SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of The Securities Exchange Act of 1934
For Quarter Ended MARCH 31, 2000 Commission File Number 33-43386
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HARDWICK HOLDING COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-1408388
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Hardwick Square, P. O. Box 1367, Dalton, GA. 30722-1367
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 217-3950
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes /X/ No / /
Number of shares of common stock outstanding at April 28, 2000
4,211,496 Shares
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I- FINANCIAL INFORMATION
Consolidated Statements of Financial
Position at March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Income
for the Three Months Ended March 31,
2000 and 1999 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
2000 and 1999 5-6
Notes to Unaudited Consolidated Financial Statements 7-11
Management's Discussion and Analysis of
Financial Position and Results of Operations 12-18
PART II- OTHER INFORMATION 19
SIGNATURES 20
2
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<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands)
March 31, December 31,
Assets 2000 1999
--------------- ----------------
(unaudited)
<S> <C> <C>
Cash and due from banks $ 22,484 $ 23,545
Federal funds sold 2,076 2,370
-------------- ----------------
Total cash and cash equivalents 24,560 25,915
Investment securities, available-for-sale 145,353 148,418
Loans, net 315,189 319,446
Premises and equipment, net 14,876 15,130
Assets under capital lease, net 7 28
Accrued interest receivable 4,466 5,048
Excess of cost over fair value of
subsidiaries acquired, net of amortization 3,255 3,400
Other assets 4,606 3,927
-------------- ----------------
Total assets $ 512,312 $ 521,312
============== ================
Liabilities and Stockholders' Equity
Deposits-
Noninterest-bearing $ 101,841 $ 96,031
Interest-bearing 337,218 340,798
-------------- ----------------
Total deposits 439,059 436,829
Fed funds purchased and securities sold under agreements to repurchase 14,549 15,958
Other borrowed funds 64 11,081
Capital lease obligation 4 39
Other liabilities 4,977 4,332
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Total liabilities 458,653 468,239
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Commitments and contingencies (Notes 2 and 4)
Stockholders' equity-
Common stock, $.50 par value, 10,000,000 shares authorized,
4,211,496 and 4,197,496 shares issued and outstanding at March 31,
2000 and December 31,1999, respectively 2,106 2,099
Additional paid-in capital 20,981 20,630
Retained earnings 35,177 34,373
Other comprehensive income-Unrealized (loss) gain on investment
securities available-for-sale, net of tax (3,505) (3,244)
Less deferred compensation from restricted stock plan (1,100) (785)
-------------- ----------------
Total stockholders' equity 53,659 53,073
-------------- ----------------
Total liabilities and stockholders' equity $ 512,312 $ 521,312
============== ================
(See notes to consolidated financial statements.)
</TABLE>
3
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<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended
-------------------------------------
March 31, March 31,
INTEREST INCOME: 2000 1999
-------------------------------------
<S> <C> <C>
Interest and fees on loans $ 7,089 $ 6,587
Interest on investment securities-
Taxable 1,867 1,732
Nontaxable 391 374
Interest on federal funds sold and bank deposits 27 262
---------------- ----------------
Total interest income 9,374 8,955
---------------- ----------------
INTEREST EXPENSE:
Interest on deposits 3,486 3,431
Interest on securities sold under agreements to repurchase 166 112
Interest on other borrowed funds 137 114
Interest on note payable and capital lease obligations 1 5
---------------- ----------------
Total interest expense 3,790 3,662
---------------- ----------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
LOAN LOSSES 5,584 5,293
PROVISION FOR LOAN LOSSES 0 75
---------------- ----------------
NET INTEREST INCOME 5,584 5,218
---------------- ----------------
NONINTEREST INCOME:
Service charges on deposit accounts 625 655
Other noninterest income 785 727
---------------- ----------------
Total noninterest income 1,410 1,382
---------------- ----------------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,467 2,465
Net occupancy expense 744 765
Other noninterest expense 1,581 1,717
---------------- ----------------
Total noninterest expense 4,792 4,947
---------------- ----------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,202 1,653
PROVISION FOR INCOME TAXES 691 512
---------------- ----------------
NET INCOME $ 1,511 $ 1,141
================ ================
BASIC NET INCOME PER SHARE $ 0.36 $ 0.28
================= ================
DILUTED NET INCOME PER SHARE $ 0.36 $ 0.27
================= ================
</TABLE>
(See notes to consolidated financial statements.)
