificates of deposit.
In the event of higher than anticipated requirements related to loan commitments
or deposit withdrawals, HHC's bank subsidiaries maintain federal funds lines
with regional banks. Also, the bank subsidiaries of the Company have become
members of the Federal Home Loan Bank and have credit lines with it. At June 30,
1999 approximately $8,119,000 was outstanding under the Federal Home Loan Bank
lines of credit.
15
<PAGE>
<PAGE>
The following table represents the changes in consolidated stockholders' equity
for the six months ended June 30, 1999 (in thousands):
<TABLE>
<S> <C>
Balance, December 31, 1998 $ 56,117,000
Net income 2,433,000
Change in unrealized gains (losses) on securities available-for-sale,
net of tax (3,028,000)
Amortization of deferred compensation-restricted stock plan 99,000
Issuance of common stock due to exercise of stock options 305,000
Dividends declared (1,079,000)
==============
Balance, June 30, 1999 $ 54,847,000
==============
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
For the three months ended June 30, 1999 and 1998:
NET INTEREST INCOME
Net interest income after provision for loan losses for the three month period
ended June 30, 1999 was approximately $5,438,000 which was approximately
$261,000 or 5.0% greater than the $5,177,000 for the same period the year
before. The net interest income for the current period contained loan loss
provisions of approximately $75,000 compared with approximately $150,000 for the
same period in the previous year. The Company has continued contributions to the
loan loss reserve due to the decrease in the housing starts, which has a direct
effect on the tufted carpet industry. Approximately 40% of the workforce in the
Company's market area works for the tufted carpet industry or a related company.
Slow downs in the tufted carpet industry could cause the consumers who bank with
the Company to be unable to make the principal and interest payments on their
obligations. Management is of the opinion that the provisions included in the
results of operations are necessary for the potential effect of the downturns in
housing starts. Total interest income decreased by approximately $201,000 or
2.2% while total interest expense decreased approximately $387,000 or 9.7% for
the three-month period ended June 30, 1999, as compared to the three months
ended in the previous year.
Yields on interest-bearing assets averaged 7.6%, down approximately 70 basis
points from the same period the year before. Total average interest-bearing
assets increased by approximately $28,982,000 or 6.5% for the current period
when compared with the three-months ended June 30, 1998. Average loans for the
three months ended June 30, 1999 decreased approximately $7,715,000 or 2.5% less
than the average loans for the three months ended June 30, 1998. The average
yield on loans for the three months ended June 30, 1999 was 8.9%, which reflects
a decrease of approximately 60 basis points when compared with the three months
ended June 30, 1998.
16
<PAGE>
<PAGE>
There were approximately $1,204,000 in nonaccrual loans at June 30, 1999 and
accruing loans contractually past due ninety days or more were approximately
$12,000 at June 30, 1999. This compares to approximately $900,000 in nonaccrual
and approximately $499,000 in loans past due ninety days or more and still
accruing at December 31, 1998. The increase in nonaccrual loans of approximately
$304,000 from December 31, 1998 is an indication that the customers of the
Company have slowed in making the payments on their obligations therefore
requiring the credits to be placed in a nonaccrual status. Management has made
provisions to the loan loss allowance in amounts that are expected to cover the
losses that may occur in future periods, if such nonaccrual loans should migrate
to a charged off status.
Interest accruals on nonaccrual loans are recorded only when they are fully
current with respect to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible as to both principal
and interest. Interest income on nonaccrual loans, which would have been
reported on an accrual basis, amounted to approximately $19,000 during the
three-month period ended June 30, 1999. Nonaccrual loan interest collected and
reported in the three-month period ended June 30, 1999 was approximately $4,000.
Rates paid on interest-bearing liabilities averaged 4.0% for the three months
ended June 30, 1999, down approximately 60 basis points from the three months
ended June 30, 1998. Management's liability pricing strategies include
competitive deposit rates with increased awareness of cash flow needs within the
balance sheet. Management anticipates rates to increase slightly during the
remainder of the year.
NONINTEREST INCOME
Total other noninterest income increased approximately $85,000 or 7.5% for the
three months ended June 30, 1999, as compared with the three months ended June
30, 1998. The increase is primarily due to an increase in other miscellaneous
income of approximately $82,000 and an increase in service charges on deposit
accounts of approximately $13,000 while being partially offset by a decrease in
net gains from sales of investment securities available-for-sale of
approximately $10,000.
