<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10--Q/A
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 Identification No.)
incorporation or organization)
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 1,917,937
- ---------------------------------------------------------------------------
(Class) (Outstanding at August 14, 1997)
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HAVERFIELD CORPORATION
INDEX
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
June 30, 1997, December 31, 1996 and June 30, 1996 3
Consolidated Statements of Income
Three Months Ended June 30, 1997 and 1996 4
Six Months Ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings 22
Item 2 -- Changes in Securities 22
Item 3 -- Defaults Upon Senior Securities 22
Item 4 -- Submission of Matters to a Vote of Security Holders 22
Item 5 -- Other Information 22
Item 6 -- Exhibits and Reports on Form 8--K 22
</TABLE>
2
<PAGE> 3
<TABLE>
PART I -- FINANCIAL INFORMATION
HAVERFIELD CORPORATION
Consolidated Statements of Financial Condition (unaudited)
- ------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 4,562 $ 5,489 $ 5,215
Due from banks--interest bearing 100 100 100
Federal funds sold 3,306 2,822 3,155
Investment securities:
Available for sale, at fair value (amortized cost of
$32,474, $34,367, and $29,267, respectively) 32,142 33,990 28,570
Mortgage--backed securities:
Available for sale, at fair value (amortized
cost of $1,846, $1,937 and $2,396, respectively) 1,928 2,010 2,444
Loans (net of allowance for loan losses of $2,970,
$2,922 and $2,777, respectively) 296,337 293,792 285,740
Premises and equipment 4,029 4,176 3,938
Accrued interest and other assets 3,753 4,477 5,064
--------- --------- ---------
TOTAL $ 346,157 $ 346,856 $ 334,226
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Passbook/statement accounts $ 36,761 $ 39,305 $ 42,140
Non--interest--bearing NOW accounts 7,811 7,115 8,369
Interest--bearing NOW accounts 16,967 17,188 17,016
Money market fund accounts 65,772 62,263 59,147
Certificates of deposit 143,738 153,202 162,391
--------- --------- ---------
Total deposits 271,049 279,073 289,063
Advances from Federal Home Loan Bank 36,000 30,000 8,000
Advances by borrowers for taxes and insurance 1,497 6,207 719
Accrued interest and other liabilities 8,034 3,224 8,030
--------- --------- ---------
Total liabilities 316,580 318,504 305,812
--------- --------- ---------
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 16,510
Retained earnings 13,337 12,146 12,433
Net unrealized appreciation (depreciation) in the fair
value of securities (net of deferred income taxes
of $(83), $(103) and $(221), respectively) (167) (201) (430)
Common shares in treasury, at cost (9,543 shares,
9,543 shares and 9,301 shares, respectively) (122) (122) (118)
--------- --------- ---------
Total shareholders' equity 29,577 28,352 28,414
--------- --------- ---------
TOTAL $ 346,157 $ 346,856 $ 334,226
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
<TABLE>
HAVERFIELD CORPORATION
Consolidated Statements of Income (unaudited)
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(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans $6,222 $6,096
Investment securities and other 596 549
Mortgage--backed securities 39 49
------ ------
Total interest income 6,857 6,694
------ ------
Interest expense:
Deposits 3,255 3,437
Advances from Federal Home Loan Bank 519 64
------ ------
Total interest expense 3,774 3,501
------ ------
Net interest income 3,083 3,193
Provision for loan losses 30 34
------ ------
Net interest income after provision for loan losses 3,053 3,159
------ ------
Noninterest income:
Service fees and other charges 361 272
Servicing income 102 114
Other income 66 76
------ ------
Total noninterest income 529 462
------ ------
Noninterest expense:
Employee compensation and benefits 896 994
Occupancy and equipment 502 479
Advertising 81 202
Insurance premiums 61 201
Data processing fees 85 80
Other expenses 575 695
------ ------
Total noninterest expense 2,200 2,651
------ ------
Income before income taxes 1,382 970
Provision for income taxes 470 330
------ ------
Net income $ 912 $ 640
====== ======
Net income per common share $ .47 $ .33
====== ======
Cash dividend paid per common share $ .14 $ .135
====== ======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
HAVERFIELD CORPORATION
Consolidated Statements of Income (unaudited)
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans $12,366 $12,129
Investment securities and other 1,215 1,332
Mortgage--backed securities 79 102
------- -------
Total interest income 13,660 13,563
------- -------
Interest expense:
Deposits 6,500 7,241
Advances from Federal Home Loan Bank 999 64
------- -------
Total interest expense 7,499 7,305
------- -------
Net interest income 6,161 6,258
Provision for loan losses 126 68
------- -------
Net interest income after provision for loan losses 6,035 6,190
------- -------
Noninterest income:
Service fees and other charges 720 605
Servicing income 205 235
Other income 170 143
------- -------