4
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<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three-Months
Ended
March 31,
2000 1999
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,511 $ 1,141
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 0 75
Provision for depreciation and amortization 632 707
Loss on disposition of premises and equipment 0 47
Gain on disposition of other real estate owned (7) 0
Accretion of investment security discounts and premiums (75) (6)
Deferred income tax (benefit) 31 (92)
Decrease in accrued interest receivable 582 120
Increase in other assets (679) (324)
Increase in other liabilities 614 71
-------- -------
Net cash provided by operating activities 2,609 1,739
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available-for-sale 2,748 670
Proceeds from sales of investment securities available-for-sale 0 2,000
Purchases of investment securities available-for-sale 0 (8,035)
Net cash flows from loans originated and principal collected on loans 4,177 7,337
Proceeds from disposal of other real estate 90 241
Purchases of premises and equipment (32) (847)
-------- -------
Net cash provided by investing activities 6,983 1,366
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW accounts, and savings
accounts 6,794 (3,490)
Net cash flows from sales and maturities of certificates of deposit (4,564) (3,065)
Net decrease in federal funds purchased and securities sold under agreement to
repurchase (1,409) (15,928)
Decrease in other borrowed funds (11,017) (18)
Payments on capital lease obligations (35) (55)
Proceeds from issuance of common stock due to exercise of stock options 0 305
Payments of cash dividends (716) (544)
-------- -------
Net cash used by financing activities $(10,947) $(22,795)
-------- -------
</TABLE>
5
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<TABLE>
<CAPTION>
HARDWICK HOLDING COMPANY
& SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
(Unaudited)
(In Thousands)
For the Three-Months
Ended
March 31,
2000 1999
-----------------------
<S> <C> <C>
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (1,355) $ (19,690)
CASH AND CASH EQUIVALENTS, beginning of period 25,915 68,953
------- --------
CASH AND CASH EQUIVALENTS, end of period $ 24,560 $ 49,263
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3,766 $ 3,804
======= ========
Cash paid during the period for income taxes $ 0 $ 455
======= ========
Noncash transactions during the period ended:
Dividends declared but not paid $ 707 $ 551
======= ========
</TABLE>
(See notes to consolidated financial statements.)
6
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Hardwick Holding Company (HHC) and its wholly owned subsidiaries,
Hardwick Bank and Trust Company (HBT) and First National Bank of Northwest
Georgia (FNBNWG), collectively referred to as the "Company". All significant
intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates, although, in the opinion of
management, such differences would not be significant.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for fair statement of the consolidated financial position
and the results of operations of the Company for the interim periods. The
results of operations for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the entire year.
(2) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a participant in financial instruments with off-balance sheet
risk. These instruments are entered into in the normal course of business to
meet the financing needs of its customers and to reduce the Company's own
exposure to fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. The contract
amounts of these instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
counterparties to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amount of these
instruments. The Company uses the same credit and collateral policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
HBT and FNBNWG grant various types of loans and financial instruments to
customers within their respective market areas (primarily Northwest Georgia).
Although the Company has a diversified loan portfolio, a significant portion of
the Company's loans originates from customers that are directly or indirectly
related to the carpet industry. Notably, approximately 40% of the work force in
8
<PAGE>
the Company's market area are employed by companies directly related to the
carpet industry. Adverse economic trends in the carpet industry could impair
these customers' ability to repay their obligations and unfavorably affect the
results of operations of the Company.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend credit at March
31, 2000, were approximately $76,691,000. HBT and FNBNWG evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral,
if deemed necessary by HBT and FNBNWG, is based on management's credit
evaluation of the customers. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, residential real estate,
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by HBT and FNBNWG
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The collateral varies but
may include accounts receivable, inventory, property, plant and equipment and
residential real estate for those commitments for which collateral is deemed
necessary. The Company had irrevocable standby letters of credit of
approximately $2,206,000 outstanding at March 31, 2000.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
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. In June, 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB No. 133." This statement
delays the effective date of SFAS No. 133 for one year, to fiscal years
beginning after June 15, 2000. 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.