NONINTEREST EXPENSE
Total noninterest expense increased by approximately $185,000, or 4.0% for the
three months ended June 30, 1999, as compared to the same period ended in the
preceding year. The increase is due principally to increases of approximately
$49,000 in salary and employee benefits and other noninterest expense of
approximately $166,000 while being partially offset by a decrease in net
occupancy expense of approximately $30,000. The increase in noninterest expense
is due principally to increases in data processing of approximately $38,000,
credit card fees of approximately $23,000, legal and professional fees of
approximately $27,000, promotions of approximately $32,000, printing and office
supplies of approximately $12,000 and other miscellaneous noninterest expenses
of approximately $34,000.
17
<PAGE>
<PAGE>
INCOME TAX PROVISION
The effective tax rates reported for the three months ended June 30, 1999 and
1998 were 30.8% and 32.2%, respectively. Contributing to the decrease in the
effective tax rate for the three months ended June 30, 1999 is the increase in
nontaxable investment securities interest income of approximately $113,000 over
that of the three months ended in the previous year.
RESULTS OF OPERATIONS
- ---------------------
For the six months ended June 30, 1999 and 1998:
NET INTEREST INCOME
Net interest income after provision for loan losses for the six month period
ended June 30, 1999 was approximately $10,656,000 which was approximately
$372,000 or 3.6% greater than the $10,284,000 for the same period the year
before. Total interest income decreased by approximately $434,000 or 2.3% while
total interest expense decreased approximately $656,000 or 8.3% for the six
month period ended June 30, 1999, as compared to the six-months ended in the
previous year. There were approximately $150,000 in provisions for loan losses
for the current period as compared with approximately $300,000 in the six month
period ended June 30, 1998. The provisions to the loan loss allowance were made
due to the down turn in housing starts which has a direct effect on the tufted
carpet industry in which approximately 40% of the workforce in the Company's
market area are employed. Management is of the opinion that the provisions made
against operations are adequate to cover any losses that may occur due to charge
offs in future periods from assets that have been placed in a nonperforming
status within the current period.
Yields on interest-bearing assets averaged 7.7% for the current period,
approximately 70 basis points less the same period the year before. Total
average interest-bearing assets increased by approximately $27,654,000 or 6.3%
for the current period when compared with the six months ended June 30, 1998.
Average loans for the six months ended June 30, 1999 decreased approximately
$10,611,000 or 3.5% less than the average loans for the six months ended June
30, 1998. The average yield on loans for the six months ended June 30, 1999 was
9.0%, approximately 50 basis points less than the six months ended June 30,
1998.
Interest accruals on nonaccrual loans are recorded only when they are fully
current with respect to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible as to both principal
and interest. Interest income on nonaccrual loans, which would have been
reported on an accrual basis, amounted to approximately $48,000 during the six
month period ended June 30, 1999. Nonaccrual loan interest collected and
reported in the six month period ended June 30, 1999 was approximately $4,000.
18
<PAGE>
<PAGE>
Rates paid on interest-bearing liabilities averaged 4.0% for the six months
ended June 30, 1999 compared with 4.6% for the six months ended June 30, 1998.
Rates paid in the current six month period on average were approximately 50
basis points less than the rates paid on average for the year ended December 31,
1998. Management's liability pricing strategies include competitive deposit
rates with increased awareness of cash flow needs within the balance sheet.
Management anticipates rates to increase slightly during the remainder of the
year.
NONINTEREST INCOME
Total noninterest income increased approximately $138,000 for the six-months
ended June 30, 1999, as compared with the six-months ended June 30, 1998. The
increase is primarily due to an increase in service charges on deposits of
approximately $20,000 and an increase in other miscellaneous noninterest income
of approximately $136,000. The increases were partially offset by a decrease in
net gains from sales and calls of investment securities held available-for-sale
of approximately $18,000. The increase in other noninterest income was due
principally to increases in trust income of approximately $33,000, credit card
merchant discount fees of approximately $77,000, gain on disposition of other
real estate owned of approximately $40,000, ATM and other card fees of
approximately $7,000 and other miscellaneous income of approximately $35,000
while being offset partially by a decrease in credit life commissions of
approximately $56,000.