Total noninterest income 1,095 983
------- -------
Noninterest expense:
Employee compensation and benefits 1,868 1,983
Occupancy and equipment 970
Advertising 229 286
Insurance premiums 85 401
Data processing fees 180 174
Other expenses 1,186 1,425
------- -------
Total noninterest expense 4,518 5,236
------- -------
Income before income taxes 2,612 1,937
Provision for income taxes 888 659
------- -------
Net income $ 1,724 $ 1,278
======= =======
Net income per common share $ .90 $ .67
======= =======
Cash dividend paid per common share $ .28 $ .27
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
HAVERFIELD CORPORATION
Consolidated Statements of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands)
<CAPTION>
Six Months Ended June 30,
------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,724 $ 1,278
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 126 68
Amortization of intangibles 39 115
Depreciation 398 343
Amortization of deferred loan fees (55) (143)
Federal Home Loan Bank stock dividends (100) (92)
Net change in other assets and other liabilities 1,154 485
Net change in accrued interest receivable and accrued interest payable 507 202
Other (43) (11)
-------- --------
Net cash provided by operating activities 3,750 2,245
-------- --------
INVESTING ACTIVITIES:
Disbursements on loans originated (40,534) (48,250)
Proceeds from:
Loan repayments and maturities 41,869 49,432
Mortgage--backed security repayments and maturities 88 272
Investment security calls and maturities 2,000 23,000
Sale of real estate owned -- 218
Sale of other assets 238 --
Purchases of:
Loans (3,970) (3,714)
Investment securities -- (5,099)
Premises and equipment (458) (328)
Decrease (increase) in federal funds sold (485) 1,242
Other 5 452
-------- --------
Net cash provided by (used in) investing activities (1,247) 17,225
-------- --------
FINANCING ACTIVITIES:
Net increase in passbook, NOW and money market fund accounts 1,441 2,355
Net decrease in certificates of deposit (9,465) (31,071)
Net increase in short-term advances 6,000 8,000
Net decrease in mortgage escrow deposits (872) (847)
Proceeds from exercise of stock options -- 142
Payment of cash dividends (534) (514)
Resale of treasury shares -- 33
-------- --------
Net cash used in financing activities (3,430) (21,902)
-------- --------
Net decrease in cash and due from banks (927) (2,432)
Cash and due from banks at beginning of period 5,489 7,647
-------- --------
Cash and due from banks at end of period $ 4,562 $ 5,215
======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
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 and investment counseling which are
not material to its operations as a whole and are not significant enough to
constitute a business segment.
In April 1997, the boards of directors of Charter One Financial, Inc. (Charter
One), the holding company of Charter One Bank, F.S.B., and the Company entered
into a definitive agreement to merge in a stock--for--stock exchange.
Terms of the agreement call for the tax--free exchange of $27.00 in Charter One
common stock for each of Haverfield's common shares for a total consideration of
approximately $53.7 million. The price will stay fixed at $27.00 per Haverfield
share 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 merger is expected to close near the end of the third
quarter of 1997. Already approved by the boards of directors of both companies
and the Office of Thrift Supervision, the transaction requires the approval of
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 and six--month periods ended June 30, 1997 and 1996, (b) the
financial position at June 30, 1997, December 31, 1996 and June 30, 1996, and
(c) cash flows for the six--month periods ended June 30, 1997 and 1996. The
results of operations for the period ended June 30, 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
7
<PAGE> 8
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 o the transfer date.
A loan is classified as nonaccrual when collectibility 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).
The Company's policy for recognition of interest on impaired loans, including
how cash receipts are recorded, is essentially unchanged as a result of the
adoption of Statement of Financial Accounting Standards (SFAS) Nos. 114 and 118.
A loan (including a loan impaired under SFAS No. 114) 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 according to the provisions of the SFAS No. 114. 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
8
<PAGE> 9
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.
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.
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 1,904,376 shares during the three--month periods ended June
30, 1997 and 1996, respectively. The weighted average shares used in the
computation of earnings per common share was 1,906,349 shares and 1,895,648
shares during the six--month periods ended June 30, 1997 and 1996, respectively.
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 $664,000 and $716,000 at June 30, 1997 and 1996,
respectively.
