<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended: December 31, 1996 Commission File No.: 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.0l par value)
-----------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $32,047,712 as of February 28, 1997. In calculating the market
value of securities held by non-affiliates, Registrant has treated as securities
held by affiliates voting stock owned of record by its directors and executive
officers whose aggregate value totaled $7,032,443.
On February 28, 1997, the Registrant had outstanding 1,906,349 shares of common
stock, par value of $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement of the Registrant relating to the
annual meeting of shareholders to be held on April 23, 1997, and Appendix A
thereto, have been incorporated by reference into Parts II, III, and IV hereof.
Page 1 of 160 pages Exhibit index located on page 18
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
ITEM NUMBER PAGE NUMBER
- -------------------------------------------------------------------------------
<S> <C> <C>
PART I.
1. BUSINESS
General 3
Forward-looking Statements 3
Market Area 4
Competition 4
Lending Activities 5
Sources of Funds 8
Yields Earned and Rates Paid 9
Subsidiaries of the Bank 9
Regulation 10
Federal Taxation 15
State Taxation 15
Employees 15
Executive Officers 16
2. PROPERTIES 16
3. LEGAL PROCEEDINGS 16
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 16
PART II.
5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED 17
STOCKHOLDER MATTERS
6. SELECTED FINANCIAL DATA 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 17
CONDITION AND RESULTS OF OPERATIONS
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 17
PART III.
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17
11. EXECUTIVE COMPENSATION 17
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 17
MANAGEMENT
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
PART IV.
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS 18
ON FORM 8-K
Signatures 20
</TABLE>
<PAGE> 3
PART 1
ITEM 1. BUSINESS
GENERAL
- -------
Haverfield Corporation ("Haverfield", the "Company" or the "Registrant") is a
unitary savings and loan holding company organized under the laws of the State
of Ohio in 1989. The Company's principal operating subsidiary is Home Bank,
F.S.B. which was originally organized in 1911. Effective February 23, 1995, the
Company's principal operating subsidiary changed its corporate name from "Home
Federal Savings Bank, Northern Ohio" to Home Bank, F.S.B. (the "Bank"). As used
throughout this document, the term "Company" means the "Bank" wherever such
meaning is appropriate.
The Company's business currently is conducted through its corporate headquarters
in Cleveland, Ohio and is currently limited to the holding of the Bank's
outstanding capital stock. The Bank is the Company's only direct subsidiary and
its primary investment. The net income of the Company is presently derived from
the business of the Bank. Future establishment or acquisition of subsidiaries by
the Company is possible. Nonetheless, it is expected that the Bank will account
for virtually all of the Company's net income in the foreseeable future.
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 and, to a lesser extent, various
types of consumer loans and commercial loans in its market area. The Company's
income is derived predominantly 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.
The Bank is subject to examination and comprehensive regulation by the Office of
Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation
("FDIC"). It is also a member of the Federal Home Loan Bank of Cincinnati ("FHLB
of Cincinnati" or "FHLB"). The Bank is further subject to regulation by the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"),
governing reserves to be maintained against deposits and certain other matters.
Management is not aware of any current recommendations by the federal financial
institution regulatory authorities which, if implemented, would have a material
effect on the liquidity, capital resources or operations of Haverfield.
The Company has retained Charles Webb & Company, a division of Keefe, Bruyette &
Woods, to render investment banking advice to the Board of Directors of the
Company with respect to enhancement of shareholder value. The scope of the
engagement includes assistance in formulating the business plan of the Company
and advice regarding possible strategic affiliation with other entities.
The Company's principal executive offices are located in the Terminal Tower, 50
Public Square, Suite 444, Cleveland, Ohio 44113-2203. The Company's telephone
number is (216) 348-2800. The Company's facsimile transmission number is (216)
348-8840.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Company is hereby filing certain cautionary statements for the purposes
of establishing a readily available document which may be referenced
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). The Company wishes to ensure that any
forward-looking statements are accompanied by meaningful cautionary statements
in order to maximize to the fullest extent possible the protections of the safe
harbor established in the Reform Act. Accordingly, any such statements are
qualified in their entirety by reference to, and are accompanied by, the
following important factors, among others, that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company in oral or
written communications and in documents filed with the Securities and Exchange
Commission.
3
<PAGE> 4
Various discussions include certain forward-looking statements based on
management's current expectations. Those factors which could cause future
results to vary from these expectations include, and are not limited to, the
following: general market rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Treasury and the Federal Reserve, changes in the quality or composition of the
Company's loan and investment portfolios, demand for loan products, deposit
flows, competition, demand for financial services in the Company's markets,
increased expenses, failure to obtain new customers or retain existing
customers, inability to carry out marketing and sales plans, loss or retirement
of key executives, and changes in accounting principles, policies and
procedures.
Further, any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can management
assess the impact of each such factor on the business or extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results.
Market Area
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The Company's principal market area consists of suburban communities of
Cleveland. 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 does
not actively solicit deposits and loans outside its primary market areas and
does not use brokers to obtain deposits. The Company may consider expansion
within or outside of Ohio provided appropriate opportunities and conditions
exist.
The Bank is a community financial institution that is committed to serving the
credit needs of those communities and neighborhoods from which it derives its
deposits and in which its banking offices are located. Bank policy is to respond
to all creditworthy segments of its market. Management believes that doing so is
basic to good business practice and to the Bank's long-term vitality. The Bank
makes an active effort to determine the credit needs of the community, including
those of low- and moderate-income areas and individuals, and to evaluate the
products it offers and the design of those products to determine whether the
Bank's responsiveness to the community can be improved.
Competition
- ------------
The Company faces substantial competition both in the attraction of deposits and
in the making of loans. The market for banking and bank-related services is
highly competitive. The Company and its subsidiaries face competition from
commercial banks, savings and loan associations, credit unions, money market
funds, insurance companies, and a growing list of other local, regional and
national institutions which offer financial services. It has become increasingly
more difficult for an institution to evaluate its overall competitive situation,
since it can no longer merely acknowledge and monitor its traditional
competitors - other savings and loan associations and commercial banks. Many of
the non-bank competitors are not subject to the same extensive federal
regulations that govern the Bank. As a result, such non-bank competitors may
have certain advantages over the Company in providing certain services. The
relative market share position of the Company cannot be calculated in any
meaningful way because the sources and amounts of competition for loans and
deposits cannot be determined with any degree of accuracy.
The Company competes by offering quality and innovative services at competitive
prices. It competes for loans principally through the interest rates and loan
fees it charges for its loan products. Further, the Company believes it offers a
high degree of professionalism and quality in the services it provides borrowers
and their real estate brokers. It competes for deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal privileges at each. Due
to this fact, management believes it has the ability to maintain the deposit
base. The Company does not rely upon any individual, group, or entity for a
significant portion of its deposits. In addition, through the Bank's subsidiary,
Home Financial, Inc., the Company
4
<PAGE> 5
is able to offer the customer many non-traditional banking services that provide
investment and product diversification. The Company believes that it will be
able to retain or increase its relative market share through emphasis on
controlled growth of loans and deposits.
Lending Activities
- -------------------
GENERAL. The Company has consistently maintained a conservative posture with
respect to credit risk. Lending activities have traditionally concentrated on
conventional first mortgage loans secured by residential property. The Company
has no foreign loans nor significant loan concentrations to any one borrower. At
December 31, 1996, the net loan portfolio amounted to $293.8 million,
representing approximately 84.7% of the Company's $346.9 million of assets at
that date.
The following table sets forth the composition of the Bank's portfolio of loans
held for investment by fixed and adjustable rate loans, indicated in dollar
amounts and percentages:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1996 1995 1994
----------------------- --------------------- ----------------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjustable rate loans
Real estate - mortgage $143,422 48.8% $154,055 54.33% $173,897 62.18%
Real estate - construction 3,547 1.21 1,142 .40 -- --
Real estate - commercial 21,184 7.21 20,521 7.24 19,193 6.86
Land loans 3,076 1.05 3,264 1.15 2,620 .94
Consumer loans 43,148 14.68 38,703 13.65 30,214 10.80
Business loans 6,614 2.25 4,665 1.65 1,652 .59
-------- ------ -------- ------ -------- ------
Total adjustable rate loans 220,991 75.22 222,350 78.42 227,576 81.37
-------- ------ -------- ------ -------- ------
Fixed rate loans
Real estate - mortgage 62,451 21.26 50,255 17.72 37,922 13.56
Real estate - construction -- -- -- -- 1,529 .55
Real estate - commercial 8,615 2.93 9,772 3.44 11,395 4.08
Land loans -- -- -- 261 .09
Consumer loans 1,721 .59 1,165 .41 997 .35
Business loans 14 -- 18 .01 -- --
-------- ------ -------- ------ -------- ------
Total fixed rate loans 72,801 24.78 61,210 21.58 52,104 18.63
-------- ------ -------- ------ -------- ------
Total loans $293,792 100.00% 283,560 100.00% $279,680 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
LENDING PROGRAMS AND POLICY. As a federally chartered savings institution, the
Bank has general authority to make real estate loans secured by properties
located throughout the United States. At December 31, 1996, however,
substantially all loans were secured by real estate located in the seven-county
Cleveland-Akron-Lorain Consolidated Metropolitan Statistical Area ("CMSA").
The Bank markets adjustable-rate residential real estate loan products with a
12-year, 15-year or 30-year amortization period and repricing intervals of
either 12 or 36 months, depending on the plan. Fixed-rate real estate loans with
a 10-year, 15-year or 30-year amortization period are also originated.
To a lesser extent, the Bank also offers permanent loans secured by apartment
buildings and other commercial real estate. Loans collateralized by commercial
properties, including multi-family residential properties, can involve greater
credit risks than one-to-four-family residential mortgage loans. The commercial
real estate business is cyclical and subject to downturns, over-building,
fluctuations in market value and local economic conditions. Typically, such
loans are substantially larger than one- to four-family residential mortgage
loans. Because repayment is often dependent on the cash flow of a successfully
operated or managed property, repayment of such loans may be more susceptible to
adverse conditions in the real estate market or the economy generally than is
the case with residential mortgages. The Bank currently offers both fixed-rate
and adjustable-rate commercial real estate loans. Adjustable-rate commercial
real estate loans are based on a 25 year amortization schedule with a ten-year
term. Interest rates and payments are adjusted
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every one, three, or five years, depending on the plan. Fixed-rate commercial
real estate loans are based on a 15-year amortization schedule with a ten-year
term. All real estate collateralizing the commercial real estate loans is
located in Ohio.
Historically, the Bank has not originated a substantial amount of residential
construction loans because they are generally considered to involve a higher
risk of loss than long-term financing on improved real estate. Moreover, because
of the uncertainties inherent in estimating construction costs, delays, labor
problems, material shortages and other unpredictable contingencies, it is
relatively difficult to evaluate accurately the total amount required to
complete a project and the related loan-to-value ratios. Furthermore, in the
event of foreclosure on an unfinished project, the Bank must either incur the
burden, delay and uncertain cost of finishing the construction or,
alternatively, it may be forced to liquidate the collateral at an unfavorable
price due to its incomplete state. During periods of rising interest rates,
borrowers' cash reserves are strained, usually at the same time market
conditions for sales deteriorate. However, construction loans are offered to
qualified individuals employing the services of a bona fide general contractor.
The maximum loan term is 18 months, and the applicant must submit plans,
specifications and a cost breakdown.
Federal regulations limit the amount of a real estate loan made by a federally
chartered savings institution to a specified percentage of the appraised value
of the property securing the loan (referred to as the "loan-to-value ratio") at
the time of origination. Regulations require each savings association to
establish and maintain written internal real estate lending standards consistent
with safe and sound banking practices and appropriate to the size of the
institution and the nature and scope of its real estate lending activities. The
policy also must be consistent with accompanying OTS guidelines, which include
loan-to-value ratios for the following types of real estate loans: raw land
(65%); land development (75%); nonresidential construction (80%); improved
property (85%); and one- to four-family residential construction (85%). One-
to-four-family mortgages and home equity loans do not have maximum loan-to-value
ratio limits, but one-to-four family mortgages with a loan-to-value ratio at
origination of 90% or greater are expected to be backed by private mortgage
insurance or readily marketable collateral. Institutions also are permitted to
make a limited amount of loans that do not conform to the proposed loan-to-value
limitations so long as such exceptions are reviewed and justified appropriately.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standards are justified.
Under policies adopted by the Board of Directors (the "Board"), the
loan-to-value ratio is limited to 80% on residential mortgage loans, or up to
95% with private mortgage insurance that reduces the loan-to-value ratio to 80%
or less. Commercial real estate loans generally may not exceed 75% of the value
of the security property. Lines of credit secured by the equity in the
borrower's residence, in combination with the existing first mortgage, generally
cannot exceed 85% and 70% of the value of owner-occupied, single-family
residences and investment properties, respectively, which secure such credit.
A "due-on-sale" clause is customarily included in documentation evidencing
conventional mortgage loans. This clause gives the Bank the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid. Enforcement of the due-on-sale clause is a
means by which the Bank can increase the rate on existing fixed-rate mortgage
loans. The due-on-sale clause may be used to convert loans containing such
provisions to loans which bear market rates of interest.
The Loan Committee, whose members are appointed by the Board, has authority to
approve residential loan applications up to $250,000. Applications to borrow
above this amount must be reviewed and approved by the Special Loan Committee or
by the Board.
All of the Bank's mortgage lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the
Board. Decisions on loan applications are made on the basis of detailed
applications and property valuations by independent appraisers approved by the
Board conforming to the OTS appraisal standards. The loan applications are
designed to determine the borrower's ability to repay, and the more significant
items on the applications are verified through the use of credit reports,
financial statements and confirmations.
It is the Bank's policy to obtain title insurance policies insuring that the
Bank has a valid lien on the mortgaged real estate. Borrowers also must obtain
fire and casualty insurance policies prior to closing and, when required by the
Department of Housing and Urban Development, flood insurance policies.
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CONSUMER LOANS. In addition to mortgage lending, the Bank offers consumer loans
(e.g., for cars, boats, home and other property improvement loans with terms up
to 15 years, lines of credit secured by the equity in the borrower's residence,
loans to depositors in an amount up to 90% of their account balances which
secure such loans, student loans guaranteed by the Ohio Student Loan Commission,
MasterCard Gold credit card loans, which are also secured by equity in the
borrower's residence and/or savings deposits, and unsecured MasterCard credit
card loans). The Bank has emphasized the origination of consumer loans as part
of its operating strategy because such loans have shorter terms than mortgages,
provide for higher interest rates and yields and have maturities that more
closely match the liabilities funding them. Individual consumer loans involve
greater credit risk than single-family mortgage loans; however, the risk is in
smaller increments. At December 31, 1996 and 1995, the equity line of credit
loans and MasterCard loans totaled $43.2 million and $38.8 million,
respectively.
LOAN CONTRACTUAL MATURITIES. Contractual maturities of loans do not reflect the
actual term of the loan portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments and
due-on-sale clauses. The average life of mortgage loans tends to increase,
however, when current mortgage rates substantially exceed rates on existing
mortgages. The following table presents information regarding loan contractual
maturities by categories of loans during the periods indicated:
<TABLE>
<CAPTION>
Principal Balance at Amounts Due in Years Ending December 31,
December 31, 1996 ----------------------------------------
--------------------
2000- 2002- 2007- After
1997 1998 1999 2001 2006 2011 2011
-----------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate - mortgage $209,058 1,127 5 47 956 57,219 28,568 121,136
Real estate - construction 4,272 4,272 0 0 0 0 0 0
Real estate - commercial 30,244 24 12 13 272 15,134 12,806 1,983
Land 3,682 1,521 1,302 59 0 0 799 0
Consumer 45,028 5,550 164 180 697 22,499 3,233 12,706
Business 6,720 4,602 405 208 802 703 0 0
-------- ------ ----- --- ----- ------ ------ -------
$299,004 17,096 1,888 507 2,727 95,555 45,406 135,825
======== ====== ===== === ===== ====== ====== =======
</TABLE>
ENVIRONMENTAL RISKS. The Bank encounters certain environmental risks in its
lending activities. Under federal and state environment laws, lenders may become
liable for the costs of cleaning up hazardous materials found at locations on
which the lender may have a security interest in the property. Certain states
may also impose liens with higher priorities than first mortgages on properties
to recover funds used in such efforts. Although these risks are more usually
associated with industrial and commercial loans, environmental risks may be
substantial for residential lenders since environmental contamination may render
the property unsuitable for residential use. In addition, the value of the
residential property may become substantially diminished by the contamination of
nearby properties. In accordance with the guidelines of the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA"), appraisals for single-family homes include comments on environmental
influences and conditions. The Bank attempts to control its exposure to
environmental risks with respect to loans secured by larger properties by
training its underwriters to recognize the signs of environmental problems when
they inspect properties; by requiring borrowers to represent and warrant that
properties securing loans do not contain hazardous waste, asbestos or other such
substances; by requiring borrowers to indemnify the Bank, with personal
recourse, against environmental losses; by obtaining reports, where deemed
appropriate, from environmental engineers on loans secured by non-residential
properties and multi-family residential properties; and by obtaining further
environmental reviews and tests where indicated by information obtained from
borrowers or from property inspections or otherwise. No assurance can be given,
however, that the value of properties securing loans in the Bank's loan
portfolio will not be adversely affected by the presence of hazardous materials
or that future changes in federal or state laws will not increase the Bank's
exposure to liability for environmental cleanup.