NONINTEREST EXPENSE
Total noninterest expense increased by approximately $590,000 or 6.5% for the
six months ended June 30, 1999, as compared to the same period ended in the
preceding year. The increase is due principally to increases in salary and
employee benefits of approximately $299,000 and approximately $346,000 in other
noninterest expense, while being offset partially by a decrease in net occupancy
expense of approximately $55,000. The increase in other noninterest expense is
due principally by the increases in data processing of approximately $58,000,
credit card fees of approximately $63,000, promotions of approximately $36,000,
charitable contributions of approximately $24,000, professional fees of
approximately $80,000, loss on distribution of assets of approximately $47,000,
postage of approximately $8,000 and other miscellaneous noninterest expense of
approximately $30,000.
INCOME TAX PROVISION
The effective tax rate reported for the six months ended June 30, 1999 and 1998
was 30.9% and 32.3%, respectively. Contributing to the decrease in the effective
tax rate for the six month period ending June 30, 1999, when compared to that of
June 30, 1998, was an increase in nontaxable investment securities interest
income of approximately $209,000.
19
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is achieved through the continual maturing of interest-earning assets,
as well as by investing in short term marketable securities. Liquidity is also
available through deposit growth, borrowing capacity, loan sales and repayments
of principal on loans and securities.
High levels of liquidity are normally obtained at a net interest cost due to
lower yields on short term, liquid-earning assets and higher interest expense
usually associated with the extension of deposit maturities. The trade-off of
the level of desired liquidity versus its cost is evaluated in determining the
appropriate amount of liquidity at any one time.
For the six months ended June 30, 1999, cash and cash equivalents decreased
approximately $40,643,000 or 58.9% from December 31, 1998. HBTC obtained a new
account relationship with a local utility, which transferred large balance
accounts into HBTC during December, which were later reduced significantly
during January. Both subsidiary banks of the Company receive a large volume of
property tax payments during the month of December that is subsequently
withdrawn by the various taxing authorities that have accounts with the
Company's subsidiary banks.
Operating activities provided cash and cash equivalents of approximately
$3,439,000. Investing and financing activities used cash and cash equivalents of
approximately $23,776,000 and $20,306,000, respectively. Net income of
approximately $2,433,000, provision for loan losses of approximately $150,000,
depreciation and amortization not requiring the use of cash of approximately
$1,263,000, a loss on disposition of premises of approximately $47,000 and
premium amortization on investment securities of approximately $49,000
attributed to operating activities providing cash and cash equivalents.
Operating activities using cash and cash equivalents were a gain on the
disposition of real estate owned of approximately $40,000, deferred income tax
benefits of approximately $173,000, an increase in accrued interest receivable
of approximately $156,000, an increase in other assets of approximately $31,000
and a decrease in other liabilities of approximately $103,000.
The cash and cash equivalents used by investing activities were principally due
to purchases of investment securities available-for-sale of approximately
$48,587,000 and purchases of premises and equipment of approximately $771,000.
The cash and cash equivalents used by investing activities were partially offset
by proceeds from maturities of investment securities available-for-sale of
approximately $7,816,000 and proceeds from sales of investment securities
available-for-sale of approximately $17,434,000. Other cash and cash equivalents
provided were from loans originated and principal collected on loans of
approximately $91,000 and proceeds from disposal of other real estate of
approximately $241,000.
The cash and cash equivalents used by financing activities were due principally
to decreases in federal funds purchased and securities sold under agreement to
repurchase of approximately $13,857,000, payments of cash dividends of
approximately $1,079,000, net cash used from sales and maturities of
20
<PAGE>
<PAGE>
ertificates of deposit of approximately $1,164,000, a net decrease in NOW
accounts, demand deposits and savings accounts of approximately $4,364,000,
while being partially offset by proceeds of approximately $305,000 from issuance
of common stock due to exercise of stock options. Other cash and cash
equivalents used were from a decrease in borrowed funds of approximately $37,000
and payments on capital lease obligations of approximately $110,000.