Income tax payments made for the six months ended June 30, 1997 and 1996 were
$700,000 and $900,000, respectively. Interest paid on deposits and other
borrowings totaled $6,960,000 and $7,347,000 for the six months ended June 30,
1997 and 1996, respectively. There were no loans made to finance the sale of
foreclosed real estate during the six months ended June 30, 1997 and 1996. Real
estate property acquired through foreclosure during the six months ended June
30, 1997 totaled $22,000. There were no acquisitions of real estate property
through foreclosure during the six months ended June 30, 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--av-
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<PAGE> 10
erage 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.
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.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This
statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, losses) in a full set of
general--purpose financial statements. This statement is effective for fiscal
years beginning after December 15, 1992.
The Securities and Exchange Commission has expanded the requirements regarding
disclosure of derivative financial instruments, other financial instruments and
derivative commodity instruments by requiring enhanced disclosure of accounting
policies for these financial instrument contracts in the footnotes to financial
statements. The Company has not typically entered into financial instruments
contracts that involve derivative financial and commodity instruments. The
Company has entered into fixed and variable interest rate loan contracts for
which its policy is to record these financial instruments in the financial
statements when they are funded or the related fees are incurred or received.
2. Amortized cost, estimated market values and weighted average end--of--period
yields of investment securities classified as available for sale by contractual
maturity are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------------- -------------------------------
Amortized Market Amortized Market
Cost Value Yield Cost Value Yield
` (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government obligations:
Due in one year or less $ 2,498 $ 2,500 5.69% $ 2,497 $ 2,499 5.82%
Due after 1 year through 5 years 9,493 9,434 6.62% 9,490 9,411 6.68%
Due after 5 years through 10 years 17,482 17,204 6.91% 19,479 19,180 6.93%
------- ------- --------- ---------
Total 29,473 29,138 6.71% 31,466 31,080 6.76%
------- ------- --------- ---------
Marketable equity securities 100 103 6.22% 100 99 6.38%
Federal Home Loan Bank stock 2,901 2,901 7.25% 2,801 2,801 7.00%
------- ------- --------- ---------
Total $32,474 $32,142 6.76% $ 34,367 $ 33,990 6.78%
======= ======= ==== ========= =========
June 30, 1996
------------------------------------
Amortized Market
Cost Value Yield
<S> <C> <C> <C>
U.S. Government obligations:
Due in one year or less $ 1,000 $ 1,007 7.25%
Due after 1 year through 5 years 9,984 9,867 6.20%
Due after 5 years through 10 years 15,478 14,892 6.90%
------- -------
Total 26,462 25,766 6.65%
------- -------
Marketable equity securities 100 99 6.41%
Federal Home Loan Bank stock 2,705 2,705 7.00%
------- -------
Total $29,267 $28,570 6.68%
======= =======
</TABLE>
Investment securities totaling $2.0 million at June 30, 1997 were pledged as
collateral for deposits, and the Federal Home Loan Bank stock was pledged as
collateral for the advances from the Federal Home Loan Bank of Cincinnati.
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<PAGE> 11
Gross unrealized gains and gross unrealized losses are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 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 $2 $337 $2 $378 $8 $704
Marketable equity securities 3 - - 1 - 1
Federal Home Loan Bank stock - - - - - -
-- ---- -- ---- -- ----
Total $5 $337 $2 $379 $8 $705
== ==== == ==== == ====
</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.
Amortized cost, estimated market values, and weighted average end--of--period
yields of mortgage--backed securities classified as available for sale by
contractual maturity are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
Amortized Market Amortized Market
Cost Value Yield Cost Value Yield
---- ----- ----- ---- ----- -----
(Dollars in thousands)
<S> <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%
Due after 10 years 1,720 1,802 8.59% 1,751 1,822 8.60%
------ ------ ------ ------
Total 1,729 1,811 8.58% 1,761 1,832 8.59%
------ ------ ------ ------
Government National Mortgage
Association:
Due after 1 year through 5 years 117 117 8.89% 176 178 9.02%
Due after 5 years through 10 years - - - - - -
------ ------ ------ ------
Total 117 117 8.89% 176 178 9.02%
------ ------ ------ ------
Collateralized mortgage obligations:
Due in 1 year or less
Due after 10 years - - - - - -
Total - - - - - -
------ ------ ------ ------
- - - - - -
------ ------ ------ ------
Total $1,846 $1,928 8.61% $1,937 $2,010 8.63%
====== ====== ====== ======
June 30, 1996
-------------
Amortized Market
Cost Value Yield
---- ----- -----
<S> <C> <C> <C>
Pass--through certificates:
Federal Home Loan Mortgage
Corporation:
Due after 5 years through 10 years $ 12 $ 12 7.50%
Due after 10 years 1,927 1,976 8.62%
------ ------
Total 1,939 1,988 8.61%
------ ------
Government National Mortgage
Association:
Due after 1 year through 5 years 119 118 9.09%
Due after 5 years through 10 years 76 76 9.16%
------ ------
Total 195 194 9.12%
------ ------
Collateralized mortgage obligations:
Due in 1 year or less 156 156 5.19%
Due after 10 years 106 106 6.06%
Total 262 262 5.54%
------ ------
Total $2,396 $2,444 8.32%
====== ======
</TABLE>
At June 30, 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>
June 30, 1997 December 31, 1996 June 30, 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>
Pass--through certificates:
Federal Home Loan Mortgage
Corporation $82 $- $71 $ $49 $-
Government National Mortgage
Association - - 2 - - 1
Collateralized mortgage obligations -- -- --- -- --- --
Total $82 $- $73 $ $49 $1
=== == === == === ==
</TABLE>
11
<PAGE> 12
4. The loan portfolio is comprised primarily of residential and, to a lesser
extent, commercial real estate loans granted to customers residing in
northeastern Ohio. Although the Bank has a diversified loan portfolio, its
debtors' ability to honor their contracts is to a degree dependent upon the
general economic conditions of the region.
