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, 1998
Commission File Number 33-43386
Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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 of organization) Identification No.)
One Hardwick Square, P. O. Box 1367, Dalton, Georgia 30722-1367
-------------------------------------------------------------------
(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 / /
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 19, 1999; $24,825,234 based on
1,182,154 shares outstanding at $21.00 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 19, 1999, there were issued 4,225,996 shares of Common Stock,
par value $0.50 per share, of which 4,225,996 were outstanding.
<PAGE>
<PAGE>
ITEM 1. BUSINESS.
GENERAL
- -------
Hardwick Holding 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 30720 and its telephone
number at that address is (706) 217-3950.
MARKET
- ------
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 are 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-Busch, Inc., ConAgra Broiler
Co. and Outboard Marine Corporation.
DEPOSITS
- --------
The Banks offer a full range of depository accounts and services to
both consumers and businesses. At December 31, 1998, Hardwick's deposit
base totaled approximately $443 million, including approximately $102
million in noninterest-bearing transaction accounts (23% of total deposits).
Interest-bearing transaction accounts were approximately $143 million (32%
of total deposits) which includes approximately $56 million in money market
accounts, approximately $30 million in savings deposits and approximately
$57 million in NOW accounts. Also included in total deposits was
approximately $142 million in time deposits in amounts of less than $100,000
(32% of total deposits) and approximately $56 million in time deposits of
$100,000 or more (13% of total deposits).
LOANS
- -----
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, 1998, real estate (including mortgage
construction loans), commercial (including agricultural loans), consumer and
other loans represented approximately 62%, 20%, 9% 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. <PAGE>
LENDING POLICY
- --------------
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 are
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 $1,000,000 require approval by the
Executive Loan Committee of the Board of Directors.
LOAN REVIEW AND NONPERFORMING ASSETS
- ------------------------------------
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
2<PAGE>
<PAGE>
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 at least annually those credit
concentrations over $500,000 and reporting to the Executive Loan Committee
of the Board of Directors any exceptions that he may find with the rating of
the loan, collateral and documentation deficiencies and any significant
changes in credit quality that may contribute to any possible losses that
the Banks may have due to those changes . The loan review officers have the
responsibility of reviewing with the full Board of each bank on a quarterly
basis the reserve for loan losses and advising the Board as to the adequacy
of the reserve level based on both present and historical account
information.
ALLOWANCE FOR LOAN LOSS RESERVES
- --------------------------------
The Registrant's allowance for loan losses has five elements; (1)
allowance based on specific loans, (2) allowance based on historical loan
loss experience (3) allowance based on general economic conditions and other
factors peculiar to the markets in which the Registrant does business, (4)
allowance based on tufted carpet industry concentration and (5) allowance
based on concentration of retail consumers being within the carpet industry
workforce. The specific allowance element is based on a continuing analysis
of the loan watch list at each subsidiary bank, a value specified based on
whether the loan is secured or unsecured and the estimated collateral
shortfall if the loan is secured. The historical loan loss element at
Northwest Bank is determined through statistical analysis using a loss
migration analysis that examines loss experience, internal gradings that
were initially assigned to charged off loans and how charged off loans moved
through the grading path. The historical loan loss element at Hardwick Bank
is calculated based on a 5 year weighted average calculation (25% to each of
the previous two years, 20% to the third and fourth years and 10% to the
fifth year).
The general economic conditions element is determined at the individual
bank subsidiary and is based upon the knowledge of the individual market by
management of each bank. The primary industry in the trade area of the
Registrant is the tufted carpet industry. The economic performance of this
industry is directly related to the number of housing starts in the United
States and abroad. The understanding of this business by the management of
each of the subsidiary banks is critical to the results of operations at
each individual bank and ultimately on a consolidated basis.
Over 40% of the work force in the Registrant's market area are directly
employed by the tufted carpet industry and an undetermined amount of the
work force works for the satellite business around the tufted carpet
industry. The concentrated workforce allowance is applied to the overall
loan portfolio.
During 1998, Queen Carpets and World Carpets, two privately owned
carpet manufacturers considered two of the best in the industry, were
acquired by Shaw Industries and Mohawk Industries, respectively. The
acquiring firms are publicly traded corporations. Downturns in housing
starts, continued consolidation within the industry and overall economic
conditions could result in the inability of the Registrant's customers to
continue to make interest and principal payments on their loans.
All loans $50,000 or more at Northwest Bank are reviewed individually,
while all unsecured consumer loans $5,000 or more, all secured consumer
loans $25,000 or more and all commercial loan concentrations $200,000 or
more are individually reviewed at Hardwick Bank. There are no loans
reviewed as groups for loan loss allowance purposes at either bank.
<PAGE>
The allocated portion of the loan loss allowance is determined by using
the individual bank's loan watch list which is graded along the same lines
as the regulatory agency grades. A loan is assigned a percentage based
upon its loan grade and that percentage is multiplied by the outstanding
balance to arrive at the allocated portion of the allowance for each loan.
The sum of all of these specified allocations becomes the allocated portion
of the loan loss allowance. The balance of the loan loss allowance is the
unallocated portion.
The loss factors applied to the graded loans and the percentages used
for purposes of developing a general allowance are the loss factors and
percentages applied by the regulatory authorities that examine each of the
subsidiary banks of the Registrant. These factors are based upon loans
being graded OAEM (other assets especially mentioned), Substandard and
Doubtful. Loans for which loss gradings are applied by any regulatory
authority are immediately charged off by the individual banks. Generally,
the values assigned to those ratings of OAEM, Substandard and Doubtful are
2%, 10% and 50%, respectively. Other values may be assigned if there is
reason to believe that a paticular loan should warrant different values for
collateral, documentation or the financial condition of the repayment
source.
3<PAGE>
<PAGE>
The mechanism in place for the Registrant to reduce differences between
estimated and actual observed losses is the quarterly review by each
Subsidiary's Boards of Directors of the allowance, charge offs and
recoveries and the changes in nonperforming loans, as well as other
nonperforming assets.
ASSET/LIABILITY MANAGEMENT
- --------------------------\
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
- --------------------
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
- ---------
Hardwick employs 218 persons on a full-time basis and 21 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
- -----------
The banking business is highly competitive. Hardwick competes with 20
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
- --------------------------
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,<PAGE>
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 non-banking 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 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.
4<PAGE>
<PAGE>
Northwest Bank is a national bank chartered under the National Bank
Act, and is subject to the supervision of and regularly examined by the
Office of Comptroller of the Currency (the "OCC"). The OCC regulates or
monitors all areas of the 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 and is subject to the supervision of
and regulated by, 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 Federal Deposit Insurance Corporation (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%) and (2) minimum Tier One
Capital (as defined) 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, 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. <PAGE>
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 lessor
amounts of capital.
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 3%; (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, 1998.
5<PAGE>
<PAGE>
Set forth below are pertinent capital ratios for Hardwick, Hardwick
Bank and Northwest Bank as of December 31, 1998:
<TABLE>
<CAPTION>
Hardwick Northwest
Minimum Capital Requirements Hardwick Bank Bank
---------------------------- -------- -------- ---------
<S> <C> <C> <C>
Tier 1 Capital to Risk-based 13.30% 12.07% <F1> 10.67% <F1>
Assets: 4.00%
Total Capital to Risk-based 14.56% 13.33% <F2> 11.92% <F2>
Assets: 8.00%
Leverage Ratio ( Tier 1 Capital to
Total Quarterly Average Assets): 3.00% 10.21% 9.34% <F3> 8.07% <F3>
________________________
<FN>
<F1> Minimum for "Well Capitalized" Banks = 6%
<F2> Minimum for "Well Capitalized" Banks = 10%
<F3> Minimum for "Well-Capitalized" Banks = 5%
(/TABLE>
PAYMENT OF DIVIDENDS
- --------------------
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.
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<PAGE>
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.
At December 31, 1998, retained earnings available from the Banks
to pay dividends totaled approximately $5.5 million. For 1998, Hardwick's
cash dividend declared to stockholders was 41% of net income.
MONETARY POLICY
- ---------------
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
6<PAGE>
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.
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 expired in October, 1998 and negotiations are in
progress currently to continue the lease.
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 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.
<PAGE>
The Registrant is aware of the three transactions during 1998 at $21.00
per share for blocks of 1,000; 76; and 50 shares. As of March 19, 1999, the
Registrant is aware of one transaction in 1999 at $21.00 per share for 448
shares.
The Registrant purchased 13,733 shares of the Registrant's stock in
thirteen transactions during 1997, at $20.00 per share. To the Registrant's
knowledge these were the only trades during 1997.
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;
7<PAGE>
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.
There have been no shares of treasury stock purchased by the Registrant
during 1999. There were 334 holders of record of the Registrant's common
stock as of December 31, 1998 and 350 holders at March 19, 1999.
DIVIDENDS
- ---------
The Registrant paid quarterly cash dividends of $0.12 per share on
January 19, 1998 and April 19,1998 which had been declared as of December 31,
1997 and March 31, 1998, respectively. The Registrant paid cash
dividends of $0.13 per share on July 19, 1998 and October 19, 1998 which had
been declared as of June 30, 1998 and September 30, 1998, respectively. On
December 9, 1998, the Registrant declared the dividend for the first quarter
of 1999 at $0.13 per share for shareholders of record as of December 31,
1998, which was paid on January 19, 1999. Total cash dividends declared for
1998 were $0.50 per share. The Registrant intends to pay quarterly cash
dividends in 1999. 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.
ITEM 6. SELECTED FINANCIAL DATA.
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Total assets $ 536,920 492,892 452,061 444,817 427,892
Loans, net $ 298,478 310,159 271,470 239,189 227,844
Investment securities $ 144,169 119,431 120,166 135,306 140,894
Federal funds sold $ 43,648 12,982 7,000 11,000 2,500
Deposits $ 442,536 409,785 393,940 389,951 360,515
FHLB Advances $ 8,156 8,231 306 381 0
Note payable $ 0 0 0 250 750
Stockholders' equity $ 56,117 50,603 46,977 46,830 43,380
OPERATING DATA
Interest income $ 37,268 35,196 32,273 31,526 28,413
Interest expense $ 15,838 14,663 13,169 13,062 10,173
Net interest income $ 21,430 20,533 19,104 18,464 18,240
8<PAGE>
<PAGE>
Provision for loan losses $ 500 800 396 0 (600)
Net interest income after
provision for loan losses $ 20,930 19,733 18,708 18,464 18,840
Noninterest income $ 4,925 6,822 4,082 4,074 4,197
Noninterest expense $ 18,362 18,564 17,540 18,311 17,934
Income tax expense $ 2,406 2,765 1,680 1,004 1,352
Net income $ 5,087 5,226 3,570 3,223 3,751
Basic net income per share 1.27 1.32 .89 .79 .91
Diluted net income per share $ 1.26 1.29 .87 .79 .88
Dividends paid per share $ .50 .36 .44 .22 .20
SELECTED FINANCIAL RATIOS
AND OTHER DATA
Return on average assets 1.03% 1.13% 0.82% 0.75% 0.88%
Return on average equity 9.55% 10.55% 7.66% 7.14% 8.68%
Noninterest expense to average assets 3.70% 4.02% 4.04% 4.28% 4.19%
Equity to assets 10.45% 10.27% 10.39% 10.53% 10.14%
(/TABLE>
9<PAGE>
<PAGE>
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
RESULTS OF OPERATIONS
- ---------------------
NET INCOME
- ----------
Hardwick reported net income of $5,087,000 for 1998 compared with net
income in 1997 of $5,226,000. The decrease in net income is due primarily to
a decrease in service charges on deposit accounts and a settlement with a
vendor in 1997. Service charges on deposit accounts decreased approximately
$122,000 or 4.5% compared with service charges on deposit accounts for 1997.
The service charge decreases are due principally to the balances being held
in accounts high enough not to require that the banks charge them the
monthly fees. Noninterest-bearing accounts increased approximately
$15,123,000 from December 31, 1997 to December 31, 1998. The Registrant
received a settlement from a vendor during 1997 of approximately $2,125,000
net of fees. Noninterest expense decreased by approximately $202,000 or
1.1% less than noninterest expense for 1997. The decrease in noninterest
expense was principally due to a decrease in salary and employee benefits
while being partially offset by an increase in data processing expense.
Hardwick reported a decrease in income tax provision for 1998 of
approximately $359,000 or 12.9% due to the percentage of taxable income to
total income declining during 1998 compared with 1997.
During 1998, the Registrant recorded an $500,000 provision for loan
losses as compared to $800,000 in 1997. The provision was a result of a net
chargeoffs of approximately $365,000 which represents .12% of average net
loans outstanding for 1998 as compared with approximately $594,000 or .21%
for 1997. The majority of the chargeoffs came from consumer loans as a
result of a continued increase in bankruptcies last year throughout the
Registrant's market area. 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 and dyeing and finishing operators, which make up a significant part
of the Registrant's business. Downturns in the carpet industry could have a
negative effect on the results of operations of the Registrant.