9
<PAGE>
(4) CONTINGENCIES
The Company is involved in litigation and other legal proceedings arising in the
course of its normal business activities. Although the ultimate outcome of these
matters cannot be determined at this time, it is the opinion of management that,
when resolved, none of these matters will have a significant effect on the
Company's financial condition or results of operations.
(5) EARNINGS PER SHARE
Earnings per share are calculated on the basis of basic and dilutive weighted
average number of shares outstanding. The basic weighted average number of
shares outstanding was 4,140,496 and 4,135,288 for the three-month period ending
March 31, 2000 and 1999, respectively. The diluted weighted average number of
shares outstanding was 4,168,462 and 4,157,646 for the three-month period ending
March 31, 2000 and 1999, respectively.
(6) SEGMENT INFORMATION
The Company's reportable segments were determined based on management's internal
reporting approach, which is separated by each subsidiary. The reportable
segments are comprised of the two banks owned by the holding company, as well as
the holding company itself. Each bank provides a wide array of banking services
to consumer and commercial customers and earns interest income from loans made
to customers and investments in securities available for sale. Each bank also
recognizes certain fees related to deposit, lending, and other services provided
to customers. The holding company earns income by providing loans to insiders,
receiving dividends from the two banks, and by providing management services to
the banks. The holding company incurs no interest expense, but does incur
certain administrative expenses related to operations. No transactions with a
single customer contributed 10% or more to the Company's total revenue. The
accounting policies for each segment are the same as those used by the Company.
The segment results include certain overhead allocations and intercompany
transactions that were recorded at estimated market prices. All intercompany
transactions have been eliminated to determine the consolidated balances. The
results for the three reportable segments are included in the following tables
(in thousands):
10
<PAGE>
(6) SEGMENT INFORMATION-continued
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
-----------------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
--- --- --- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total interest income $5,230 $4,040 $ 110 $ 6 $ 9,374
Total interest expense 2,075 1,721 0 6 3,790
Net interest income 3,155 2,319 110 0 5,584
Net interest income after provision 3,155 2,319 110 0 5,584
Total noninterest income 998 412 1,203 1,203 1,410
Total noninterest expense 2,427 1,880 686 182 4,811
Income before taxes 1,726 851 627 1,021 2,183
Provision (benefit) for income taxes 491 315 (121) 0 685
Net income 1,235 536 748 1,021 1,498
Other significant items:
Total assets 291,058 210,532 55,081 44,359 512,312
Investment in subsidiaries 0 0 45,280 45,280 0
Depreciation, amortization, and
accretion (net) 91 267 199 0 557
Total expenditures for long-lived
assets 32 0 0 0 32
Revenues from external customers:
Total interest income 5,230 4,040 104 0 9,374
Total noninterest income 998 412 0 0 1,410
Total income 6,228 4,452 104 0 10,784
Revenues from affiliates:
Total interest income 0 0 6 6 0
Total noninterest income 0 0 1,203 1,203 0
Total income 0 0 1,209 1,209 0
</TABLE>
<PAGE>
(6) SEGMENT INFORMATION-continued
<TABLE>
<CAPTION>
For The Three Months Ended March 31, 1999
--------------------------------------------------------------------
HBT FNB HHC Eliminations Consolidated
--- --- --- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total interest income $5,024 $3,869 $ 93 $ 31 $ 8,955
Total interest expense 2,075 1,618 0 31 3,662
Net interest income 2,949 2,251 93 0 5,293
Provision for loan losses 0 75 0 0 75
Net interest income after provision 2,949 2,176 93 0 5,218
Total noninterest income 951 431 846 846 1,382
Total noninterest expense 2,430 2,038 665 186 4,947
Income before taxes 1,470 569 274 660 1,653
Provision (benefit) for income taxes 410 218 (116) 0 512
Net income 1,060 351 390 660 1,141
Other significant items:
Total assets 296,895 209,502 57,252 49,027 514,622
Investment in subsidiaries 0 0 46,703 46,703 0