All loans are classified as held for investment at June 30, 1997. The
composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
(In thousands)
<S> <C> <C> <C>
Real estate loans -- mortgage $ 234,030 $ 239,302 $ 236,866
Real estate loans -- construction 1,805 4,272 4,963
Land 2,766 3,682 3,839
Business loans 13,725 6,720 5,519
Consumer and other loans 48,880 45,028 41,717
--------- --------- ---------
301,206 299,004 292,904
LESS:
Undisbursed portion of loans in process (882) (1,293) (3,326)
Unearned income on consumer loans (3) (6) (11)
Amount due other financial institutions relating
to wrap around mortgage loans (110) (114) (141)
Deferred loan fees (904) (877) (909)
Allowance for loan losses (2,970) (2,922) (2,777)
--------- --------- ---------
$ 296,337 $ 293,792 $ 285,740
========= ========= =========
</TABLE>
At June 30, 1997, December 31, 1996 and June 30, 1996, loans serviced for others
amounted to $122.8 million, $132.7 million and $125.6 million, respectively.
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>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $3,575 $2,697 $1,259
Loans past due 90 days and accruing 4 5 15
Repossessed assets 22 459
------ ------ ------
Total nonperforming assets $3,601 $2,702 $1,733
====== ====== ======
Percent of nonperforming loans to total loans 1.19% .90% .43%
Percent of nonperforming assets to total assets 1.04% .78% .52%
</TABLE>
The loans included above are secured by real estate or other collateral which
limits the Company's exposure to loss. At June 30, 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 involve forgiving a portion of interest or principal on any
loans or making loans at a rate materially less than market rates.
The ratio of nonperforming loans to total loans increased from December 31, 1996
to June 30, 1997. Management does not believe this increase represents a trend.
The increase is primarily due to the addition of several large real estate loans
being placed on nonaccrual status. The Bank is working with the borrowers on
these nonaccrual loans to cure the delinquency. Management does not anticipate a
material loss on these loans which are secured by real estate.
12
<PAGE> 13
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 for unused lines of
credit and to originate loans are summarized below:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Commitments to originate:
Fixed rate loans $ 2,321 $ 3,415 $ 3,063
Variable rate loans 1,327 1,367 7,087
Unused line of credit 76,700 70,712 66,751
</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 Company generally
extends credit only 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>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Land and improvements $ 607 $ 673 $ 672
Buildings and improvements 1,396 1,704 1,716
Furniture and fixtures 5,109 4,749 5,117
Leasehold improvements 1,812 1,892 1,972
------ ------ ------
8,924 9,018 9,477
Accumulated depreciation and amortization 4,895 4,842 5,539
------ ------ ------
$4,029 $4,176 $3,938
====== ====== ======
</TABLE>
8. Accrued interest and other assets consists of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Accrued interest $2,406 $2,372 $2,359
Purchased mortgage servicing rights 177 191 -
Real estate owned 22 - 459
Cost in excess of fair value of net assets acquired - 21 62
Other assets 1,148 1,893 2,184
------ ------ ------
$3,753 $4,477 $5,064
====== ====== ======
</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 June 30, 1997 or December 31, 1996.
