<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0--17947
HAVERFIELD CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1606726
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Terminal Tower, 50 Public Square, Suite 444, Cleveland, Ohio 44113-2203
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 348-2800
Former name, former address and former fiscal year, if changed
since last report: Not Applicable
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Shares, $0.01 par value 1,906,349
- --------------------------------------------------------------------------------
(Class) (Outstanding at May 8, 1997)
<PAGE> 2
HAVERFIELD CORPORATION
INDEX
PAGE
- --------------------------------------------------------------------------------
Part I. Financial Information
Consolidated Statements of Financial Condition
March 31, 1997, December 31, 1996 and March 31, 1996 3
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 15
Part II. Other Information
Item 1 - Legal Proceedings 19
Item 2 - Changes in Securities 19
Item 3 - Defaults Upon Senior Securities 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 5 - Other Information 19
Item 6 - Exhibits and Reports on Form 8-K 20
2
<PAGE> 3
PART I. - FINANCIAL INFORMATION
HAVERFIELD CORPORATION
Consolidated Statements of Financial Condition (unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 3,914 $ 5,489 $ 5,088
Due from banks-interest bearing 100 100 100
Federal funds sold 1,288 2,822 2,359
Investment securities:
Available for sale, at fair value (Amortized
cost of $32,419, $34,367, and $35,224, respectively) 31,712 33,990 34,810
Mortgage-backed securities:
Available for sale, at fair value (Amortized
cost of $1,898, $1,937 and $2,541, respectively) 1,965 2,010 2,603
Loans (net of allowance for loan losses of $2,980,
$2,922 and $2,745, respectively) 294,143 293,792 285,792
Premises and equipment 4,324 4,176 3,949
Accrued interest and other assets 4,218 4,477 4,929
--------- --------- ---------
TOTAL $ 341,664 $ 346,856 $ 339,630
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Passbook/statement accounts $ 37,715 $ 39,305 $ 44,596
Non-interest-bearing NOW accounts 7,291 7,115 7,655
Interest-bearing NOW accounts 15,867 17,188 17,152
Money market fund accounts 63,338 62,263 59,208
Certificates of deposit 149,015 153,202 175,357
--------- --------- ---------
Total deposits 273,226 279,073 303,968
Advances from Federal Home Loan Bank 32,000 30,000 --
Advances by borrowers for taxes and insurance 3,531 6,207 2,621
Accrued interest and other liabilities 4,232 3,224 4,847
--------- --------- ---------
Total liabilities 312,989 318,504 311,436
--------- --------- ---------
Shareholders' Equity:
Preferred stock; 1,000,000 shares authorized;
none issued -- -- --
Common stock, par value $.01 per share; 5,000,000
shares authorized; 1,915,892 shares issued 19 19 19
Capital in excess of par value 16,510 16,510 16,494
Retained earnings 12,692 12,146 12,050
Net unrealized appreciation (depreciation) in the fair
value of securities (net of deferred income taxes
of $(218), $(103) and $(120), respectively) (423) (201) (233)
Common shares in treasury, at cost (9,543 shares,
9,543 shares and 11,790 shares, respectively) (122) (122) (136)
--------- --------- ---------
Total shareholders' equity 28,675 28,352 28,194
--------- --------- ---------
TOTAL $ 341,664 $ 346,856 $ 339,630
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
HAVERFIELD CORPORATION
Consolidated Statements of Income (unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans $6,144 $6,033
Investment securities and other 619 783
Mortgage-backed securities 40 53
------ ------
Total interest income 6,803 6,869
------ ------
Interest expense:
Deposits 3,245 3,804
Advances from Federal Home Loan Bank 480 -
------ ------
Total interest expense 3,725 3,804
------ ------
Net interest income 3,078 3,065
Provision for loan losses 96 34
------ ------
Net interest income after provision for loan losses 2,982 3,031
------ ------
Noninterest income:
Service fees and other charges 359 333
Servicing income 103 121
Other income 104 67
------ ------
Total noninterest income 566 521
------ ------
Noninterest expense:
Employee compensation and benefits 972 989
Occupancy and equipment 468 488
Advertising 148 84
Insurance premiums 24 200
Data processing fees 95 94
Amortization of intangibles 30 84
Other expenses 581 646
------ ------
Total noninterest expense 2,318 2,585
------ ------
Income before income taxes 1,230 967
Provision for income taxes 418 329
------ ------
Net income $ 812 $ 638
====== ======
Net income per common share $ .43 $ .34
====== ======
Cash dividend paid per common share $ .14 $ .135
====== ======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
HAVERFIELD CORPORATION
Consolidated Statements of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 812 $ 638
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 96 34
Amortization of intangibles 30 84
Depreciation 190 164
Amortization of deferred loan fees (38) (52)
Federal Home Loan Bank stock dividends (48) (45)
Net change in other assets and other liabilities 58 199
Net change in accrued interest receivable and accrued interest payable 1,066 1,491
Other 223 262
-------- --------
Net cash provided by operating activities 2,389 2,775
-------- --------
INVESTING ACTIVITIES:
Disbursements on loans originated (20,481) (24,338)
Proceeds from:
Loan repayments and maturities 22,069 23,012
Mortgage-backed security repayments and maturities 38 130
Investment security calls and maturities 2,000 17,000
Purchases of:
Loans (1,995) (873)
Investment securities - (5,098)
Premises and equipment (339) (160)
Decrease (increase) in federal funds sold (1,534) 2,038
-------- --------
Net cash provided by investing activities 2,826 11,711
-------- --------
FINANCING ACTIVITIES:
Net decrease in certificates of deposit (4,187) (18,106)
Net increase (decrease) in passbook, NOW and money market fund accounts (1,660) 4,295
Payment of cash dividends (267) (257)
Proceeds from borrowings 2,000 -
Proceeds from exercise of stock options - 142
Net decrease in mortgage escrow deposits (2,676) (3,119)
-------- --------
Net cash used in financing activities (6,790) (17,045)
-------- --------
Net decrease in cash and due from banks (1,575) (2,559)
Cash and due from banks at beginning of period 5,489 7,647
-------- --------
Cash and due from banks at end of period $ 3,914 $ 5,088
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
HAVERFIELD CORPORATION
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. The accounting policies of Haverfield Corporation ("Haverfield" or the
"Company") conform to generally accepted accounting principles and prevailing
practices within the banking and thrift industry. A summary of the more
significant policies follows:
NATURE OF OPERATIONS -- Haverfield is a unitary savings and loan holding
company whose principal operating subsidiary is Home Bank, F.S.B. (the "Bank").