SERVICING OF MORTGAGE LOANS. Mortgage servicing rights represent the right to
service mortgage loans owned by others. In return for undertaking the
contractual obligation to process and pass through principal and interest
payments from borrowers to investors, to maintain escrow accounts for the
payment of taxes and insurance to the appropriate parties,
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<PAGE> 8
and to perform related servicing functions, the Bank receives an annual
servicing fee. This annual fee is generally 3/8% of the outstanding balance of
the loan. The value of servicing rights is not reflected as a balance sheet
asset; rather, income from these rights is recognized over time as earned and
the related servicing costs are expensed as incurred. The expenses related to
servicing, which are included in the Bank's noninterest expense, include the
staff and support systems needed to service these mortgage loans. See Note 5 of
the "Notes to Consolidated Financial Statements" for further information.
Mortgage servicing rights are generally considered to have a value represented
by the present value of the estimated future net servicing revenue to be
received from those rights. The price of servicing rights may vary based on
numerous factors such as the nature of servicing (adjustable-rate, fixed-rate,
30-year term or 15-year term), the remaining life of the loans, the interest
rate on the loans, or payment and delinquency histories. The estimated value of
servicing rights is largely dependent upon the duration of the associated loans.
Value estimates are based upon certain prepayment and other assumptions. To the
extent these assumptions prove inaccurate, the actual value of the servicing
rights may be more or less than estimated. Prepayments have historically been
affected by interest rate fluctuations, economic conditions and other factors.
The market value of servicing rights, in addition to being affected by
prepayments, may be affected by other factors as well, such as the market supply
and demand for servicing rights.
SOURCES OF FUNDS
- -----------------
GENERAL. Savings accounts, time certificates of deposit and other types of
deposits have traditionally been the principal source of funds for use in
lending and for other general business purposes. In addition to deposits, funds
are derived from loan repayments. Borrowings may be used on a short-term basis
to compensate for seasonal or other reductions in deposits or inflows at less
than projected levels, as well as on a longer term basis to support expanded
lending activities.
DEPOSITS. A number of different programs have been designed to attract both
short-term and long-term savings of the general public. Although the variety of
deposit accounts offered increases the Company's ability to retain deposits and
allows it to be more competitive in obtaining new funds, it has not eliminated
the risk of disintermediation (the flow of funds away from savings institutions
into direct investment vehicles such as government and corporate securities).
The Company has become much more subject to short-term fluctuations in deposit
flows as customers have become more rate-conscious. As customers have become
more rate-conscious and willing to move funds to higher yielding accounts, the
ability of the Company to attract and retain deposits and the Company's cost of
funds has been, and will continue to be, significantly affected by money market
conditions.
The principal methods used to attract deposits include the offering of a wide
variety of services and accounts, competitive interest rates, and convenient
office locations and service hours. Traditional marketing methods are utilized
to attract new customers and deposits, including mass media advertising and
direct mailings.
BORROWINGS. The Bank obtains advances from the FHLB of Cincinnati and pledges as
security for such advances the capital stock it owns in that entity, deposits it
has with the FHLB of Cincinnati, and certain of its home mortgages. Such
advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. FHLB of Cincinnati advances
are generally available to meet seasonal and other withdrawals of savings
accounts, and to expand lending, as well as to aid the efforts of members to
establish better asset/liability management by extending the maturities of
liabilities. Under these borrowing agreements, the maximum level of advances
available to the Bank is generally limited to 25% of the Bank's total assets;
however, the FHLB of Cincinnati may approve in excess of this limit based upon
the Bank meeting all of its regulatory capital requirements. At December 31,
1996, the Bank had $30.0 million outstanding FHLB of Cincinnati advances.
The Bank may also obtain funds from sales of securities to institutional
investors under agreements to repurchase, which are considered borrowings. The
Bank did not borrow from such sources in 1996.
It is also possible to borrow funds from governmental sources other than the
FHLB of Cincinnati, including the Federal Reserve Bank in limited circumstances,
and from non-governmental sources such as commercial banks or insurance
companies. The Bank did not borrow from such sources in 1996.
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YIELDS EARNED AND RATES PAID
- ----------------------------
Net interest income is the largest component of net income. Net interest income
is affected by the difference or spread between yields earned by the Company on
its loan, investment and mortgage-backed securities portfolios and the rates of
interest paid by the Company for its deposits and other borrowings, as well as
the relative amounts of its interest-earning assets and interest-bearing
liabilities. The following table sets forth information concerning the yields
received by the Company on its loans and other investments, the rates paid on
its deposits and borrowings, and the Company's resultant spread for the periods
and dates indicated:
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994
For Period End of Period For Period End of Period For Period End of Period
<S> <C> <C> <C> <C> <C> <C>
Weighted-average yield on loan
portfolio 8.45% 8.42% 8.20% 8.43% 7.47% 7.67%
Weighted-average yield on
investment portfolio 6.33% 6.78% 6.24% 6.84% 3.98% 6.27%
Weighted average yield on
mortgage-backed securities 7.91% 8.63% 8.02% 8.30% 7.47% 8.14%
Weighted-average yield on all
interest-earning assets 8.19% 8.13% 7.92% 8.06% 7.18% 7.47%
Weighted-average rate paid on
deposits 4.78% 4.70% 4.92% 5.04% 3.84% 4.19%
Weighted-average rate paid on
FHLB advances 5.79% 5.80% 9.91% -- 9.92% 10.30%
Weighted-average rate paid on
long-term borrowings -- -- -- -- 6.92% --
Weighted-average rate paid on
all interest-bearing liabilities 4.83% 4.82% 4.93% 5.04% 3.92% 4.23%
Weighted-average interest
rate spread (1) 3.36% 3.31% 2.99% 3.02% 3.26% 3.24%
</TABLE>
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(1) Weighted-average interest rate spread is the weighted-average yield on all
interest-earning assets during or at the end of the period less the
weighted-average rate paid on all interest-bearing liabilities during or at
the end of the period.
SUBSIDIARIES OF THE BANK
- ------------------------
Regulations permit federally chartered institutions to invest in the capital
stock, obligations, or other specified types of securities of subsidiaries
(referred to as "service corporations") and to make loans to such subsidiaries,
and to joint ventures in which such subsidiaries are participants, in an
aggregate amount not exceeding 3% of an institution's assets. If the federal
savings association's investment in service corporations exceeds 1% of the
institution's assets, not less than one half of the investment which exceeds 1%
of the association's assets must be used primarily for inner-city and community
development purposes. In addition, the Bank is authorized to make unlimited
investments in any subsidiary of the Bank that is engaged in activities in which
the Bank can directly engage.
The Bank has three wholly owned service corporation subsidiaries, Home
Financial, Inc., Home Community Development Corporation and Ridgewood Financial
Company. Through Home Financial, Inc., the Company offers its customers mutual
funds, annuities, and other financial products. Home Community Development
Corporation was incorporated on July 15, 1996. The newly formed corporation will
be the operating unit for the Ohio Mezzanine Fund, which provides financing for
borrowers. Ridgewood Financial Company was established to invest in limited
partnerships that are engaged in real estate development activities. Management
does not anticipate any expansion of such activities by Ridgewood Financial
Company. The activities of these subsidiaries are not significant and do not
constitute a business segment.
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<PAGE> 10
REGULATION
- ----------
GENERAL. To the extent that the information set forth in this document describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
law or regulation may have a material effect on the business and prospects of
the Company and/or the Bank. The operations of the Company and the Bank may be
affected by legislative changes and by the policies of various regulatory
authorities.
The Bank is a federally chartered stock savings institution, the deposits of
which are insured by the FDIC up to applicable limits. Such insurance is backed
by the full faith and credit of the United States Government. The Bank is a
member of the Savings Association Insurance Fund ("SAIF") and the FHLB of
Cincinnati and, accordingly, is subject to broad federal regulation and
oversight extending to all its operations, including certain limited regulation
by the Federal Reserve Board. As the savings and loan holding company of the
Bank, the Company is also subject to federal regulation and oversight.
HOLDING COMPANY REGULATION. The Company is a unitary savings and loan holding
company subject to regulatory oversight by the OTS. As such, the Company is
required to register and file reports with the OTS and is subject to regulations
and examination by the OTS. In addition, the OTS has enforcement authority over
the Company and its non-savings institution subsidiaries which also permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings institution.
As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings institution as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings institution)
would become subject to such restrictions unless such other institutions each
qualify as a qualified thrift lender ("QTL") and were acquired in a supervisory
acquisition.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS. The activities of savings
institutions are governed by the Home Owner's Loan Act, as amended (the "HOLA")
and, in certain respects, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). The federal banking statutes (1) restrict the use of
brokered deposits by troubled savings institutions that are not
well-capitalized, (2) prohibit the acquisition of any corporate debt security
that is not rated in one of the four highest rating categories, (3) restrict the
aggregate amount of loans secured by non-residential real estate property to
400% of capital, (4) permit savings and loan holding companies to acquire up to
5% of the voting shares of non-subsidiary savings institutions or savings and
loan holding companies without prior approval, (5) permit bank holding companies
to acquire healthy savings institutions and (6) require the federal banking
agencies to establish by regulation loan-to-value limitations on real estate
lending. The Bank is in compliance with each of these restrictions. The Bank
does have the authority under HOLA to make certain loans or investments, not
exceeding 5.0% of its total assets, on each of (i) non-conforming loans (loans
in excess of the specific limitations of HOLA) and (ii) construction loans
without security for the purpose of financing what is or is expected to be
residential property. To assure repayment of such loans, the Bank relies
substantially on the borrower's general credit standing, personal guarantee and
projected future income on the properties.
The OTS has extensive authority over the operations of savings institutions,
such as the Bank. As a result of this authority, the Bank is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. When these examinations are conducted by the OTS and the FDIC, the
examiners may require the Bank to provide for higher general or specific loan
loss reserves. The Bank was examined by the OTS in May, 1996, while the Company
was examined by the OTS in June, 1996.
ENFORCEMENT. Under the Federal Deposit Insurance Act ("FDIC Act"), the OTS has
primary enforcement responsibility over savings institutions and has the
authority to bring enforcement action against all "institution-affiliated
parties," including shareholders, and any attorneys, appraisers and accountants
who knowingly or recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue
cease-and-desist or removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with the OTS. Except under certain circumstances, public
disclosure of final
10
<PAGE> 11
enforcement actions by the OTS is required. Under the FDIC Act, the FDIC has the
authority to recommend to the Director of OTS that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances.
LOANS TO ONE BORROWER. Under federal regulations, the aggregate amount of loans
that may be made to any borrower, including related entities, is limited to 15%
of the Bank's unimpaired capital and surplus (unimpaired capital is equity and
loan loss reserves less goodwill; subordinated debt up to 50% of this total may
be included). An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if such loan is secured by readily-marketable collateral,
which is defined to include certain securities and bullion, but generally does
not include real estate. At December 31, 1996, the Bank's loans-to-one borrower
limit was $4.0 million. Loans secured by readily marketable collateral may be
made up to 25% of unimpaired capital. The Bank did not have any borrowers at
December 31, 1996, whose aggregate outstanding credit was in excess of the
loans-to-one-borrower regulation. At December 31, 1996, the five largest loans
or group of loans to any one borrower, including related entities, amounted to
$1.6 million, $1.5 million, $1.5 million, $1.4 million and $1.3 million,
respectively. The five loans mentioned above were all performing at December 31,
1996. The Bank is in compliance with the loans-to-one borrower limitation.
ASSESSMENTS. Savings institutions are required to pay assessments to the OTS to
fund the operation of the OTS. The general assessment is paid on a semi-annual
basis, and is computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The assessments paid by the Bank in 1996 totaled $86,000.
INSURANCE OF DEPOSIT ACCOUNTS. The Bank is a member of SAIF, which is
administered by the FDIC and is backed by the full faith and credit of the U.S.
Government. Savings deposits are insured up to $100,000 per insured member (as
defined by law and regulation) by the FDIC. As the insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulations or order to pose a serious risk to the FDIC.
The FDIC has adopted a risk-based deposit insurance system that assesses deposit
insurance premiums according to the level of risk involved in an institution's
activities. An institution's risk category is based upon one of three capital
categories that are substantially similar to the prompt corrective action ratios
and consist of (i) well capitalized, (ii) adequately capitalized and (iii)
undercapitalized categories. An institution also is assigned by the FDIC to one
of three supervisory subgroups within each capital group. The supervisory
subgroup to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor). An institution's assessment rate depends on the capital category
and supervisory category to which it is assigned. The Bank is classified in the
highest ranked category of "well capitalized" and "healthy" institution.
Absent a waiver from the FDIC, an insured depository institution is not
permitted to accept brokered deposits unless the institution is "well
capitalized". Deposit brokers are required to register with the FDIC. At
December 31, 1996, the Bank had no brokered deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. If insurance of accounts is
terminated, the accounts at the institution at the time of the termination, less
subsequent withdrawals, shall continue to be insured for a period of six months
to two years, as determined by the FDIC. Management is aware of no existing
circumstances which could result in termination of the deposit insurance of the
Bank.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings institutions, such as
the Bank, are required to maintain a minimum level of regulatory capital. All
subsidiaries of the Bank are consolidated for capital purposes. The OTS capital
regulations require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 3% leverage (core captial) ratio and
an 8% risk-based capital ratio. In addition, the prompt corrective action
standards
11
<PAGE> 12
also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
(core) captial ratio (3% for institutions receiving the highest rating on the
CAMEL financial institution rating system), and, together with the risk-based
capital standard itself, a 4% Tier I risk-based capital standard. Core capital
is defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain purchased mortgage servicing rights and credit card relationships.
The OTS regulations also require that, in meeting the leverage ratio, tangible
and risk-based capital standards, institutions must generally deduct investments
in and loans to subsidiaries engaged in activities not permissible for a
national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, as
assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. The components of Tier 1 (core) capital are
equivalent to those discussed earlier. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and the allowance for loan and lease losses limited to a maximum
of 1.25% of risk-weighted assets. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital. At
December 31, 1996, the Bank had no instruments that qualify as supplementary
capital and its general loss reserves were less than 1.25% of risk-weighted
assets.
The OTS regulatory capital requirements also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200 basis point increase or decrease in market interest rates
(except when the 3-month Treasury bond equivalent yield falls below 4%, then the
decrease will be equal to one-half of that Treasury rate) divided by the
estimated economic value of the association's assets, as calculated in
accordance with guidelines set forth by the OTS. A savings association whose
measured interest rate risk exposure exceeds 2% must deduct an interest rate
risk component in calculating its total capital under the risk-based capital
rule. The interest rate risk component is an amount equal to one-half of the
difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. The
Director of the OTS may waive or defer an association's interest rate risk
component on a case-by-case basis. For the present time, the OTS has deferred
implementation of the interest rate risk component.
If the OTS determines that an institution is in an unsafe or unsound condition
or is engaged in an unsafe or unsound practice, it is authorized to reclassify a
well capitalized institution (i.e., significantly exceeds its capital
requirements as defined by the OTS) as an adequately capitalized institution and
if the institution is adequately capitalized, to impose the restrictions
applicable to an undercapitalized institution. If the institution is
undercapitalized, the OTS is authorized to impose the restrictions applicable to
a significantly undercapitalized institution. The imposition by the OTS or the
FDIC of any of these measures on the Bank, which is not anticipated, may have a
substantial adverse effect on the Bank's and Company's operations and
profitability and the value of the Company's Common Stock. Shareholders do not
have preemptive rights, and therefore, if the Company is directed by the OTS or
the FDIC to issue additional shares of common stock, such issuance may result in
a dilution in the percentage of ownership of the Company's shareholders.
LIMITATIONS ON DIVIDENDS OF THE BANK. The Company is a legal entity separate and
distinct from the Bank and its other subsidiaries. The principal source of the
Company's funds on an unconsolidated basis is expected to be dividends from the
Bank. Various statutory and regulatory restrictions, however, limit directly or
indirectly the amount of dividends the Bank can pay.
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<PAGE> 13
The capital distributions regulation imposes uniform limitations on the ability
of savings institutions to engage in various distributions of capital such as
dividends, stock repurchases, and cash-out mergers. The OTS believes that
uniform treatment of these transactions provides a consistent policy regarding
savings institutions' capital needs and the necessity of preserving and
enhancing the tangible capital levels of all savings institutions.
The Bank is currently a Tier 1 association. As a Tier 1 association, the Bank is
permitted (without application) to make aggregate capital distributions during a
calendar year up to 100% of its net income to date plus the amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year. Capital distributions in excess of such amount require that the
association follow the regulation's advance notice and opportunity for objection
procedures.