Loan loss reserves as a percent of loans (net of unearned income and
fees) were 2.33%, 2.20% and 2.44% at December 31, 1998, 1997 and 1996,
respectively. Loan loss reserves at December 31, 1998, 1997 and 1996 were
4.3, 6.9 and 6.5, respectively, times nonperforming assets.
At December 31, 1998 nonperforming assets were approximately
$1,640,000. Of the total nonperforming assets, approximately $900,000 is
carried as nonaccrual loans, approximately $499,000 is in loans 90 days past
due and still accruing, and approximately $241,000 is carried in other real
estate owned.
10<PAGE>
Hardwick reported net income of $5,226,000 for 1997 compared with net
income in 1996 of $3,570,000. The increase in net income is due primarily to
an increase in net interest income, an increase in service charges on
deposit accounts and a settlement with a vendor. Net interest income of the
Registrant increased approximately $1,429,000 or 7.5% over 1996 net interest
income. Service charges on deposit accounts increased approximately
$384,000 or 16.5% compared with service charges on deposit accounts for
1996. The service charge increases are due to both the increase in volume
of deposit accounts and the activity within the accounts themselves. The
Registrant received a settlement from a vendor during 1997 of approximately
$2,125,000 net of fees. Noninterest expense increased by approximately
$1,024,000 or 5.84% more than noninterest expense for 1996. The increase in
noninterest expense was principally due to an increase in salary and
employee benefits, FDIC fees and other noninterest expense.
Net Interest Income (Taxable Equivalent Basis)
- ----------------------------------------------
In 1998 Hardwick's net interest income was $21,904,000 on average
earning assets of $449,720,000, an increase of approximately $881,000
compared with the net interest income of $21,023,000 on average earning
assets of $414,950,000 in the prior year. The net interest margin for 1998
was 4.9% compared with 5.1% for 1997, reflecting a decrease of approximately
20 basis points. The decrease was primarily attributable to the decrease in
rates earned on loans due to the competitive pressures within the market
area of the Registrant.
In 1997 Hardwick's net interest income was $21,023,000 on average
earning assets of $414,950,000, an increase of approximately $1,000,000
compared with the net interest income of $20,023,000 on average earning
assets of $385,067,000 in 1996. The net interest margin for 1997 was 5.1%
compared with 5.2% for 1996, reflecting a decrease of approximately 10 basis
points. The decrease was primarily due to a decrease in rates earned on
loans and an increase in rates paid on time deposits.
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
8.4% during 1998 or approximately $34,770,000. The average yield on
interest earning assets was 8.4%. This represents a decrease of
approximately 20 basis points when compared with the average yield for 1997
of 8.6%.
During 1998, average interest-bearing liabilities increased
approximately 7.4% or approximately $24,177,000 due to increases in all of
the interest-bearing liability categories except for notes payable and
capital lease obligations, both of which had a decrease. The average cost
of interest-bearing liabilities remained unchanged at 4.5% when compared
with 1997. Average noninterest bearing deposits have increased by
approximately $5,260,000 or 6.3% from 1997 to 1998.
10
<PAGE>
<PAGE>
During 1997, average interest-bearing liabilities increased
approximately 8.13% or approximately $24,399,000 from 1996 primarily due to
increases in time deposits, repurchase agreements, borrowings from the
Federal Home Loan Bank and note payable to bank, while being partially
offset by decreases in transaction accounts, savings deposits and capital
lease obligations. The average cost of interest-bearing liabilities
increased 10 basis points from 4.4% in 1996 to 4.5% in 1997. Average
noninterest bearing deposits increased by approximately $212,000 or .3% from
1996 to 1997.
NONINTEREST INCOME
- ------------------
Noninterest income decreased approximately $1,897,000 or 27.8% during
1998, due primarily to a decrease in service charges on deposit accounts of
approximately $122,000 and a decrease due to a settlement with a vendor in
1997 of approximately $2,125,000. Net gains realized on the sale of
investment securities increased approximately $118,000 and trust income
increased approximately $37,000. Credit life commissions increased by
approximately $11,000, other fees increased by approximately $37,000 while
other miscellaneous income increased by approximately $147,000.
Noninterest income increased approximately $2,740,000 or 67.1% during
1997 as compared to 1996, due primarily to an increase in service charges on
deposit accounts of approximately $384,000, an increase in net gains
realized on the sale of investment securities of approximately $63,000, an
increase in trust income of approximately $48,000, a settlement with a
vendor of approximately $2,125,000, increased credit life commissions of
approximately $27,000 and net increases in other miscellaneous income items
of approximately $93,000.
NONINTEREST EXPENSE
- -------------------
Noninterest expense for 1998 was $18,362,000 compared to $18,564,000
for 1997, a decrease of 1.1% or approximately $202,000 less than noninterest
expense for 1997. The decrease in noninterest expense was principally due
to a decrease in salary and employee benefits, professional fees, and FDIC
fees while being partially offset by increases in data processing cost, net
occupancy expense, office supplies expense and other noninterest expense.
Salary and employee benefits decreased approximately $386,000, a 4.3%
decrease compared with 1997 salary and employee benefits. Of the $386,000
decrease in salary and employee benefits, the Company incurred approximately
$210,000 for an employee personal computer program in 1997. The Company's
group medical costs were down approximately $360,000; pension and profit
sharing was down approximately $7,000; while the overall salary increases
for the year were approximately $191,000 or approximately 3.1% more than
1997.
Professional fees decreased approximately $44,000 and FDIC fees
decreased approximately $5,000. Net occupancy expense increased
approximately $24,000; data processing cost increased approximately
$152,000; office supplies and printing increased approximately $25,000 and
other noninterest expense increased approximately $32,000 when compared with
1997. Net occupancy expense increased due to additions to the property
accounts while data processing costs increased due additional cost of
providing credit cards.
Noninterest expense for 1997 was $18,564,000 compared to $17,540,000
for 1996, an increase of 5.8% or approximately $1,024,000 more than
noninterest expense for 1996. The increase in noninterest expense was
principally due to an increase in salary and employee benefits, FDIC fees,
data processing cost and other noninterest expense. Salary and employee
benefits increased approximately $658,000, a 7.9% increase compared with
1996 salary and employee benefits. Of the $658,000 increase in salary and<PAGE>
employee benefits, the Company incurred approximately $210,000 for an
employee personal computer program which enabled employees to purchase
personal computers for home use that would enhance the training for
technology purposes on the job site. FDIC fees increased approximately
$44,000 and data processing cost increased approximately $145,000 while
professional fees decreased approximately $26,000, and office supplies and
printing decreased approximately $10,000 when compared with 1996. Other
noninterest expense increased approximately $453,000 principally due to a
charge off of goodwill at the Cartersville Branch of Northwest Bank of
approximately $183,000; a charge to earnings for the disposition of fixed
assets of approximately $193,000, increased credit card fees and expense of
approximately $68,000, and increases in other noninterest expenses of
approximately $9,000. Net occupancy expense decreased by approximately
$240,000 or 7.1% compared with 1996 net occupancy expense. The net
occupancy decrease was due to a reduction in repairs and maintenance of
approximately $128,000, depreciation of approximately $15,000, utilities of
approximately $28,000 and net decreases in other noninterest expense items
of approximately $69,000. Repairs and maintenance has decreased due to the
use of the new network systems that have been put into place during 1996 and
1997. Depreciaton has decreased due to assets being fully depreciated and
utilities expenses have decreased during 1996 because of the discontinued
use of two branch buildings that had been placed in other assets during
1996, of which one was sold in 1997 and the other sold subsequent to
December 31, 1998.
Net noninterest expense (defined as noninterest expense less noninterest
income, as a percentage of average assets) was 2.7%, 2.5% and 3.1% for 1998,
1997 and 1996, respectively.
11<PAGE>
INCOME TAXES
- ------------
Hardwick recorded an income tax provision of $2,406,000, $2,765,000,
and $1,680,000, respectively, for 1998, 1997, 1996. The provision as a
percentage of income before taxes reflects effective rates of 32.1%, 34.6%,
and 32.0%, respectively, for the years 1998, 1997, and 1996. Note 7 to
Hardwick's consolidated financial statements presents additional
information.
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
- ----------------------------------------
Investment securities available-for-sale increased approximately
$24,738,000 during 1998 from $119,431,000, at December 31, 1997, to
$144,169,000, at December 31, 1998. At December 31, 1998 there was a net
unrealized gain net of taxes of approximately $1,104,000, on securities
available-for-sale compared with a net unrealized gain net of taxes of
approximately $590,000, at December 31, 1997. As deposits grew and loans
decreased the funds were placed in the securities portfolio. 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; however, concerted efforts will be made to increase the
level of tax exempt investment securities to complement efforts of reducing
the effective tax rate of the Registrant.
LOANS
- -----
Net loans, the largest category of earning assets at December 31, 1998,
decreased by approximately $11,681,000 or 3.8% when compared with net loans
at December 31, 1997. Average net loans represented 67.2% of total average
earning assets during 1998 while net loans at December 31, 1998 represented
55.6% of total assets.
<PAGE>
Net loans at December 31, 1997, increased by approximately $38,689,000
or 14.3% when compared with net loans at December 31, 1996. Average net
loans represented 68.8% of total average earning assets during 1997 while
net loans at December 31, 1997 represented 62.9% of total assets.
At December 31, 1997, approximately 62.1% 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 70% to 50% 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 cut backs in hours available to work.
Consumer loans are made by the Registrant's subsidiary banks on a secured
and unsecured basis. Underlying collateral for consumer loans is made with
a loan to value ratio from 70% to 85%. When stocks, U. S. treasuries and
12<PAGE>
<PAGE>
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.
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 $1,640,000 at
December 31,1998, up approximately $622,000 from 1997, an increase of
approximately 61.1%. Nonperforming loans increased by approximately
$577,000 or 179% during 1998. There was approximately $241,000 in other
real estate at December 31, 1998, up 26.2% compared to December 31, 1997.
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 1998 was
appropriate given the increase in nonperforming assets for the year as
stated above. 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 1998 was approximately $500,000 and approximately $800,000
in 1997. The loan loss provision in 1996 was approximately $396,000.
The ratio of nonperforming assets to total loans and other real estate
was .54% and .32% at December 31,1998 and 1997, respectively, which is an
increase of approximately 22 basis points.
At December 31,1998, the reserve for possible loan losses was
$7,119,000 or 2.3% of net outstanding loans, as compared to $6,984,000 or
2.2% of net outstanding loans at December 31, 1997. Management believes the
reserve for possible loan losses is adequate to provide for probable loss
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 risk of loss and loans outstanding.
While management uses available information to recognize losses on
loans, future unexpected additions to or reductions in 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
$18,415,000 or 5.8% during 1998 compared with 1997. Average time deposits
increased $11,278,000 or 5.8% during 1998. Time deposits in denominations
of $100,000 or more represented 12.8% of total deposits at December 31,1998
compared to 15.0% at December 31,1997. 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,
increased by approximately $7,137,000 or 5.8% in 1998 from 1997. Average
noninterest bearing demand deposit accounts increased approximately<PAGE>
$5,260,000. These two categories increased 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.
Hardwick's average interest bearing deposits increased approximately
$21,017,000 or 7.1% during 1997 compared with 1996. Average time deposits
increased $21,685,000 or 12.6% during 1997. Time deposits in denominations
of $100,000 or more represented 15.0% of total deposits at December 31,1997
compared to 13.2% at December 31, 1996.
13
<PAGE>
<PAGE>
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 4%.
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 acquisitions are expected to maintain a strong capital position of
one or two hundred 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, 1998.
</TABLE>
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
-------------------------
AS OF DECEMBER 31, 1998
-----------------------
AMOUNT RATIO
------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tier 1 Capital $ 51,035 13.01%
Tier 1 Capital minimum requirement 15,691 4.00%
Excess 35,344 9.01%
Total Capital 55,966 14.27%
Total Capital minimum requirement 31,383 8.00%
Excess 24,583 6.27%
Risk adjusted assets net of goodwill
and excess allowance $ 392,283
<CAPTION>
LEVERAGE RATIO
AS OF DECEMBER 31,1998
AMOUNT RATIO
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tier 1 Capital to adjusted total assets
(Leverage Ratio) $ 51,035 10.01%
Minimum leverage requirement 15,294 3.00%
Excess 35,741 7.01%
Average quarterly total assets, net of
goodwill <F1> $ 509,801
<FN>
<F1> Average total assets, net of goodwill for the quarter ended December 31,
1998.