The Company is principally engaged in the business of attracting deposits from
the general public and using such deposits, together with borrowings and other
funds, to make loans secured by real estate, various types of consumer loans
and commercial loans in its market area. The Company's principal market area
consists of suburban communities of Cleveland, and the Company's business is
conducted through its corporate office located in Cleveland, Ohio and ten
branch offices located in Beachwood, Brooklyn, Cleveland, Euclid, Lakewood,
Mayfield Village, Mentor, Rocky River, University Heights, and Westlake, Ohio.
Loans and deposits are primarily generated from the areas where its banking
offices are located. The Company's income is derived predominately from
interest on loans and investments and, to a lesser extent, noninterest income.
The Company's principal expenses are interest paid on deposits and borrowings,
and normal operating costs. The Company's operations are principally in the
savings industry, which constitutes a single industry segment. The Bank's
subsidiaries engage in real estate development activities, mezzanine lending
and investment counseling which are not material to its operations as a whole
and are not significant enough to constitute a business segment.
On April 22, 1997, Charter One Financial, Inc. ("Charter One"), the holding
company of Charter One Bank, F.S.B., and the Company entered into a definitive
agreement (the "Merger Agreement") to merge in a stock-for-stock exchange. The
merger, which would be accounted for as a pooling of interests, is expected to
close near the end of the third quarter of 1997. The Merger Agreement has been
approved by the boards of directors of both companies, however, the transaction
requires the approvals of the Office of Thrift Supervision and Haverfield
shareholders.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- 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.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company, the Bank, and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. In the
opinion of management, the accompanying unaudited financial statements include
all adjustments (consisting only of normal recurring accruals) which the
Company considers necessary for a fair presentation of (a) the results of
operations for the three-month periods ended March 31, 1997 and 1996, (b) the
financial position at March 31, 1997, December 31, 1996 and March 31, 1996, and
(c) cash flows for the three-month periods ended March 31, 1997 and 1996. The
results of operations for the period ended March 31, 1997 are not necessarily
indicative of the results which may be expected for a full year. Certain
amounts previously reported in the prior years consolidated financial
statements have been reclassified to conform with the current presentation.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES -- Securities are
classified as either trading, available for sale or held to maturity.
Securities classified as trading would be carried at estimated market value
with the adjustment, if any, reflected in the statement of income. Securities
classified as available for sale are also carried at estimated market value;
however, the adjustment, if any, is reflected in shareholders' equity.
Securities held to maturity are carried at amortized cost. Gains or losses on
the sale of securities, representing the difference between net proceeds and
carrying value, are recorded in noninterest income on the trade date using the
specific identification method.
LOANS -- At the time of origination or purchase, loans are classified as held
for sale or held for investment, based upon management's intent. Critical to
the proper classification of, and accounting for, loans as investments is the
intent and ability to hold them to maturity. Loans held for sale are accounted
for at the lower of cost or market, with any unrealized loss included in
income. Loans held for investment are stated at the principal amount
outstanding adjusted for amortization of premiums and accretion of discounts
using the interest method. Interest is accrued as earned. Transfers of loans
held for sale to the investment portfolio are recorded at the lower of cost or
market value on the transfer date.
6
<PAGE> 7
A loan is classified as nonaccrual when collectability is in doubt (this is
generally when the borrower is 90 days past due on contractual principal or
interest payments). A loan may be considered impaired, but remain on accrual
status, when the borrower demonstrates (by continuing to make payments) a
willingness to keep the loan current. When a loan is placed on nonaccrual
status, unpaid interest is reversed and an allowance is established by a charge
to interest income equal to all accrued interest. Income is subsequently
recognized only to the extent that cash payments are received. Loans are
returned to accrual status when, in management's judgment, the borrower has the
ability and intent to make periodic principal and interest payments (this
generally requires that the loan be brought current in accordance with its
original contractual terms).
A loan is considered to be impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. In general, the Bank
considers a loan on income-producing properties to be impaired when the debt
service ratio is less than 1.0. Loans on non-income producing properties are
considered impaired whenever fair value is less than book value. The Bank
performs a review of all loans over $500,000 to determine if the impairment
criteria have been met. If the impairment criteria have been met, a reserve is
calculated. For loans which are individually not significant ($500,000 or less)
and represent homogeneous populations, the Bank evaluates impairment based on
the level and extent of delinquencies. Such loans include all mortgage loans
secured by 1-4 family residential property, all consumer loans, and certain
multi-family real estate loans, nonresidential real estate loans, business
loans and leases. The Bank charges principal off at the earlier of (1) when a
total loss of principal has been deemed to have occurred as a result of the book
value exceeding the fair value or net realizable value or (2) when collection
efforts have ceased.