A savings institution with net capital below its regulatory capital requirement
(or a savings institution meeting its capital requirement but which has received
notice from the OTS that it is in need of more than normal supervision) is not
authorized to make any capital distributions unless it receives prior written
approval from the OTS, or if the association is operating in compliance with an
approved capital plan, the capital distribution is consistent with the
association's capital plan. The Bank has not been specifically notified by the
OTS that it is in need of more than normal supervision.
The OTS may prohibit any capital distribution otherwise permitted under this
regulation upon a determination that the making of the capital distribution
would constitute an unsafe and unsound practice, such as where an association's
capital is diminishing due to substantial losses. All limitations on capital
distributions set forth in the regulation apply also to any direct or indirect
distributions of capital to affiliates, including those in connection with a
corporate reorganization.
In connection with the approval of the holding company reorganization whereby
the Bank became a wholly-owned subsidiary of the Company, the Federal Home Loan
Bank Board, predecessor of the OTS, required the Company to agree that for a
period of ten years after the reorganization, unless the Bank obtains the prior
approval of its Regional Director of the OTS - Chicago, (i) at any time when the
Bank meets its minimum capital requirement, such dividends will be limited to
100% of cumulative net income for the prior eight quarters, as reduced by
dividends paid for such quarters; and (ii) the company may not accept from the
Bank, nor cause the Bank to pay, any dividend that would cause the Bank's
regulatory capital to fall below its Minimum Capital Requirement. Furthermore,
the Bank must give the OTS at least 30 days advance notice of any proposed
declaration of dividends on its stock.
QUALIFIED THRIFT LENDER ("QTL") TEST. All savings institutions, including the
Bank, are required to meet a QTL test to avoid certain restrictions on their
operations. This test requires a savings bank to have at least 65% of its
portfolio assets (as defined in the statue) in qualified thrift investments. At
December 31, 1996, the Bank is in compliance with a ratio of 81.01%. The Bank
projects continued compliance for the foreseeable future.
A savings association that does not meet the QTL test must either convert to a
bank charter or comply with the following restrictions on its operations: (i)
the association may not engage in any new activity or make any new investment,
directly or indirctly, unless such activity or investment is permissible for a
national bank; (ii) the branching powers of the association shall be restricted
to those of a national bank; (iii) the association shall not be eligible to
obtain any advances from its FHLB; and (iv) payment of dividends by the
association shall be subject to the rules regarding payment of dividends by a
national bank. Upon the expiration of three years from the date the association
ceases to be a QTL, it must cease any activity and not retain any investment not
permissible for a national bank and immediately repay any outstanding FHLB
advances (subject to safety and soundness considerations). In addition, within
one year of the date on which a savings association controlled by a company
ceases to be a QTL, the company must register as a bank holding company and
becomes subject to the rules applicable to such companies.
LIQUIDITY. All savings institutions, including the Bank, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. This liquid asset ratio requirement may
vary from time to time (between 4% and 10%) depending upon economic conditions
and savings flows of all savings institutions. At the present time, the minimum
liquid asset ratio is 5%.
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<PAGE> 14
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the institution's average daily balance
of net withdrawable deposit accounts and current borrowings. Monetary penalties
may be imposed upon institutions for violations of liquidity requirements. At
December 31, 1996, the Bank was in compliance with both requirements, with an
overall liquid asset ratio of 7.88% and a short-term liquid asset ratio of
1.14%.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low- and moderate-income
neighborhoods. Each financial institution's efforts in meeting community credit
needs currently are evaluated as part of the examination process, as well as
when an institution applies to undertake a merger, acquisition or to open a
branch facility. Under recently enacted revisions to the CRA regulations, the
current CRA assessment system is being replaced with a new evaluation system
that would rate institutions based on their actual perfomance (rather than
efforts) in meeting community credit needs. Under these new regulations, each
institution would be evaluated based on the degree to which it is providing
loans (the lending test), branches and other services (the service test) and
investments (the investment test) to low- and moderate-income areas in the
communities it serves, based on the communities' demographics, characteristics
and needs, the institution's capacity, product offerings and business strategy.
The Bank does not believe that the new CRA regulations will substantially change
its programs and policies designed to meet the needs of its communities.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company)
or to make loans to certain insiders, is limited by Section 23A and 23B of the
Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
transactions with any individual affiliate to 10% of the capital and surplus of
the savings institution and also limits the aggregate amount of transactions
with all affiliates to 20% of the savings institution's capital and surplus.
Certain transactions with affiliates are required to be secured by collateral in
an amount and of a type specified in the FRA, and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
certain transactions with affiliates, including loans and asset purchases, must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with nonaffiliated companies.
In the absence of comparable transactions, such transactions may only occur
under terms and circumstances, including credit standards, that in good faith
would be offered to or would apply to nonaffiliated companies. Notwithstanding
Sections 23A and 23B, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the Bank Holding Company Act ("BHC
Act"). Further, no savings institutions may purchase the securities of any
affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and 10%
shareholders, as well as any entities that such persons control, are governed by
Section 22(h) of the FRA, Regulation O thereunder, Section 22(g) of the FRA and
the OTS's Conflicts Rule at 12 CFR 563.43. Among other things, these regulations
(i) require such loans to be made on terms substantially similar to those
offered to unaffiliated individuals, (ii) place limits on the amount of loans
the Bank may make to such persons based, in part, on the Bank's capital
position, and (iii) require certain approval procedures to be followed. Certain
of these transactions are also subject to conflict-of-interest regulations
enforced by the OTS. These regulations cover transactions by the Bank and its
subsidiaries with affiliated persons involving the sale, purchase or lease of
property. Affiliated persons include officers, directors and controlling
shareholders. These conflict-of-interest regulations and other statutes also
impose restrictions on loans to affiliated persons. Among other things, such
loans must be made on terms substantially the same as loans to unaffiliated
individuals.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of Cincinnati,
which is one of 12 regional FHLBs that administers the home financing credit
function of savings institutions. Each FHLB serves as a reserve or control bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the board of directors of the FHLB. As a member, the Bank is
required to purchase and maintain stock in the FHLB of Cincinnati. At December
31, 1996, the Bank had $2.8 million in FHLB stock, which was in compliance with
the requirement.
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<PAGE> 15
The FHLBs are required to provide funds to cover certain obligations on banks
issued to fund the resolution of insolvent thrifts and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also have an adverse
effect on the value of the FHLB stock in the future. For the fiscal year ended
December 31, 1996, dividends paid by the FHLB of Cincinnati to the Bank totaled
$187,800.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their transaction accounts (primarily checking NOW accounts) and
non-personal time deposits. At December 31, 1996, the Bank was in compliance
with these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See the subsection
"Liquidity." Because required reserves must be maintained in the form of vault
cash or a noninterest-bearing account at a Federal Reserve Bank, the effect of
this reserve requirement is to reduce the Bank's earning assets.
Savings institutions are authorized to borrow from the Federal Reserve Bank
"discount windows," but Federal Reserve Board regulations require institutions
to exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.
FEDERAL SECURITIES LAW. The common stock of the Company is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Company is subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the
Securities and Exchange Commission under the Exchange Act.
FEDERAL TAXATION
- -----------------
The Company is subject to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), which subjects corporations to an income tax generally
calculated at 35% of taxable income. The Company and its subsidiaries file a
consolidated federal income tax return.
At December 31, 1996, the Company had no net operating loss carryforwards for
federal income tax purposes. Federal income tax rules allow net operaing losses
to be carried back three years and carried forward 15 years.
Federal income tax returns have been audited by the Internal Revenue Service
through the Company's taxable year ended December 31, 1991.
See Note 1 and Note 13 of the "Notes to Consolidated Financial Statements" for
further information concerning the financial statement reporting of federal
income taxes of the Company and a discussion of 1996 legislation affecting the
tax treatment of the bad debt deduction.
STATE TAXATION
- ---------------
The Company is subject to the Ohio franchise tax on holding companies of
financial institutions. The tax imposed is the greater of the tax on net worth
after adjustments to exclude the portion attributable to the financial
institution or the tax on net income. The tax on net income is computed on
federal taxable income adjusted to exclude distributions from the financial
institution, and subject to certain other adjustments. The rate of tax differs
for the net worth and net income computations and can include a surtax if based
on net income and an add-on litter tax under either method.
The Bank is also taxed under Ohio law. The Bank is subject to an Ohio franchise
tax based on its net worth plus certain reserve amounts. Total net worth for
this purpose is reduced by certain exempt assets. The Bank pays the tax at a
rate of 1.5% of net worth.
EMPLOYEES
- ----------
As of December 31, 1996, the Company and its subsidiaries had 91 full-time and
21 part-time employees. The Company is not a party to any collective bargaining
agreement with respect to its employees, and the Company believes it enjoys
harmonious relations with its personnel.
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<PAGE> 16
EXECUTIVE OFFICERS
- -------------------
The following information is supplied with respect to executive officers of the
Registrant and its subsidiaries. The executive officers of the Registrant are
the same as the executive officers of the Bank. There are no arrangements or
understandings pursuant to which any of the officers were selected as an
officer, and no executive officer is related to any other executive officer or
director by blood, marriage or adoption.
William A. Valerian (Age 53) - Mr. Valerian was appointed President and Chief
Executive Officer of both the Company and the Bank in May, 1990. Mr. Valerian
has been the President of the Bank since 1986. He joined the Bank in February,
1978.
Marlene D. Culbertson (Age 36) - Mrs. Culbertson was appointed Vice President of
both the Company and the Bank in January, 1996. Since joining the Bank in 1986,
Mrs. Culbertson has held various positions within the Bank.
Nancy M. Czupik (Age 48) - Ms. Czupik has been Corporate Counsel and Secretary
of both the Company and the Bank since June, 1993. From May, 1989 until joining
the Company in 1993, Ms. Czupik was Assistant Vice President and Assistant Legal
Counsel at another Cleveland-area financial institution.
Richard C. Ebner (Age 46) - Mr. Ebner, a certified public accountant, was
appointed Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Treasurer of both the Company and the Bank in May, 1990. He joined
the Bank in 1984.
Ennio F. Izzo (Age 57) - Mr. Izzo joined the Company in April, 1995 as Vice
President of both the Company and the Bank. Prior to joining the Company, Mr.
Izzo operated a consulting practice engaged in advising both small and large
corporations regarding financial, operational, strategic management and
international issues. In 1991, Mr. Izzo founded Enterprise Bank and served as
President and CEO through 1993.
Nick J. Nero, Jr. (Age 53) - Mr. Nero was appointed Vice President of the
Company in August, 1989. He is also Vice President in charge of operations of
the Bank and has held this position since December, 1983. He has been employed
by the Bank since 1982.
Edward R. Turza (Age 47) - Mr. Turza was appointed Vice President of both the
Company and the Bank in January, 1993. He had been an Assistant Vice President
of the Bank since 1977. He joined the Bank in 1974.
ITEM 2. PROPERTIES
- --------------------------
OFFICES AND OTHER MATERIAL PROPERTIES. The Company neither owns nor leases any
real property; for the present, it uses the premises, equipment and furniture of
the Bank without direct payment of any rental fees to the Bank. The headquarters
of the Company and its subsidiaries are located on the fourth and fifth floors
of the Terminal Tower, in downtown Cleveland, Ohio. The Company's offices in the
Terminal Tower are comprised of 29,000 square feet, which are leased for an
initial period of ten and one-half years, expiring on June 30, 2004. The Company
has renewal options for two additional lease terms of five years each, and
expansion options for up to 6,000 additional square feet of space.
The Bank currently operates ten full-service offices in the greater Cleveland
area, of which three are owned and seven are leased. The book value of the
Bank's owned premises and leasehold improvements (net of accumulated
depreciation) at December 31, 1996 was $2.9 million.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company and its subsidiaries are not parties to any material legal
proceedings other than routine litigation incidental to their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the quarter
ended December 31, 1996.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- ----------------------------------------------------------------------------
The information required by this item is set forth on page A-1 of Appendix A to
the Definitive Proxy Statement of the Company relating to the 1997 Annual
Meeting of Shareholders to be held on April 23, 1997, and is incorporated herein
by this reference.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information required by this item is set forth on page A-2 of Appendix A to
the Definitive Proxy Statement of the Company relating to the 1997 Annual
Meeting of Shareholders to be held on April 23, 1997, and is incorporated herein
by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The information required by this item is set forth on pages A-3 through A-16 of
Appendix A to the Definitive Proxy Statement of the Company relating to the 1997
Annual Meeting of Shareholders to be held on April 23, 1997, and is incorporated
herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The information required by this item is set forth on pages A-17 through A-40 of
Appendix A to the Definitive Proxy Statement of the Company relating to the 1997
Annual Meeting of Shareholders to be held on April 23, 1997, and is incorporated
herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- ---------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The information required by this item regarding the directors of the Company is
set forth on pages 3 through 7 of the Definitive Proxy Statement of the Company
relating to the 1997 Annual Meeting of Shareholders to be held on April 23,
1997, under the caption "The Board of Directors and its Committees", and is
incorporated herein by this reference. The information required by this item
regarding executive officers of the Company is set forth under Part I, Item 1
under the caption "Executive Officers" on page 16 of this Annual Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this item is set forth on pages 7 through 13 of the
Definitive Proxy Statement of the Company relating to the 1997 Annual Meeting of
Shareholders to be held on April 23, 1997, under the caption "Remuneration and
Other Information," and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
The information required by this item is set forth on pages 2 and 3 of the
Definitive Proxy Statement of the Company relating to the 1997 Annual Meeting of
Shareholders to be held on April 23, 1997, under the caption "Beneficial
Ownership," and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is set forth on pages 14 and 15 of the
Definitive Proxy Statement of the Company relating to the 1997 Annual Meeting of
Shareholders to be held on April 23, 1997, under the caption "Certain
Transactions," and is incorporated herein by this reference.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a)(l) The following consolidated financial statements of Registrant and its
subsidiaries included in the Definitive Proxy Statement of the Company relating
to the 1997 Annual Meeting of Shareholders to be held on April 23, 1997 are
incorporated herein by reference. The remaining information appearing in the
definitive proxy statement is not deemed to be filed as part of this report,
except as expressly provided herein and throughout this document.
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
Report of Independent Auditors A-18
Consolidated Statements of Financial Condition as of December 31, 1996 and 1995. A-19
Consolidated Statements of Income for the three years ended December 31, 1996. A-20
Consolidated Statements of Cash Flows for the three years ended December 31, 1996. A-21
Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1996. A-22
Notes to Consolidated Financial Statements. A-23
</TABLE>
(a)(2) All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instruction, or are inapplicable and therefore have been omitted.
(a)(3) The following exhibits are filed herewith or are incorporated herein by
reference:
<TABLE>
<CAPTION>
Page Number in
Exhibit No. Exhibit manually signed Report
- ---------- ------- ----------------------
<S> <C> <C>
3.1 Amended Articles of Incorporation (a)
3.2 Code of Regulations, as amended (b)
4.1 Specimen of Stock Certificate (a)
10.1 Directors' Stock Option Plan (a)
10.2 Management Incentive Compensation Plan (a)
10.3 1995 Stock Option Plan (f)
10.4 Agreement for Dividend Investment Service and
Monthly Investment Plan (a)
10.5 Haverfield Corporation Employee Stock Ownership Plan (c)
10.6 First and Second Amendment to the Haverfield Corporation
Employee Stock Ownership Plan (d)
10.7 Third Amendment to the Haverfield Corporation Employee Stock
Ownership Plan (e)
10.8 Fourth Amendment to the Haverfield Corporation Employee Stock
Ownership Plan (f)
10.9 Correction to the Haverfield Corporation Employee Stock
Ownership Plan 21
10.10 Consulting Agreement dated August 1, 1996 with Peter E. Shimrak 23
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Page Number in
Exhibit No. Exhibit manually signed Report
- ---------- ------- ----------------------
<S> <C> <C>
10.11 Employment Agreement between Registrant and William A.
Valerian dated August 28, 1996. 31
10.12 Change in Control Agreement between Registrant and Richard C.
Ebner dated August 30, 1996. 44
10.13 Change in Control Agreement between Registrant and Ennio F.
Izzo dated August 30, 1996. 52
10.14 Change in Control Agreement between Registrant and Nick J.
Nero, Jr., dated August 30, 1996. 60
10.15 Change in Control Agreement between Registrant and Marlene D.
Culbertson dated August 30, 1996. 68
10.16 Change in Control Agreement between Registrant and Edward R.
Turza dated August 30, 1996. 76
11 Statement re: Computation of per share earnings 84
22 Subsidiaries of the Registrant 86
24 Consent of Deloitte & Touche LLP 88
27 Financial Data Schedule (EDGAR only)
28.1 The Definitive Proxy Statement of the Company for the Annual
Meeting of Shareholders to be held April 23, 1997 and
Appendix A thereto 90
28.2 Form 11-K 149
</TABLE>
- ------------------
(a) Exhibit is incorporated herein by reference to Form S-4 Registration
Statement No. 33-27266 previously filed by Registrant on March 21, 1990.
(b) Exhibit is incorporated herein by reference to the June 30, 1992 Form
10-Q.
(c) Exhibit is incorporated herein by reference to the December 31, 1991
Form 10-K
(d) Exhibit is incorporated herein by reference to the December 31, 1992
Form 10-K.