</FN>
(/TABLE>
14
<PAGE>
<PAGE>
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 31,1998, cash equivalents increased approximately
$30,438,000 from December 31, 1997. Operating and financing activities
provided cash of approximately $7,401,000 and approximately $38,159,000,
respectively, while investing activities used cash of approximately
$15,122,000. Operating activities provided cash principally from net income
of approximately $5,087,000, depreciation and amortization of approximately
$2,459,000, provision for loan losses of approximately $500,000, a loss on
the disposal of premises and equipmentof approximately $2,000 and an
increase in other liabilities of approximately $114,000, while being offset
by a gain on other real estate sold of approximately $26,000, deferred tax
benefits of approximately $207,000, net securities gains of approximately
$189,000, an increase in accrued interest receivable of approximately
$196,000 and an increase in other assets of approximately $143,000. Funds
provided from financing activities included approximately $35,604,000 from a
net increase in demand, NOW and savings deposits, a net increase in
securities sold under agreements to repurchase of approximately $5,870,000,
proceeds from exercise of stock options of approximately $1,821,000.
Additionally, funds used in financing activities included maturing time
deposits greater than the sale of time deposits of approximately $2,853,000;
repayments of FHLB advances of approximately $75,000; principal payments on
capital lease obligations of approximately $208,000 and payments of cash
dividends of approximately $2,000,000.
Significant investing activities using cash included purchases of
investment securities available-for-sale of approximately $80,878,000 and
purchases of premises and equipment of approximately $2,470,000. Investing
activities providing cash included proceeds from maturities of investment
securities available-for-sale of approximately $27,666,000; proceeds from
sales of investment securities available-for-sale of approximately
$29,280,000 and loans collected greater than loans originated of
approximately $10,889,000. Additionally, cash was provided from proceeds
from the sale of other real estate owned of approximately $268,000 and
proceeds from the sale of premises and equipment of approximately $123,000.
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, 1998, (dollars in
thousands):
15<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
One Year
Within Through Over
One Year Five Years Five Years Total
-------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Interest sensitive assets $ 155,148 228,544 110,140 493,832
Interest sensitive liabilities 324,229 49,909 - 374,138
----------- ------- ------- -------
Periodic Interest sensitivity gap $ (169,081) 178,635 110,140 119,694
=========== ======= ======= =======
Cumulative net earning assets $ (169,081) 9,554 119,694 119,694
=========== ======= ======= =======
Cumulative ratio of earning assets
to interest-bearing liabilities 47.9% 102.6% 132.0% 132.0%
=========== ======= ======= =======
(/TABLE>
At December 31,1998, 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 1998, Hardwick's capital expenditures approximated $2,470,000.
Included was approximately $1,243,000 for building improvements at the main
office of First National Bank of Northwest Georgia in Calhoun, Georgia, and
the purchase of land of approximately $224,000 and a building of
approximately $210,000 adjacent to the main office of Hardwick Bank in
Dalton, Georgia. Office furniture, fixtures and office equipment of
approximately $159,000 were purchased. Computer equipment for the
continuing upgrade of the local and wide area networks of approximately
$491,000 was purchased during 1998. During 1998 approximately $143,000 in
automobiles were purchased. The Registrant is projecting approximately
$1,100,000 in capital expenditures in 1999, comprising of approximately
$600,000 in building improvements, approximately $400,000 in office and
computer equipment and approximately $100,000 in 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<PAGE>
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.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". Adoption of
this standard is discussed in Note 16 to Hardwick's consolidated financial
statements. As the Company sponsors no pension or other postretirement
benefits, the disclosure requirements of SFAS No. 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits" are not
applicable.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures and Segments of an Enterprise and Related
Information", which is effective for financial statements for periods
beginning after December 15, 1997. This statement establishes standards for
the way that public business enterprises report information about operating
16<PAGE>
<PAGE>
segments. Under the provisions of this statement, operating segments can be
aggregated into one segment if the segments have similar economic
characteristics, products and services, types or classes of customers, and
regulatory environments. 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. Segment
information is reported in Note 17 to Hardwick's consolidated financial
statements on page F-24.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. This statement could increase volatility in earnings and other
comprehensive income. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company does not hold or
engage in transactions using derivative financial instruments and does not
believe that adoption of the standard will have a material impact on either
its balance sheet or results of operations.
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.
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, being 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 will be performed on the majority of the Registrant's existing
systems. These costs will be 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<PAGE>
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.
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 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 will be
completed by March 31, 1998. 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.
17<PAGE>
<PAGE>
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 $745,000. Approximately $607,000 has been incurred to date
and included in the results of operations as an expense or capitalized and
is to be amortized over the the respective useful lives. The remaining
$138,000 has been included in the expenditures budget for 1999.
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, except for the Federal
Reserve check clearing services division, have completed testing and
reviewing of all critical year 2000 date issues in their systems. The
Federal Reserve has stated that their systems will be compliant by the end
of 1999. If the Federal Reserve does not complete remediation of their
system in time, HHC has an alternate check clearing partner that has
completed all Year 2000 certification tests.
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 the Year 2000 Issues. HHC has hosted community seminars, developed
statement stuffers, and placed detailed brochures about the Year 2000 issues
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 was 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<PAGE>
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. 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.
18<PAGE>
<PAGE>
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 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 was established for each duty or function
(i.e., staff problems, utility outages, software problem).
* The degree of negative impact on its business if the risk 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 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).
Employee Location Directions: Detailed navigational directions to an
----------------------------
employee's home for emergency purposes and possible communication
disruptions.<PAGE>
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 Y2K committee reviews progress on the
contingency llans biweekly and the command post and Board of Directors
review progress once a month.
19
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
AVERAGE BALANCE SHEETS, INTEREST RATES
AND INTEREST DIFFERENTIALS
Years Ended December 31,
------------------------
(Dollars in thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net (a) $ 302,205 285,444 255,043
Taxable investment securities 102,129 95,098 91,785
Non-taxable investment securities 28,650 21,576 29,389
Federal funds sold and deposits in banks 16,736 12,832 8,850
----------- ---------- ---------
Total interest-earning assets 449,720 414,950 385,067
Cash and due from banks 21,894 22,168 22,394
Premises and equipment 14,175 14,574 15,869
Other assets 9,948 10,492 10,749
----------- ---------- ---------
Total assets $ 495,737 462,184 434,079
=========== ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction accounts (b) $ 100,398 93,698 93,810
Savings deposits 29,581 29,144 29,700
Time deposits 205,103 193,825 172,140
Federal funds purchased and securities
sold under agreements to repurchase 5,147 4,442 3,024
FHLB advances 8,196 2,130 346
Note payable 0 808 440
Capital lease obligation 368 569 757
----------- ---------- ---------
Total interest-bearing liabilities 348,793 324,616 300,217
Noninterest-bearing demand deposits 89,216 83,956 83,744
Other liabilities 4,440 4,093 3,485
----------- ---------- ---------
Total liabilities 442,449 412,665 387,446
Stockholders' equity 53,288 49,519 46,633
----------- ---------- ---------
Total liabilities and
stockholders' equity $ 495,737 462,184 434,079
=========== =========== =========
(/TABLE>
(a) Average loans are shown net of unearned discounts and deferred loans fees
and the reserve for possible loan losses. Nonperforming loans, including
nonaccrual loans, are included, but not material.
(b) Includes money market deposit accounts.
20
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS, INTEREST RATES
AND INTEREST DIFFERENTIALS (continued)
(Dollars in thousands) Years ended December 31,
----------------------------------------------------
1998 1997 1996
-------------- ----------- ------------
<S> <C> <C> <C>
Interest earned on:
Loans, net (a) (b) $ 28,764 27,671 25,131
Taxable investment securities 6,503 5,820 5,273
Nontaxable investment securities (a) 1,605 1,502 2,328
Federal funds sold and bank deposits 870 693 460
------------- ----------- ------------
Total interest income 37,742 35,686 33,192
------------- ----------- ------------
Interest paid on:
Transaction accounts (c) 2,502 2,312 2,383
Savings deposits 741 740 757
Time deposits 11,911 11,180 9,780
Federal funds purchased and
securities sold under agreements to
repurchase 224 205 131
FHLB advances 430 126 28
Note payable 0 55 27
Capital lease obligation 30 45 63
------------- ----------- ------------
Total interest expense 15,838 14,663 13,169
------------- ----------- ------------
Net interest income $ 21,904 21,023 20,023
============= =========== ============
Average percentage earned on:
Loans, net (a)(b) 9.5% 9.7% 9.9%
Taxable investment securities 6.4% 6.1% 5.7%
Nontaxable investment securities (a) 5.6% 7.0% 7.9%
Federal funds sold and bank deposits 5.2% 5.4% 5.2%
Total interest income 8.4% 8.6% 8.6%
Average percentage paid on:
Transaction accounts(c) 2.5% 2.5% 2.5%
Savings deposits 2.5% 2.5% 2.5%
Time deposits 5.8% 5.8% 5.7%
Federal funds purchased and
securities sold under agreements to
repurchase 4.3% 4.6% 4.3%
FHLB advances 5.2% 5.9% 8.1%
Note payable - 6.8% 6.1%
Capital lease obligation 8.1% 7.9% 8.3%
Total interest expense 4.5% 4.5% 4.4%
Net interest margin 4.9% 5.1% 5.2%
(/TABLE>
(a) Reflects taxable equivalent adjustments using a tax rate of 34% in
adjusting interest on nontaxable loans and securities to a fully taxable
basis.
(b) Interest income includes loan fees as follows (in thousands):
1998-$1,234: 1997-$1,320; 1996-$1,340.
(c) Includes money market accounts.
21<PAGE>
<PAGE>
AVERAGE BALANCE SHEETS, INTEREST RATES,
AND INTEREST DIFFERENTIALS (continued)
Due to
Increase Changes in
(Dollars in thousands) 1998 1997 (Decrease) Volume Rate (a)
---- ---- --------- ------ --------
<S> <C> <C> <C> <C> <C>
Interest earned on:
Loans, net (b) $ 28,764 27,671 1,093 977 116
Taxable investment securities 6,503 5,820 683 42 641
Nontaxable investment securities (b) 1,605 1,502 103 7 96
Federal funds sold 870 693 177 10 167
---------- ---------- ---------- - --------- ----------
Total interest income 37,742 35,686 2,056 1,036 1,020
---------- ---------- ---------- - --------- ----------
Interest paid on:
Transaction accounts (c) 2,502 2,312 190 5 185
Savings deposits 741 740 1 - 1
Time deposits 11,911 11,180 731 42 689
Federal funds purchased and
securities sold under
agreements to repurchase 224 205 19 1 18
Other borrowed funds 430 126 304 18 286
Note payable to bank - 55 (55) (55) -
Capital lease obligation 30 45 (15) (1) (14)
---------- ---------- ---------- --------- ----------
Total interest expense 15,838 14,663 1,175 10 1,165
---------- ---------- ---------- --------- ----------
Net interest income $ 21,904 21,023 881 1,026 (145)
========== ========== ========= ========= ==========
<CAPTION>
Due to
Increase Changes in
(Dollars in thousands) 1997 1996 (Decrease) Volume Rate (a)
---- ---- --------- ------ --------
Interest earned on:
Loans, net (b) $ 27,671 25,131 2,540 3,010 (470)
Taxable investment securities 5,820 5,273 547 189 358
Nontaxable investment securities(b) 1,502 2,328 (826) (617) (209)
Federal funds sold 693 460 233 207 26
---------- ---------- ---------- --------- ----------
Total interest income 35,686 33,192 2,494 2,789 (295)
Interest paid on:
Transaction accounts (c) 2,312 2,383 (71) (3) (68)
Savings deposits 740 757 (17) (14) (3)
Time deposits 11,180 9,780 1,400 1,236 164
Federal funds purchased and
securities sold under
agreements to repurchase 205 131 74 61 13
Other borrowed funds 126 28 98 145 (47)
Note payable to bank 55 27 28 22 6
Capital lease obligation 45 63 (18) (16) (2)
---------- ---------- ---------- --------- ----------
Total interest expense 14,663 13,169 1,494 1,431 63
---------- ---------- ---------- --------- ----------
Net interest income $ 21,023 20,023 1,000 1,358 (358)
========== ========== ========== ========= ==========
(a) The change in interest due to both rate and volume has been allocated to the rate component.
(b) Reflects taxable equivalent adjustments using a tax rate of 34% in adjusting interest on non-taxable loans and securities
to a fully taxable basis.
(c) Includes money market deposit accounts.