NONPERFORMING LOANS -- Loans considered to be nonperforming include nonaccrual,
accruing loans delinquent 90 days or more, and restructured loans. Loans are
classified as nonaccrual when, in management's judgment, the borrower no longer
has the ability and intent to make periodic interest and principal payments.
Loans are classified as accruing loans delinquent 90 days or more when the loan
is 90 days or more past due, is fully secured, and, in management's judgment,
the borrower has the ability and intent to make periodic interest and principal
payments. Loans are classified as restructured when concessions are made to
borrowers with respect to the principal balance, interest rate or the term due
to the inability of the borrower to meet the obligation under the original
terms.
LOAN FEES -- Loan origination fees received for loans held for investment, net
of certain direct origination costs, are deferred and amortized to interest
income over the contractual life of the loan using the level yield method. Loan
origination fees received for loans held for sale, net of certain direct
origination costs, are deferred and recognized as an adjustment of the basis on
sale of the loans. Fees received for loan commitments that are expected to be
drawn, based on the Bank's experience with similar commitments, are deferred and
amortized over the life of the loan using the level yield method. Fees for other
loan commitments are deferred and amortized over the loan commitment period on a
straight-line basis. Unamortized deferred loan fees related to loans paid off
are included in interest income in the period the loan is paid off. Amortization
of net deferred fees is discontinued for loans that are deemed to be
nonperforming.
ALLOWANCE FOR LOAN LOSSES -- The allowance for loan losses is established at an
amount necessary to reduce the recorded balances of loans receivable to their
estimated net realizable value, and is increased by charges to income and
decreased by charge-offs (net of recoveries). The allowance for loan losses is
based on management's estimate of the value of the collateral, considering the
current and currently anticipated future operating or sales conditions, as well
as the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrower's ability to repay,
and current economic conditions. Consequently, these estimates are particularly
susceptible to changes that could result in a material adjustment to results of
operations. Recovery of the carrying value of such loans is dependent on
economic, operating, and other conditions that are beyond the control of the
Company. In the opinion of management, the allowance for loan losses is recorded
in accordance with generally accepted accounting principles.
REAL ESTATE OWNED -- Real estate owned consists of property acquired in
settlement of foreclosed loans. Real estate owned is carried at the lower of
fair value less estimated costs to sell or cost. Costs relating to the
development and improvement of property are capitalized, whereas those relating
to holding and maintaining the property are charged to expense.
PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the useful lives of the related assets for financial
reporting purposes. For tax purposes, depreciation on certain assets is computed
using accelerated methods.
7
<PAGE> 8
INTANGIBLE ASSETS -- Cost in excess of fair value of net assets acquired was
amortized to expense using the interest method over a period of three years.
FEDERAL INCOME TAXES -- The Company and its subsidiaries file a consolidated
income tax return. Deferred income taxes reflect the temporary tax consequences
on future years of differences between the tax and financial statement basis of
assets and liabilities at the balance sheet date. On August 20, 1996,
legislation was signed into law which repealed the percentage of taxable income
method tax bad debt deduction available for thrift institutions. This repeal was
effective for the Company's taxable year beginning January 1, 1996. In addition,
the legislation requires the Company to include in taxable income its bad debt
reserves in excess of its base year reserve over a six- to eight-year period
depending upon the maintenance of certain loan origination levels. The recapture
amount of $1.2 million will result in payments totaling $400,000, which has
previously been accrued. Since the percentage of taxable income method tax bad
debt deduction and the corresponding increase in the tax bad debt reserve in
excess of the base year have been treated as temporary differences pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 109, this change in tax
law will have no effect on the Company's future consolidated statement of
operations.
EARNINGS PER COMMON SHARE -- Earnings per common share was computed using the
weighted average number of common shares outstanding for the period. The
weighted average shares used in the computation of earnings per common share was
1,906,349 shares, and 1,886,921 shares during the three-month periods ended
March 31, 1997 and 1996, respectively. The stock options are not dilutive for
computing earnings per share.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks. Federal Reserve
Board regulations require depository institutions to maintain certain minimum
reserve balances. Included in cash and demand deposits were required deposits
at the Federal Reserve of $647,000 and $628,000 at March 31, 1997 and 1996,
respectively.
No income tax payments were required for the three months ended March 31, 1997.
Income tax payments made for the three months ended March 31, 1996 were
$200,000. Interest paid on deposits and other borrowings totaled $2,484,000 and
$2,387,000 for the three months ended March 31, 1997 and 1996, respectively.
There were no loans made to finance the sale of foreclosed real estate during
the three months ended March 31, 1997 and 1996. There were no acquisitions of
real estate property through foreclosure during the three months ended March 31,
1997 and 1996.
NEW ACCOUNTING STANDARDS -- In January, 1997 the Company adopted SFAS No. 125
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
Those standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes the financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The adoption of this Statement did not have a material impact on the
financial condition and results of operations of the Company. The Financial
Accounting Standards Board ("FASB") has issued SFAS No. 127 that defers the
effective date of certain provisions of SFAS 125 related to secured borrowings
and collateral, repurchase agreements, dollar-rolls, securities lending, and
similar transactions until after December 31, 1997. This Statement requires
restatement of all prior-period EPS data presented. Management intends to adopt
this statement when it becomes effective. The impact of adopting this statement
on the financial condition and results of operations of the Company is not
expected to be significant.