(e) Exhibit is incorporated herein by reference to the December 31, 1993
Form 10-K.
(f) Exhibit is incorporated herein by reference to the December 31, 1994
Form 10-K.
(b) Registrant did not file any reports on Form 8-K during the quarter ended
December 31, 1996.
(c) See (a)(3) above for all exhibits filed herewith or incorporated herein by
reference.
(d) Separate financial statements are not applicable.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
----------------------
Registrant
By: /s/ William A. Valerian Dated: March 19, 1997
------------------------------------- --------------
William A. Valerian
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ William A. Valerian Dated: March 19, 1997
- ----------------------------------------- --------------
William A. Valerian, Chairman of the Board,
President and Chief Executive Officer
/s/ Michael T. Gaul Dated: March 19, 1997
- ----------------------------------------- --------------
Michael T. Gaul, Director
/s/ Mark R. Magnotto Dated: March 19, 1997
- ----------------------------------------- --------------
Mark R. Magnotto, Director
/s/ Robert M. Mooney Dated: March 19, 1997
- ----------------------------------------- --------------
Robert M. Mooney, Director
/s/ David A. Nolan Dated: March 19, 1997
- ----------------------------------------- --------------
David A. Nolan, Director
/s/ Jacques C. Pomeroy Dated: March 19, 1997
- ----------------------------------------- --------------
Jacques C. Pomeroy, Director
/s/ Peter E. Shimrak Dated: March 19, 1997
- ----------------------------------------- --------------
Peter E. Shimrak, Director
/s/ Richard C. Ebner Dated: March 19, 1997
- ----------------------------------------- --------------
Richard C. Ebner, Executive Vice President,
Chief Operating Officer, Chief Financial
Officer and Treasurer
20
<PAGE> 1
EXHIBIT 10.9
Correction to the Haverfield Corporation Employee Stock Ownership Plan
<PAGE> 2
CORRECTION TO THE HAVERFIELD CORPORATION
----------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
Haverfield Corporation hereby adopts and publishes this Correction to
the Haverfield Corporation Employee Stock Ownership Plan (hereinafter referred
to as the "Plan") pursuant to Article IX of the Plan. Effective as of July 1,
1990, the Plan is corrected as follows:
1. SECTION 1.42 IS CORRECTED TO READ AS FOLLOWS:
"Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age (65th
birthday). A Participant shall become fully Vested in his Account upon
attaining his Normal Retirement Age.
2. IN ALL OTHER RESPECTS, THE PLAN IS RATIFIED AND CONFIRMED.
IN WITNESS WHEREOF, Haverfield Corporation has caused this Correction to
be executed by its duly authorized officer this 22 day of May , 1996.
---- ---------
HAVERFIELD CORPORATION
By: /s/ William A. Valerian
---------------------------
President and Chief Executive
Officer
The Trustees of the Plan hereby consent to this Correction.
Date: May 22, 1996 /s/ Harry F. Brockman
-------------------- -------------------------------
Harry F. Brockman, Trustee
<PAGE> 1
EXHIBIT 10.10
Consulting Agreement dated August 1, 1996 with Peter E. Shimrak
<PAGE> 2
AGREEMENT
THIS AGREEMENT is made and entered into as of August 1, 1996, by and
between Home Bank, F.S.B. (the "Bank"), a federally chartered thrift
institution, Haverfield Corporation (the "Corporation"), an Ohio corporation,
and Peter E. Shimrak ("Shimrak"), an individual.
WHEREAS, the Bank is desirous of retaining the services of Shimrak to
perform Community Reinvestment Act of 1977 (CRA) activities; and
WHEREAS, Shimrak is willing to render such services, and the Bank is
willing to compensate him therefor, upon the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the covenants contained herein and
upon the other terms and conditions herein provided, the parties hereto agree as
follows:
1. DUTIES
During the term of this Agreement, Shimrak will provide support to the
CRA activities of the Board of Directors and management of the Bank.
It is understood and agreed by the parties that: (a) Shimrak, and not
the Bank, has control over the scheduling of hours for the performance of CRA
activities, (b) Shimrak is an independent contractor and not an employee of the
Bank and (c) Shimrak is responsible for payment of federal self-employment and
income taxes with respect to the compensation paid (as hereinafter defined).
Shimrak is required to fully document CRA activities on forms to be
proscribed by the Bank and deliver these documents to the CFO on a monthly
basis. CRA activities shall include, but not be limited to, assisting branch
managers with CRA presentations in conjunction with the Bank's Marketing Plan
for the Community Reinvestment Act in an effort to ascertain the credit needs of
local communities and to promote high visibility of the Bank and its resources
with local contacts such as:
- Cleveland Neighborhood Housing Services, City of Cleveland
Development Department, Neighborhood Progress, Inc., Cleveland
Housing Network, Community Action to Support Housing (CASH),
Near West Housing Development Corporation, Ohio City
Development Group, Tremont West Development, Detroit Shoreway
Development, and Buckeye Development Corporation and other
minority neighborhood housing groups.
- Minority brokers and realtors.
1
<PAGE> 3
2. TERM
The term of this Agreement shall be for a period of one (1) year
commencing on August 1, 1996.
3. COMPENSATION
In consideration of the CRA activities to be performed by Shimrak
pursuant to this Agreement, the Bank agrees to pay Shimrak for the term of this
Agreement within three days of submitting the documentation forms prescribed in
Paragraph 1. The hourly charge will not exceed fifty dollars ($50) per hour. The
maximum hours to be actually billed to the Bank on a monthly basis for CRA
activities may not exceed twenty (20) hours.
In addition, the Bank agrees to pay Shimrak for the term of this
agreement for new loans and deposits originated by Shimrak.
Shimrak will earn a commission for the solicitation and submission of
a saleable, residential, owner-occupied loan package, after it has been approved
by the Loan Committee, all monies paid, and the mortgage has been filed of
record. Commissions will not be paid on refinances of present Home Bank loans,
nor on end loans on Home Bank construction loans. Loans must be designated as
originated by Shimrak at time of application for commissions to be paid. The
amount of commission earned will be paid based on the types of products
originated:
a. Conventional first mortgage loans - 0.0025 (25 basis points).
b. Commercial real estate loans - 0.0025 (25 basis points).
c. Jumbo loans -0.0025 (25 basis points).
d. A flat $250 commission will be paid on any "Ten and Out" loan
approved and closed.
e. A flat $200 commission will be paid on any McKinley or 3/2 CRA
loan approved and closed.
f. Prime Time - there will be a flat fee of $25 paid for a new
Prime Time loan approved and closed.
g. MasterCard - there will be a flat fee of $25 paid for a new
MasterCard loan approved and closed.
Shimrak will earn a commission for the solicitation and the opening of
a new deposit account through his marketing efforts. Commissions will not be
paid on public funds, renewals of present Home Bank certificates of deposit, nor
transfers of existing Home Bank accounts to other Home Bank accounts. Deposits
must be designated as originated by Shimrak at time of opening for
2
<PAGE> 4
commissions to be paid. The amount of commission earned will be paid based on
the type of product originated:
a. Transaction accounts - there will be a flat fee of $25 paid for
a new transaction account.
b. Time deposit accounts - 0.0025 (25 basis points).
4. TERMINATION OF AGREEMENT
This Agreement may be terminated by the Bank at any time with cause and
upon thirty (30) days' written notice to Shimrak without cause.
5. TERMINATION FOR CAUSE
a. Shimrak shall have no right to receive compensation or other
benefits under this Agreement for any period after the date of termination for
Cause. For purposes of this Agreement, termination for "Cause" shall mean only
the following events:
i. personal dishonesty;
ii. incompetence;
iii. material breach of any provision of this Agreement;
iv. breach of a fiduciary duty involving personal gain or
profit;
v. intentional failure to perform stated duties;
vi. willful violation of any law, rule, regulation (other than
a law, rule or regulation relating to a traffic violation
or similar offense) or final cease-and-desist order; or
vii. willful misconduct.
b. i. for purposes of Paragraph 5(a)(ii), "incompetence" shall
mean Shimrak's inability to perform his duties hereunder
due to insufficient knowledge or skills.
ii. for purposes of Paragraph 5(a)(vi) and 5(a)(vii), no act,
or failure to act, on Shimrak's part shall be considered
"willful" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that
his action or failure to act was in the best interest of
the Bank.
3
<PAGE> 5
iii. for purposes of Paragraph 5(a)(vi), a cease-and-desist
order shall not become final until exhaustion or lapse of
all administrative and judicial appeal rights in relation
thereto.
e. This Agreement shall not be deemed to have been terminated for
Cause unless there shall have been delivered to Shimrak a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board of Directors of the Bank specifying the particulars
thereof in detail.
d. If Shimrak is unable to perform his duties hereunder by reason
of his disability or death, the Bank shall be obligated only to continue to pay
Shimrak up to the date of his disability or death.
e. If Shimrak is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, the Bank's
obligations under the Agreement shall be suspended as of the date of service
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay Shimrak all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
f. If Shimrak is permanently removed and/or prohibited from
participating in the conduct of the Bank's affairs by an order or notice served
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the parties shall not be affected.
g. If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Bank under this Agreement
shall terminate, as of the date of default, but this provision shall not affect
any vested rights of the agreeing parties.
h. All obligations of the Bank under this Agreement shall be
terminated except to the extent that the continuation of the Agreement is
necessary for the continued operation of the Bank by the Director of the Office
of Thrift Supervision (the "OTS") (i) at the time the Federal Deposit Insurance
Corporation (the "FDIC") or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act, or (ii) at the
time the Director of the OTS approves a supervisory merger to resolve problems
related to the operation of the Bank or when the Bank is determined by the
Director of the OTS to be in an unsafe and unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such
actions.
6. PROPRIETARY INFORMATION
Shimrak agrees that the knowledge of the business activities and plans
for business activities of the Corporation and the Bank and affiliates thereof
are confidential, valuable, special and unique asset of the business of the
Corporation and the Bank. Shimrak's knowledge of information concerning the
Corporation and the Bank of which a third party has both knowledge and an
4
<PAGE> 6
unrestricted right to that knowledge is not subject to this Paragraph 6. Shimrak
will not at any time, whether during or subsequent to the termination of this
Agreement, disclose any knowledge of the past, present, planned or considered
business activities of the Corporation and the Bank or affiliates thereof to any
person, any confidential information obtained by him, except as required by any
court, supervisory authority or administrative agency. Notwithstanding the
foregoing, Shimrak may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Corporation and the Bank.
In the event of a breach or threatened breach by Shimrak of the provisions of
this Paragraph 6, the Bank and/or the Corporation, or any duly authorized
officer thereof, will be entitled to a temporary restraining order or an
injunction restraining Shimrak from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation or other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available to
the Bank for such breach or threatened breach, including the recovery of damages
from Shimrak.
7. REPORTING
Shimrak agrees to provide the CFO a monthly billing on which hours
billed are supported by reporting forms which will be provided.
8. NON-SOLICITATION
Shimrak agrees that during the term of this Agreement and for a period
of two (2) years after the termination of this Agreement he will not directly or
indirectly:
a. Solicit, divert or take away any of the customers, business or
patronage of the Bank or the Corporation or their respective subsidiaries or
affiliates; or
b. Induce or attempt to influence any employee of the Bank or the
Corporation or their respective subsidiaries or affiliates to terminate his or
her employment therewith.
c. In the event of a breach or threatened breach by Shimrak of the
provisions of this Paragraph 8, the Bank and/or the Corporation, or any duly
authorized officer thereof, will be entitled to a temporary restraining order or
injunction.
9. NOTICES
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed, certified or registered mail, return receipt requested, with postage
prepaid, to the following addresses or to such other address as either party may
designate by like notice.
5
<PAGE> 7
a. If to the Bank, to:
Home Bank, F.S.B.
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
Attention: Board of Directors
b. If to the Corporation, to:
Haverfield Corporation
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
Attention: Board of Directors
c. If to Shimrak, to:
Peter E. Shimrak
17897 Captain's Cove
Lakewood, Ohio 44107
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
10. AMENDMENTS
No amendments or additions to this Agreement shall be binding unless in
writing and signed by both parties, except as herein otherwise provided.
11. PARAGRAPH HEADINGS
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
12. SEVERABILITY
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
6
<PAGE> 8
13. GOVERNING LAW
This Agreement shall, except to the extent that Federal law (including
any law, rule, or regulation of the OTS or the FDIC) shall be deemed to apply,
be governed by and construed and enforced in accordance with the laws of Ohio.
14. NO ASSIGNMENTS
Neither the Bank nor Shimrak may assign or delegate any of its
respective rights or obligations hereunder without first obtaining the written
consent of the other party.
15. ARBITRATION
Except for injunctive relief or a temporary restraining order under
Paragraph 6 or Paragraph 8 hereof, in the event of any dispute, controversy,
question or disagreement between the parties hereto as to the application,
meaning, construction or interpretation of any provision of this Agreement, such
dispute, controversy, question or disagreement shall be submitted to arbitration
at Cleveland, Ohio, by and under the rules of the American Arbitration
Association (or any successor thereto) then pertaining to commercial
arbitration, and judgment upon any award made under such arbitration proceeding
may be entered in any court having jurisdiction thereof and shall be final. It
is specifically understood and agreed by and between the parties that such
arbitration shall be the sole and exclusive remedy available to the parties and
the parties further waive any rights they may have to any other remedies save
and except such arbitration.
IN WITNESS WHEREOF, the parties have put their hands as of the date
first written above.
HAVERFIELD CORPORATION HOME BANK, F.S.B.
By: /s/ William A. Valerian By: /s/ William A. Valerian
------------------------ ------------------------------------
William A. Valerian William A. Valerian
Chairman, President and President and Chief Executive Officer
Chief Executive Officer
And: /s/ Richard C. Ebner And: /s/ Richard C. Ebner
----------------------- ------------------------------------
Richard C. Ebner Richard C. Ebner
Executive Vice President Executive Vice President
Attest: /s/ Nancy M. Czupik Attest: /s/ Nancy M. Czupik
------------------- -----------------------------------
Nancy M. Czupik Nancy M. Czupik
Secretary Secretary
/s/ Peter E. Shimrak
--------------------------------------------
Peter E. Shimrak, an individual
7
<PAGE> 1
EXHIBIT 10.11
Employment Agreement between Registrant and
William A. Valerian dated August 30, 1996
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of August 28, 1996, by and between
HOME BANK, F.S.B. (the "Bank"), HAVERFIELD CORPORATION (the "Company"), and
WILLIAM A. VALERIAN (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to assure itself of the services of Executive and
protect Executive's position therewith for the period and in the manner provided
in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Bank on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
-----------------------------
(a) During the period of his employment under this Employment Agreement
(the "Agreement") Executive agrees to serve as President and Chief Executive
Officer of the Bank. During said period, Executive also agrees to serve, if
elected, as an officer and director of the Company or any subsidiary or
affiliate of the Company or the Bank.
2. TERMS AND DUTIES.
----------------
(a) The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six (36)
full calendar months thereafter. Commencing the first anniversary date of the
Agreement, and continuing at each anniversary date thereafter, the Board of
Directors of the Bank (the "Board") may extend the Agreement for an additional
twelve (12) months. The Board will review the Executive's performance annually
for purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting. The Board shall
give notice to the Executive as soon as possible after such review as to whether
the Agreement is to be extended.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the Bank,
or materially affect the performance of Executive's duties pursuant to this
Agreement.
<PAGE> 3
3. COMPENSATION AND REIMBURSEMENT.
------------------------------
(a) The compensation specified under this Agreement shall constitute
the sum of the salary of $175,000 per year ("Base Salary") plus an incentive
bonus payment. Such Base Salary shall be payable in accordance with the
customary payroll practices of the Bank. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement. Such
review shall be conducted by a Committee designated by the Board, and the Board
may increase Executive's Base Salary. In addition to the Base Salary provided in
this Section 3(a), the Bank shall provide Executive at no cost to Executive all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank.
(b) Executive shall be entitled to be a participant in employee benefit
plans and incentive bonus arrangements substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Bank will not,
without Executive's prior written consent, make any changes in such plans which
would adversely affect Executive's rights or benefits thereunder. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive will be entitled to participate in or receive benefits under any
employee benefit plans including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the Bank, in which Executive is
eligible to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other obligations under this Agreement and may provide such
additional compensation in such form and such amounts as the Board may from time
to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
--------------------------------------------------
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than (A) in connection with a Change in Control, as defined in
Section 5(a) hereof; (B) disability, as defined in Section 6(a) hereof; (C)
death; (D) retirement, as defined in Section 7 hereof; or (E) for Cause, as
defined in Section 8 hereof; (ii) Executive's resignation from the Bank's
employ, upon (A) unless consented to by the Executive, a material change in
2
<PAGE> 4
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Sections 1 and 2,
above, (any such material change shall be deemed a continuing breach of this
Agreement), (B) a relocation of Executive's principal place of employment by
more than 30 miles from its location at the effective date of this Agreement, or
a material reduction in the benefits to Executive from those being provided as
of the effective date of this Agreement, (C) the liquidation or solution of the
Bank, or (D) any breach of this Agreement by the Bank. Upon the occurrence of
any event described in clauses (a)(ii)(A),(B),(C), or (D), above, Executive
shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within a reasonable period of time not to exceed, except in case of a
continuing breach, four calendar months after the event giving rise to said
right to elect. The effective date of any Event of Termination shall be referred
to as the "Date of Termination" hereunder.