YEAR 2000
- ---------
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit codes to perform computations or decision-making
functions. Many of these programs may fail due to an inability to properly
interpret date codes beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition, some
equipment, controlled by microprocessor chips, may not deal appropriately with
the year "00". The Registrant has developed a plan that will assure the
Registrant of being ready to process in the year 2000. The plan involves costs
such as purchasing both hardware and software and will entail the use of both
internal and external personnel. Modifications and upgrades are being performed
on the majority of the Registrant's existing systems. These costs are being
expensed as incurred. The Registrant's mainframe processing is outsourced to a
vendor which is one of the largest bank processing companies in the United
States. The Registrant is in regular communication with this vendor as both
companies prepare for processing in year 2000.
There is no assurance that the Registrant's customers and vendors
will be ready to process in the year 2000. The inability of one of the
Registrant's significant customers or vendors to process in the year 2000 could
have a material effect on the financial condition and results of operations of
the Registrant for the year 2000 and years thereafter.
IMPACT OF THE YEAR 2000 ISSUES
- ------------------------------
Generally, the year 2000 risk involves computer programs and computer
hardware that are not able to perform without interruption into the year 2000.
The arrival of the year 2000 poses a unique worldwide challenge to the ability
of all systems to correctly recognize such a date change; computer applications
that rely on the date field could fail or create erroneous results. Such
erroneous results could affect interest, payment or due dates or could cause the
temporary inability to process transactions, send invoices or engage in similar
normal business activities. If it is not adequately addressed by HHC or its
suppliers and borrowers, the year 2000 issue could result in a material adverse
impact on HHC's financial condition and results of operations.
21
<PAGE>
<PAGE>
HHC'S STATE OF READINESS
- ------------------------
HHC has been assessing its year 2000 readiness since 1996. HHC has
formed a committee charged with the task of identifying and remediating date
recognition problems in both Information Technology ("IT") and Non-IT systems.
Guided by requirements as well as examination by banking regulators, the
committee has developed a comprehensive plan to assess HHC's year 2000 readiness
with respect to both IT and non-IT systems. HHC's inventory of such systems is
complete and HHC believes its IT and non-IT systems are year 2000 compliant and
has not found any mission critical system to be deficient.
HHC has completed the remediation or replacement of its systems.
Testing occurred in 1998, and further testing will occur during 1999. HHC
believes that it has identified all major internal business and operational
functions that will be impacted by the year 2000 date change. HHC's mainframe
processing is outsourced to a third party vendor and the software for year 2000
has been in service since October 1998. The application testing was competed in
October of 1998. The "street testing", i.e., testing for year end, quarter ends,
leap year and future years, was completed on March 31, 1999. Both subsidiary
banks of HHC have been through Phase II examinations by their respective
regulatory authorities without any major concerns being brought to the attention
of their Boards of Directors and or management.
COST ASSOCIATED WITH YEAR 2000 ISSUES
- -------------------------------------
HHC does not anticipate that its year 2000 related costs will be
material to its financial condition or results of operations. HHC has estimated
that its total costs for the evaluation, remediation and testing of its IT and
non-IT systems in connection with the year 2000 issue will be approximately
$811,000. Approximately $675,000 has been incurred to date of which
approximately $481,000 has been capitalized and is to be amortized over the
respective useful lives while approximately $194,000 has been charged against
operations. The $136,000 remaining in the budget for the year 2000 project will
be included in the expenditures for the last six months of 1999 and the first
three months of year 2000. Of the remaining budget, approximately $33,000 will
be capitalized and approximately $103,000 will be charged against operations as
incurred during the last six months of 1999 and the first three months of year
2000.
RISK OF THIRD-PARTY YEAR 2000 ISSUES
- ------------------------------------
The impact of year 2000 non-compliance by outside parties with whom
HHC transacts business cannot be accurately gauged. HHC has surveyed its major
business partners to ascertain their year 2000 readiness. Although not all are
year 2000 compliant at this date, HHC has received certain assurances that such
third parties will be ready for the year 2000 date change by the end of 1999.
HHC and its major third party partners have completed testing and reviewing of
all critical year 2000 date issues in their systems.
22
<PAGE>
<PAGE>
The most likely worst case scenario for HHC is that there may be no
power to support its systems. This case would be handled in the same manner in
which it handles winter and summer storms that down power lines. Members of the
HHC year 2000 committees have attended meetings held by the State of Georgia,
and the counties and cities where the Bank subsidiaries are located. The
utilities in its operating area have stated that any embedded technology that
causes power outages due to year 2000 will be handled by using the same
emergency procedures used during serious storms and the delay would be minimal
at most.