In February 1997 the FASB issued SFAS No. 128 Earnings per Share. SFAS 128
revises the standards for computing earnings per share ("EPS") and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. The Statement requires dual
presentation of basic and diluted EPS by entities with complex capital
structures and requires a reconciliation of the basic EPS computation to diluted
EPS. Basic EPS includes no dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could occur if securities or other contracts to issue common
stock were exercised or converted into common shares. This Statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. This
Statement requires restatement of all prior-period EPS data presented.
Management intends to adopt this statement when it becomes effective. The impact
of adopting this statement on the financial condition and results of operations
of the Company is not expected to be significant.
8
<PAGE> 9
In February 1997 the FASB issued SFAS No. 129, Disclosure of Information about
Capital Structure. This Statement establishes standards for disclosing
information about an entity's capital structure. It supersedes specific
disclosure requirements of APB Opinions No. 10, Omnibus Opinion-1966, and No.
15, Earnings Per Share, and FASB Statement No. 47, Disclosure of Long-Term
Obligations, and consolidates them in this Statement for ease of retrieval and
for greater visibility to nonpublic entities. This Statement is effective for
financial statements for periods ending after December 15, 1997. It contains no
changes in disclosure requirements for entities that were previously subject to
the requirements of Opinions 10 and 15 and Statement 47 and, therefore, is not
expected to have a significant impact on the financial condition or results of
operations of the Company.
2. All investment securities are classified as available for sale. Amortized
cost, estimated market values and weighted average end-of-period yields of
investment securities by contractual maturity are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
------------------------- -------------------------- --------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Yield Cost Value Yield Cost Value Yield
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government obligations:
Due in one year or less $ 2,497 $ 2,499 5.74% $ 2,497 $ 2,499 5.82% $ 1,000 $ 1,011 7.25%
Due after 1 year through 5 years 7,492 7,386 6.55% 9,490 9,411 6.68% 15,988 15,890 6.34%
Due after 5 years through 10 years 19,481 18,876 6.93% 19,479 19,180 6.93% 15,477 15,149 6.90%
------- ------- ------- ------- ------- -------
Total 29,470 28,761 6.73% 31,466 31,080 6.76% 32,465 32,050 6.64%
------- ------- ------- ------- ------- -------
Marketable equity securities 100 102 6.41% 100 99 6.38% 100 101 6.41%
Federal Home Loan Bank stock 2,849 2,849 7.00% 2,801 2,801 7.00% 2,659 2,659 7.00%
------- ------- ------- ------- ------- -------
Total $32,419 $31,712 6.75% $34,367 $33,990 6.78% $35,224 $34,810 6.66%
======= ======= ======= ======= ======= =======
</TABLE>
At March 31, 1997, investment securities totaling $2.0 million were pledged as
collateral for deposits, and investment securities totaling $1.5 million were
pledged as collateral for a revolving credit facility extended to the Company by
a third-party lender. The Federal Home Loan Bank stock was pledged as
collateral for the advances from the Federal Home Bank of Cincinnati.
Gross unrealized gains and gross unrealized losses are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
---------------------- --------------------- ----------------------
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government obligations $ 4 $713 $ 2 $378 $ 21 $436
Marketable equity securities 2 - - 1 1 -
Federal Home Loan Bank stock - - - - - -
---- ---- ---- ---- ---- ----
Total $ 6 $713 $ 2 $379 $ 22 $436
==== ==== ==== ==== ==== ====
</TABLE>
3. Loans may be exchanged for mortgage-backed securities guaranteed by
government agencies. Although long-term and fixed-rate in nature,
mortgage-backed securities are more liquid than real estate loans since a large
and active secondary market exists.
9
<PAGE> 10
Amortized cost, estimated market values and weighted average end-of-period
yields of mortgage-backed securities by contractual maturity are summarized as
follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------------------- ------------------------- --------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Yield Cost Value Yield Cost Value Yield
--------- ------ ------ -------- ------ ------ --------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pass-through certificates:
Federal Home Loan Mortgage
Corporation:
Due after 5 years through 10 years $ 9 $ 9 7.50% $ 10 $ 10 7.50% $ 13 $ 13 7.50%
Due after 10 years 1,743 1,810 8.60% 1,751 1,822 8.60% 1,989 2,055 8.63%
------ ------ ------ ------ ------ ------
Total 1,752 1,819 8.59% 1,761 1,832 8.59% 2,002 2,068 8.62%
------ ------ ------ ------ ------ ------
Government National Mortgage
Association:
Due after 1 year through 5 years 146 146 8.95% - - - 143 141 9.14%
Due after 5 years through 10 years - - - 176 178 9.02% 99 98 9.20%
------ ------ ------ ------ ------ ------
Total 146 146 8.95% 176 178 9.02% 242 239 9.16%
------ ------ ------ ------ ------ ------
Collateralized mortgage obligations:
Due in 1 year or less - - - - - - 183 182 5.38%
Due after 10 years - - - - - - 114 114 5.44%
------ ------ ------ ------ ------ ------
Total - - - - - - 297 296 5.40%
------ ------ ------ ------ ------ ------
Total $1,898 $1,965 8.62% $1,937 $2,010 8.63% $2,541 $2,603 8.30%
====== ====== ====== ====== ====== ======
</TABLE>
At March 31, 1997, mortgage-backed securities totaling $765,000 were pledged as
collateral for public funds on deposit with the Bank.
Gross unrealized gains and gross unrealized losses are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
--------------------- ----------------------- -----------------------
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Pass-through certificates:
Federal Home Loan Mortgage
Corporation $67 $- $71 $- $66 $ -
Government National Mortgage
Association - - 2 - - 3
Collateralized mortgage obligations - - - - - 1
--- --- --- --- --- ---
Total $67 $- $73 $- $66 $ 4
=== === === === === ===
</TABLE>
4. The loan portfolio is comprised primarily of residential real estate loans
granted to customers residing in northeastern Ohio. Although the Company has a
diversified loan portfolio, its debtors' ability to honor their contracts is
substantially dependent upon the general economic conditions of the region.