13
<PAGE> 14
9. Accrued interest and other liabilities consists of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
(In thousands)
<S> <C> <C> <C>
Accrued interest payable $1,293 $ 753 $ 635
Collections on loans serviced 433 376 503
Other liabilities 6,308 2,095 6,892
------ ------ ------
$8,034 $3,224 $8,030
====== ====== ======
</TABLE>
10. Advances from the Federal Home Loan Bank of Cincinnati (the FHLB) consist
of:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------- ----------------- -------------
Maturity Date Balance Rate Balance Rate Balance Rate
- ------------- ------- ---- ------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
August 16, 1996 $ - - $ - - $ 1,000 5.45%
August 22, 1996 - - - - 2,000 5.45%
September 25, 1996 - - - - 2,000 5.40%
December 18, 1996 - - - - 1,000 5.60%
June 20, 1997 - - 2,000 5.55% 2,000 5.55%
July 1, 1997 1,000 6.65% - - - -
July 28, 1997 3,000 6.65% - - - -
September 18, 1997 2,000 6.65% - - - -
September 22, 1997 2,000 6.65% - - - -
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% - -
-------- ------- -------
$ 36,000 $30,000 $ 8,000
======== ======= =======
</TABLE>
The Bank has pledged qualifying collateral, primarily mortgage loans,
with a market value of at least 150% of the amount of the advances.
11. 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.
14
<PAGE> 15
As of June 30, 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 June 30, 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) $28,220 11.27% $20,038 8.00% $25,048 10.00%
Tier 1 capital (to risk--weighted assets) 25,256 10.08% - - 15,029 6.00%
Tier 1 capital (to adjusted tangible assets) 25,256 7.31% 10,367 3.00% 17,279 5.00%
Tangible capital (to tangible assets) 25,256 7.31% 5,184 1.50% - -
</TABLE>
Management believes that, as of June 30, 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.
<PAGE> 16
HAVERFIELD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Net income for the six months ended June 30, 1997 was $1.7 million, compared to
$1.3 million for the six months ended June 30, 1996. The increase in net income
resulted from a $718,000 reduction in noninterest expense, attributable mainly
to lower deposit insurance premiums; an 11% increase in noninterest income was
offset by a slight decrease in net interest income and an increase in the
provision for loan losses. Return on average assets for the six months ended
June 30, 1997 was 1.01% compared with .76% in the same period of 1996. Return on
average equity was 11.79% for the first six months of 1997, compared with 8.89%
in the same period of 1996.
Net income for the three months ended June 30, 1997 and 1996 was $912,000 and
$640,000, respectively. Return on average assets for the three months ended June
30, 1997 was 1.06% compared with .75% in the same period of 1996. Return on
average equity was 12.28% for the three months ended June 30, 1997, compared
with 8.91% in the same period of 1996.
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income for the six months ended June 30, 1997 totaled $6.2 million,
compared to $6.3 million for the first six months of 1996. The interest rate
spread decreased 15 basis points to 3.20%. 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>
Six Months Ended June 30,
-------------------------------------------------------------------
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 $296,556 $ 12,366 8.35% $286,829 $ 12,129 8.46%
Investments and other 38,596 1,215 6.27 41,408 1,332 6.38
Mortgage--backed securities 1,975 79 8.02 2,602 102 7.81
-------- -------- ---- -------- -------- ----
Total interest--earning assets 337,127 13,660 8.11 330,839 13,563 8.20
-------- ----
Noninterest--earning assets 6,893 7,272
-------- --------
Total assets $344,020 $338,111
======== ========
Interest--bearing liabilities:
Passbook/statement accounts $ 37,786 448 2.39 $ 43,880 540 2.47
NOW accounts 24,364 97 .80 24,805 111 .90
Money market fund accounts 63,554 1,575 5.00 57,270 1,386 4.87
Certificates of deposit 148,449 4,380 5.95 174,835 5,204 5.99
-------- -------- ---- -------- -------- ----
Total deposits 274,153 6,500 4.78 300,790 7,241 4.84
FHLB advances 33,809 999 5.88 2,363 64 5.37
-------- -------- ---- -------- -------- ----
Total interest--bearing liabilities 307,962 7,499 4.91 303,153 7,305 4.85
-------- ---- -------- ----
Noninterest bearing liabilities 6,561 6,065
-------- --------
Total liabilities 314,523 309,218
Shareholders' equity 29,497 288,931
-------- --------
Total liabilities and shareholders' equity $344,020 $338,111
======== ========
Net interest income/interest rate spread $ 6,161 3.20% $ 6,258 3.35%
======== ==== ======== ====
Net interest margin 3.69% 3.80%
==== ====
</TABLE>
16
<PAGE> 17
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 six months ended June 30, 1997 versus June 30, 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>
Six Months June 30, 1997 vs. Six Months June 30, 1996
-----------------------------------------------------
Change Due To
-------------
Total Change Volume Rate
------------ ------ ----
(In thousands)
<S> <C> <C> <C>
Interest income:
Loans $ 237 $ 401 $(164)
Investments and other (117) (89) (28)
Mortgage--backed securities (23) (26) 3
----- ----- -----
Total 97 286 (189)
----- ----- -----
Interest expense:
Deposits (741) (634) (107)
FHLB advances 935 929 6
----- ----- -----
Total 194 295 (101)
----- ----- -----
Increase (decrease) in net interest income $ (97) $ (9) $ (88)
===== ===== =====
</TABLE>
Net interest income was $3.1 million for the three month period ended June 30,
1997 compared to $3.2 million for the three month period ended June 30, 1996.