CUSTOMER AWARENESS AND BORROWER RISK ASSESSMENT
- -----------------------------------------------
HHC has aggressively worked to educate its depositors and borrowers
regarding year 2000 issues. HHC has hosted community seminars, developed
statement stuffers, and placed detailed brochures about the year 2000 issue in
all its branch lobby locations. Risk assessments on borrowers have been
completed and HHC has initiated a year 2000 assessment procedure during loan
review and approval for all new and renewed loans.
YEAR 2000 CONTINGENCY PLANNING
- ------------------------------
The Registrant's Corporate Disaster Contingency and Recovery Plan was
established in the fourth quarter of 1992. Its present contingency plan covers
both natural and man-made disasters, but is not specific enough to handle the
year 2000 Event. For year 2000 purposes all financial institutions are regulated
very closely by departments of the federal government and operate in uniformity
through the Federal Financial Institutions Examination Council or "FFIEC". The
FFIEC has established specific guidelines for financial institutions to develop
a year 2000 contingency plan. The Registrant's Board of Directors has approved
the FFIEC guidelines for use in developing our contingency plan.
The corporate contingency plan called for a multi-phase approach in
the development process. The first phase was to develop the responsibility and
reporting line of command. Each subsidiary appointed a command post consisting
of the bank president, the highest-ranking manager representing each division
within the company, and the year 2000 coordinator. The command post approved a
line of business committee that represented the supervisor of each department
within the company and a backup for each one of the committee members. This
individual is referred to as the Line of Business Coordinator or Rapid Response
Team Member. Using the FFIEC guidelines as a checklist project approach, the
contingency plan format was developed and approved by the command post. The
approach and plan was communicated to the line of business committee through
officially documented committee meetings and individual interviews.
The project approach approved by the command post and the bank's
Board of Directors was for each line of business committee member to develop a
matrix of all duties and functions performed on a daily, weekly, monthly,
quarterly, annually, as needed, or demand basis. The matrix also reflected all
personnel within a department indexed by which employees were responsible for
23
<PAGE>
<PAGE>
each duty or function, and all employees who were cross-trained on each duty as
a backup. The line of business coordinator would develop a matrix of only
critical duties or functions from the master matrix list. The second matrix
became the critical duties and functions list that was used to develop a risk
analysis and contingency report. The risk analysis and contingency planning
report includes the following information:
* The duty or function.
* A risk category group code for each duty or function (i.e., staff problems,
utility outages, software problems).
* The degree of negative impact on business if the event should occur.
* Pre-implementation mitigating actions that must be done to prepare for the
event and how to address it afterwards.
* Proposed workaround for each contingency and the description of the basis
for taking the approach for that duty or function.
* Name of person to contact if the situation occurs.
The risk analysis and contingency planning report was used to develop the
content for the actual contingency plan.
The Registrant's Year 2000 Contingency Plan contains the following information:
Staffing and work schedules: Expected work and vacation schedules
----------------------------
before, during, and after the event are listed along with a personnel
contact list.
Recovery Support Team: A team of well trained and fully empowered
-----------------------
employees who will identify and correct any disruption to the
business during and after the event. The employee's name, address,
home phone, alternate phone, cellular phone, and electronic mail
address are listed. The list of employees also indicates if they are
line of business or command post members and if they live more than
30 miles from the main office.
Assumptions: Lists inlcude certain assumptions that an employee may
-----------
use in developing the contingency plan based on decisions already
made by management. The assumptions are segmented by the last quarter
of 1999, and the periods of December 30, 1999 to January 10, 1999 and
January 11, 1999 to April 15, 1999.
Plans and Priorities: Segmented by the time periods described in the
--------------------
Assumptions section above. This section documents the communication
plan during the three periods covered by the event plan and
identifies the duties and plans to continue normal operating
procedures.
Y-2K Contingency Plan: Documentation of the steps to be taken if an
----------------------
interruption occurs and is listed by category of problem (i.e.,
utility outage, software problem).