10
<PAGE> 11
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Real estate loans - mortgage $ 235,719 $ 239,302 $ 238,752
Real estate loans - construction 1,711 4,272 3,116
Land 3,415 3,682 4,188
Business loans 11,350 6,720 5,146
Consumer and other loans 46,895 45,028 40,468
--------- --------- ---------
299,090 299,004 291,670
LESS:
Undisbursed portion of loans in process (992) (1,293) (2,103)
Unearned income on consumer loans (4) (6) (13)
Amount due other financial institutions relating
to wrap around mortgage loans (111) (114) (143)
Deferred loan fees (860) (877) (874)
Allowance for loan losses (2,980) (2,922) (2,745)
--------- --------- ---------
$ 294,143 $ 293,792 $ 285,792
========= ========= =========
</TABLE>
At March 31, 1997, December 31, 1996 and March 31, 1996, loans serviced for
others amounted to $128.0 million, $132.7 million and $133.2 million,
respectively. There were no sales of mortgage loans during 1997 or 1996.
Servicing loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and foreclosure
processing.
5. The following table summarizes nonaccrual, past due and repossessed assets.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $3,403 $2,697 $1,132
Loans past due 90 days and accruing 5 5 6
Repossessed assets - - 656
------ ------ ------
Total nonperforming assets $3,408 $2,702 $1,794
====== ====== ======
Percent of nonperforming loans to total loans 1.14% .90% .39%
Percent of nonperforming assets to total assets 1.00% .78% .53%
</TABLE>
The loans included above are secured by real estate or other collateral which
limits the Company's exposure to loss. At March 31, 1997, there were no
significant commitments outstanding to lend additional funds to borrowers with
nonperforming loans. For all periods presented, there have been no troubled debt
restructurings which involved forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than market rates.
In addition to the loans disclosed in the table above, the Bank has a $1.0
million loan secured by a strip shopping center located in Northeast Ohio. The
shopping center has experienced higher-than-expected vacancies, and the cash
flow from the property has not been sufficient to meet the principal and
interest due on the loan. The borrower has maintained the loan current through
March 31, 1997. The borrower is working to cure the vacancies; however,
continued high vacancies and cash flow shortages could cause management to place
this loan on nonaccrual status.
11
<PAGE> 12
6. In the normal course of business, various commitments and contingent
liabilities arise, including commitments to originate real estate loans and
commitments to extend credit. Commitments to borrowers to originate loans and
for unused lines of credit are summarized below:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Commitments to originate:
Fixed rate loans $ 2,804 $ 3,415 $ 2,722
Variable rate loans 3,184 1,367 6,555
Unused lines of credit 73,481 70,712 59,958
</TABLE>
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon the credit extension, is based on management's
credit evaluation of the counter-party. The commitment amount represents the
amount of credit risk; however, the Company generally extends credit on a
secured basis. Collateral held usually includes residential and commercial real
estate.
7. The composition of premises and equipment is as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Land and improvements $ 673 $ 673 $ 669
Buildings and improvements 1,704 1,704 1,667
Furniture and fixtures 5,025 4,749 5,037
Leasehold improvements 1,956 1,892 1,936
------ ------ ------
9,358 9,018 9,309
Accumulated depreciation and amortization 5,034 4,842 5,360
------ ------ ------
$4,324 $4,176 $3,949
====== ====== ======
</TABLE>
8. Accrued interest and other assets consists of the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Accrued interest $2,548 $2,372 $2,528
Purchased mortgage servicing rights 184 191 -
Real estate owned - - 656
Cost in excess of fair value of net assets acquired - 21 82
Other assets 1,486 1,893 1,663
------ ------ ------
$4,218 $4,477 $4,929
====== ====== ======
</TABLE>
Purchased mortgage servicing rights represent the cost of purchasing rights to
service loans. All such recorded rights relate to residential mortgage loans.
Servicing rights are presented net of accumulated amortization, which is
recorded in proportion to, and over the period of, net servicing income.
Servicing income is partially offset by this amortization expense. The carrying
value of purchased mortgage servicing rights is periodically evaluated to
determine that it is not greater than fair value. An allowance is established in
the event the recorded value exceeds the fair value of the rights. No such
allowance was required at March 31, 1997 or December 31, 1996.
12
<PAGE> 13
9. Accrued interest and other liabilities consists of the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Accrued interest payable $1,995 $ 753 $2,094
Collections on loans serviced 301 376 793
Other liabilities 1,936 2,095 1,960
------ ------ ------
$4,232 $3,224 $4,847
====== ====== ======
</TABLE>
10. In June, 1996, the Company renewed a one-year revolving credit facility
from a third-party lender in the amount of $1.0 million. The interest rate
associated with this credit facility is based on the prime rate. The Company has
not drawn on this credit facility.