(b) Upon the occurrence of an Event of Termination, the Bank shall pay
Executive or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to the Executive for the
remaining term of the Agreement, including Base Salary, bonuses, and any other
cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Bank as of the Date of Termination) to the Executive for the
term of the Agreement provided, however, that if the Bank is not in compliance
with its minimum capital requirements or if such payments would cause the Bank's
capital to be reduced below its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. All
payments made pursuant to this Section shall be paid in substantially equal
monthly installments over the remaining term of this Agreement following the
Executive's termination; provided, however, that if the remaining term of the
Agreement is less than one (1) year (determined as of the Executive's Date of
Termination), such payments and benefits shall be paid to the Executive in a
lump sum within 30 days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement. In addition, with respect to the $500,000 split dollar life
insurance policy maintained by the Bank with respect to Executive, Executive
shall have the right, upon the occurrence of an Event of Termination, to
purchase said policy from the Bank for the lesser of (i) the aggregate of the
premium payments made by the Bank with respect to said policy, or (ii) the cash
value of the policy.
3
<PAGE> 5
5. CHANGE IN CONTROL.
-----------------
(a) No benefit shall be paid under this Section 5 unless there shall
have occurred a Change in Control of the Company or the Bank. For purposes of
this Agreement, a "Change in Control" of the Company or the Bank shall be deemed
to occur if and when (i) an offeror other than the Company purchases shares of
the common stock of the Company or the Bank pursuant to a tender or exchange
offer for such shares, (ii) any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company or the
Bank representing 25% or more of the combined voting power of the Company's or
the Bank's then outstanding securities, (iii) the membership of the board of
directors of the Company or the Bank changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four month period (whether commencing before or after the date of
adoption of this Plan) do not constitute a majority of the Board at the end of
such period, or (iv) shareholders of the Company or the Bank approve a merger,
consolidation, sale or disposition of all or substantially all of the Company's
or the Bank's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board of the Bank or the Company has
determined that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d) and (e) of this Section 5 upon his
subsequent involuntary termination of employment at any time during the term of
this Agreement (or voluntary termination following a Change of Control following
any demotion, loss of title, office or significant authority, reduction in his
annual compensation or benefits, or relocation of his principal place of
employment by more than 30 miles from its location immediately prior to the
Change in Control), unless such termination is because of his death, retirement
as provided in Section 7, termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to 2.99 times the Executive's "base amount," within the meaning of Section
280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as amended. The "base
amount" is the average annual compensation includable in the Executive's gross
income for the five most recent taxable years ending before the date of the
change of control, and would include such compensation as Base Salary,
non-deferred amounts (or distributions of previously deferred amounts) under
annual incentive, long-term performance and profit sharing plans, as well as
ordinary income recognized with respect to stock options. Such payment shall be
made in a lump sum paid within ten (10) days of the Executive's Date of
Termination, subject to Paragraph (e) of this Section 5.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Bank for Executive
4
<PAGE> 6
prior to his severance. In addition, Executive shall be entitled to receive the
value of employer contributions that would have been made on the Executive's
behalf over the remaining term of the agreement to any tax-qualified retirement
plan sponsored by the Bank as of the Date of Termination. Such coverage and
payments shall cease upon the expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Company or the
Bank on his behalf, pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Company or the Bank on the Executive's behalf to the extent that such benefits
are not otherwise paid to the Executive upon a Change in Control.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to the
Executive under this Section would be deemed to include an "excess parachute
payment" under Section 280G of the Code, the Executive may elect to receive
such amount of aggregate payments or benefits to be made or afforded to the
Executive under this Section which can be paid to the Executive without
constituting "excess parachute payments" under the Code; however, in the event
Executive does not make such election within seven (7) days of Executive's Date
of Termination, then such payments or benefits shall be payable or provided to
Executive in equal monthly installments over the minimum period necessary to
reduce the present value of such payments or benefits to an amount which is one
dollar ($1.00) less than three (3) times the Executive's "base amount" under
Section 280G(b)(3) of the Code.
6. TERMINATION FOR DISABILITY.
--------------------------
(a) If the Executive shall become "disabled" as defined in the Bank's
then current disability plan (or, if no such plan is then in effect, if the
Executive is permanently and totally disabled within the meaning of Section
22(e)(3) of the Code as determined by a physician designated by the Board), the
Bank may terminate Executive's employment for "Disability."
(b) Upon the Executive's termination of employment for Disability, the
Bank will pay Executive, as disability pay as provided by the Bank's then
current disability plan. These disability payments shall commence on the
effective date of Executive's termination and will end on the earlier of (i) the
date Executive returns to the full-time employment of the Bank in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between Executive and the Bank; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the age of
65; or (iv) Executive's death; or (v) the expiration of the term of this
Agreement. The disability pay shall be reduced by the amount, if any, paid to
the Executive under any plan of the Bank providing disability benefits to the
Executive.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his
5
<PAGE> 7
termination for Disability. This coverage and payments shall cease upon the
earlier of (i) the date Executive returns to the full-time employment of the
Bank, in the same capacity as he was employed prior to his termination for
Disability and pursuant to an employment agreement between Executive and the
Bank; (i) Executive's full-time employment by another employer; (iii)
Executive's attaining the age of 65; or (iv) the Executive's death; or (v) the
expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
-----------------------------------------------
Termination by the Bank of Executive based on "Retirement" shall mean
retirement at age 65 or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank or the Company and other plans to which Executive is
a party. Upon the death of the Executive during the term of this Agreement, the
Bank shall pay to Executive's estate the compensation due to the Executive
through the last day of the calendar month in which his death occurred.
3. TERMINATION FOR CAUSE.
---------------------
For purposes of this Agreement, "Termination for Cause" shall include
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any material provision of this
Agreement. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Bank or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board at such meeting and which such meeting shall be held not
more than 30 days from the date of notice), finding that in the good faith
opinion of the Board, Executive engaged in the conduct justifying termination
for Cause and specifying the reasons thereof. The Executive shall not have the
right to receive compensation or other benefits for any period after termination
for Cause.
6
<PAGE> 8
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Board may terminate Executive's employment at any time, but any
termination by the Board, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1), of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1), the Bank's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may, in its
discretion, (i) pay Executive all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or (g)( 1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the Bank): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA or (ii) by the Director, or his or her
designee at the time the Director or such designee approves a supervisory merger
to resolve problems related to operation of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
7
<PAGE> 9
10. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION AND NON-SOLICITATION.
------------------------------------
(a) Upon any termination of Executive's employment hereunder pursuant
to an Event of Termination as provided in Section 4 hereof, Executive agrees not
to compete with the Bank and/or the Company for a period of one (1) year
following such termination in any city, town or county in which the Bank and/or
the Company has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
Executive agrees that during such period and within said cities, towns and
counties, Executive not work for or advise, consult or otherwise serve with,
directly or indirectly, any entity whose business materially competes with the
depository, lending or other business activities of the Bank
8
<PAGE> 10
and/or the Company. In addition, the Executive agrees that during such period
Executive will not, directly or indirectly, solicit, divert, or take away any of
the customers, business, or patronage of the Bank, or induce or attempt to
influence any employee of the Bank or the Company, or its subsidiaries or
affiliates, to terminate his or her employment therewith. The parties hereto,
recognizing that irreparable injury will result to the Bank and/or the Company,
its business and property in the event of Executive's breach of this Subsection
11(a) agree that in the event of any such breach by Executive, the Bank and/or
the Company will be entitled, in addition to any other remedies and damage
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employers, employees and all persons
acting for or with Executive. Executive represents and admits that in the event
of the termination of his employment pursuant to Section 8 hereof, Executive's
experience and capabilities are such that Executive can obtain employment in a
business engaged in other lines and/or of a different nature than the Bank
and/or the Company, and that the enforcement of a remedy by way of injunction
will not prevent Executive from earning a livelihood. Nothing herein will be
construed as prohibiting the Bank and/or the Company from pursuing any other
remedies available to the Bank and/or the Company for such breach or threatened
breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. In the
event of a breach or threatened breach by the Executive of the provisions of
this Section, the Bank will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof, or
from rendering any service to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.
12. SOURCE OF PAYMENTS.
------------------
All payments provided In this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
Executive and, if such payments are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Company.
9
<PAGE> 11
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
------------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank, the Company and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or mended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
10
<PAGE> 12
17. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
-------------
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by Ohio law, but only to the extent not pre-empted
by Federal law.
19. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in Cleveland, Ohio, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
---------------------
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank, if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
21. INDEMNIFICATION.
---------------
The Company and the Bank shall provide Executive (including his or her
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense, or in lieu thereof,
shall indemnify Executive (and his heirs, executors and administrators) to the
fullest extent permitted under law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the Bank (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgment, court costs and
attorneys' fees and the cost of reasonable settlements.
11
<PAGE> 13
22. SUCCESSOR TO THE BANK OR THE COMPANY.
------------------------------------
The Bank and the Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise, to
all or substantially all the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank's or the
Company's obligations under this Agreement, in the same manner and to the same
extent that the Bank or the Company would be required to perform in no such
succession or assignment had taken place.
IN WITNESS WHEREOF, Home Bank, F.S.B. an d Haverfield Corporation have
caused this Agreement to be executed by their duly authorized officer or
director, and Executive has signed this Agreement, all on the 28 day of August,
1996.
HOME BANK, F.S.B
BY: /s/ Jacques. C. Pomeroy
------------------------------
Jacques. C. Pomeroy, Director
HAVERFIELD CORPORATION
BY: /s/ Jacques. C. Pomeroy
------------------------------
Jacques C. Pomeroy, Director
EXECUTIVE:
/s/ William A. Valerian
---------------------------------
William A. Valerian
12
<PAGE> 1
EXHIBIT 10.12
Change in Control Agreement between Registrant and
Richard C. Ebner dated August 30, 1996.
<PAGE> 2
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of August 30, 1996 by and between HOME
BANK, F.S.B. (the "Bank"), HAVERFIELD CORPORATION (the "Company"), and Richard
C. Ebner (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Change in Control Agreement (the "Agreement") shall be
deemed to have commenced as of the date first above written and shall continue
for a period of twelve (12) full calendar months thereafter. Commencing on the
first anniversary date of this Agreement and continuing at each anniversary date
thereafter, the Board of Directors of the Bank (the "Board") may extend this
Agreement for an additional twelve (12) months. The Board will review the
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL
--------------------------------------------
(a) Upon the occurrence of a Change in Control (as herein defined) of the
Bank or the Company followed at any time during the term of this Agreement by
the termination of Executive's employment, other than for Cause as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon the
occurrence of a Change in Control, Executive shall have the right to elect to
voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or authority, reduction
in his or her annual salary, relocation of his or her principal place of
employment by more than 30 miles from its location immediately prior to the
Change in Control, unless any of the foregoing have been consented to by
Executive.
<PAGE> 3
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
the Company shall be deemed to occur if and when (i) an offeror other than the
Company purchases shares of the common stock of the Company or capital stock of
the Bank pursuant to a tender or exchange offer for such shares, (ii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or the Bank representing 25% or more of the combined
voting power of the Company's or the Bank's then outstanding securities, (iii)
the membership of the board of directors of the Company or the Bank changes as
the result of a contested election, such that individuals who were directors at
the beginning of any twenty-four month period (whether commencing before or
after the date of adoption of this Plan) do not constitute a majority of such
board at the end of such period, or (iv) shareholders of the Company or the Bank
approve a merger, consolidation, sale or disposition of all or substantially all
of the Company's or the Bank's assets, or a plan of partial or complete
liquidation.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any material
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or its affiliates. Notwithstanding
the foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to the Executive and an opportunity for him, together
with counsel, to be heard before the Board. at such meeting and which such
meeting shall be held not more than 30 days from the date of notice during which
period Executive may be suspended with pay), finding that in the good faith
opinion of the Board, the Executive engaged in the conduct justifying
Termination for Cause and specifying the reasons thereof. The Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and the Company shall pay Executive, or in the event of his or her subsequent
death, his or her beneficiary or beneficiaries, or his or her estate, as the
case may be, a sum equal to Executive's salary and
2
<PAGE> 4
bonus in effect for the immediately preceding fiscal year of the Bank. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Company
followed at any time during the term of this Agreement by the Executive's
termination of employment, other than for Termination for Cause, the Bank shall
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for the Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank or Company employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of twelve (12) months
following the Date of Termination.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, the Bank will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to his annual salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination.
3
<PAGE> 5
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Company guarantees such payment and provision of all amounts and
benefits due hereunder to the Executive and, if such amounts and benefits
due from the Bank are not timely paid or provided by the Bank, such amounts
and benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and the Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
4
<PAGE> 6
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Board may terminate the Executive's employment at any time, but any
termination by the Board other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under this Agreement.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause as defined in Section 2 hereinabove.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. Section 1818(e)(3) or (g)(1)), the Bank's obligations
under the Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Bank may in its discretion (i) pay the Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the FDIA,
all obligations of the Bank under this contract shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
contracting parties.
(e) All obligations under the Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (ii) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Director (or his or
her designee) approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
5
<PAGE> 7
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Ohio law but only to the extent not preempted by
Federal law.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in Cleveland, Ohio, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
14. PAYMENT OF LEGAL FEES.
---------------------
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
15. SUCCESSOR TO THE BANK.
---------------------
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's
6
<PAGE> 8
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
16. SIGNATURES.
----------
IN WITNESS WHEREOF, Home Bank, F.S.B. and Haverfield Corporation have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 30th day of August, 1996.
HOME BANK, F.S.B.
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
HAVERFIELD CORPORATION
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
/s/ Richard C. Ebner
------------------------------------
Executive, Richard C. Ebner
7
<PAGE> 1
EXHIBIT 10.13
Change in Control Agreement between Registrant and
Ennio F. Izzo dated August 30, 1996.
<PAGE> 2
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of August 30, 1996 by and between HOME
BANK, F.S.B. (the "Bank"), HAVERFIELD CORPORATION (the "Company"), and Ennio F.
Izzo (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Change in Control Agreement (the "Agreement") shall be
deemed to have commenced as of the date first above written and shall continue
for a period of twelve (12) full calendar months thereafter. Commencing on the
first anniversary date of this Agreement and continuing at each anniversary date
thereafter, the Board of Directors of the Bank (the "Board") may extend this
Agreement for an additional twelve (12) months. The Board will review the
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
--------------------------------------------
(a) Upon the occurrence of a Change in Control (as herein defined) of the
Bank or the Company followed at any time during the term of this Agreement by
the termination of Executive's employment, other than for Cause as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon the
occurrence of a Change in Control, Executive shall have the right to elect to
voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or authority, reduction
in his or her annual salary, relocation of his or her principal place of
employment by more than 30 miles from its location immediately prior to the
Change in Control, unless any of the foregoing have been consented to by
Executive.
<PAGE> 3
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
the Company shall be deemed to occur if and when (i) an offeror other than the
Company purchases shares of the common stock of the Company or capital stock of
the Bank pursuant to a tender or exchange offer for such shares, (ii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or the Bank representing 25% or more of the combined
voting power of the Company's or the Bank's then outstanding securities, (iii)
the membership of the board of directors of the Company or the Bank changes as
the result of a contested election, such that individuals who were directors at
the beginning of any twenty-four month period (whether commencing before or
after the date of adoption of this Plan) do not constitute a majority of such
board at the end of such period, or (iv) shareholders of the Company or the Bank
approve a merger, consolidation, sale or disposition of all or substantially all
of the Company's or the Bank's assets, or a plan of partial or complete
liquidation.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any material
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or its affiliates. Notwithstanding
the foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to the Executive and an opportunity for him, together
with counsel, to be heard before the Board at such meeting and which such
meeting shall be held not more than 30 days from the date of notice during which
period Executive may be suspended with pay), finding that in the good faith
opinion of the Board, the Executive engaged in the conduct justifying
Termination for Cause and specifying the reasons thereof. The Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and the Company shall pay Executive, or in the event of his or her subsequent
death, his or her beneficiary or beneficiaries, or his or her estate, as the
case may be, a sum equal to Executive's salary and
2
<PAGE> 4
bonus in effect for the immediately preceding fiscal year of the Bank. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Company
followed at any time during the term of this Agreement by the Executive's
termination of employment, other than for Termination for Cause, the Bank shall
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for the Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank or Company employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of twelve (12) months
following the Date of Termination.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, the Bank will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to his annual salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination.
3
<PAGE> 5
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Company guarantees such payment and provision of all amounts and
benefits due hereunder to the Executive and, if such amounts and benefits due
from the Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and the Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
4
<PAGE> 6
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Board may terminate the Executive's employment at any time, but any
termination by the Board other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under this Agreement.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause as defined in Section 2 hereinabove.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. Section 1818(e)(3) or (g)(1)), the Bank's obligations
under the Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Bank may in its discretion (i) pay the Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the FDIA,
all obligations of the Bank under this contract shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
contracting parties.