The interest rate spread for the three months ended June 30, 1997 decreased 29
basis points to 3.19%. 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 June 30,
------------------------------------------------------------------
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 $297,892 $ 6,222 8.36% $288,177 $6,096 8.47%
Investments and other 37,780 596 6.25 35,379 549 6.16
Mortgage--backed securities 1,951 39 7.94 2,512 49 7.74
-------- ------ ---- -------- ------ ----
Total interest--earning assets 337,623 6,857 8.12 326,068 6,694 8.21
------- ---- ----- ----
Noninterest--earning assets 6,815 7,295
-------- -----
Total assets $344,438 $333,363
======== ========
Interest--bearing liabilities:
Passbook/statement accounts $ 37,228 217 2.34 $ 43,125 266 2.48
NOW accounts 24,798 49 .79 25,281 53 .84
Money market fund accounts 64,775 815 5.05 58,617 696 4.78
Certificates of deposit 145,951 2,174 5.98 166,037 2,422 5.87
-------- -------- ---- -------- ------ ----
Total deposits 272,752 3,255 4.79 293,060 3,437 4.72
FHLB advances 34,319 519 5.98 4,725 64 5.37
-------- -------- ---- -------- ------ ----
Total interest--bearing liabilities 307,071 3,774 4.93 297,785 3,501 4.73
-------- ---- ----- ----
Noninterest bearing liabilities 7,572 6,695
----- -----
Total liabilities 314,643 304,480
Shareholders' equity 29,795 28,883
------ ------
Total liabilities and shareholders' equity $344,438 $333,363
======== ========
Net interest income/interest rate spread $ 3,083 3.19% $3,193 3.48%
======== ==== ====== ====
Net interest margin 3.66% 3.94%
==== ====
</TABLE>
17
<PAGE> 18
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 June 30, 1997 versus June 30, 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>
Three Months June 30, 1997 vs. Three Months June 30, 1996
---------------------------------------------------------
Change Due To
-----------------------
Total Change Volume Rate
------------ ------ ----
(In thousands)
<S> <C> <C> <C>
Interest income:
Loans $ 126 $ 200 $ (74)
Investments and other 47 38 9
Mortgage--backed securities (10) (11) 1
----- ----- -----
Total 163 227 (64)
----- ----- -----
Interest expense:
Deposits (182) (242) 60
FHLB advances 455 447 8
----- ----- -----
Total 273 205 68
----- ----- -----
Increase (decrease) in net interest income $(110) $ 22 $(132)
===== ===== =====
</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 six months ended June 30, 1997 and 1996 is presented below.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance, January 1 $ 2,922 $ 2,734
Provision charged to expense 126 68
Loans charged off (105) (29)
Recoveries 27 4
--------- ---------
Balance, June 30 $ 2,970 $ 2,777
========= =========
Average loans $ 296,556 $ 286,829
Loans at end--of--period $ 301,206 $ 292,904
Allowance/average loans 1.04% .97%
Allowance/end--of--period loans .99% .95%
Allowance/nonperforming loans 82.98% 217.97%
Allowance/nonperforming assets 82.48% 160.24%
</TABLE>
Although management believes that it uses the best information available in
determining the adequacy of the allowance for loan losses, 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. Management believes that
the allowance for loan losses is adequate at June 30, 1997.
18
<PAGE> 19
Nonperforming assets at June 30, 1997, December 31, 1996 and June 30, 1996 are
presented in Note 5 of the consolidated financial statements.
ASSET/LIABILITY MANAGEMENT
- ------------------------------------------------------------------------------
The function of asset/liability management is to monitor the maturities and
repricing schedules of the components of the balance sheet, and to initiate
actions to minimize the Company's vulnerability to changing interest rates while
maximizing current and expected net interest yield. Asset/liability management
seeks to ensure that assets and liabilities respond to interest rate changes in
a similar time frame.