24
<PAGE>
<PAGE>
Employee Location Directions: Detailed navigational directions to an
----------------------------
employee's home for emergency purposes and possible communication
disruptions.
Unresolved Issues: Description of any issues that remain unresolved
------------------
by the line of business coordinator. This section will continue to be
reviewed by the line of business committee and the year 2000
coordinator until all issues are resolved.
The Registrant's corporate contingency plan was completed by December
31, 1998 and approved by the Board of Directors of the Registrant and reviewed
by the Board of Directors of each of the bank subsidiaries. The board and
management of each bank understand that these plans will be reviewed and changed
periodically due to staff and procedure changes. It is the responsibility of
each line of business coordinator to review these plans with each employee in
their departments. The contingency plans will be tested in the fourth quarter of
1999. This test will be conducted under the scrutiny of our internal auditors,
the Year 2000 coordinator, and an outside consultant. The line of business or
year 2000 committee reviews progress on the contingency plans biweekly and the
command post and Board of Directors review progress once a month.
MARKET RISK MANAGEMENT
- ----------------------
A 100 basis point increase in interest rates would result in an
increase in interest margin of approximately $15,000 which is a change of
approximately $139,000 from the $154,000 increase in interest margin that would
have occurred at December 31, 1998 if there had been a 100 basis points increase
in interest rates at that time. The effect on the net interest margin is not a
significant amount and well within the Company's policy.
CAPITAL RESOURCES
- -----------------
HHC and its subsidiary banks are subject to a minimum Tier 1 capital
to risk-weighted assets ratio of 4% and a total capital (Tier 1 plus Tier 2) to
risk-weighted assets ratio of 8%. The Federal Reserve Board ("Board") has also
established an additional capital adequacy guideline referred to as the Tier 1
leverage ratio that measures the ratio of Tier 1 Capital to average quarterly
assets. The most highly rated bank holding companies will be required to
maintain a minimum Tier 1 leverage ratio of 3%. The required ratio will be based
on the Board's assessment of the individual bank holding company's asset
quality, earnings performance, interest-rate risk and liquidity. Bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets.
25
<PAGE>
<PAGE>
The following tables represent HHC's regulatory capital position at June 30,
1999 (in thousands):
<TABLE>
<CAPTION>
Risk Based Capital Ratios: Amount Ratio
-------------- ------------
<S> <C> <C> <C>
Tier 1 Capital $ 53,082 13.43%
Tier 1 Capital minimum requirement $ 15,804 4.00%
============== ============
Excess $ 37,278 9.43%
============== ============
Total Capital $ 58,050 14.69%
Total Capital minimum requirement $ 31,609 8.00%
============== ============
Excess $ 26,441 6.69%
============== ============
Risk adjusted assets net of goodwill and
nonallowable loan loss allowance $ 395,109
Leverage Ratio:
Tier 1 Capital to adjusted total assets ("Leverage Ratio")
$ 53,082 10.40%
Minimum leverage requirement $ 15,308 3.00%
============== ============
Excess $ 37,774 7.40%
============== ============
Average total assets, net of goodwill<F1> $ 510,269
<FN>
<F1> Average total assets, net of goodwill for the three months ended June 30, 1999.
</FN>
</TABLE>
HHC is a legal entity separate and distinct from the Banks. Most of the revenues
of HHC result from dividends paid to it by the Banks. There are statutory and
regulatory requirements applicable to the payment of dividends by the subsidiary
banks as well as by HHC to its shareholders. HHC paid cash dividends of $544,000
or $.13 per share on January 19, 1999, which had been declared at December 31,
1998. HHC paid $535,000 or $.13 per share of common stock on April 19, 1999. HHC
had declared a cash dividends of $536,000 or $.13 per share of common stock as
of June 30, 1999, which was subsequently paid on July 19, 1999.
26
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<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
HHC is not aware of any material pending legal proceedings to which HHC or any
of its subsidiaries is a party or to which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES -None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -None
ITEM 5. OTHER INFORMATION -None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBIT 27-FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY).
(B) FORM 8-K -NONE.
27
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
CORPORATION HARDWICK HOLDING COMPANY
- ----------- ------------------------
Date: August 12, 1999 By:/s/Michael Robinson
- --------------------- ----------------------------
Michael Robinson
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
28
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