11. Advances from the Federal Home Loan Bank of Cincinnati (the "FHLB") consist
of:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
Maturity Date Balance Rate Balance Rate
- ------------- ------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
April 25, 1997 $ 2,000 7.00% $ - -%
June 20, 1997 2,000 5.80% 2,000 5.55%
September 23, 1997 2,000 5.90% 2,000 5.65%
June 23, 1998 1,500 6.45% 1,500 6.45%
July 2, 1998 4,000 6.00% 4,000 5.75%
July 15, 1998 4,000 6.00% 4,000 5.75%
July 17, 1998 4,000 6.00% 4,000 5.75%
July 24, 1998 4,000 6.00% 4,000 5.75%
August 21, 1998 2,000 6.00% 2,000 5.75%
September 23, 1998 5,000 6.00% 5,000 5.75%
September 23, 1998 1,500 6.55% 1,500 6.55%
------- -------
$32,000 $30,000
======= =======
</TABLE>
No advances were outstanding from the FHLB at March 31, 1996. The Bank has
pledged qualifying collateral, primarily mortgage loans, with a market value of
at least 150% of the amount of the advances.
12. The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. The regulations require the Bank to meet
specific capital adequacy guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital classification is also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the tables
below) of tangible, core and total risk-based capital. Prompt Corrective Action
regulations require specific supervisory actions as capital levels decrease.
13
<PAGE> 14
As of March 31, 1997, the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for Prompt Corrective Action. To be categorized as well capitalized,
the Bank must maintain minimum total risked-based, Tier 1 risk-based and Tier
1 leverage ratios as set forth in the tables below. There are no conditions or
events since that notification that have changed the Bank's category.
<TABLE>
<CAPTION>
As of March 31, 1997
-------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ---------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $27,520 11.19% $19,683 8.00% $24,603 10.00%
Tier 1 capital (to risk-weighted assets) 24,589 9.99% - - 14,762 6.00%
Tier 1 capital (to adjusted tangible assets) 24,589 7.21% 10,228 3.00% 17,047 5.00%
Tangible capital (to tangible assets) 24,589 7.21% 5,114 1.50% - -
</TABLE>
Management believes that, as of March 31, 1997, the Bank meets all capital
requirements to which it is subject and, under the current regulations, the
capital requirements will continue to be met in the foreseeable future. However,
events beyond the control of management, such as fluctuations in interest rates
or a downturn in the local economy of northeastern Ohio where the Bank has most
of its loans, could adversely affect future earnings and, consequently, the
Bank's ability to meet its future capital requirements.
14
<PAGE> 15
HAVERFIELD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997 was $812,000 as compared to
$638,000 for the three months ended March 31, 1996. The increase in net income
resulted from a $267,000 reduction in noninterest expense, which was mainly due
to lower deposit insurance premiums and an $80,000 decrease in the provision for
loss on real estate owned, partially offset by an increase in advertising
expenses. Return on average assets for the first quarter of 1997 was .96%
compared with .75% in the same period of 1996. Return on average equity was
11.28% for the first quarter of 1997, as compared with 8.88% for the same period
of 1996.
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income for the three months ended March 31, 1997 was $3,078,000,
compared to $3,065,000 for the same period in 1996. The interest rate spread
decreased 1 basis point to 3.21%. Due to a general decrease in interest rates,
the weighted average yield on earning assets decreased 8 basis points, while the
yield paid on interest-bearing liabilities decreased 7 basis points. An analysis
of net interest income is presented in the following table. For each major
category of interest-earning assets and interest-bearing liabilities, the
average balance of funds employed during the period indicated is shown along
with the interest earned or paid on that balance for the period and the weighted
average annualized rate earned or paid for that category. Average balances are
determined on a daily basis.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans - net $295,205 $ 6,143 8.34% $285,481 $ 6,033 8.46%
Investments and other 39,421 620 6.29 47,436 783 6.54
Mortgage-backed securities 1,999 40 8.09 2,693 53 7.89
-------- -------- ---- -------- -------- ----
Total interest-earning assets 336,625 6,803 8.10 335,610 6,869 8.18
Noninterest-earning assets 6,973 -------- ---- 7,249 -------- ----
-------- --------
Total assets $343,598 $342,859
======== ========
Interest-bearing liabilities:
Passbook/statement accounts $ 38,349 232 2.45 $ 44,634 274 2.47
NOW accounts 23,925 48 .82 24,329 59 .97
Money market fund accounts 62,319 759 4.94 55,922 689 4.96
Certificates of deposit 150,976 2,206 5.93 183,635 2,782 6.09
-------- -------- ---- -------- -------- ----
Total deposits 275,569 3,245 4.78 308,520 3,804 4.96
FHLB advances 33,294 480 5.77 - - -
-------- -------- ---- -------- -------- ----
Total interest-bearing liabilities 308,863 3,725 4.89 308,520 3,804 4.96
Noninterest bearing liabilities 5,540 -------- ---- 5,436 -------- ----
-------- --------
Total liabilities 314,403 313,956
Shareholders' equity 29,195 28,903
-------- --------
Total liabilities and shareholders' equity $343,598 $342,859
======== ========
Net interest income/interest rate spread $ 3,078 3.21% $ 3,065 3.22%
======== ==== ======== ====
Net interest margin 3.71% 3.67%
==== ====
</TABLE>
15
<PAGE> 16
The sensitivity of the Company's net interest income to general economic
conditions and the effect on net interest income due to changes in interest
rates and changes in amounts of interest-earning assets and interest-bearing
liabilities for the three months ended March 31, 1997 versus March 31, 1996 is
shown in the following table. Changes in interest due to both rate and volume
have been allocated to change due to volume and change due to rate in proportion
to the absolute amounts of the change in each.