(/TABLE>
31<PAGE>
<PAGE>
INVESTMENT PORTFOLIO
The amortized cost and approximate fair value of investment securities
available-for-sale for the indicated years are presented below (in thousands):
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- -----
<S> <C> <C> <C> <C>
US treasury & government agencies $ 74,997 756 (118) $ 75,635
Mortgage backed and other debt and equity securities 34,592 105 (92) 34,605
State and Municipal 32,907 1,028 (6) 33,929
-------- ----- ---- --------
Total investment securities $142,496 1,889 (216) $144,169
======== ===== ==== ========
(/TABLE>
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------------- -------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
US treasury & government agencies $ 72,776 72,871 $ 75,682 75,162
Mortgage backed and other debt and equity securities 23,345 23,324 18,645 18,505
State and Municipal 22,416 23,236 25,347 26,499
-------- ------- -------- --------
Total investment securities $118,537 119,431 $119,674 120,166
======== ======= ======== ========
(/TABLE>
The following table shows the contractual maturities of investment
securities, based on their estimated fair value, at December 31, 1998
(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>
<TABLE>
<CAPTION>
Mortgage
U.S. Backs
Treasury & & Other State
Government Debt and
Agencies Securities Municipal Total
----------- ----------- --------- -----
<S> <S> <C> <C> <C> <C>
Within one year -amount 13,643 91 1,532 15,266
-yield 6.14% 6.40% 9.69%
After one year but within five years -amount 40,884 30,430 12,479 83,793
-yield 6.06% 5.99% 6.78%
After five but within 10 years -amount 20,114 2,125 14,899 37,138
-yield 6.40% 6.24% 7.11%
After 10 Years -amount 994 - 5,019 6,013
-yield 6.36% - 6.38%
23 <PAGE>
<PAGE>
LOAN PORTFOLIO
Types of Loans
</TABLE>
<TABLE>
<CAPTION>
The amount of loans outstanding for the indicated years are shown in the
following table according to types of loans
(Dollars in thousands):
December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate loans $ 190,071 193,424 161,489 137,244 139,254
Commercial loans 59,719 60,929 53,836 53,989 51,149
Consumer loans 26,738 35,122 39,102 40,595 34,856
Other loans 29,363 28,081 24,214 14,362 9,805
----------- --------- ---------- ---------- ----------
Total loans 305,891 317,556 278,641 246,190 235,064
Less: Unearned discounts and deferred
loan fees (294) (413) (393) (387) (654)
Reserve for loan losses (7,119) (6,984) (6,778) (6,614) (6,566)
----------- --------- ---------- ---------- ----------
Net loans $ 298,478 310,159 271,470 239,189 227,844
========== ========= ========== ========== ==========
(/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,
1998. Also, included are the related periodic and cumulative gaps
for each period.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
One Over
Year Five Years
Within Through and Non-
One Five Rate
Year Years Sensitive Total
------ ------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Total loans $ 94,151 144,751 66,989 305,891
Taxable investment securities 15,693 71,314 23,233 110,240
Nontaxable investment securities 1,532 12,479 19,918 33,929
Federal funds sold and deposits in banks 43,772 - - 43,772
----------- ------- ------- -------
Total earning assets 155,148 228,544 110,140 493,832
----------- ------- ------- -------
INTEREST-BEARING LIABILITIES:
Transaction accounts (a) 113,227 - - 113,227
Savings deposits 29,547 - - 29,547
Time deposits 156,027 41,708 - 197,735
Federal funds purchased and securities sold under
agreements to repurchase 25,209 - - 25,209
FHLB advances - 8,156 - 8,156
Capital lease obligations 219 45 - 264
----------- ------- ------- -------
Total interest-bearing liabilities 324,229 49,909 - 374,138
Noninterest-bearing funds - - 102,027 102,027
----------- ------- ------- -------
Total interest-bearing and noninterest-bearing funds 324,229 49,909 102,027 476,165
GAP SUMMARY
Periodic net earning assets $ (169,081) 178,635 8,113 17,667
========== ======= ======= =======
Ratio of earning assets to interest-bearing liabilities
and noninterest-bearing funds 47.9% 457.9% 108.0% 103.7%
========== ======= ======= =======
Cumulative net earning assets $ (169,081) 9.554 17,667 17,667
========== ======= ======= =======
Cumulative ratio of earning assets to interest-
bearing liabilities and noninterest-bearing funds 47.9% 102.6% 103.7% 103.7%
========== ======= ======= =======
(a) Includes NOW and money market accounts.
(/TABLE>
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.
24<PAGE>
<PAGE>
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following table represents information concerning
outstanding balances of nonperforming loans at December 31, 1998,
1997, 1996, 1995 and 1994. 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"):
Nonaccrual Past-Due Restructured
Loans Loans Loans Total
---------- -------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1998 $ 900 499 - 1,399
December 31, 1997 $ 323 504 - 827
December 31, 1996 $ 449 551 49 1,049
December 31, 1995 $ 507 201 52 760
December 31, 1994 $ 1,401 16 55 1,472
(/TABLE>
The components of nonperforming loan categories at December 31,1998 are
presented below (in thousands)
Nonaccrual Past-Due Restructured
Loans Loans Loans Total
---------- --------- ------------- -----
<S> <C> <C> <C> <C>
Real estate loans $ 549 269 - 818
Commercial loans 351 198 - 549
Consumer loans - 32 - 32
-------- ------ ----- ------
Total $ 900 499 - 1,399
======== ====== ===== ======
(/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 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, 1996, has been dispersed principally over the
real estate and commercial loan categories. 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, $98,000; $108,000, and $123,000, in 1998,
1997, and 1996, respectively, which was included in
earnings only when collected. Nonaccrual loan interest collected and<PAGE>
reported in earnings was approximately $34,000, $28,000
and $153,000 for 1998, 1997 and 1996, respectively.
OTHER REAL ESTATE
Set forth below is a schedule of other real estate at
December 31, 1998, 1997, 1996, 1995 and 1994, respectively:
(Dollars in thousands)
25<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Loans Transferred To Premises Transferred To
Other Other Real Estate Other Real Estate
Real Estate During the Period During the Period
Date Balance Ended Ended
---- ----------- ------------------- ----------------------
<S> <C> <C> <C>
December 31, 1998 $ 241 292 0
December 31, 1997 $ 191 0 191
December 31, 1996 $ 0 0 0
December 31, 1995 $ 25 $ 90 0
December 31, 1994 $ 15 $ 68 0
(/TABLE>
Other real estate includes properties acquired through foreclosure or
acceptance of deeds in lieu of foreclosure and properties transferred from
premises and equipment no longer used in banking activities. 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.
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
writedowns 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 was a residence and
the $80,000 was undeveloped land. During 1995 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. There was no balance in other
real estate at December 31, 1996.
Other assets of approximately $191,000 were reclassified as other real
estate during 1997. The other assets had been banking premises in previous
years and transferred to other assets during 1996 and subsequently written
down by approximately $20,000, to its estimated net realizable value.
Of the $292,000 in loans transferred to other real estate in 1998,
there were three construction loans. Subsequent to being transferred to
ORE, two of the construction loan properties booked at approximately
$187,000 were sold for an approximate total of $203,000 which resulted in a
gain of approximately $16,000. The old Taylorsville Branch Building, which
was in ORE at the beginning of the year of approximately $55,000, was sold
for approximately $65,000 resulting in a gain of approximately $10,000. The
properties remaining in ORE at December 31, 1998, were the remaining
construction loan of approximately $105,000 and the old Fairmount Branch of
approximately $136,000, for a total of approximately $241,000. Subsequent
to December 31, 1998, the old Fairmount Branch property was sold for
approximately $136,000, which was the carrying value of the property. The
carrying value of other real estate approximates the market value. No
material effect on earnings is expected from the disposition of the other
real estate.
26<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN EXPERIENCE
Year Ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average amount of net loans outstanding $ 302,205 285,444 255,043 236,985 218,140
========= ======= ======= ======= =======
Amount of reserve for possible loan losses
at beginning of period $ 6,984 6,778 6,614 6,566 6,668
---------- ------- ------- ------- -------
Amount of loans charged off during period:
Real estate loans 165 102 157 171 111
Commercial loans 609 528 540 466 139
Consumer loans 145 525 202 569 271
Other loans - - - - -
---------- ------- ------- ------- -------
Total loans charged off 919 1,155 899 1,206 521
---------- ------- ------- ------- -------
Amount of recoveries during period:
Real estate loans 46 108 58 117 279
Commercial loans 332 256 409 767 296
Consumer loans 176 197 200 370 444
Other loans - - - - -
---------- ------- ------- ------- -------
Total loans recovered 554 561 667 1,254 1,019
---------- ------- ------- ------- -------
Net loans (recovered) charged off during period 365 594 232 (48) (498)
---------- ------- ------- ------- -------
Additions to reserve for possible loan losses
charged to operations 500 800 396 - (600)
---------- ------- ------- ------- -------
Amount of reserve for possible loan losses
at end of period $ 7,119 6,984 6,778 6,614 6,566
========= ======= ======= ======= =======
Ratio of net (recoveries) charge-offs during
period to average net loans outstanding
for the period .12% .21% .09% (.02%) (0.23%)
========= ======= ======= ======= =======
Ratio of reserve for possible loan losses
at period end to:
Total loans outstanding at period end 2.33% 2.20% 2.44% 2.69% 2.80%
========= ======= ======= ======= =======
Nonperforming assets at period end <F1> 434.09% 686.05% 646.14% 842.55% 441.56%
========= ======= ======= ======= =======
<FN>
<F1> Nonperforming assets included nonperforming loans and other real estate
</FN>
(/TABLE>
ALLOCATION OF RESERVE FOR PROBABLE 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
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 $25,000 secured and all commercial loan concentrations over
$200,000 unsecured or secured. Hardwick has strict loan underwriting
27<PAGE>
<PAGE>
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.
The review process described above places emphasis on nonperforming and
past-due loans and is designed to identify probable 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, by assigning
ratings to the problem loan list as OAEM, "other assets especially
mentioned", Substandard and Doubtful. The ratings are identical to the
ratings used by bank regulatory authorities for credits which are classified
during their examinations. 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 is 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, 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>
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
-------------------------- ------------------------- ------------------------
% 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 $ 2,324 62% 2,370 61% 1,043 59%
Commercial loans 1,505 20% 1,036 19% 2,241 19%
Consumer loans 1,433 9% 1,309 11% 1,641 14%
Other loans 549 9% 124 9% - 8%
Unallocated 1,308 N/A 2,145 N/A 1,853 N/A
-------- ---- ----- ---- ----- ----
Total $ 7,119 100% 6,984 100% 6,778 100%
======== ==== ===== ==== ====== ====
(/TABLE>
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
% of % of
Loans in Loans in
Amount Category Amount Category
------ -------- ------ --------
<S> <C> <C> <C>
Real estate loans $ 1,453 56% 1,675 59%
Commercial loans 2,304 22% 1,561 22%
Consumer loans 993 16% 800 14%
Other loans 186 6% 104 5%
Unallocated 1,678 N/A 2,426 N/A
-------- ------ ------ ------
Total $ 6,614 100% 6,566 100%
======== ====== ====== =======
(/TABLE>
<PAGE>
The loan loss allowance increased by approximately $135,000 for the
year ended December 31, 1998, to approximately $7,119,000, from
approximately $6,984,000 at December 31, 1997. The change in nonperforming
loans from approximately $827,000 to approximately $1,399,000, was an
increase of approximately 69.2%. Loans outstanding as a whole decreased
approximately $11,665,000, or 3.7%. The increase in the nonperforming loans
is reflected in the increase in the allowance for the year ended December
31, 1998. Nonaccrual loans increased approximately $577,000 while past due
loans decreased approximately $5,000. Allocations have been made for the
concentrated work force within the tufted carpet industry and the probable
loss precipitated by consolidation, which is occurring in the tufted carpet
industry. Two large privately owned corporations were sold to two large
publicly traded corporations during 1998 which will effect the customer base
of both banks of the Registrant, the results of which is not known to the
Registrant currently.
The loan loss allowance allocated to real estate loans decreased by
approximately $46,000 during 1998, a decrease of approximately 1.9%. The
loan loss allowance allocated to commercial loans increased approximately
$469,000 during 1998, an increase of approximately 45.3%. The loan loss
allowance allocated to consumer loans increased by approximately $124,000
during 1998, an increase of approximately 9.5%. The loan loss allowance
allocated to other loans increased approximately $425,000 during 1998, an
increase of approximately 343%. While the increases in the loan loss
allowance allocated to commercial, consumer and other loans were increased
due to grade changes within the individual categories, the concentrated work
force in the tufted carpet industry had the majority of the effect on those
increases. The decrease in the loan loss allowance allocated to real estate
loans is due principally to the change in grades for loans within that
category. The increase in nonaccrual loans exceeded the expected increase
of approximately $73,000 when compared with past due loans at December 31,
1997. The level of the loan loss allowance is 5.1 times the level of
nonperforming loans at December 31, 1998. The level of the loan loss
allowance of 2.33% at December 31, 1998, is 19.4 times greater than the .12%
of net charge-offs, which is computed as a percent of average net-loans
outstanding for the year ended December 31, 1998. The Board of Directors of
the Registrant and the Banks along with management of the Banks are of the
opinion that because a concentrated industry has such a large percentage of
the market area workforce employed, only slight downturns in the economy
have significant effects on its customers to result in their inability to
pay principal and interest on their loans.