Depreciation, amortization, and
accretion (net) 168 297 236 0 701
Total expenditures for long-lived
assets 49 790 8 0 847
Revenues from external customers:
Total interest income 5,024 3,869 62 0 8,955
Total noninterest income 951 431 0 0 1,382
Total income 5,975 4,300 62 0 10,337
Revenues from affiliates:
Total interest income 0 0 31 31 0
Total noninterest income 0 0 846 846 0
Total income 0 0 877 877 0
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION
- ------------------
Total assets decreased by approximately $9,000,000 from approximately
$521,312,000 at December 31, 1999, to approximately $512,312,000 at March 31,
2000. The principal fluctuations were in cash and due from banks, investment
securities available-for-sale and net loans. Cash and due from banks decreased
approximately $1,061,000 from approximately $23,545,000 at December 31, 1999 to
approximately $22,484,000 at March 31, 2000, a decrease of 4.5%. Investment
securities available-for-sale decreased approximately $3,065,000 from
approximately $148,418,000 at December 31, 1999 to approximately $145,353,000 at
March 31, 2000, a decrease of 2.1%. Net loans decreased approximately $4,257,000
from approximately $319,446,000 at December 31, 1999, to approximately
$315,189,000 at March 31, 2000, a decrease of 1.3%. HHC's cash and cash
equivalents reflected a decrease of approximately $1,355,000 or 5.2% for the
three-month period ended March 31, 2000.
Noninterest-bearing deposit accounts increased approximately $5,810,000 from
approximately $96,031,000 at December 31, 1999 to approximately $101,841,000 at
March 31, 2000, an increase of 6.1%. Interest-bearing deposit accounts decreased
approximately $3,580,000, from approximately $340,798,000 to approximately
$337,218,000 at March 31, 2000, a decrease of 1.1%. It is management's opinion
that HHC maintains competitive deposit rates while exercising prudent strategies
in competing with local institutions. Average rates paid on deposits for the
current period were relatively the same when compared with the same period in
the preceding year.
At March 31, 2000, HHC's financial position continued to reflect strong equity
and liquidity, with an equity to assets ratio of 10.5%. At March 31, 2000, 64%
of HHC's loans were in real estate loans (including mortgage and construction
loans), 19% in commercial loans (including agricultural loans), 7% in consumer
loans (including credit cards) and other loans were 10%. HHC's loan to deposit
ratio was approximately 72% at March 31, 2000, and 44% of all deposits were
invested in time certificates of deposit.
In the event of higher than anticipated requirements related to loan commitments
or deposit withdrawals, HHC's bank subsidiaries maintain federal funds lines
with regional banks. Also, the bank subsidiaries of the Company have become
members of the Federal Home Loan Bank and have credit lines with it. At March
31, 2000 approximately $64,000 was outstanding under the Federal Home Loan Bank
lines of credit.
12
<PAGE>
The following table represents the changes in consolidated stockholders' equity
for the three months ended March 31, 2000 (in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
Balance, December 31, 1999 $ 53,073,000
Net income 1,511,000
Change in unrealized gains (losses) on securities available-for-sale,
net of tax (261,000)
Dividends declared (707,000)
Deferred compensation-amortization 43,000
-----------------
Balance, March 31, 2000 $ 53,659,000
=================
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
For the three months ended March 31, 2000 and 1999:
Net Interest Income
- -------------------
Net interest income after provision for loan losses for the three month period
ended March 31, 2000, was approximately $5,584,000, which was approximately
$366,000 or 7.0% greater than the $5,218,000 for the same period the year
before. There were no loan loss provisions in the current three months ended
March 31, 2000, compared with approximately $75,000 for the same period in the
previous year. Total interest income increased by approximately $419,000 or 4.7%
while total interest expense increased approximately $128,000 or 3.5% for the
three-month period ended March 31, 2000, as compared to the three months ended
in the previous year.