<TABLE>
<CAPTION>
Change Due To
-----------------
Total Change Volume Rate
------------ ------ ----
(In thousands)
<S> <C> <C> <C>
Interest income:
Loans $ 111 $ 201 $ (90)
Investments and other (164) (128) (36)
Mortgage-backed securities (13) (14) 1
----- ----- -----
Total (66) 59 (125)
----- ----- -----
Interest expense:
Deposits (559) (394) (165)
FHLB advances 480 480 -
----- ----- -----
Total (79) 86 (165)
----- ----- -----
Increase in net interest income $ 13 $ (27) $ 40
===== ===== =====
</TABLE>
ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
The amount of the allowance for loan losses is based on management's analysis of
risks inherent in the various segments of the loan portfolio, management's
assessment of known or potential problem credits which have come to management's
attention during the ongoing analysis of credit quality, historical loss
experience, current economic conditions and other factors. Loan loss estimates
are reviewed periodically, and adjustments, if any, are reported in earnings in
the period in which they become known. In addition, the Company maintains a
portion of the allowance to cover potential losses inherent in the portfolio
which have not been specifically identified. Activity in the loan loss allowance
for the three months ended March 31, 1997 and March 31, 1996 is presented below.
<TABLE>
<CAPTION>
March 31,
--------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance, January 1 $ 2,922 $ 2,734
Provision charged to expense 96 34
Loans (charged off) recoveries (38) (23)
--------- ---------
Balance, March 31 $ 2,980 $ 2,745
========= =========
Average loans $ 295,205 $ 285,481
Loans at end of period $ 299,090 $ 291,670
Allowance/average loans 1.01% .96%
Allowance/end-of-period loans 1.00% .94%
Allowance/nonperforming loans 87.44% 241.21%
Allowance/nonperforming assets 87.44% 153.01%
</TABLE>
Although management believes that it uses the best information available to make
such determinations and that the allowance for loan losses is adequate at March
31, 1997, future adjustments to reserves may be necessary, and net income could
be significantly affected, if circumstances and/or economic conditions differ
substantially from the assumptions used in making the initial determinations.
Nonperforming assets at March 31, 1997, December 31, 1996 and March 31, 1996 are
presented in note 5 of the financial statements.
16
<PAGE> 17
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Noninterest income for the first three months of 1997 totaled $566,000, compared
to $521,000 for the same period in 1996. Other income increased $37,000 largely
due to the receipt of $65,000 in settlement of a legal dispute, offset by a
decrease in fee income earned by the Bank's financial services subsidiary.
Servicing income decreased $18,000 due to the decreased amount of loans serviced
for others.
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Noninterest expense decreased to $2,318,000 for the three months ended March 31,
1997 compared to $2,585,000 for the same period in 1996 due primarily to lower
federal deposit premiums.
The composition of other expenses is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Business and management development $ 27 $ 27
Examination/audit expense 43 47
OTS assessment 22 22
Postage 58 47
Supplies 28 32
Telephone 36 34
Franchise/sales tax 96 96
Director fees 26 23
Legal fees 38 46
Provision for loss on real estate owned - 80
Miscellaneous expenses 207 192
---- ----
$581 $646
==== ====
</TABLE>
The increase in miscellaneous expenses in 1997 is attributable to several
relatively minor increases in various expense items.
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Total assets at March 31, 1997 were $341.7 million compared to $346.9 million at
December 31, 1996. The decrease was primarily due to a decrease in cash and
investments totaling $5.4 million. Total deposit liabilities declined by $5.8
million from December 31, 1996 to March 31, 1997, due to lower rates being
offered on maturing certificates and increased competition for such deposits,
while advances from the Federal Home Loan Bank increased $2.0 million.
Shareholders' equity increased $323,000 to $28.7 million at March 31, 1997. The
following table shows shareholders' equity per share and tangible shareholders'
equity per share.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
Shareholders' equity per share $15.04 $14.87 $14.81
Tangible shareholders' equity per share $15.04 $14.86 $14.76
</TABLE>
The Board of Directors declared a first quarter dividend of $.14 per share which
was paid on March 28, 1997.
17
<PAGE> 18
ASSET/LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth at March 31, 1997, the amounts of
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within a specified period. No prepayment assumptions or deposit decay
rates have been incorporated. The table shows the excess or shortfall of
interest-earning assets less interest-bearing liabilities. This excess or
shortfall is called the "gap."
<TABLE>
<CAPTION>
Scheduled Maturity or Repricing
---------------------------------------------------------
1 Year 1 Year More than
or Less to 3 Years 3 Years Total
------- ---------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans:
Conventional:
Fixed-rate $ 4,039 $ 8,857 $ 58,795 $ 71,691
Adjustable-rate 102,653 55,195 6,180 164,028
Construction 1,711 - - 1,711
Land loans 2,640 775 - 3,415
Consumer loans 45,979 631 285 46,895
Business loans 10,982 13 355 11,350
Loans in process, allowance
for loan losses and net
deferred loan fees - - (4,947) (4,947)
--------- --------- --------- ---------
Total loans (1) 168,005 65,470 60,668 294,143
Mortgage-backed securities 99 196 1,670 1,965
Investment securities and others 3,384 1,499 28,217 33,100
--------- --------- --------- ---------
Total interest-earning assets $ 171,488 $ 67,165 $ 90,555 $ 329,208
======== ========= ========= =========
Interest-bearing liabilities:
Deposits:
Passbook and NOW accounts (2) $ - $ - $ 53,582 $ 53,582
Money market fund accounts 63,338 - - 63,338
Certificates of deposit 99,629 36,363 13,023 149,015
--------- --------- --------- ---------
Total deposits 162,967 36,363 66,605 265,935
FHLB advances 29,000 3,000 - 32,000
--------- --------- --------- ---------
Total interest bearing liabilities $ 191,967 $ 39,363 $ 66,605 $ 297,935
======== ========= ========= =========
GAP $ (20,479) $ 27,802 $ 23,950 $ 31,273
Cumulative GAP $ (20,479) $ 7,323 $ 31,273
Cumulative GAP as a percentage of total assets (5.99)% 2.14% 9.15%
- ------------------
<FN>
(1) Contractual maturities of loans do not reflect the actual term of the
Company's loan portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments
and due-on-sale clauses.