28<PAGE>
<PAGE>
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Over one
One year year through Over
Loan Category <F1> <F2> <F3> or less five years Five years Total
-------- ------------- ---------- -----
<S> <C><C> <C> <C> <C>
Real estate $ 38,184 97,778 54,109 190,071
Commercial 28,852 23,528 7,339 59,719
Consumer and other loans 27,115 23,445 5,541 56,101
---------- ------- ------ -------
Total $ 94,151 144,751 66,989 305,891
========== ======= ====== =======
Loans due after one year:
Having predetermined interest rates $ 157,137
Having floating interest rates 54,603
----------
Total $ 211,740
==========
<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)
1998 1997 1996
---- ---- ----
Noninterest-bearing demand deposits $ 89,216 83,956 83,744
---------- -------- --------
Interest-bearing demand and
money market deposits 100,398 93,698 93,810
Savings deposits 29,581 29,144 29,700
Time deposits 205,103 193,825 172,140
---------- -------- --------
Total interest-bearing deposits 335,082 316,667 295,650
---------- -------- --------
Total average deposits $ 424,298 400,623 379,394
=========== ======== ========
(/TABLE>
29<PAGE>
<PAGE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
The maturity of time deposits of $100,000 or more as of December 31,1998
are presented below (in thousands):
3 months or less $ 21,099
Over 3 months through 6 months 12,173
Over 6 months through 12 months 14,599
Over 12 months 8,565
----------
Total Outstanding $ 56,436
==========
RETURN ON EQUITY AND ASSETS
Certain financial ratios are presented below:
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.03% 1.13% 0.82%
====== ====== ======
Return on average equity 9.55% 10.55% 7.66%
====== ====== ======
Dividend payout ratio-based on dividends declared 40.53% 32.34% 56.27%
====== ====== ======
Average equity to average assets 10.75% 10.71% 10.74%
====== ====== ======
(/TABLE>
ITEM 7 (a): MARKET RISK MANAGEMENT
In January 1997, the Securities and Exchange Commission adopted new
rules that require quantitative and qualitative disclosures of market risk
for financial instruments. The quantitative market risk disclosures must be
classified between financial instruments entered into for trading purposes
and all other financial instruments. As of December 31, 1998, the Company
holds no financial instruments for trading purposes.
Through the normal course its business activities, the Company is
exposed to interest rate risk. Fluctuations in interest rates may result in
changes in the fair values of the Company's financial instruments, cash
flows, and net interest income. The Company's asset liability management
process is designed to manage its exposure to interest rate risk in order to
optimize the Company's financial position, liquidity, and net interest
income, while maintaining a relatively neutral position to interest rate
changes. The Company structures the mix, rates, and maturities of its
financial instruments in order to maintain an acceptable level of interest
rate risk. The Company uses a simulation modeling process to evaluate and
measure its interest rate sensitivity. The simulations incorporate
assumptions about balance sheet changes, such as loan and deposit growth and
pricing, changes in funding mix, and asset and liability repricing and
maturity characteristics. Simulations are run under various interest rate
scenarios to determine the impact on the Company's financial position,
liquidity, and earnings. From these scenarios, interest rate risk is
quantified and appropriate strategies are developed and implemented. Senior
<PAGE>
management regularly reviews the overall interest rate risk position and
asset liability management strategies.
On December 31, 1998, the interest rate risk position of the Company
was relatively neutral as the impact of an instantaneous increase or
decrease in interest rates of 100 basis points would have caused net
interest income to change in a converse direction of the interest rate
change by approximately $157,000 or .73%. This variance is compared to
projected net interest income if rates remain stable. These simulated
computations should not be relied upon as indicative of actual future
results. Furthermore, the computations do not contemplate certain actions
that management could undertake in response to future changes in interest
rates.
The Analysis of Interest Rate Sensitivity Table (Gap Analysis)
represents a snapshot of the balance sheet structure of the Company as of
year-end, but it does not reflect the complexities of the interest
sensitivity of the Company as reflected in the simulation modeling process.
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.
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.
30<PAGE>
<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 19,1999 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 4,225,996 shares
outstanding on March 19, 1999.
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Owned
Name (Age) and Business Background (Percent of Class)
---------------------------------- ----------------------
<S> <C>
Kenneth E. Boring (74) 1,660,000 (39.3%) <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.
James M. Boring, Jr. (77) 1,127,790 (26.7%) <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.
Wayne R. Broaddus (65) 5,307* <F3>
Director of Hardwick since December 1994;
President & CEO of Associated Aggregates
International, Inc.
Robert M. Chandler (50) 59,530 (1.4%) <F4>
Director of Hardwick from February
1985 through March 1988, and since
February 1989;Director of Hardwick
Bank since December 1985; Vice
President, Queen Carpet Corp.
(Patcraft Division), a
Manufacturer of carpet.
Richard R. Cheatham (55) 1,595,300 (37.7%) <F5>
Director of Hardwick since February
1995; Vice Chairman of
Hardwick since April 1995; Partner,
Kilpatrick Stockton LLP, Attorneys at Law.
31<PAGE>
David J. Lance (44) 56,475 (1.3%) <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 (58) 5,860 *
Director of Hardwick since March 1981;
President and Chief Executive Officer of
Dalton Supply Co.,
Inc., a wholesale distributor of
industrial supplies.
Marshall R. Mauldin (53) 62,280 (1.5%) <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 (49) 53,600 (1.3%) <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 (54) 12,500 *
Executive Vice President of Hardwick Bank since
September 1992; Previously City President of NationsBank
Dalton, Ga.
All Executive Officers and Directors as a Group 3,043,842 (72.0%)
(10 Persons)
______________________________
* Represents less than one percent of class.
<FN>
<F1> Includes 670,400 shares owned directly; 14,600 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 1,072,033 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 23,075 shares owned directly; 800 shares owned through an IRA;
17,160 shares in a trust in which he is beneficiary; 5,575 shares
owned by his wife; 660 shares owned by his wife through an IRA; and
12,260 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 25,250 shares owned directly; 1,900 shares owned through an
IRA; and 825 shares owned by his wife, and 28,500 shares under a
restricted stock award agreement.
32<PAGE>
<PAGE>
<F7> Includes 33,360 shares owned directly and 420 shares owned through an
IRA and 28,500 shares under a restricted stock award agreement.
<F8> Includes 25,100 shares owned directly and 28,500 shares under
a restricted 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.
33<PAGE>
<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 Corporation for the
fiscal years ended December 31, 1998, 1997, and 1996, of those persons who
were at December 31,1998, (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 1998, exceeded $100,000 (the "Named
Officers").
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-----------------------------------------------------
All Other
Name & Principal Position Year Salary Bonus Other Compensation
------------------------- ---- ------ ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Kenneth E. Boring 1998 $ 120,000 $ 26,400 $ 33,791 $ 10,178
Chairman of the Board and Chief 1997 120,000 25,200 29,424 10,094
Executive Officer, Hardwick 1996 120,000 20,400 22,349 8,414
James M. Boring, Jr. 1998 $ 90,000 $ 19,800 $ 21,975 $ 7,637
President, Hardwick 1997 90,000 18,900 24,688 7,714
1996 90,000 13,500 15,409 7,014
Marshall R. Mauldin 1998 $ 120,000 $ 26,400 $ 18,731 $ 10,165
President & CEO, Hardwick Bank 1997 120,000 25,200 18,146 10,094
1996 120,000 20,400 15,947 8,414
David J. Lance 1998 $ 120,000 $ 26,400 $ 25,451 $ 10,165
President & CEO, Northwest 1997 120,000 25,200 22,852 10,088
Bank 1996 120,000 20,400 17,327 8,414
Michael Robinson 1998 $ 120,000 $ 26,400 $ 24,027 $ 10,340
Executive Vice President and 1997 120,000 25,200 23,249 10,256
CFO, Hardwick 1996 120,000 20,400 18,188 8,414
Stanley A. Crawford 1998 $ 96,000 $ 23,040 $ 20,334 $ 7,696
Executive Vice President 1997 93,000 21,390 20,267 7,695
Hardwick Bank 1996 93,000 17,670 16,899 6,524
(/TABLE>
34
<PAGE>
<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,
1998. There were 6,250 grants each 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. During 1998, Marshall R. Maudlin, David J. Lance and Michael
Robinson, each exercised 18,750 shares at $12.00 per share. During 1998
Stanley A. Crawford exercised 12,500 shares at $12.00 per share.
</TABLE>
<TABLE>
<CAPTION>
No. Of Shares Underlying Value of Unexercised
Unexercised Options Held at In- the Money Options at
December 31, 1998 December 31, 1998
------------------------------ -------------------------------
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 None None None
Marshall R. Mauldin 6,250 None $29,688 None
David J. Lance 6,250 None $29,688 None
Michael Robinson 6,250 None $29,688 None
(/TABLE>
Of the named officers, Marshall R. Mauldin, David J. Lance and Michael
Robinson each have 6,250 grants in December 1994 under the 1993 plan at a
grant price of $16.25.
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 1995 and as of March 15, 1999, the award of
28,500 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 19, 1999, have been included in the ownership section
above for the purposes of stock percentage ownership by directors and
executive officers.
DIRECTOR COMPENSATION
During 1998, each non-employee director of Hardwick was paid $800 for
regular and $400 for committee meetings attended for their services as
directors.
35<PAGE>
<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 Registrants' common stock which were owned at
March 19,1999, 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 4,225,996 shares outstanding at March 19,
1999. For information concerning beneficial ownership of the Registrant's
common stock by directors and management, see Item 10 above.
</TABLE>
<TABLE>
<CAPTION>
Name and Addreess of Number of Percent of
Beneficial Owner Shares Owned Class
-------------------- ------------ ----------
<S> <C> <c<
Kenneth E. Boring 1,660,000 39.3% <F1>
314 N. Selvidge Street
Dalton, Ga. 30720
James M. Boring, Jr. 1,127,790 26.7% <F2>
314 N. Selvidge Street
Dalton, Ga. 30720
Boring Family Trust 881,700 20.9% <F3>
314 N. Selvidge Street
Dalton, Ga. 30720
Richard R. Cheatham 1,595,300 37.7% <F4>
1100 Peachtree Street, Suite 2800
Atlanta, Georgia 30309
______________________________________
<FN>
<F1> Includes 670,400 shares owned directly; 14,600 shares owned through an
Individual Retirement Account (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 1,072,033 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>
36<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant and it subsidiary 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 16.3% of total
shareholders equity of Hardwick at December 31, 1998. 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, 1998 and 1997.
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.
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.
37<PAGE>
<PAGE>
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).
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.