The following tables sets forth at June 30, 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 $ 4,080 $ 8,906 $58,808 $ 71,794
Adjustable--rate 101,337 54,222 6,677 162,236
Construction 1,805 -- -- 1,805
Land loans 1,996 770 -- 2,766
Consumer loans 48,046 538 296 48,880
Business loans 13,364 12 349 13,725
Loans in process, allowance
for loan losses and net
deferred loan fees -- -- (4,869) (4,869)
--------- ------- ------- --------
Total loans(1) 170,628 64,448 61,261 296,337
Mortgage--backed securities 96 193 1,639 1,928
Other interest--earning assets 5,392 1,501 28,655 35,548
--------- ------- ------- --------
Total interest--earning assets $ 176,116 $66,142 $91,555 $333,813
========= ======= ======= ========
Interest--bearing liabilities:
Deposits:
Passbook and NOW accounts (2) $ -- $ -- $53,728 $53,728
Money market fund accounts 65,772 -- -- 65,772
Certificates of deposit 95,598 39,300 8,840 143,738
--------- ------- ------- --------
Total deposits 161,370 39,300 62,568 263,238
FHLB advances 33,000 3,000 -- 36,000
--------- ------- ------- --------
Total interest bearing liabilities $ 194,370 $42,300 $62,568 $299,238
========= ======= ======= ========
GAP $ (18,254) $23,842 $28,987 $ 34,575
Cumulative GAP $ (18,254) $ 5,588 $34,575
Cumulative GAP as a percentage of
total assets (5.27)% 1.61% 9.99%
</TABLE>
__________________
(1) Contractual maturities of loans do not reflect the actual term of the loan
portfolio. The average life of real estate 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.
19
<PAGE> 20
NONINTEREST INCOME
- ------------------------------------------------------------------------------
Noninterest income increased to $1.1 million for the six months ended June 30,
1997, compared to $983,000 for the same period in 1996, and noninterest income
for the three months ended June 30, 1997 totaled $529,000, compared to $462,000
for the same period in 1996. Other income for the six--month period increased
largely due to the receipt of $65,000 in settlement of a legal dispute in the
first quarter of 1997 and a gain of $39,000 on the sale of property in the
second quarter of 1997, offset by a decrease in fee income earned by the Bank's
financial services subsidiary. Servicing income decreased $30,000 due to the
decreased amount of loans serviced for others.
NONINTEREST EXPENSE
- ------------------------------------------------------------------------------
Noninterest expense totaled $4.5 million for the six months ended June 30, 1997
compared to $5.2 million for the same period in 1996. This reduction was due
primarily to lower federal deposit insurance premiums, lower employee
compensation and benefits, and a decrease in other expenses. The composition of
other expenses is as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Business and management development $ 67 $ 56
Examination/audit expense 51 95
OTS assessment 44 44
Postage 87 82
Supplies 53 56
Telephone 71 71
Franchise/sales tax 191 193
Director fees 61 48
Legal fees 84 52
Provision for HUD indemnification claim -- 200
Provision for real estate owned losses -- 80
Provision for DOL claim 82 --
Amortization of intangibles 39 115
Miscellaneous expenses 356 333
------ ------
$1,186 $1,425
====== ======
</TABLE>
During the first quarter of 1996, a provision for loss on real estate owned was
recorded in connection with a commercial property which was carried in Real
Estate Owned. The loss provision effectively reduced the Bank's recorded
investment in the property to the expected net realizable value of the property.
During the first quarter of 1996, the Housing and Urban Development (HUD)
Mortgagee Review Board proposed that the Bank indemnify HUD for HUD/FHA
insurance claims and associated costs paid against insured properties affected
by the indictment and guilty plea of a former loan originator of the Bank on
charges of fraud relating to loan activities from 1991. As of June 30, 1996, the
Bank had recorded a loss provision in the amount of $200,000 in connection with
this matter. A settlement of these claims was reached under which the Bank paid
$545,000 to HUD in July, 1996. The Bank submitted a proof of loss to its insurer
who, less the policy deductible, reimbursed the Bank in the fourth quarter of
1996.
The Company has been notified by the Department of Labor that the Haverfield
Corporation Employee Stock Ownership Plan purchased Haverfield Common Stock
during March, 1991 at allegedly excessive prices, and has concluded that the
overpayments totaled approximately $152,000. The Company is negotiating with the
Department of Labor. The outcome of these negotiations is uncertain. As of June
30, 1997, the Company has recorded a loss provision in the amount of $82,000 in
connection with this matter.
20
<PAGE> 21
Noninterest expense for the three month period ended June 30, 1997 totaled $2.2
million, compared to $2.7 million for the same period in 1996.