(2) Management believes that a significant amount of passbook and NOW accounts
are core deposits.
</TABLE>
REGULATORY ISSUES
- --------------------------------------------------------------------------------
The Bank is subject to extensive regulation, supervision and examination by the
Office of Thrift Supervision (the "OTS"), as its chartering authority and
primary federal regulator, and by the Federal Deposit Insurance Corporation (the
"FDIC"), which insures its deposits up to applicable limits. Such regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities. Any change in such regulation, whether by the OTS,
the FDIC or the Congress could have a material impact on the Bank and its
operations. Management cannot predict what, if any, future legislation may be
enacted or regulations adopted or what impact any such actions may have on the
Company or the Bank.
18
<PAGE> 19
HAVERFIELD CORPORATION
PART II -- OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Not Applicable
ITEM 2. CHANGES IN SECURITIES
- --------------------------------------------------------------------------------
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------------------------------------------------
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
At the Annual Meeting of Shareholders of the Registrant held on April 23, 1997,
Michael T. Gaul, David A. Nolan and William A. Valerian were elected to the
office of Director; and the appointment of Deloitte & Touche LLP as the
Registrant's independent auditors for 1997 was approved.
ITEM 5. OTHER INFORMATION
- --------------------------------------------------------------------------------
On April 22, 1997, Charter One Financial, Inc. ("Charter One"), the
holding company of Charter One Bank, F.S.B., and the Registrant entered into a
definitive agreement (the "Merger Agreement") to merge in a stock-for-stock
exchange.
The terms of the Merger Agreement call for, among other things, a tax-free
exchange whereby each share of Haverfield common stock, par value $.01 per
share, issued and outstanding immediately prior to the Effective Time (as
defined in the Merger Agreement) shall be converted into the right to receive
shares of Charter One common stock, par value $.01 per share, as described
below, including the right to receive a corresponding number of rights
associated with the Charter One common stock pursuant to Charter One's Rights
Agreement (as defined in the Merger Agreement).
The Merger Agreement provides for the tax free exchange of $27.00 in Charter One
common stock for each share of Haverfield common stock. The exchange price will
stay fixed at $27.00 if Charter One's average stock price remains between $41.09
and $55.60 per share during a 20-day pricing period ending five business days
before closing the transaction (the Average Charter One Stock Price). If the
Average Charter One Stock Price is (i) greater than $55.60, the exchange of
Charter One common stock for Haverfield common stock shall be based on an
exchange ratio of .4856 and (ii) less than $41.09 but equal to or greater than
$38.05, the exchange of Charter One common stock for Haverfield common stock
shall be based on an exchange ratio of .6571. The exchange price shall be fixed
at $25.00 in Charter One common stock per share of Haverfield common stock if
the Average Charter One Stock Price is less than $38.05 but equal to or greater
than $36.55.
If the Average Charter One Stock Price is less than $36.55, then the exchange
price of Charter One common stock for Haverfield common stock shall be based on
an exchange ratio of .6840, unless Haverfield elects to terminate the
transaction. If Haverfield elects to terminate, such termination shall only
occur if Haverfield gives Charter One written notice of its election to
terminate and Charter one fails to agree to an exchange price of $25.00 in
Charter One common stock for each share of Haverfield common stock.
The merger, which would be accounted for as a pooling of interests, is expected
to close near the end of the third quarter of 1997. The Merger Agreement has
been approved by the boards of directors of both companies, however, the
transaction requires the approvals of the Office of Thrift Supervision and
Haverfield shareholders.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
27. FINANCIAL DATA SCHEDULE (EDGAR ONLY)
(b) Reports on Form 8-K
NONE
20
<PAGE> 21
HAVERFIELD CORPORATION
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 thereunto duly authorized.
HAVERFIELD CORPORATION
Dated: May 8, 1997 /S/ William A. Valerian
---------------------------------------
William A. Valerian
President and Chief Executive Officer
Dated: May 8, 1997 /S/ Richard C. Ebner
---------------------------------------
Richard C. Ebner
Executive Vice President, Chief
Operating Officer, Chief Financial
Officer and Treasurer
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HAVERFIELD CORPORATION INCLUDED IN THE FORM
10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,914
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 1,288
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,677
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 297,123
<ALLOWANCE> 2,980
<TOTAL-ASSETS> 341,664
<DEPOSITS> 273,226
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,763
<LONG-TERM> 32,000
<COMMON> 19
0
0
<OTHER-SE> 28,656
<TOTAL-LIABILITIES-AND-EQUITY> 341,664
<INTEREST-LOAN> 6,144
<INTEREST-INVEST> 619
<INTEREST-OTHER> 40
<INTEREST-TOTAL> 6,803
<INTEREST-DEPOSIT> 3,245
<INTEREST-EXPENSE> 3,725
<INTEREST-INCOME-NET> 3,078
<LOAN-LOSSES> 96
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,318
<INCOME-PRETAX> 1,230
<INCOME-PRE-EXTRAORDINARY> 812
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 812
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<YIELD-ACTUAL> 3.71
<LOANS-NON> 3,403
<LOANS-PAST> 5
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,038
<ALLOWANCE-OPEN> 2,922
<CHARGE-OFFS> 53
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 2,980
<ALLOWANCE-DOMESTIC> 2,674
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 306
</TABLE>