Yields on interest-bearing assets averaged 8.0%, up approximately 33 basis
points from the same period the year before. Total average interest-bearing
assets increased by approximately $1,858,000 or 0.4% for the current period when
compared with the three-months ended March 31, 1999. Average loans for the three
months ended March 31, 2000 increased approximately $23,420,000 or 7.9% more
than the average loans for the three months ended March 31, 1999. The average
yield on loans for the three months ended March 31, 2000 was 8.9%, which is
relatively unchanged from the same period a year ago.
There were approximately $926,000 in nonaccrual loans at March 31, 2000 and
accruing loans contractually past due ninety days or more were approximately
$419,000 at March 31, 2000. This compares to approximately $1,035,000 in
nonaccrual and approximately $141,000 in loans past due ninety days or more and
still accruing at December 31, 1999. Management is of the opinion that loan loss
allowances are adequate to cover any losses, if such nonaccrual loans should
migrate to a charged off status.
Interest accruals on nonaccrual loans are recorded only when they are fully
current with respect to interest and principal and when, in the judgment of
management, the loans are estimated to be fully collectible as to both principal
and interest. Interest income on nonaccrual loans, which would have been
reported on an accrual basis, amounted to approximately $21,000 during the
three-month period ended March 31, 2000.
13
<PAGE>
Rates paid on interest-bearing liabilities averaged 4.2% for the three months
ended March 31, 2000, up approximately 10 basis points from the three months
ended March 31, 1999. Management's liability pricing strategies include
competitive deposit rates with increased awareness of cash flow needs within the
balance sheet. Management anticipates rates to increase slightly during the
remainder of the year.
Noninterest Income
- ------------------
Total other noninterest income increased approximately $28,000 or 2.0% for the
three months ended March 31, 2000, as compared with the three months ended March
31, 1999. The increase is primarily due to an increase in trust income of
approximately $29,000, an increase in credit life commissions of approximately
$9,000 and an increase in other credit card fees of approximately $20,000 while
being partially offset by a decrease in service charges on deposit accounts of
approximately $30,000.
Noninterest Expense
- -------------------
Total noninterest expense decreased by approximately $155,000, or 2.7% for the
three months ended March 31, 2000, as compared to the same period ended in the
preceding year. The decrease is due principally to decreases of approximately
$21,000 in net occupancy and equipment expense and a decrease in other
miscellaneous noninterest expense of approximately $136,000, while being
partially offset by an increase in salary and employee benefits of approximately
$2,000.
The decrease in other miscellaneous noninterest expenses was due to decreases in
travel and entertainment expenses of approximately $64,000, other losses on
disposition of equipment of approximately $47,000, advertising of approximately
$22,000, cash and check shortages of approximately $22,000, other real estate
expense of approximately $9,000, repossession expense of approximately $6,000
and charitable contributions of approximately $23,000. Offsetting such decreases
was an increase in legal and professional fees which increased by approximately
$57,000.
INCOME TAX PROVISION
The effective tax rates reported for the three months ended March 31, 2000 and
1999 were 31.4% and 31.0%, respectively.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is achieved through the continual maturing of interest-earning assets,
as well as by investing in short-term marketable securities. Liquidity is also
available through deposit growth, borrowing capacity, loan sales and repayments
of principal on loans and securities.
High levels of liquidity are normally obtained at a net interest cost due to
lower yields on short-term, liquid earning assets and higher interest expense
usually associated with the extension of deposit maturities. The trade-off of
the level of desired liquidity versus its cost is evaluated in determining the
appropriate amount of liquidity at any one time.
For the three months ended March 31, 2000, cash and cash equivalents decreased
approximately $1,355,000 or 5.2% from December 31, 1999.
Operating activities and investing activities provided cash and cash equivalents
of approximately $2,609,000 and approximately $6,983,000, respectively.