The composition of other expenses is as follows:
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Business and management development $ 40 $ 29
Examination/audit expense 8 48
OTS assessment 22 22
Postage 29 35
Supplies 25 24
Telephone 35 37
Franchise/sales tax 95 97
Director fees 35 25
Legal fees 46 6
Provision for HUD indemnification claim -- 183
Provision for DOL claim 82 --
Amortization of intangibles 9 31
Miscellaneous expenses 149 158
---- ----
$575 $695
==== ====
</TABLE>
FINANCIAL CONDITION
- ------------------------------------------------------------------------------
Total assets increased from $334.2 million at June 30, 1996 to $346.2 million at
June 30, 1997. Loans increased by $10.6 million and investment securities went
up by $3.6 million. The asset growth was funded by Federal Home Loan Bank
advances, which increased by $28 million, while total deposit liabilities
decreased by $18 million. Shareholders' equity increased from $28.4 million at
June 30, 1996 to $29.6 million at June 30, 1997. The following table shows
shareholders' equity per share and tangible shareholders' equity per share.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
<S> <C> <C> <C>
Shareholders' equity per share $15.51 $15.04 $14.90
Tangible shareholders' equity per share $15.51 $15.04 $14.87
</TABLE>
The Board of Directors declared a second quarter dividend of $.14 per share
which was paid on June 27, 1997. The Board of Directors also declared a third
quarter dividend of $.14 per share to be paid on August 20, 1997.
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. However, management is not aware of any current
recommendations by the regulatory authorities which, if implemented, would have
a material effect on the Bank or the Company.
21
<PAGE> 22
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------------------------------------------------------------------------------
The Company has been notified by the Department of Labor that the Haverfield
Corporation Employee Stock Ownership Plan purchased Haverfield Common Stock
during March, 1991 at allegedly excessive prices, and has concluded that the
overpayments totaled approximately $152,000. The Company is negotiating with the
Department of Labor. The outcome of these negotiations is uncertain.
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. The following votes
were recorded:
Election of:
Michael T. Gaul FOR 1,660,948 AGAINST 20,497
David A. Nolan FOR 1,660,948 AGAINST 20,497
William A. Valerian FOR 1,637,535 AGAINST 43,910
The proposal to ratify appointment of Deloitte & Touche LLP for fiscal year
ending December 31, 1997.
FOR 1,640,329 AGAINST 24,869 ABSTAIN 16,247
ITEM 5. OTHER INFORMATION
- ------------------------------------------------------------------------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8--K
- ------------------------------------------------------------------------------
(a) Exhibits
27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8--K
On April 25, 1997 the Company filed an 8--K disclosing that the boards of
directors of Charter One Financial, Inc. (Charter One), the holding company of
Charter One Bank, F.S.B, and the Registrant entered into a definitive agreement
to merge in a stock--for--stock exchange.
Terms of the agreement call for the tax--free exchange of $27.00 in Charter One
common stock for each of Haverfield's common shares or a total consideration of
approximately $53.7 million. The price will stay fixed at $27.00 per Haverfield
share 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 merger is expected to close near the end of the third
quarter of 1997. Already approved by the boards of directors of both companies
and the Office of Thrift Supervision, the transaction requires the approval of
Haverfield shareholders.
22
<PAGE> 23
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: August 15, 1997 /s/ William A. Valerian
------------------------------------
William A. Valerian
President and Chief Executive Officer
Dated: August 15, 1997 /s/ Richard C. Ebner
------------------------------------
Richard C. Ebner
Executive Vice President, Chief
Operating Officer, Chief Financial
Officer and Treasurer
23
<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 JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,562
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 3,306
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,070
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 299,307
<ALLOWANCE> 2,970
<TOTAL-ASSETS> 346,157
<DEPOSITS> 271,049
<SHORT-TERM> 8,000
<LIABILITIES-OTHER> 9,531
<LONG-TERM> 28,000
19
0
<COMMON> 0
<OTHER-SE> 29,558
<TOTAL-LIABILITIES-AND-EQUITY> 346,157
<INTEREST-LOAN> 12,366
<INTEREST-INVEST> 1,215
<INTEREST-OTHER> 79
<INTEREST-TOTAL> 13,660
<INTEREST-DEPOSIT> 6,500
<INTEREST-EXPENSE> 7,499
<INTEREST-INCOME-NET> 6,161
<LOAN-LOSSES> 126
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,518
<INCOME-PRETAX> 2,612
<INCOME-PRE-EXTRAORDINARY> 1,724
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,724
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
<YIELD-ACTUAL> 3.69
<LOANS-NON> 3,575
<LOANS-PAST> 4
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,922
<CHARGE-OFFS> 105
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 2,970
<ALLOWANCE-DOMESTIC> 2,727
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 243
</TABLE>