(e) All obligations under the Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (ii) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Director (or his or
her designee) approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder.
5
<PAGE> 7
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Ohio law but only to the extent not preempted by
Federal law.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in Cleveland, Ohio, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
14. PAYMENT OF LEGAL FEES.
---------------------
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
15. SUCCESSOR TO THE BANK.
---------------------
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's
6
<PAGE> 8
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
16. SIGNATURES.
----------
IN WITNESS WHEREOF, Home Bank, F.S.B. and Haverfield Corporation have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 30th day of August, 1996.
HOME BANK, F.S.B.
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
HAVERFIELD CORPORATION
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
/s/ Ennio F. Izzo
------------------------------------
Executive, Ennio F. Izzo
7
<PAGE> 1
EXHIBIT 10.14
Change in Control Agreement between Registrant and
Nick J. Nero, Jr., dated August 30, 1996.
<PAGE> 2
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of August 30, 1996 by and between HOME
BANK, F.S.B. (the "Bank"), HAVERFIELD CORPORATION (the "Company"), and Nick J.
Nero, Jr. (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Change in Control Agreement (the "Agreement") shall be
deemed to have commenced as of the date first above written and shall continue
for a period of twelve (12) full calendar months thereafter. Commencing on the
first anniversary date of this Agreement and continuing at each anniversary date
thereafter, the Board of Directors of the Bank (the "Board") may extend this
Agreement for an additional twelve (12) months. The Board will review the
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
--------------------------------------------
(a) Upon the occurrence of a Change in Control (as herein defined) of the
Bank or the Company followed at any time during the term of this Agreement by
the terminati6n of Executive's employment, other than for Cause as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon the
occurrence of a Change in Control, Executive shall have the right to elect to
voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or authority, reduction
in his or her annual salary, relocation of his or her principal place of
employment by more than 30 miles from its location immediately prior to the
Change in Control, unless any of the foregoing have been consented to by
Executive.
<PAGE> 3
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
the Company shall be deemed to occur if and when (i) an offeror other than the
Company purchases shares of the common stock of the Company or capital stock of
the Bank pursuant to a tender or exchange offer for such shares, (ii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or the Bank representing 25% or more of the combined
voting power of the Company's or the Bank's then outstanding securities, (iii)
the membership of the board of directors of the Company or the Bank changes as
the result of a contested election, such that individuals who were directors at
the beginning of any twenty-four month period (whether commencing before or
after the date of adoption of this Plan) do not constitute a majority of such
board at the end of such period, or (iv) shareholders of the Company or the Bank
approve a merger, consolidation, sale or disposition of all or substantially all
of the Company's or the Bank's assets, or a plan of partial or complete
liquidation.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term 'Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any material
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or its affiliates. Notwithstanding
the foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to the Executive and an opportunity for him, together
with counsel, to be heard before the Board at such meeting and which such
meeting shall be held not more than 30 days from the date of notice during which
period Executive may be suspended with pay), finding that in the good faith
opinion of the Board, the Executive engaged in the conduct justifying
Termination for Cause and specifying the reasons thereof. The Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any tie during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and the Company shall pay Executive, or in the event of his or her subsequent
death, his or her beneficiary or beneficiaries, or his or her estate, as the
case may be, a sum equal to Executive's salary and
2
<PAGE> 4
bonus in effect for the immediately preceding fiscal year of the Bank. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Company
followed at any time during the term of this Agreement by the Executive's
termination of employment, other than for Termination for Cause, the Bank shall
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for the Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank or Company employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of twelve (12) months
following the Date of Termination.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, the Bank will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to his annual salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination.
3
<PAGE> 5
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Company guarantees such payment and provision of all amounts and
benefits due hereunder to the Executive and, if such amounts and benefits due
from the Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXlSTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and the Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
4
<PAGE> 6
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Board may terminate the Executive's employment at any time, but any
termination by the Board other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under this Agreement.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause as defined in Section 2 hereinabove.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. Section 1818(e)(3) or (g)(1)), the Bank's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the FDIA,
all obligations of the Bank under this contract shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
contracting parties.
(e) All obligations under the Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (ii) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Director (or his or
her designee) approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and any rules and regulations promulgated thereunder.
5
<PAGE> 7
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Ohio law but only to the extent not preempted by
Federal law.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in Cleveland, Ohio, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
14. PAYMENT OF LEGAL FEES.
---------------------
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
15. SUCCESSOR TO THE BANK.
---------------------
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's
6
<PAGE> 8
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
16. SIGNATURES.
----------
IN WITNESS WHEREOF, Home Bank, F.S.B. and Haverfield Corporation have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 30th day of August, 1996.
HOME BANK, F.S.B.
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
HAVERFIELD CORPORATION
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
/s/ Nick J. Nero, Jr.
------------------------------------
Executive, Nick J. Nero, Jr.
7
<PAGE> 1
EXHIBIT 10.15
Change in Control Agreement between Registrant and
Marlene D. Culbertson dated August 30, 1996.
<PAGE> 2
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of August 30, 1996 by and between HOME
BANK, F.S.B. (the "Bank"), HAVERFIELD CORPORATION (the "Company"), and Marlene
D. Culbertson (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Change in Control Agreement (the "Agreement") shall be
deemed to have commenced as of the date first above written and shall continue
for a period of twelve (12) full calendar months thereafter. Commencing on the
first anniversary date of this Agreement and continuing at each anniversary date
thereafter, the Board of Directors of the Bank (the "Board") may extend this
Agreement for an additional twelve (12) months. The Board will review the
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
--------------------------------------------
(a) Upon the occurrence of a Change in Control (as herein defined) of the
Bank or the Company followed at any time during the term of this Agreement by
the termination of Executive's employment, other than for Cause as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon the
occurrence of a Change in Control, Executive shall have the right to elect to
voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or authority, reduction
in his or her annual salary, relocation of his or her principal place of
employment by more than 30 miles from its location immediately prior to the
Change in Control, unless any of the foregoing have been consented to by
Executive.
<PAGE> 3
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
the Company shall be deemed to occur if and when (i) an offeror other than the
Company purchases shares of the common stock of the Company or capital stock of
the Bank pursuant to a tender or exchange offer for such shares, (ii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or the Bank representing 25% or more of the combined
voting power of the Company's or the Bank's then outstanding securities, (iii)
the membership of the board of directors of the Company or the Bank changes as
the result of a contested election, such that individuals who were directors at
the beginning of any twenty-four month period (whether commencing before or
after the date of adoption of this Plan) do not constitute a majority of such
board at the end of such period, or (iv) shareholders of the Company or the Bank
approve a merger, consolidation, sale or disposition of all or substantially all
of the Company's or the Bank's assets, or a plan of partial or complete
liquidation.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any material
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or its affiliates. Notwithstanding
the foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to the Executive and an opportunity for him, together
with counsel, to be heard before the Board at such meeting and which such
meeting shall be held not more than 30 days from the date of notice during which
period Executive may be suspended with pay), finding that in the good faith
opinion of the Board, the Executive engaged in the conduct justifying
Termination for Cause and specifying the reasons thereof. The Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and the Company shall pay Executive, or in the event of his or her subsequent
death, his or her beneficiary or beneficiaries, or his or her estate, as the
case may be, a sum equal to Executive's salary and
2
<PAGE> 4
bonus in effect for the immediately preceding fiscal year of the Bank. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Company
followed at any time during the term of this Agreement by the Executive's
termination of employment, other than for Termination for Cause, the Bank shall
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for the Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank or Company employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of twelve (12) months
following the Date of Termination.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, the Bank will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to his annual salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination.
3
<PAGE> 5
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Company guarantees such payment and provision of all amounts and
benefits due hereunder to the Executive and, if such amounts and benefits due
from the Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and the Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
4
<PAGE> 6
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Board may terminate the Executive's employment at any time, but any
termination by the Board other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under this Agreement.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause as defined in Section 2 hereinabove.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. Section 1818(e)(3) or (g)(1)), the Bank's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the FDIA,
all obligations of the Bank under this contract shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
contracting parties.
(e) All obligations under the Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (ii) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Director (or his or
her designee) approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and any rules and regulations promulgated thereunder.
5
<PAGE> 7
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Ohio law but only to the extent not preempted by
Federal law.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in Cleveland, Ohio, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
14. PAYMENT OF LEGAL FEES.
---------------------
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
15. SUCCESSOR TO THE BANK.
---------------------
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's
6
<PAGE> 8
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
16. SIGNATURES.
----------
IN WITNESS WHEREOF, Home Bank, F.S.B. and Haverfield Corporation have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 4th day of September, 1996.
HOME BANK, F.S.B.
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
HAVERFIELD CORPORATION
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
/s/ Marlene D. Culbertson
------------------------------------
Executive, Marlene D. Culbertson
7
<PAGE> 1
EXHIBIT 10.16
Change in Control Agreement between Registrant and
Edward R. Turza dated August 30, 1996.
<PAGE> 2
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of August 30, 1996 by and between HOME
BANK, F.S.B. (the "Bank"), HAVERFIELD CORPORATION (the "Company"), and Edward R.
Turza (the "Executive").
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Change in Control Agreement (the "Agreement") shall be
deemed to have commenced as of the date first above written and shall continue
for a period of twelve (12) full calendar months thereafter. Commencing on the
first anniversary date of this Agreement and continuing at each anniversary date
thereafter, the Board of Directors of the Bank (the "Board") may extend this
Agreement for an additional twelve (12) months. The Board Will review the
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
--------------------------------------------
(a) Upon the occurrence of a Change in Control (as herein defined) of the
Bank or the Company followed at any time during the term of this Agreement by
the termination of Executive's employment, other than for Cause as defined in
Section 2(c) hereof, the provisions of Section 3 shall apply. Upon the
occurrence of a Change in Control, Executive shall have the right to elect to
voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or authority, reduction
in his or her annual salary, relocation of his or her principal place of
employment by more than 30 miles from its location immediately prior to the
Change in Control, unless any of the foregoing have been consented to by
Executive.
<PAGE> 3
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
the Company shall be deemed to occur if and when (i) an offeror other than the
Company purchases shares of the common stock of the Company or capital stock of
the Bank pursuant to a tender or exchange offer for such shares, (ii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or the Bank representing 25% or more of the combined
voting power of the Company's or the Bank's then outstanding securities, (iii)
the membership of the board of directors of the Company or the Bank changes as
the result of a contested election, such that individuals who were directors at
the beginning of any twenty-four month period (whether commencing before or
after the date of adoption of this Plan) do not constitute a majority of such
board at the end of such period, or (iv) shareholders of the Company or the Bank
approve a merger, consolidation, sale or disposition of all or substantially all
of the Company's or the Bank's assets, or a plan of partial or complete
liquidation.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any material
provision of this Agreement. For purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interest of the Bank or its affiliates. Notwithstanding
the foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to the Executive and an opportunity for him, together
with counsel, to be heard before the Board at such meeting and which such
meeting shall be held not more than 30 days from the date of notice during which
period Executive may be suspended with pay), finding that in the good faith
opinion of the Board, the Executive engaged in the conduct justifying
Termination for Cause and specifying the reasons thereof. The Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the Bank
and the Company shall pay Executive, or in the event of his or her subsequent
death, his or her beneficiary or beneficiaries, or his or her estate, as the
case may be, a sum equal to Executive's salary and
2
<PAGE> 4
bonus in effect for the immediately preceding fiscal year of the Bank. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Company
followed at any time during the term of this Agreement by the Executive's
termination of employment, other than for Termination for Cause, the Bank shall
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Bank for the Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank or Company employees on a nondiscriminatory basis. Such
coverage and payments shall cease upon the expiration of twelve (12) months
following the Date of Termination.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, the Bank will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to his annual salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the earlier of: (1) the resolution of the dispute in
accordance with this Agreement or (2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination.
3
<PAGE> 5
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Company guarantees such payment and provision of all amounts and
benefits due hereunder to the Executive and, if such amounts and benefits due
from the Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and the Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No provision
of this Agreement shall be interpreted to mean that the Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, the
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
4
<PAGE> 6
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Board may terminate the Executive's employment at any time, but any
termination by the Board other than Termination for Cause, shall not prejudice
the Executive's right to compensation or other benefits under this Agreement.
The Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause as defined in Section 2 hereinabove.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. Section 1818(e)(3) or (g)(1)), the Bank's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in part)
any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Bank under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the FDIA,
all obligations of the Bank under this contract shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
contracting parties.
(e) All obligations under the Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (ii) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Director (or his or
her designee) approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and any rules and regulations promulgated thereunder.
5
<PAGE> 7
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Ohio law but only to the extent not preempted by
Federal law.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in Cleveland, Ohio, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
14. PAYMENT OF LEGAL FEES.
---------------------
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
15. SUCCESSOR TO THE BANK.
---------------------
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's
6
<PAGE> 8
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
16. SIGNATURES.
----------
IN WITNESS WHEREOF, Home Bank, F.S.B. and Haverfield Corporation have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the 20th day of September 1996.
HOME BANK, F.S.B.
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
HAVERFIELD CORPORATION
By: /s/ William A. Valerian
--------------------------------
William A. Valerian, President
/s/ Edward R. Turza
------------------------------------
Executive, Edward R. Turza
7
<PAGE> 1
EXHIBIT 11
Statement Re: Computation of Per Share Earnings
<PAGE> 2
EXHIBIT 11
Haverfield Corporation
Computation Of Per Share Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income:
Net income per consolidated
financial statements $1,507 $1,507 $1,995 $1,995 $1,700 $1,700
Plus interest savings, net of tax
effect, assuming conversion
of convertible subordinated
debentures (1)(3) - - - - - 152
--------- --------- --------- --------- --------- ---------
Net income $1,507 $1,507 $1,995 $1,995 $1,700 $1,852
========= ========= ========= ========= ========= =========
Weighted-average shares:
Weighted-average number of
common shares outstanding 1,901,094 1,901,094 1,883,795 1,883,795 1,662,018 1,663,954
Additional shares, as determined
by application of the treasury
stock method, assuming exercise
of stock options (2) - - - - - 31,736
Additional shares, assuming
conversion of convertible
subordinated debentures at
conversion price of $14.77 (1)(3) - - - - - 222,387
--------- --------- --------- --------- --------- ---------
Weighted-average common shares
and common equivalent shares
outstanding 1,901,094 1,901,094 1,883,795 1,883,795 1,662,018 1,918,077
========= ========= ========= ========= ========= =========
Net income per common share $ .79 $ .79 $1.06 $1.06 $1.03 $ .96
========= ========= ========= ========= ========= =========
<FN>
(1) The convertible subordinated debentures are not common stock equivalents
for computing primary earnings per share.
(2) The stock options are not dilutive for the years ended December 31, 1996,
and December 31, 1995.
(3) The convertible subordinated debentures used in the computation of fully
diluted amounts were all redeemed during the fourth quarter of 1994.
</TABLE>
<PAGE> 1
EXHIBIT 22
Subsidiaries of the Registrant
<PAGE> 2
EXHIBIT 22
Haverfield Corporation
Subsidiaries of the Registrant
at December 31, 1996
<TABLE>
<CAPTION>
Name of Banking Subsidiary Jurisdiction of Incorporation Percent of Ownership (1)
- -------------------------- ----------------------------- ------------------------
<S> <C> <C>
Home Bank, F.S.B. United States 100%
<CAPTION>
Name of Nonbanking Subsidiary Jurisdiction of Incorporation Percent of Ownership
- ----------------------------- ----------------------------- --------------------
<S> <C> <C>
Home Financial, Inc. Ohio 100% by Home Bank, F.S.B.
Ridgewood Financial Company Ohio 100% by Home Bank, F.S.B.
Home Community Development Ohio 100% by Home Bank, F.S.B.
Corporation
<FN>
(1) Subsidiaries are owned by Haverfield Corporation unless otherwise noted.
</TABLE>
<PAGE> 1
EXHIBIT 24
Consent of Deloitte & Touche LLP
<PAGE> 2
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-36666 and No. 33-31788 of Haverfield Corporation on Form S-8 of our report
dated January 28, 1997, incorporated by reference in this Annual Report on Form
10-K of Haverfield Corporation for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
March 26, 1997
<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-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,489
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 2,822
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 296,714
<ALLOWANCE> 2,922
<TOTAL-ASSETS> 346,856
<DEPOSITS> 279,073
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,431
<LONG-TERM> 30,000
<COMMON> 19
0
0
<OTHER-SE> 28,333
<TOTAL-LIABILITIES-AND-EQUITY> 346,856
<INTEREST-LOAN> 24,529
<INTEREST-INVEST> 2,572
<INTEREST-OTHER> 191
<INTEREST-TOTAL> 27,292
<INTEREST-DEPOSIT> 13,932
<INTEREST-EXPENSE> 14,742
<INTEREST-INCOME-NET> 12,550
<LOAN-LOSSES> 309
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,962
<INCOME-PRETAX> 2,284
<INCOME-PRE-EXTRAORDINARY> 1,507
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,507
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
<YIELD-ACTUAL> 3.76
<LOANS-NON> 2,697
<LOANS-PAST> 5
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,045
<ALLOWANCE-OPEN> 2,734
<CHARGE-OFFS> 145
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 2,922
<ALLOWANCE-DOMESTIC> 2,562
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 360
</TABLE>
<PAGE> 1
EXHIBIT 28.1
The Definitive Proxy Statement of the Company for the
Annual Meeting of Shareholders to be held April 23, 1997 and Appendix A thereto
<PAGE> 2
HAVERFIELD CORPORATION
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
March 17, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders (the
"Annual Meeting") of Haverfield Corporation, which will be held in the English
Oak Room, Tower City on the Avenue, 230 Huron Road, N.W., Cleveland, Ohio, on
April 23, 1997 at 9:00 a.m. local time.