Financing activities used cash and cash equivalents of approximately $10,947,000
Net income of approximately $1,511,000, depreciation and amortization not
requiring the use of cash of approximately $632,000, a deferred income tax
provision of approximately $31,000, a decrease in accrued interest receivable of
approximately $582,000 and an increase in other liabilities of approximately
$614,000 contributed to operating cash and cash equivalents while an increase in
other assets of approximately $679,000 and discount accretion from investment
securities available-for-sale of approximately $75,000 and a gain of
approximately $7,000 on the sale of other real estate owned partially offset
those increases in operating cash and cash equivalents.
Proceeds from maturities of investment securities available-for-sale of
approximately $2,748,000, net cash flows from loans originated and principal
collected on loans of approximately $4,177,000 and proceeds from the disposal of
other real estate of approximately $90,000 contributed to providing cash and
cash equivalents from investing activities. Purchases of premises and equipment
of approximately $32,000 partially offset those increases in operating cash and
cash equivalents.
The cash and cash equivalents used by financing activities were due principally
to decreases in federal funds purchased and securities sold under agreement to
repurchase of approximately $1,409,000, payments of cash dividends of
approximately $716,000, net cash used from net maturities of certificates of
deposit of approximately $4,564,000, a decrease in other borrowed funds of
approximately $11,017,000 and payments on capital lease obligations of
approximately $35,000. Partially offsetting the use of cash and cash equivalents
was a net increase in NOW accounts, demand deposits and savings accounts of
approximately $6,794,000
15
<PAGE>
MARKET RISK MANAGEMENT
- ----------------------
A 100 basis point increase in interest rates would result in an increase in
interest margin of approximately $160,000 which is a change of approximately
$124,000 from the $36,000 increase in interest margin that would have occurred
at December 31, 1999 if there had been a 100 basis point increase in interest
rates at that time. A decrease in interest margin of approximately $17,000 would
occur if interest rates decreased by 100 basis points as of March 31, 2000
compared with approximately $144,000 at December 31, 1999, a change of
approximately $127,000. The effect on the net interest margin is not a
significant amount and well within the Company's policy.
CAPITAL RESOURCES
- -----------------
HHC and its subsidiary banks are subject to a minimum Tier 1 capital to
risk-weighted assets ratio of 4% and a total capital (Tier 1 plus Tier 2) to
risk-weighted assets ratio of 8%. The Federal Reserve Board ("Board") has also
established an additional capital adequacy guideline referred to as the Tier 1
leverage ratio that measures the ratio of Tier 1 Capital to average quarterly
assets. The most highly rated bank holding companies will be required to
maintain a minimum Tier 1 leverage ratio of 3%. The required ratio will be based
on the Board's assessment of the individual bank holding company's asset
quality, earnings performance, interest-rate risk and liquidity. Bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. The following table
represents HHC's regulatory capital position at March 31, 2000 (in thousands):
<TABLE>
<CAPTION>
Risk Based Capital Ratios: Amount Ratio
----------- ----------
<S> <C> <C>
Tier 1 Capital $ 53,909 14.21%
Tier 1 Capital minimum requirement $ 15,175 4.00%
---------- --------
Excess $ 38,734 10.21%
========== ========
Total Capital $ 58,679 15.47%
Total Capital minimum requirement $ 30,350 8.00%
---------- --------
Excess $ 28,329 7.47%
========== ========
Risk adjusted assets net of goodwill and
nonallowable loan loss allowance $ 379,370
Leverage Ratio:
Tier 1 Capital to adjusted total assets ("Leverage Ratio")
$ 53,909 10.58%
Minimum leverage requirement $ 15,285 3.00%
---------- --------
Excess $ 38,624 7.58%
========== ========
</TABLE>
Average total assets, net of goodwill (1) $ 509,509 (1) Average total assets,
net of goodwill for the three months ended March 31, 2000.
16
<PAGE>
HHC is a legal entity separate and distinct from the Banks. Most of the revenues
of HHC result from dividends paid to it by the Banks. There are statutory and
regulatory requirements applicable to the payment of dividends by the subsidiary
banks as well as by HHC to its shareholders. HHC paid cash dividends of $716,000
or $.17 per share on January 19, 2000, which had been declared at December 31,
1999. HHC had declared a cash dividend of $707,000 or $.17 per share of common
stock as of March 31, 2000, which was subsequently paid on April 19, 2000.