99 Proxy Materials
38
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent
Public Accountants F-1
Consolidated Balance Sheets
December 31, 1998 and 1997 F-2
Consolidated Statements of Income for the
Years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Stockholders'
Equity for the Years ended December 31, 1998, 1997 and F-5
1996
Consolidated Statements of Cash Flows for the
Years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-8
<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, 1998 and 1997 and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. 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, 1998 and 1997 and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 19, 1999
F-1
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Dollars in Thousands, Except Par Value)
</TABLE>
<TABLE>
<CAPTION>
ASSETS
1998 1997
--------- ---------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 25,305 $ 25,533
FEDERAL FUNDS SOLD 43,648 12,982
--------- ---------
Total cash and cash equivalents 68,953 38,515
INVESTMENT SECURITIES, available for sale 144,169 119,431
LOANS, net 298,478 310,159
PREMISES AND EQUIPMENT, net 15,277 14,497
ACCRUED INTEREST RECEIVABLE 4,184 3,988
EXCESS OF COST OVER FAIR VALUE OF SUBSIDIARIES ACQUIRED, net 3,978 4,556
OTHER ASSETS 1,881 1,746
-------- --------
Total assets $536,920 $492,892
========= ========
</TABLE>
F-2<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
--------- ---------
<S> <C> <C>
DEPOSITS:
Noninterest-bearing $102,027 $ 86,904
Interest-bearing 340,509 322,881
-------- --------
Total deposits 442,536 409,785
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
25,209 19,339
CAPITAL LEASE OBLIGATION 264 472
FEDERAL HOME LOAN BANK ADVANCES 8,156 8,231
OTHER LIABILITIES 4,638 4,462
-------- --------
Total liabilities 480,803 442,289
COMMITMENTS AND CONTINGENCIES (Notes 4, 6, 11, 13, and 14)
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value; 10,000,000 shares authorized,
4,187,746 and 4,161,141 shares issued, 4,187,746 and
4,021,496 shares outstanding at December 31, 1998 and
1997, respectively 2,094 2,081
Additional paid-in capital 20,479 20,935
Retained earnings 33,406 30,381
Accumulated other comprehensive income 1,104 590
Treasury stock, at cost, 139,645 shares at December 31, 1997 0 (2,564)
Deferred compensation (966) (820)
-------- --------
Total stockholders' equity 56,117 50,603
-------- --------
Total liabilities and stockholders' equity $536,920 $492,892
======== ========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-3<PAGE>
<PAGE>
<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(In Thousands, Except Net Income Per Share Data)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $28,698 $27,578 $24,972
Interest on investment securities:
Taxable 6,503 5,820 5,273
Nontaxable 1,197 1,105 1,568
Interest on federal funds sold 862 685 460
Other 8 8 0
------- ------- -------
Total interest income 37,268 35,196 32,273
------- ------- -------
INTEREST EXPENSE:
Interest on deposits 15,154 14,232 12,920
Interest on federal funds purchased and securities sold
under agreements to repurchase 224 205 131
Interest on other borrowings 460 226 118
------- ------- -------
Total interest expense 15,838 14,663 13,169
------- ------- -------
NET INTEREST INCOME 21,430 20,533 19,104
PROVISION FOR LOAN LOSSES 500 800 396
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 20,930 19,733 18,708
------- ------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 2,589 2,711 2,327
Securities gains, net 189 71 8
Trust department income 467 430 382
Other noninterest income 1,680 3,610 1,365
------- ------- -------
Total noninterest income 4,925 6,822 4,082
------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 8,614 9,000 8,342
Net occupancy expense 3,186 3,162 3,402
Data processing expense 1,312 1,160 1,015
Professional fees 534 578 604
FDIC insurance premiums 43 48 4
Office supplies and printing 474 449 459
Other noninterest expense 4,199 4,167 3,714
------- ------- -------
Total noninterest expense 18,362 18,564 17,540
------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,493 7,991 5,250
PROVISION FOR INCOME TAXES 2,406 2,765 1,680
------- ------- -------
NET INCOME $ 5,087 $ 5,226 $ 3,570
======= ======= =======
NET INCOME PER SHARE:
Basic $1.27 $1.32 $0.89
======= ======= =======
Diluted $1.26 $1.29 $0.87
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 4,009 3,973 4,017
======= ======= =======
Diluted 4,033 4,047 4,085
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(Dollars in Thousands, Except Per Share Data)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Treasury Deferred
Stock Capital Earnings Income Stock Compensation Total
----- -------- -------- ------------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $2,063 $20,233 $25,284 $ 421 $ (948) $(223) $46,830
Comprehensive income:
Net income for 1996 0 0 3,570 0 0 0
Change in unrealized gain (loss) on securities
available for sale, net of taxes 0 0 0 (97) 0 0
Total comprehensive income 3,473
Cash dividends, $.50 per share 0 0 (2,009) 0 0 0 (2,009)
Amortization of compensation element of restricted stock 0 0 0 0 0 24 24
Purchase of 67,249 shares of treasury stock 0 0 0 0 (1,341) 0 (1,341)
------ ------- ------- ------- ------- ------ -------
BALANCE, December 31, 1996 2,063 20,233 26,845 324 (2,289) (199) 46,977
Comprehensive income:
Net income for 1997 0 0 5,226 0 0 0
Change in unrealized gain (loss) on securities
available for sale, net of taxes 0 0 0 266 0 0
Total comprehensive income 5,492
Cash dividends, $.42 per share 0 0 (1,690) 0 0 0 (1,690)
Issuance of 36,000 shares of restricted common stock 18 702 0 0 0 (720) 0
Amortization of compensation element of restricted
stock 0 0 0 0 0 99 99
Purchase of 13,733 shares of treasury stock 0 0 0 0 (275) 0 (275)
------ ------- ------- ------- ------- ------ -------
BALANCE, December 31, 1997 2,081 20,935 30,381 590 (2,564) (820) 50,603
Comprehensive income:
Net income for 1998 0 0 5,087 0 0 0
Change in unrealized gain (loss) on securities
available for sale, net of taxes 0 0 0 514 0 0
Total comprehensive income 5,601
Cash dividends, $.51 per share 0 0 (2,062) 0 0 0 (2,062)
Issuance of treasury stock and 11,605 shares of
common stock in connection with exercise of
stock options 5 (748) 0 0 2,564 0 1,821
Issuance of 15,000 shares of restricted stock 8 292 0 0 0 (300) 0
Amortization of compensation element of restricted
stock 0 0 0 0 0 154 154
------ ------- ------- ------- ------- ------ -------
BALANCE, December 31, 1998 $2,094 $20,479 $33,406 $ 1,104 $ 0 $(966) $56,117
====== ======= ======= ======= ======= ====== =======
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(In Thousands)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,087 $ 5,226 $ 3,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 500 800 396
Provision for depreciation and amortization 2,143 2,534 2,476
Amortization of deferred compensation 154 99 24
Loss (gain) on disposal of premises and equipment 2 193 (9)
Premium amortization of investment securities, net 162 156 174
Deferred income tax benefit (207) (272) (66)
Securities gains, net (189) (71) (8)
Gain on sale of other real estate (26) 0 0
Increase in accrued interest receivable (196) (123) (191)
(Increase) decrease in other assets (143) 79 (60)
Increase (decrease) in other liabilities 114 (24) 977
-------- -------- --------
Net cash provided by operating activities 7,401 8,597 7,283
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities
available for sale 27,666 18,245 16,150
Proceeds from sales of investment securities available
for sale 29,280 44,211 34,448
Purchases of investment securities available for sale (80,878) (61,404) (35,889)
Net cash flows from loans originated and principal
collected on loans 10,889 (39,489) (32,677)
Proceeds from sale of other real estate 268 0 0
Purchases of premises and equipment (2,470) (761) (606)
Proceeds from disposal of premises and equipment 123 55 42
Proceeds from disposal of other real estate 0 0 5
-------- -------- --------
Net cash used in investing activities (15,122) (39,143) (18,527)
-------- -------- --------
F-6<PAGE>
<PAGE>
1998 1997 1996
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW
accounts, and savings accounts $35,604 $ 1,337 $ (1,540)
Net cash flows from sales of certificates of deposit (2,853) 14,508 5,529
Net (decrease) increase in federal funds purchased 0 (2,600) 2,600
Net increase (decrease) in securities sold under
agreements to repurchase 5,870 16,012 (209)
(Repayments of) proceeds from FHLB advances (75) 7,925 (75)
Payments on note payable 0 0 (250)
Principal payments on capital lease obligation (208) (196) (176)
Cash dividends on common stock (2,000) (1,447) (1,768)
Purchase of treasury stock 0 (275) (1,341)
Proceeds from exercise of stock options 1,821 0 0
-------- -------- --------
Net cash provided by financing activities 38,159 35,264 2,770
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 30,438 4,718 (8,474)
CASH AND CASH EQUIVALENTS, beginning of
year 38,515 33,797 42,271
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $68,953 $38,515 $33,797
======== ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $15,701 $14,262 $12,843
======== ======= ========
Income taxes $ 2,620 $ 3,011 $ 1,020
======== ======= ========
Noncash transactions during the year for:
Transfer from premises and equipment to
other assets
$ 0 $ 0 $ 211
======== ====== ========
Transfer from loans to other real estate $ 292 $ 0 $ 0
======== ======= ========
Dividends declared but not paid $ 546 $ 484 $ 241
======== ======= ========
(/TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
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 in nine locations in suburban communities in
northwest Georgia. The Company's primary business is providing loan
and deposit services to customers who are predominately individuals
and small and middle-market businesses.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
Adoption of this standard is discussed in Note 16. As the Company
sponsors no pension or other postretirement benefits, the disclosure
requirements of SFAS No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits" are not applicable.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures and Segments of an Enterprise and Related
Information", which is effective for financial statements for periods
beginning after December 15, 1997. Adoption of this standard is
discussed in Note 17.
F-8
<PAGE>
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. This statement could
increase volatility in earnings and other comprehensive income. This
statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not hold or engage in
transactions using derivative financial instruments and does not
believe that adoption of the standard will have a material impact on
either its balance sheet or results of operations.
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.
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, included in accumulated other comprehensive income.
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.
Dividends and interest income are 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.
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:
F-9<PAGE>
<PAGE>
Premises and improvements 20 to 40 years
Automobiles, computer equipment, and
office machines 3 to 6 years
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, 1998, 1997, and 1996 was
$578,000, $790,000, and $615,000, respectively. At December 31, 1998
and 1997, accumulated amortization of the goodwill was $6,909,000 and
$6,331,000, respectively.
The Company evaluates the carrying value of long-lived assets to be
held and used, including goodwill, when events or changes in
circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the projected
undiscounted future cash flows from such asset are less than its
carrying value. No material impairments existed at December 31, 1998
or 1997, and accordingly, no losses were recognized.
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 are deferred, net of direct
incremental loan origination costs, and amortized to interest income
over the contractual life of the loan using the interest method or the
straight-line method, if not materially different.
Interest income on all classifications of loans is accrued based on
the outstanding principal amounts, except for those classified as
nonaccrual loans. It is the Banks' policy to charge-off any loan
greater than 90 days past due. Exceptions to this policy occur when
management has reason to believe some amount of the loan will be
collected. At this point the accrual of interest is discontinued.
Cash receipts on nonaccrual loans are applied to reduce principal
balances or are recorded as interest income, depending on management's
assessment of the ultimate collectibility of the loan.
F-10
<PAGE>
<PAGE>
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), 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.
Specific provision for loan losses is made for impaired loans based on
a comparison of the recorded carrying value of the loan to either the
present value of the loan's expected cash flow, the loan's estimated
market price, or the estimated fair value of the underlying
collateral. 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 1998, 1997, and 1996, the maximum balance outstanding at
anytime was $25,444,000, $19,339,000, and $5,189,000, respectively,
and the average balance outstanding was $5,066,000, $3,896,000, and
$1,816,000, respectively. Interest paid on these agreements is tiered
based on the customer's account balance and the prior month's federal
funds rate. The high and low effective interest rates during 1998
were 5.16% and 3.48%, respectively. The high and low federal funds
rates during 1998 were 5.56% and 4.67%, respectively.
FEDERAL FUNDS PURCHASED
The Company periodically purchases federal funds from the Federal
Reserve Bank to meet its daily reserve requirement. During fiscal
years 1998 and 1997, the maximum balance outstanding at anytime was
$4,799,000 and $7,100,000, respectively, and the average balance
outstanding was $81,000 and $244,000, respectively.
EARNINGS PER SHARE OF COMMON STOCK
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS"). SFAS No. 128 requires a dual presentation
of basic and diluted EPS on the face of the statement of income for
all entities with complex capital structures. SFAS 128 requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation, which is as follows.
The numerator utilized in the calculation of earnings per share was
the same for both basic and diluted earning per share.
F-11<PAGE>
<PAGE>
Basic and diluted weighted average shares outstanding for the years
ended December 31, 1998, 1997, and 1996 are as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Basic weighted average shares outstanding 4,009 3,973 4,017
Incentive stock options 4 64 63
Restricted shares of common stock 20 10 5
----- ----- -----
Diluted weighted average shares outstanding 4,033 4,047 4,085
(/TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made in the prior year financial
statements to conform with the current year presentation.
2. INVESTMENT SECURITIES
The amortized cost, estimated fair value, and gross unrealized gains
and losses in the Company's investment securities at December 31, 1998
and 1997 are as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
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 $ 74,997 $ 756 $(118) $ 75,635
Obligations of states and
political subdivisions 32,907 1,028 (6) 33,929
Mortgage-backed securities 32,633 105 (92) 32,646
Other debt and equity
securities 1,959 0 0 1,959
-------- ------ ----- ---------
$142,496 $1,889 $(216) $ 144,169
======== ====== ===== =========
(/TABLE>
F-12<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------
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 $ 72,776 $ 274 $(179) $ 72,871
Obligations of states and
political subdivisions 22,416 826 (6) 23,236
Mortgage-backed securities 21,442 66 (87) 21,421
Other debt and equity securities 1,903 0 0 1,903
-------- ------ ----- --------
$118,537 $1,166 $(272) $119,431
======== ====== ====== ========
(/TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1998 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.
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- ----------
<S> <C> <C>
Due in one year or less $ 15,046 $ 15,175
Due one year to five years 52,648 53,363
Due five years to ten years 34,281 35,013
Due after ten years 5,929 6,013
--------- ---------
107,904 109,564
Mortgage-backed securities 32,633 32,646
--------- ---------
$ 140,537 $ 142,210
========= =========
(/TABLE>
Mortgage-backed securities mature monthly through the year 2028.
Proceeds from sales of investments in debt securities during 1998,
1997, and 1996 were $29,280,000, $44,211,000, and $34,448,000,
respectively. Gross gains of approximately $189,000, $254,000, and
$106,000 and gross losses of approximately $0, $183,000, and $98,000
were realized on such sales in 1998, 1997, and 1996, respectively.