As described in the accompanying Notice and Proxy Statement, you are being asked
to elect three directors for three-year terms expiring in 2000, and to ratify
the appointment of Deloitte & Touche LLP as independent auditors for 1997. Your
Board unanimously recommends that you vote "FOR" these proposals.
As part of our continuing effort to improve the quality and effectiveness of our
financial communications, we again have included Haverfield Corporation's
Management's Discussion and Analysis and audited financial statements for 1996
as Appendix A to the Proxy Statement which is being mailed to all shareholders
of record as of February 28, 1997.
We urge you to mark, sign and date your proxy card today and return it in the
envelope provided, even if you plan to attend the Annual Meeting. This will not
prevent you from voting in person, but will assure that your vote is counted if
you are unable to attend.
We are pleased, as always, with the continued support and interest that
shareholders have displayed in the affairs of Haverfield Corporation.
Sincerely,
/s/ William A. Valerian
- -----------------------
William A Valerian
Chairman of the Board, President and Chief Executive Officer
<PAGE> 3
HAVERFIELD CORPORATION
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
(216) 348-2800
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 23,1997
Notice is hereby given that the 1997 Annual Meeting of Shareholders (the "Annual
Meeting") of Haverfield Corporation ("Haverfield" or the "Company") will be held
in the English Oak Room, Tower City on the Avenue, 230 Huron Road, N.W.,
Cleveland, Ohio, on April 23, 1997 at 9:00 a.m. local time for the purpose of
considering and acting upon:
1. The election of three directors to serve for a term of three years expiring
in 2000.
2. The ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31,
1997.
3. The transaction of such other business as may properly come before the
Annual Meeting or any adjournments thereof. The Board of Directors is not
aware of any other business to come before the Annual Meeting.
Pursuant to the Company's Code of Regulations, the Board of Directors has fixed
the close of business on February 28, 1997 as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. Only holders of record of Haverfield Common Stock as of the close of
business on that date have the right to receive notice of and to vote at the
Annual Meeting and any adjournments thereof.
By Order of the Board of Directors,
/s/ Nancy M. Czupik
-------------------
Nancy M. Czupik
Cleveland, Ohio Corporate Counsel and Secretary
March 17, 1997
--------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE VOTE, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. THIS WILL NOT PREVENT YOU FROM VOTING IN
PERSON IF YOU ARE PRESENT AT THE ANNUAL MEETING.
<PAGE> 4
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
Solicitation, Voting and Revocability of Proxies 1
Beneficial Ownership 2
Section 16(a) Disclosure 3
The Board of Directors and its Committees 3
Remuneration and Other Information 7
Ratification of Independent Auditors 15
1998 Shareholders' Proposals 15
Appendix A - Financial Information A-1
<PAGE> 5
HAVERFIELD CORPORATION
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
(216)348-2800
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 23,1997
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This proxy statement (the "Proxy Statement") is furnished, commencing on March
17,1997, to shareholders, together with the enclosed proxy, in connection with
the solicitation on behalf of the Board of Directors (the "Board") of Haverfield
Corporation ("Haverfield" or the "Company") of proxies to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") on April 23, 1997 and at all
adjournments thereof. Only holders of Haverfield's common stock, par value $.01
per share ("Haverfield Common Stock"), of record at the close of business on
February 28, 1997 will be entitled to notice of and to vote at the Annual
Meeting. On that date, there were 1,906,349 shares of Haverfield Common Stock
outstanding. The Company has no other class of equity securities outstanding.
Each share of Haverfield Common Stock is entitled to one vote on each matter to
be considered.
The Annual Meeting has been called for the following purposes: (1) to elect
three directors to serve for a three-year term expiring in 2000; (2) to ratify
the appointment by the Board of the firm of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 1997; and (3) to
transact such other business as may properly come before the Annual Meeting or
any adjournments thereof.
The enclosed proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted FOR the proposals set forth in the proxy and
described herein. The Board knows of no other matters which will be presented at
the Annual Meeting. However, if other matters properly come before the Annual
Meeting or any adjournments thereof; the person or persons voting the proxies
will vote them in accordance with their best judgment on such matters.
Any shareholder giving a proxy has the power to revoke it at any time before it
is exercised by (i) filing written notice thereof with the Secretary of the
Company, Nancy M. Czupik, Haverfield Corporation, Terminal Tower, 50 Public
Square, Suite 444, Cleveland, Ohio 44113-2203; (ii) submitting a duly executed
proxy bearing a later date; or (iii) appearing at the Annual Meeting and giving
the Secretary notice of his or her intention to vote in person. However, your
mere presence at the Annual Meeting will not operate to revoke your proxy.
Proxies solicited hereby may be exercised only at the Annual Meeting and any
adjournments thereof and will not be used for any other meeting.
The cost of solicitation of proxies will be borne by Haverfield. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Haverfield Common Stock. In addition to solicitation by
mail, directors, officers and employees of the Company and its subsidiaries may
solicit proxies personally or by telephone without additional compensation.
1
<PAGE> 6
BENEFICIAL OWNERSHIP
Persons and groups owning in excess of 5% of Haverfield Common Stock are
required to file certain reports regarding such ownership with Haverfield and
the Securities and Exchange Commission (the "SEC"). The Company's directors and
executive officers are also required to file certain reports regarding their
ownership of Haverfield Common Stock with the SEC and the National Association
of Securities Dealers, Inc. Copies of those reports must also be furnished to
the Company. A person is considered the beneficial owner of Haverfield Common
Stock with respect to which such person has or shares voting or investment power
or has the right to acquire ownership at any time within 60 days, including,
without limitation, through the exercise of a stock option, warrant or right, or
the conversion of a security.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED AS OF FEBRUARY 28, 1997 (1) COMMON STOCK
- ------------------------------------ --------------------------------- ------------
PERSONS AND GROUPS OWNING IN EXCESS OF 5% OF HAVERFIELD COMMON STOCK
<S> <C> <C>
Richard M. Osborne, Trust 190,219 9.98%
Turkey Vulture Fund XIII, Ltd.
7001 Center Street
Mentor, Ohio 44060
Haverfield Corporation 138, 714(2) 7.28%
Employee Stock Ownership Plan
Harry F. Brockman, Trustee
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
William A. and Diane C. Valerian 140,726(3) 7.22%
18 Lyman Circle
Shaker Heights, Ohio 44122
Peter E. and Patricia J. Shimrak 100,716(4) 5.28%
17897 Captain's Cove
Lakewood, Ohio 44107
Directors and executive officers as 425,891(5) 21.41%
a group (13 individuals)
EXECUTIVE OFFICERS NAMED IN THE SUMMARY COMPENSATION TABLE
William A. Valerian 140,726(3) 7.22%
Richard C. Ebner 49,209(6) 2.54%
Ennio F. Izzo 3,880(7) *
- -----------------------
<FN>
*Percentage of shares beneficially owned is less than one percent.
</TABLE>
1. Information with respect to beneficial ownership is based on filings made
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). With respect to shares beneficially held by the Haverfield
Corporation Employee Stock Ownership Plan ("ESOP"), including shares
beneficially held by the ESOP for participants therein, the information
provided is as of December 31, 1996.
2. Although the ESOP may be deemed to share dispositive power over the shares
of Haverfield Common Stock which it holds, the trustee disclaims beneficial
ownership of such shares. The ESOP provides that the shares of Haverfield
Common Stock held thereby are voted by the trustee at the direction of
either the participants or
2
<PAGE> 7
the Committee, depending on whether or not the shares have been allocated
to participant accounts. See "Remuneration and Other Information -
Haverfield Corporation Employee Stock Ownership Plan."
3. Includes 85,547 shares held jointly by Mr. Valerian and his wife, Diane,
and 185 shares held by Mr. Valerian as custodian for his son, Peter. Also
includes 42,915 shares issuable upon the exercise of stock options and
12,079 shares beneficially held under the Company's ESOP. Mr. and Mrs.
Valerian disclaim beneficial ownership of any shares held by their two
eldest sons (both of whom are over 21 years of age; one of which resides
separately from his parents).
4. Includes 85,067 shares held jointly by Mr. Shimrak and his wife, Patricia,
and 15,649 shares beneficially held under the Company's ESOP. Mr. and Mrs.
Shimrak disclaim beneficial ownership of any shares held by their children
(all of whom are over 21 years of age and reside separately from their
parents).
5. Includes 82,845 shares issuable upon the exercise of stock options and
51,020 shares beneficially held under the Company's ESOP.
6. Includes 28,504 shares issuable upon the exercise of stock options and
6,689 shares beneficially held under the Company's ESOP.
7. Includes 3,718 shares issuable upon the exercise of stock options and 162
shares beneficially held under the Company's ESOP.
SECTION 16(A) DISCLOSURE
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than ten percent of Haverfield's Common
Stock, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no Forms 5
were required for those persons, the Company believes that during fiscal 1996
all filing requirements applicable to its executive officers, directors and
greater than ten percent beneficial owners were complied with; except that Ms.
Culbertson had three late filings involving the Company's dividend reinvestment
plan, which was rectified through a filing made in March, 1997.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board and its committees are comprised of the same seven individuals who
serve on the Board of Directors and its committees of the Company's wholly-owned
subsidiary, Home Bank, F.S.B. (the "Bank"). The Board, which is responsible for
the overall affairs of the Company, conducts its business through regular and
special meetings and through activities of its committees. During the year ended
December 31, 1996, the Board held a total of thirteen meetings. No director
attended fewer than 75% of the meetings held by the Board and the committees of
the Board on which he served.
The Executive Committee is authorized to exercise all the authority of the Board
unless otherwise provided in Haverfield's Code of Regulations. It acts upon
matters requiring Board action during the intervals between Board meetings. The
Executive Committee consists of Messrs. Valerian (Chairman), Gaul, Magnotto,
Mooney, Pomeroy and Shimrak. The Executive Committee of the Company did not meet
during 1996.
The Audit Committee recommends the appointment of the independent public
accountants, reviews and approves the audit plan and fee estimate of the
independent public accountants, appraises the effectiveness of the internal and
external audit efforts, evaluates the adequacy and effectiveness of accounting
policies, internal controls and financial and accounting management, assesses
the impact of significant regulatory changes and accounting developments,
reviews and approves the annual financial statements, reviews potential
conflict-of-interest situations where
3
<PAGE> 8
appropriate, and supervises and directs any special projects or investigations
considered necessary. In addition, the Audit Committee has the responsibility of
overseeing that an appropriate review of all related party transactions is
conducted on an ongoing basis. The members of the Audit Committee are Messrs.
Magnotto (Chairman), Gaul, Mooney and Shimrak. The Audit Committee of the
Company met four times during 1996.
The Compensation Committee, composed entirely of independent directors, is
responsible for the review of and the recommendation to the Board concerning
executive compensation, bonuses and incentives. The Compensation Committee also
functions as administrator of the Company's stock option plans. These matters
are also part of the business of the Bank and, accordingly, are addressed by the
Compensation Committees of the Boards of both the Company, which met twice
during 1996, and the Bank, which met four times during 1996. The membership of
these two committees is identical, consisting of Messrs. Pomeroy (Chairman),
Gaul, Mooney and Magnotto.
The whole Board performs the functions of a nominating committee. Although the
Board will consider nominees recommended by shareholders, it has not actively
solicited recommendations from shareholders of the Company for nominees.
Haverfield's Code of Regulations provides, however, that shareholders may make
nominations for election to the Board by submitting such nominations in writing
to the Secretary of the Company not less than forty-five days nor more than
ninety days prior to the date of the Annual Meeting, unless less than sixty
days' prior notice of the meeting date is given to shareholders or prior public
disclosure of the date of the meeting is made, in which case such nominations to
be timely must be so received not later than the close of business on the
fifteenth day following the day on which such notice of the date of the meeting
was mailed or such public disclosure was made. The Company's Code of Regulations
also provides that any shareholder recommendation for a director-nominee must
contain background information concerning the recommended nominee, including
name, age, business and home address, relationships with the shareholder making
the recommendation, educational background, description of the nominee's
principal occupation and business experience for the last five years,
directorships or trusteeships in public companies, the reasons the person is
being recommended, a statement that such person would be able to serve as a
director, the number of shares of The Company Common Stock which are
beneficially owned by the nominee, and any other information relating to the
nominee that is required to be disclosed pursuant to the Exchange Act. Any such
shareholder recommendation must also include the name and address, as they
appear on the Company's books, of such shareholder and the number of shares of
Haverfield Common Stock which are beneficially owned by such shareholder. The
Company is not required to include such nominations in its proxy statement;
however, if such a nomination is made, ballots will be provided for use by
shareholders at the Annual Meeting bearing the name of such nominee or nominees.
ELECTION OF DIRECTORS
(Proposal 1)
The Board is divided into two classes, each with a separate term of office of
three years. Under Ohio law, each class of directors must contain at least three
members. The authorized number of directors has been fixed at seven. Therefore,
Haverfield has only two classes of directors whose terms, as of the 1997 Annual
meeting, expire in 1997 and 1998. Because directors are elected for three-year
terms, once in every three years no directors will be elected by shareholders,
at least as long as the Board remains at its current size. The proxies will be
voted for the election as directors of the nominees for terms expiring in 2000
as listed below. All nominees for election as director are members of the Board.
Each of the nominees elected will hold office until expiration of his term of
office or until election of his successor. Should any nominee become unable to
accept nomination or election, the proxies will be voted for the election of
such person, if any, as shall be recommended by the Board. The Board has no
reason to believe that the persons listed as nominees will be unable to serve.
4
<PAGE> 9
The following table lists, as of February 28, 1997, as to each director of the
Company, the principal occupation or employment, age, the year in which each
first became a director and the number and percentage of shares of Haverfield
Common Stock beneficially owned. With respect to shares beneficially held under
the Company's ESOP, the information is as of December 31, 1996. Except as
otherwise indicated, each continuing director has had the same principal
occupation or employment during the past five years.
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE OF
PRINCIPAL OCCUPATION DURING DIRECTOR SHARES BENEFICIALLY OWNED
NAME AND AGE PAST FIVE YEARS SINCE AS OF FEBRUARY 28, 1997
- ------------ -------------------------- ----- -----------------------
NOMINEES FOR THREE-YEAR TERM EXPIRING IN 2000
<S> <C> <C> <C> <C>
Michael T. Gaul President of four privately held manu- 1994 2,310 *
(Age 50) facturing companies - Ohio Cutter
Grinding Co., Inc.; C&W Grinding Co.,
Inc.; Trident Tube, Inc.; and Kelly
Creswell Co.
David A. Nolan President of the Greater Cleveland 1996 1,000 *
(Age 42) Convention and Visitors Bureau
since 1994; previously President and
CEO for the Greater Milwaukee
Convention and Visitors Bureau
William A. Valerian Chairman of the Board, President 1989 140,726(1) 7.22%
(Age 53) and Chief Executive Officer of the
Company since 1996; previously
President and Chief Executive
Officer of the Company
and the Bank.
CONTINUING DIRECTORS WHOSE TERM EXPIRES IN 1998
Mark R. Magnotto Area Vice President, Insurance 1989 60,356(2) 3.21%
(Age 56) Company of North America.
Robert M. Mooney Private Investor, PMG Partners. 1995 6,800 *
(Age 50)
Jacques C. Pomeroy President, The Pomeroy Agency, Inc. 1989 11,000 *
(Age 61)
Peter E. Shimrak Chairman of the Board of the Bank. 1989 100,716(3) 5.28%
(Age 64)
- -----------------------
<FN>
*Percentage of shares beneficially owned is less than one percent.
1. Includes 85,547 shares held jointly by Mr. Valerian and his wife, Diane,
and 185 shares held by Mr. Valerian as custodian for his son, Peter. Also
includes 42,915 shares issuable upon the exercise of stock options and
12,079 shares beneficially held under the Company's ESOP. Mr. and Mrs.
Valerian disclaim beneficial ownership of any shares held by their two
eldest sons (both of whom are over 21 years of age; one of which resides
separately from his parents).
</TABLE>
5
<PAGE> 10
2. Includes 60,062 shares held jointly by Mr. Magnotto and his wife, Pam, and
294 shares held solely in the name of Pam Magnotto. Mr. and Mrs. Magnotto
disclaim beneficial ownership of any shares held by their children (all of
whom are over 21 years of age and reside separately from their parents).
3. Includes 85,067 shares held jointly by Mr. Shimrak and his wife, Patricia,
and 15,649 shares beneficially held under the Company's ESOP. Mr. and Mrs.