RECENT DEVELOPMENTS
- -------------------
In November 1999, HHC entered into a definitive agreement to be acquired by BB&T
Corporation ("BB&T") in a stock swap. The final stock exchange ratio will be
determined based on the average closing price of BB&T common stock during a
pricing period prior to closing. The maximum exchange ratio is .932 shares if
the average price during the pricing period is $33.50 or below and the minimum
exchange ratio is .901 shares if the average price during the pricing period is
$36.00 or above. The transaction will be accounted for as a pooling of
interests. The merger is expected to close in the second quarter of 2000. HHC
granted BB&T the option to purchase 19.9% of the outstanding shares should HHC
agree to merge with another Company without prior approval from BB&T.
BB&T is based in Winston-Salem, North Carolina and is traded on the New York
Stock Exchange under the ticker symbol BBT. BB&T has made other acquisitions in
the State of Georgia during 1999 and, as a result, BB&T will have a presence in
Southeast and Central Georgia, Metro Atlanta and Northwest Georgia.
YEAR 2000
- ---------
The Registrant and its subsidiaries addressed the Year 2000 challenges in a
prompt and responsible manner. The Registrant dedicated resources to ensure that
systems and services would not be compromised or otherwise negatively impacted
by the century date change. The Registrant also put in place processes to
monitor liquidity, fiduciary and credit quality issues related to the Year 2000.
The Registrant successfully completed its transition to the Year 2000 with no
impact to the Company's results of operations or financial condition other than
the cost of the project. The Registrant is not aware of any significant third
party relationships which were negatively impacted by their lack of Year 2000
readiness; however, the Registrant continues to monitor its third party
relationships for such problems.
The total cost of the Year 2000 project since its inception was approximately
$813,000. Approximately $562,000 of equipment has been capitalized and
approximately $256,000 has been expensed to date. Approximately $5,000 was
expensed in the first quarter of 2000 due to follow up procedures for the
project. The total cost of the project did not materially differ from original
estimates. The expenses did not have a material effect on the operations or
financial condition of the Registrant. To make resources available for the Year
2000 project, certain enhancements in the processing systems of the Registrant
were deferred; however, the Registrant does not anticipate that the deferral of
those enhancements will have a material negative impact on future results of
operations or financial condition.
17
<PAGE>
HARDWICK HOLDING COMPANY AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
HHC is not aware of any material pending legal proceedings to which HHC or any
of its subsidiaries is a party or to which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES -None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -None
ITEM 5. OTHER INFORMATION -None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27-Financial Data Schedule (for SEC use only).
(b) Form 8-K -None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
CORPORATION HARDWICK HOLDING COMPANY
- ----------- ------------------------
Date: April 28, 2000 By:/s/Michael Robinson
Michael Robinson
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000787465
<NAME> HARDWICK HOLDING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,484
<INT-BEARING-DEPOSITS> 147
<FED-FUNDS-SOLD> 2,076
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 145,353
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 322,206
<ALLOWANCE> 7,017
<TOTAL-ASSETS> 512,312
<DEPOSITS> 439,059
<SHORT-TERM> 14,617
<LIABILITIES-OTHER> 4,977
<LONG-TERM> 0
0
0
<COMMON> 2,106
<OTHER-SE> 51,553
<TOTAL-LIABILITIES-AND-EQUITY> 512,312
<INTEREST-LOAN> 7,089
<INTEREST-INVEST> 2,283
<INTEREST-OTHER> 2,283
<INTEREST-TOTAL> 9,374
<INTEREST-DEPOSIT> 3,486
<INTEREST-EXPENSE> 3,790
<INTEREST-INCOME-NET> 5,584
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,792
<INCOME-PRETAX> 2,202
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,511
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 8.0
<LOANS-NON> 926
<LOANS-PAST> 419
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,098
<CHARGE-OFFS> 165
<RECOVERIES> 84
<ALLOWANCE-CLOSE> 7,017
<ALLOWANCE-DOMESTIC> 7,017
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