Securities with a carrying value of $78,449,000 and $73,706,000 were
pledged to secure various deposits and securities sold under
agreements to repurchase at December 31, 1998 and 1997, respectively.
F-13<PAGE>
<PAGE>
3. LOANS AND RESERVE FOR LOAN LOSSES
At December 31, 1998 and 1997, the Company's loan portfolio consists
of the following (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Real estate loans $190,071 $193,424
Commercial loans 59,719 60,929
Consumer loans 26,738 35,122
Other loans 29,363 28,081
-------- --------
Total loans 305,891 317,556
Less:
Unearned discount (294) (413)
Reserve for loan losses (7,119) (6,984)
-------- --------
$298,478 $310,159
======== ========
(/TABLE>
Total nonaccrual and restructured loans at December 31, 1998 and 1997
were $900,000 and $323,000, respectively. The gross amount of
interest income that would have been recorded in 1998, 1997, and 1996
on nonaccrual and restructured loans at December 31, 1998, 1997, and
1996, if all such loans had been accruing interest at the contractual
rate, was $98,000, $108,000, and $123,000, respectively, while
interest income actually recognized was $34,000, $28,000, and
$153,000, respectively.
At December 31, 1998 and 1997, the recorded investment in impaired
loans was $900,000 and $323,000, respectively, and the related
valuation allowance was $135,000 and $32,000, respectively. This
valuation allowance is included in the reserve for loan losses in the
accompanying consolidated balance sheets, and is determined based on
economic conditions, status of the borrower, and the collateral
underlying the loan. The average balance of impaired loans during
1998 and 1997 was $767,000 and $414,000, respectively.
A summary of transactions in the reserve for loan losses for the years
ended December 31, 1998, 1997, and 1996 is as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Balance, beginning of year $6,984 $6,778 $6,614
Provision for loan losses 500 800 396
Recoveries of loans previously charged off 554 561 667
Charge-offs (919) (1,155) (899)
------ ------ ------
Balance, end of year $7,119 $6,984 $6,778
====== ======= ======
(/TABLE>
F-14<PAGE>
<PAGE>
4. PREMISES AND EQUIPMENT
A summary of the carrying value of premises and equipment at
December 31, 1998 and 1997 is as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land and land improvements $ 5,644 $ 5,526
Premises and improvements 13,056 12,878
Furniture, fixtures, and equipment 6,289 5,706
Leasehold improvements 16 16
Equipment under capital lease 980 980
Construction in progress 1,421 135
-------- --------
27,406 25,241
Accumulated depreciation (12,129) (10,744)
-------- --------
$ 15,277 $ 14,497
======== ========
(/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, 1998 and
1997 had a net book value of $222,000 and $418,000, 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 $196,000 during 1998 and 1997, and is included in net occupancy
expense in the accompanying consolidated statements of income.
future minimum lease payments for assets under capital lease and the
present value of minimum lease payments at December 31, 1998 are as
follows (in thousands):
1999 $239
2000 51
----
Total minimum lease payments 290
Less amount representing interest 26
----
Present value of minimum lease payments $264
----
5. TIME DEPOSITS
At December 31, 1998 and 1997, time deposits equal to or greater than
$100,000 were approximately $56,436,000 and $61,519,000, respectively.
During 1998 and 1997, the weighted average interest rate of total time
deposits was 5.8%. As of December 31, 1998, expected maturities of
total time deposits by contractual maturity date are as follows (in
thousands):
F-15
<PAGE>
<PAGE>
Carrying
Value
--------
1999 $156,027
2000 24,403
2001 8,157
2002 5,258
2003 3,890
--------
$197,735
========
6.FEDERAL HOME LOAN BANK ("FHLB") ADVANCES AND REVOLVING LINE OF
CREDIT
FNB has an agreement with the FHLB of Atlanta, under which FNB can
borrow up to $21,000,000. At December 31, 1998 and 1997, the total
amounts outstanding under this agreement were $8,156,000 and
$8,231,000, respectively. The weighted average interest rate on FHLB
advances was 5.46% and 5.55% at December 31, 1998 and 1997,
respectively. Maximum borrowings during the years ended December 31,
1998 and 1997 were $8,231,000. 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, 1998 totaled
approximately $11,173,000.
The Company had an unsecured revolving line of credit of $5,000,000
(the "Revolver"), which expired during 1998. Borrowings under the
Revolver were at an interest rate of LIBOR plus 0.6%. Interest was
payable quarterly, and the Revolver was renewable on an annual basis.
At December 31, 1997, the Company's outstanding borrowings under this
Revolver were $0, and the weighted average interest rate charged on
the Revolver for the year ended December 31, 1997 was 6.26%. Maximum
borrowings at anytime during the year ended December 31, 1997 were
$2,300,000. The average balance outstanding under this Revolver
during 1997 was $808,000. The Company did not have any borrowings
under the revolver during 1998.
7. INCOME TAXES
The components of the provision for income taxes in 1998, 1997, and
1996 are as follows (in thousands):
1998 1997 1996
------ ------ ------
Current provision $2,613 $3,037 $1,746
Deferred benefit (207) (272) (66)
------ ------ ------
Provision for income taxes $2,406 $2,765 $1,680
F-16<PAGE>
<PAGE>
The components of the net deferred tax asset at December 31, 1998 and
1997 are as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets related to:
Allowance for loan losses $ 1,892 $ 1,820
Other 233 166
------- -------
Total deferred tax assets 2,125 1,986
------- -------
Deferred tax liabilities related to:
Excess of book over tax basis of premises and
equipment (1,127) (1,197)
Unrealized gain on securities available for sale (569) (304)
Other (14) (12)
------- -------
Total deferred tax liabilities (1,710) (1,513)
------- -------
Net deferred tax asset $ 415 $ 473
======= =======
(/TABLE>
No valuation allowances for deferred tax assets have been recorded as
of December 31, 1998 and 1997 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 temporary differences are deductible.
The differences between the actual income tax expense and the amount
computed by applying the statutory federal income tax rate to income
before taxes are as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Income taxes at statutory rate $2,548 $2,717 $1,785
Increase (decrease) resulting from tax effects of:
Tax-exempt interest, net of disallowance (392) (372) (568)
Amortization of goodwill 197 278 213
Other, net 53 142 250
------ ------ ------
Provision for income taxes $2,406 $2,765 $1,680
====== ====== ======
(/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 is 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 ten years after the grant date.
F-17<PAGE>
<PAGE>
The Company does not recognize compensation expense in accounting for
its stock option plan, and no awards have been granted since fiscal
1994.
A summary of the changes in common stock options during the three-year
period ended December 31, 1998 is as follows:
</TABLE>
<TABLE>
<CAPTION>
Outstanding Options
---------------------------
Weighted Exercise
Average Exercisable Price Per
Number Price Options Share
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
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
Options which became exercisable 16,250 $12.00-$16.25
-------- ------ -------- -------------
Outstanding at December 31, 1997 170,000 $12.50 162,500 $12.00-$16.25
Options which became exercisable 7,500 $13.50-$16.25
Options exercised (151,250) $12.04 (151,250) $12.00-$16.25
-------- ------ -------- -------------
Outstanding at December 31, 1998 18,750 $16.25 18,750 $16.25
========= ====== ======== =============
(/TABLE>
The weighted average exercise price of exercisable options at
December 31, 1998, 1997, and 1996 is $16.25, $12.39, and $12.33,
respectively. The weighted average remaining contractual life of
options outstanding at December 31, 1998 is approximately 1 year.
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 1998, 1997, and 1996, the Company awarded restricted stock
shares of 15,000, 36,000, and 0, respectively, to key employees. The
Company recorded deferred compensation of approximately $300,000,
$720,000, and $0 during 1998, 1997, and 1996, respectively, based on
the estimated market price of the shares at the award date. Deferred
compensation is being amortized over the vesting period of ten years.
The Company recognized in fiscal years 1998, 1997, and 1996
approximately $154,000, $99,000, and $24,000, respectively, in
compensation expense related to the restricted stock awards.
<PAGE>
PHANTOM STOCK PLAN
In September 1998, the board of directors approved the Hardwick
Holding Company Phantom Stock Award Agreement (the "Phantom
Agreement"). The Phantom Agreement provides for the award of up to an
aggregate of 15,000 phantom shares of the Company's common stock to
certain key employees. The number of phantom shares awarded annually
is dependent upon the Company's profitability. Participants under the
Phantom Agreement are not entitled to voting rights, ownership, or
dividends.
F-18
<PAGE>
<PAGE>
During 1998 the Company awarded phantom stock shares of 3,000 to key
employees. The Company recognized compensation expense and a
corresponding liability of approximately $63,000 during 1998, based on
the estimated market price of the shares at the award date.
9. EMPLOYEE BENEFIT PLANS
The Company does not sponsor a defined benefit plan or any other
postretirement benefits and accordingly the provisions of SFAS
No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" did not result in a revision of the Company's
disclosures.
The Company however, 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 and 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 $313,000, $336,000, and $324,000, in 1998, 1997, and 1996,
respectively. The assets of the Plan have a market value of
$8,985,000 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 1998, 1997, and 1996, HBT paid dividends to HHC of $1,500,000,
$4,000,000, and $4,400,000, respectively. FNB paid dividends to HHC
of $1,500,000 in 1998 and 1997, and $1,000,000 in 1996. Retained
earnings of HBT and FNB available for payment of cash dividends to HHC
under the applicable regulations totaled approximately $5,518,000 at
December 31, 1998.
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, 1998, the Company's aggregate reserve requirement
averaged approximately $3,679,000.
F-19
<PAGE>
<PAGE>
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, 1998, 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, 1998 and 1997 is as follows (dollars in thousands):
</TABLE>
<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, 1998:
Tier 1 capital:
HHC $52,139 13.30% $15,691 4.00% $23,536 6.00%
HBT 27,690 12.07 9,174 4.00 13,761 6.00
FNB 16,801 10.67 6,301 4.00 9,452 6.00
Total capital:
HHC 57,070 14.56 31,381 8.00 39,226 10.00
HBT 30,572 13.33 18,348 8.00 22,935 10.00
FNB 18,783 11.92 12,602 8.00 15,753 10.00
Tier 1 leverage:
HHC 52,139 10.21 15,327 3.00 25,545 5.00
HBT 27,690 9.34 8,896 3.00 14,826 5.00
FNB 16,801 8.07 6,249 3.00 10,414 5.00
December 31, 1997:
Tier 1 capital:
HHC 45,457 12.02 15,122 4.00 22,683 6.00
HBT 24,740 11.00 8,989 4.00 13,484 6.00
FNB 15,595 10.49 5,943 4.00 8,914 6.00
Total capital:
HHC 50,211 13.28 30,244 8.00 37,806 10.00
HBT 28,050 12.48 17,979 8.00 22,474 10.00
FNB 17,570 11.83 11,886 8.00 14,857 10.00
Tier 1 leverage:
HHC 45,457 9.55 14,286 3.00 23,810 5.00
HBT 24,740 8.97 8,274 3.00 13,790 5.00
FNB 15,595 8.06 5,805 3.00 9,674 5.00
(/TABLE>
12. RELATED-PARTY TRANSACTIONS
In the normal course of business, HHC and its 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 not involve more
F-20<PAGE>
<PAGE>
than a 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 $9,125,000 and
$9,635,000 at December 31, 1998 and 1997, respectively.
The following table summarizes the change in these loans for the year
ended December 31, 1998 (in thousands):
Balance at beginning of year $ 9,635
New loans 1,221
Repayments (1,731)
-------
Balance at end of year $ 9,125
=======
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 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
F-21
<PAGE>
<PAGE>
requirements. Total commitments to extend credit at December 31, 1998
and 1997 were $76,898,000 and $92,847,000, 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 $4,222,000 and $2,223,000 in standby letters of credit
outstanding at December 31, 1998 and 1997, 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.
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, 1998 and
1997 (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 68,953 $ 68,953 $ 38,515 $ 38,515
Investment securities 144,169 144,169 119,431 119,431
Loans 298,478 298,226 310,159 308,692
Accrued interest receivable 4,184 4,184 3,988 3,988
Financial liabilities:
Deposits 442,536 444,085 409,785 410,259
Securities sold under
agreements to repurchase 25,209 25,209 19,339 19,339
FHLB advances 8,156 8,156 8,231 8,231
Accrued interest payable 2,919 2,919 2,782 2,782
(/TABLE>
F-22<PAGE>
<PAGE>
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. Stock that
the banks are required to hold with the FHLB, Federal Reserve Board,
or Georgia Bankers' Bank is carried at cost, as these types of
securities do not have a readily determinable fair value. Ownership
of this stock is restricted to banks and it lacks a market.
* 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.
* Securities sold under agreements to repurchase 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.
* The fair value of the FHLB advances is 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, 1998 and 1997.
16. COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which requires that certain transactions and other economic
events that bypass the income statement must be displayed as other
comprehensive income. The Company's comprehensive income consists of
net income and changes in unrealized gains (losses) on securities
available-for-sale, net of income taxes.
F-23<PAGE>
<PAGE>
Comprehensive income for 1998, 1997, and 1996 is calculated as follows
(in thousands):
</TABLE>
<TABLE>
<CAPTION>
BEFORE INCOME NET OF
TAX TAX TAX
------ ------ ------
<S> <C> <C> <C>
Net unrealized gains (losses) recognized in other
comprehensive income
1998 $ 779 $ (265) $ 514
1997 403 (137) 266
1996 (147) 50 (97)
1998 1997 1996
----- ------ ----
Amounts reported in net income:
Gain on sale of securities $ 189 $ 71 $ 8
Net amortization (accretion) 161 156 174
----- ------ ----
Reclassification adjustment 350 227 182
Income tax expense 119 77 62
----- ------ ----
Reclassification adjustment, net of tax $ 231 $ 150 $120
===== ====== ====
Amounts reported in other comprehensive income:
Unrealized gain arising during period, net of tax $ 745 $ 416 $ 23
Reclassification adjustment, net of tax (231) (150) (120)
----- ------ ----
Unrealized gains (losses) recognized in other
comprehensive income 514 266 (97)
Net income 5,087 5,226 3,570
------ ------ ------
Total comprehensive income $5,601 $5,492 $3,473
====== ====== ======
(/TABLE>
17. 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
F-24<PAGE>
<PAGE>
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 table (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 20,445 $ 16,490 $ 383 $ 50 $ 37,268
Total interest expense 8,791 7,097 0 50 15,838
Net interest income 11,654 9,393 383 0 21,430
Provision for loan losses 200 300 0 0 500
Net interest income after provision 11,454 9,093 383 0 20,930
Total noninterest income 3,367 1,558 6,264 6,264 4,925
Total noninterest expense 9,659 7,661 1,734 692 18,362
Income before taxes 5,162 2,990 4,913 5,572 7,493
Provision (benefit) for income taxes 1,485 1,095 (174) 0 2,406
Net income 3,677 1,895 5,087 5,572 5,087
Other significant items:
Total assets 317,983 217,982 56,994 56,039 536,920
Investment in subsidiaries 0 0 48,976 48,976 0
Depreciation, amortization, and 938 1,222 145 0 2,305
accretion (net)
Total expenditures for long-lived 734 1,692 44 0 2,470
assets
Revenues from external customers:
Total interest income 20,445 16,490 333 0 37,268
Total noninterest income 3,367 1,558 0 0 4,925
Total income 23,812 18,048 333 0 42,193
Revenues from affiliates:
Total interest income 0 0 50 50 0
Total noninterest income 0 0 6,264 6,264 0
Total income 0 0 6,314 6,314 0
<PAGE>
1997
-----------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 20,019 $ 14,970 $ 224 $ 17 $ 35,196
Total interest expense 8,496 6,129 55 17 14,663
Net interest income 11,523 8,841 169 0 20,533
Provision for loan losses 0 800 0 0 800
Net interest income after provision 11,523 8,041 169 0 19,733
Total noninterest income 4,310 2,512 6,542 6,542 6,822
Total noninterest expense 9,513 7,925 1,767 641 18,564
Income before taxes 6,320 2,628 4,944 5,901 7,991
Provision (benefit) for income taxes 2,033 1,014 (282) 0 2,765
Net income 4,287 1,614 5,226 5,901 5,226
Other significant items:
Total assets 286,435 204,568 51,388 49,499 492,892
Investment in subsidiaries 0 0 45,989 45,989 0
Depreciation, amortization, and 1,000 1,558 170 38 2,690
accretion (net)
Total expenditures for long-lived 385 269 107 0 761
assets
Revenues from external customers:
Total interest income 20,019 14,970 207 0 35,196
Total noninterest income 4,310 2,512 0 0 6,822
Total income 24,329 17,482 207 0 42,018
Revenues from affiliates:
Total interest income 0 0 17 17 0
Total noninterest income 0 0 6,542 6,542 0
Total income 0 0 6,559 6,559 0
(/TABLE>
F-25<PAGE>
<PAGE>
</TABLE>
<TABLE>
1996
-----------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 19,063 $ 13,223 $ 11 $ 24 $ 32,273
Total interest expense 7,975 5,180 27 13 13,169
Net interest income 11,088 8,043 (16) 11 19,104
Provision for loan losses 246 150 0 0 396
Net interest income after provision 10,842 7,893 (16) 11 18,708
Total noninterest income 2,654 1,428 4,820 4,820 4,082
Total noninterest expense 9,195 7,507 1,325 487 17,540
Income before taxes 4,301 1,814 3,479 4,344 5,250
Provision (benefit) for income taxes 1,095 651 (91) (25) 1,680
Net income 3,206 1,163 3,570 4,369 3,570
Other significant items:
Total assets 267,865 185,736 47,565 49,105 452,061
Investment in subsidiaries 0 0 45,421 45,421 0
Depreciation, amortization, and 1,006 1,485 159 0 2,650
accretion (net)
Total expenditures for long-lived 183 224 199 0 606
assets
Revenues from external customers:
Total interest income 19,063 13,223 0 0 32,286
Total noninterest income 2,654 1,428 0 0 4,082
Total income 21,717 14,651 0 0 36,368
Revenues from affiliates:
Total interest income 0 0 11 11 0
Total noninterest income 0 0 4,820 4,820 0
Total income 0 0 4,831 4,831 0
(/TABLE>
F-26<PAGE>
<PAGE>
18. HARDWICK HOLDING COMPANY (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
</TABLE>
<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
ASSETS
1998 1997
-------- ---------
<S> <C> <C>
Cash on deposit in subsidiary bank $ 3,678 $ 636
Loans, net 3,766 4,135
Premises and equipment, net 142 144
Investment in banking subsidiaries 48,976 45,989
Other assets 432 484
--------- ---------
Total assets $ 56,994 $ 51,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 877 $ 785
--------- ---------
Stockholders' equity:
Common stock, $.50 par value; 10,000,000 shares
authorized, 4,187,746 and 4,161,141 shares issued,
4,187,746 and 4,021,496 shares outstanding at
December 31, 1998 and 1997, respectively 2,094 2,081
Additional paid-in capital 20,479 20,935
Retained earnings 33,406 30,381
Accumulated other comprehensive income 1,104 590
Treasury stock, at cost, 139,645 shares at December 31, 1997 0 (2,564)
Deferred compensation (966) (820)
--------- ---------
Total stockholders' equity 56,117 50,603
--------- ---------
Total liabilities and stockholders' equity $ 56,994 $ 51,388
========= =========
(/TABLE>
F-27<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating income:
Interest on deposits in subsidiary bank $ 50 $ 17 $ 11
Interest on loans 333 207 0
Dividends from banking subsidiaries 3,000 5,500 5,400
Consulting fees from subsidiaries 692 641 591
-------- -------- --------
Total operating income 4,075 6,365 6,002
-------- -------- --------
Operating expense:
Interest expense 0 55 27
Net occupancy expense 100 126 87
Other operating expense 1,634 1,641 1,238
-------- -------- --------
Total operating expense 1,734 1,822 1,352
-------- -------- --------
Income before income tax benefit and equity in
undistributed earnings of subsidiaries 2,341 4,543 4,650
Income tax benefit 174 282 91
-------- -------- --------
Income before equity in undistributed earnings of
subsidiaries 2,515 4,825 4,741
Equity in undistributed earnings of subsidiaries
(distributions in excess of earnings) 2,572 401 (1,171)
-------- -------- --------
Net income $ 5,087 $ 5,226 $ 3,570
======== ======== ========
(/TABLE>
F-28<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,087 $ 5,226 $ 3,570
Adjustments to reconcile net income to net cash provided by
operating activities:
(Equity in undistributed earnings) distributions in excess of
of earnings of subsidiaries (2,572) (401) 1,171
Provision for depreciation and amortization 145 170 159
Amortization of deferred compensation 154 99 24
Loss (gain) on disposal of premises and equipment 0 184 (85)
Decrease (increase) in other assets 52 (53) 10
Increase (decrease) in accounts payable and accrued liabilities 30 (46) (20)
------- ------- --------
Net cash provided by operating activities 2,896 5,179 4,829
------- ------- --------
Cash flows from investing activities:
Net cash flows from loans originated and principal collected on 369 (4,135) 0
loans
Purchases of premises and equipment (44) (107) (199)
Proceeds from disposal of premises and equipment 0 29 0
------- ------- --------
Net cash provided by (used in) investing activities 325 (4,213) (199)
------- ------- --------
Cash flows from financing activities:
Payments on note payable 0 0 (250)
Cash dividends on common stock (2,000) (1,447) (1,768)
Proceeds from exercise of stock options 1,821 0 0
Purchase of treasury stock 0 (275) (1,341)
------- ------- --------
Net cash used in financing activities (179) (1,722) (3,359)
------- ------- --------
Net increase (decrease) in cash 3,042 (756) 1,271
Cash, beginning of year 636 1,392 121
------- ------- --------
Cash, end of year $ 3,678 $ 636 $ 1,392
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 0 $ 55 $ 27
======= ======= ========
Income taxes received from subsidiaries $2,620 $ 3,011 $ 1,020
Income taxes paid by parent company (2,620) (3,011) (1,020)
------ ------- --------
Net income taxes received by parent company $ 0 $ 0 $ 0
======= ======= ========
Dividends declared but not paid $ 546 $ 484 $ 241
======= ======= ========
(/TABLE>
F-29
<PAGE>
<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 19th day of March 1999.
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 19th day of March, 1998.
</TABLE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Kenneth E. Boring Chairman and Chief Executive Officer:
Kenneth E. Boring Director (Principal Executive Officer)
/s/ James M. Boring, Jr. President; Director
James M. Boring, Jr.
/s/ Wayne R. Broaddus Director
Wayne R. Broaddus
/s/Robert M. Chandler Director
Robert M. Chandler
/s/Richard R. Cheatham Director
Richard R. Cheatham
/s/David J. Lance Director
David J. Lance
<PAGE>
/s/Norman McCoy Director
Norman McCoy
/s/Marshall R. Mauldin Director
Marshall R. Mauldin
/s/Michael Robinson Executive Vice President, Secretary and Treasurer
Michael Robinson (Principal Financial and Accounting Officer);
Director
</TABLE>
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
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000787465
<NAME> HARDWICK HOLDING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1999
<CASH> 25,181
<INT-BEARING-DEPOSITS> 124
<FED-FUNDS-SOLD> 43,648
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 144,169
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 305,597
<ALLOWANCE> 7,119
<TOTAL-ASSETS> 536,920
<DEPOSITS> 442,536
<SHORT-TERM> 25,428
<LIABILITIES-OTHER> 4,638
<LONG-TERM> 8,201
0
0
<COMMON> 2,094
<OTHER-SE> 54,023
<TOTAL-LIABILITIES-AND-EQUITY> 536,920
<INTEREST-LOAN> 28,698
<INTEREST-INVEST> 8,562
<INTEREST-OTHER> 8
<INTEREST-TOTAL> 37,268
<INTEREST-DEPOSIT> 15,154
<INTEREST-EXPENSE> 15,838
<INTEREST-INCOME-NET> 21,430
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 189
<EXPENSE-OTHER> 18,362
<INCOME-PRETAX> 7,493
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,087
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 8.4
<LOANS-NON> 900
<LOANS-PAST> 499
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,984
<CHARGE-OFFS> 919
<RECOVERIES> 554
<ALLOWANCE-CLOSE> 7,119
<ALLOWANCE-DOMESTIC> 7,119
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
SUPPLEMENTAL INFORMATION
THE FOLLOWING ITEMS WILL BE MAILED TO OUR SHAREHOLDERS:
1. Notice of Annual Shareholders' Meeting.
2. Proxy .
<PAGE>
<PAGE>
[LOGO APPEARS HERE]
Hardwick Holding Company
Hardwick Square
Post Office Box 1367
Dalton, Georgia 30722-1367
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held March 19, 1999
The annual meeting of the shareholders of Hardwick Holding Company
(the "Company") will be held on Friday, March 19,1999, at 4:00 p.m. Dalton,
Georgia time, at the Dalton Golf & Country Club, 2000 Cleveland Highway,
Dalton, Georgia 30720, for the purpose of considering and voting upon:
1. The election of (9) 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 February 28, 1999,
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
/s/ Michael Robinson
Michael Robinson, Secretary
Dalton, Georgia
March 9, 1999
<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 appoints 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 March 19, 1999 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.
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
56
<PAGE>
Hardwick Holding Company
Proxy-Annual Meeting
March 19, 1999
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: __________________,1999
____________________________
____________________________