Shimrak disclaim beneficial ownership of any shares held by their children
(all of whom are over 21 years of age and reside separately from their
parents).
BOARD OF DIRECTORS COMPENSATION
- --------------------------------------------------------------------------------
Because the business of the Company currently consists primarily of the business
of the Bank, it is currently the policy of the Company that no separate fees are
paid to the directors of the Company, all of whom are also directors of the Bank
and receive fees as such. Mr. Shimrak received $1,250 per month for performance
of his duties as Chairman of the Board of the Bank, received no separate fees
for Board meetings, but was paid $250 for each Committee meeting attended.
During 1996, each member of the Board (other than directors who are executive
officers of the Company, which directors receive no director fees) received from
the Bank a stipend of $500 per month, provided at least 80% of the last 12 Board
of Directors' meetings, including the most recent regular monthly meeting, were
attended. In addition, Directors are paid $400 for each meeting of the Board of
Directors attended, and are paid $250 for each Committee meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- --------------------------------------------------------------------------------
Messrs. Pomeroy, Gaul and Magnotto have obtained loans from the Company.
Management believes that these loans were made in the ordinary course of
business on substantially the same terms including interest rates and collateral
as those prevailing at the time for comparable transactions with unaffiliated
borrowers of comparable credit and did not involve more than the normal risk of
collectibility or present other unfavorable features.
DIRECTORS' STOCK OPTION PLAN
- --------------------------------------------------------------------------------
The Board of Directors of the Bank adopted and the Bank's shareholders approved
at their 1989 annual meeting the Directors' Stock Option Plan (the "Directors'
Plan") to assist the Bank and its subsidiaries in attracting and retaining
directors of exceptional ability. When the Company became the parent thrift
holding company of the Bank on August 23, 1989, the Company succeeded to the
Bank's obligations under the Directors' Plan. A Committee of not less than two
Directors of the Company, none of whom are eligible to receive benefits under
the Directors' Plan, administers the Directors' Plan.
Each non-employee director or member of any advisory board of the Company or any
subsidiary is eligible to receive options under the Directors' Plan. An
aggregate of 108,900 shares of authorized but unissued Haverfield Common Stock
has been reserved for issuance under the Directors' Plan pursuant to the
exercise of stock options. No options have been granted under the Directors'
Plan. The number of shares is subject to adjustment in the event of a stock
split, stock dividend, merger, consolidation or certain other corporate
transactions or changes in capitalization.
All options granted under the Directors' Plan will have an exercise price per
share equal to the fair market value of a share of Haverfield Common Stock on
the date the option is granted. Each option will become exercisable in three
equal annual installments commencing one year after the date it is granted. Any
option granted under the Directors' Plan if not exercised will expire ten years
after the date of grant. All options will be nontransferable other than by will
or the laws of descent and distribution, and during the non-employee director's
lifetime may be exercised by such director. The purchase price for shares of
Haverfield Common Stock acquired pursuant to the exercise of an option shall be
paid in cash or by check. Options will generally terminate (i) one year after a
non-employee director's directorship terminates due to death or disability, (ii)
three months after the non-employee director's directorship terminates if such
termination is for other than death, disability or cause (as defined in the
Directors' Plan), (iii) upon the termination of the director's directorship for
any other reason, except that a director who becomes a director emeritus
immediately following the expiration of his term will not be considered to have
terminated his directorship, or (iv) ten years after date of grant.
6
<PAGE> 11
Upon a Change in Control (as defined in the Directors' Plan), all outstanding
options under the Directors' Plan will, for a period of 60 days following the
Change in Control, become immediately and fully exercisable and the
non-employee director may, during the 60-day period following the Change in
Control, surrender any option (or portion thereof) which was granted more than
six months prior to such surrender for a cash payment in respect of each share
covered by the option or portion thereof surrendered equal to the excess over
the option price of the greater of the highest price at which the Haverfield
Common Stock traded during the 60-day period preceding the date of the Change in
Control or the highest price per share paid in connection with the transaction
constituting or resulting from the Change in Control.
REMUNERATION AND OTHER INFORMATION
COMPENSATION COMMITTEE REPORT
- --------------------------------------------------------------------------------
The report of the Compensation Committee and the stock performance graph shall
not be deemed incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the Securities Act of
1933 or the Exchange Act, except as to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The Compensation Committee of the Board is composed entirely of outside
directors and is responsible for developing and making recommendations to the
Board with respect to the Company's executive compensation policies. In
addition, the Compensation Committee, pursuant to authority delegated by the
Board, determines on an annual basis the compensation to be paid to the Chief
Executive Officer. All decisions by the Compensation Committee relating to the
compensation of the Chief Executive Officer are reviewed by the full Board. The
Compensation Committee has access to national compensation surveys and regional
compensation information on executives in companies both larger and smaller than
the Company. All of these independent sources are used by the Compensation
Committee in reviewing compensation.
The objectives of the Company's executive compensation program are to:
- - Support the achievement of desired Company performance.
- - Provide compensation that will attract and retain superior talent and
reward reward performance.
- - Align the executive officers' interests with the success of the Company by
making a portion of their compensation dependent upon corporate
performance.
The executive compensation program is comprised of base salary, annual cash
incentive compensation, long-term incentive compensation in the form of stock
options, and various benefits, including medical and ESOP plans generally
available to all employees of the Company. It provides an overall level of
compensation opportunity that is competitive within the banking industry, as
well as with a broader group of companies of comparable size and complexity. The
Company has no defined benefit pension plan. The Compensation Committee believes
that a significant portion of the total compensation program should be subject
to specific annual performance criteria. Consequently, the incentive bonus
portion of the compensation package payable to the Company's executive officers
is a significant portion of their compensation package.
Executive officers are paid a base salary which generally ranks them below
executives in similar positions for corporations of similar size in the banking
industry. In determining salaries, the Compensation Committee also takes into
account individual experience and performance and specific issues particular to
the Company. The Executive Incentive Compensation Plan provides these
individuals direct financial incentive to increase their compensation to much
more competitive levels with others with similar responsibility in other public
companies, but only if favorable financial results are achieved. Individual
performance may also be taken into account in determining incentive awards, but
no incentive compensation is paid unless a predetermined threshold for return on
average assets has been reached. Threshold, target and maximum goals for Company
performance are set at the beginning of each fiscal year. In determining
incentive awards for 1996, the Compensation Committee excluded the one-time
nonrecurring Savings Association Insurance Fund ("SAIF") assessment which
affected all savings institutions. The Company's assessment totaled $2.0
million. The
7
<PAGE> 12
Compensation Committee surveyed other financial institutions who also excluded
the one-time assessment from their calculations.
The stock option plan is the Company's long-term incentive plan for the benefit
of executive officers and full-time employees. The objectives of the program are
to align executive and shareholder long-term interests by creating a strong and
direct link between executive pay and shareholder return, and to enable
executives to develop and maintain a significant, long-term stock ownership in
Haverfield Common Stock. Stock options are granted at an option price equal to
the fair market value of Haverfield Common Stock on the date of grant. Awards
are made at a level calculated to be competitive within the banking industry as
well as a broader group of companies of comparable size and complexity.
Mr. Valerian has been President and Chief Executive Officer since 1990. He was
elected Chairman of the Board of the Company in 1996. In January 1996, Mr.
Valerian received a base salary increase of 4.0% and an automobile allowance of
$600 per month. Mr. Valerian's incentive award for fiscal 1996 determined in
accordance with the Executive Incentive Compensation Plan was $93,450. This
figure is based on a detailed formula including return on assets, return on
equity, net interest margin to earning assets, the Company's efficiency ratio,
earnings per share, and the Company's capital position. The above criteria, as
well as other indicators of Haverfield's performance, are used in determining
the incentive awards for other executive officers.
The Compensation Committee believes Mr. Valerian and the executive officers have
managed the Company well in a challenging business climate. The stock options
granted to these individuals during 1996 are consistent with the design of the
overall program and are shown in the Summary Compensation Table.
Compensation Committee
----------------------
JACQUES C. POMEROY
MICHAEL T. GAUL
MARK R. MAGNOTTO
ROBERT M. MOONEY
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
Set forth below is a line graph comparing the cumulative total shareholder
return on Haverfield's Common Stock for the last five fiscal years with the
cumulative total return on the NASDAQ Market Index and the SIC Code 6035 -
Savings Institutions, Federally Chartered Index over the same period (assuming
investment of $100 in Haverfield's Common Stock and each Index on January 1,
1992, and reinvestment of all dividends).
[GRAPH]
<TABLE>
<CAPTION>
Haverfield Savings Institutions NASDAQ
Corporation Federally Chartered Market
----------- -------------------- ------
<S> <C> <C> <C>
1991 $100.00 $100.00 $100.00
1992 144.86 132.44 100.98
1993 204.11 161.07 121.13
1994 184.09 152.57 127.17
1995 195.96 239.38 164.96
1996 286.59 306.10 204.98
</TABLE>
Source: Media General Financial Services
8
<PAGE> 13
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above.
The Company will not make nor endorse any predictions as to future stock
performance.
REMUNERATION OF EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
Because the business of the Company currently consists primarily of the business
of the Bank, it is currently the policy of the Company that no separate cash
compensation is paid to the executive officers of the Company, all of whom are
executive officers of the Bank and receive compensation as such. The following
table sets forth all compensation paid or awarded by the Bank for the three
years ended December 31, 1996 to the Chief Executive Officer and all other
executive officers whose aggregate remuneration exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------------- -------
OTHER NUMBER ALL
ANNUAL RESTRICTED OF OTHER
COMPEN- STOCK OPTIONS LTIP COMPEN-
NAME OF INDIVIDUALS YEAR SALARY BONUS(1) SATION(2) AWARDS AWARDED(3) PAYOUTS SATION(4)
- ------------------- ---- ------ -------- --------- ------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William A. Valerian 1996 $182,298 $93,450 - - 10,000 - $13,065
President and Chief 1995 $168,369 $69,375 - - 10,000 - $12,617
Executive Officer 1994 $161,899 - - - 2,675 - $15,747
(Age 53)
Richard C. Ebner 1996 $101,250 $47,750 - - 5,000 - $ 5,446
Executive Vice 1995 $ 97,354 $40,075 - - 5,000 - $ 5,164
President, Chief 1994 $ 93,615 - - - 1,784 - $18,130
Operating Officer,
Chief Financial
Officer and Treasurer
(Age 46)
Ennio F. Izzo (5) 1996 $ 82,683 $21,750 - - 3,718 - $ 194
Vice President, 1995 $ 60,150 $10,000 - - - - -
Lending 1994 - - - - - - -
(Age 57)
- -----------------
<FN>
(1) The amounts indicated were awarded under the Executive Incentive
Compensation Plan.
(2) Certain executive officers receive other annual compensation in the form of
perquisites, the amount of which does not exceed established reporting
thresholds and which therefore are not included herein.
(3) The number of options indicated were awarded under the Company's stock
option plan.
(4) Includes split dollar life insurance premium and Company ESOP
contributions. Also includes country club initiation dues for Mr. Ebner in
1994.
(5) Mr. Izzo was hired on April 3, 1995.
</TABLE>
EXECUTIVE INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
In November 1983, the Board of Directors of the Bank adopted a Management
Incentive Compensation Plan (the "Plan"), which was amended in April 1986, based
on beliefs and guiding principles designed to align compensation with business
strategy, Company values and management initiatives. The Plan rewards executives
for long-term strategic management and the enhancement of shareholder value
through delivering appropriate ownership in the Company, integrates compensation
programs with the Company's annual strategic planning and measurement
9
<PAGE> 14
processes, supports a performance-oriented environment that rewards performance
with respect to Company goals, and attracts and retains key executives critical
to the long-term success of the Company. Eligibility for participation in the
Plan is limited to those senior level executives and others recommended by the
Chief Executive Officer who are responsible for directing functions which have
a significant bearing on the growth and profitability of the Company and its
subsidiaries. The incentive rewards are based on the Company's annual return on
assets, as well as other indicators of the Company's performance. For 1996,
Haverfield's financial performance indicators excluded the one-time SAIF
assessment in determining the incentive awards. The Compensation Committee
determines the aggregate amount of such cash distributions as well as the
specific cash distribution to the Chief Executive Officer. The Chief Executive
Officer allocates the remainder of the approved cash distributions to
participants. The Compensation Committee is not required to award the entire
incentive compensation fund and any unawarded portion will not be carried
forward to future years. The Plan can be amended or terminated by the Board at
any time.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
- --------------------------------------------------------------------------------
Employment Agreement. In August, 1996, the Company and the Bank entered into an
employment agreement with William A. Valerian pursuant to which he serves as
president and chief executive officer of the Bank and, if he continues to be
elected, as an officer and director of the Company. The initial term of the
agreement is three years, but the term of the agreement may be extended upon the
first and each subsequent anniversary of the agreement for an additional year by
the Board of Directors of the Bank. Mr. Valerian's minimum base salary under the
agreement is $175,000. The agreement provides, among other things, for
participation in stock options, Executive Incentive Compensation Plan, group
life insurance, medical coverage, education and other retirement or employee
benefits applicable to executive personnel.
The agreement provides for termination upon the occurrence of certain events
that constitute cause and in certain events specified by federal regulations.
The agreement is also terminable by the Bank without cause whereupon Mr.
Valerian would be entitled to the full amount of salary remaining under the term
of the agreement. The agreement provides for payments to Mr. Valerian upon the
occurrence of certain events constituting a change in control of the Company or
of the Bank if employment is terminated involuntarily in connection with such
change of control other than for cause. Such termination payments are also
provided on a similar basis in connection with a voluntary termination of
employment following a change in control. The amount of these payments equals
2.99 times the average annual compensation which was includable in Mr.
Valerian's gross income for federal income tax purposes with respect to the five
most recent tax years ending prior to the change in control.
CHANGE IN CONTROL AGREEMENTS. In August, 1996, the Company and the Bank entered
into severance agreements with Messrs. Ebner and Izzo (the "Severance
Agreements") which provide for payments only in the event of termination of
employment during the term of the Severance Agreements following a change of
control. The Severance Agreements also provide for benefits if the officer
resigns during the term of the Severance Agreements following a change of
control for good reason, including reduction in compensation, benefits or
responsibilities, or relocation by more than 30 miles of the primary worksite of
the officer. Benefits under the Severance Agreements are equal to the officer's
salary and bonus in effect for the immediate fiscal year of the Bank preceding
the change of control. The Severance Agreements provide for no benefits in the
event the officer is terminated for cause, in certain events specified under
federal regulations, or if the officer is terminated without cause, dies, or
becomes permanently disabled prior to a change of control. The initial term of
the Severance Agreements is for a one-year period, which may be extended upon
each subsequent anniversary of the Severance Agreements for an additional year
by the Board of Directors of the Bank.
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
- --------------------------------------------------------------------------------
The Company's ESOP, which incorporates both discretionary employer contributions
and a 401(k) employee salary reduction feature, was approved by the shareholders
of the Company at the 1991 Annual Meeting. The Company's matching contribution
equals fifty percent (50%) of the employee's deferred compensation. The ESOP
covers employees who have attained age 21 and have completed one year of service
with the Company, the Bank or Home Financial, Inc. The assets of the ESOP are
invested primarily in shares of Haverfield
10
<PAGE> 15
Common Stock. A Registration Statement with respect to 363,000 shares of
Haverfield Common Stock was filed with the SEC in connection with Haverfield
Common Stock held by the ESOP which may be issued to participants.
Haverfield or its subsidiaries may, in any plan year, make discretionary
contributions in either shares of Haverfield Common Stock or cash. During the
year ended December 31, 1996, Haverfield and its subsidiaries made cash
contributions, including the Company's matching contribution, in the amount of
$31,073 to the ESOP. From time to time, the ESOP may purchase additional shares
of Haverfield Common Stock for the benefit of plan participants through
purchases of outstanding shares in the market or upon the sale of treasury
shares by the Company. Such purchases, if made, may be funded through
borrowings by the ESOP or further contributions from the Company or its
subsidiaries. The timing and amount of future purchases, contributions and
borrowings will be affected by various factors, including the requirements of
the Office of Thrift Supervision and other regulations as to ESOP purchases,
requirements of the Employee Retirement Income Security Act of 1974, as amended,
the Internal Revenue Code of 1986, as amended (the "Code"), market conditions
and the earnings and financial condition of the Company. During 1996, a total of
8,913 shares of Haverfield Common Stock were purchased by the ESOP.
Discretionary contributions to the ESOP and shares of Haverfield's Common Stock
are allocated among the participants in proportion to their compensation. All
participants must be employed on the last day of the plan year to be entitled to
share in an allocation with respect to such plan year. Forfeitures are
reallocated among remaining participants in the same manner as contributions. A
participant who has attained the age of 55 and completed ten years of
participation in the ESOP may direct that a percentage of the value of his or
her account balance be distributed in cash. The contributions to be made by the
Company and its subsidiaries to the ESOP are not fixed, so benefits payable
under the ESOP cannot be accurately estimated. Participants in the ESOP are
always 100% vested in that part of their account attributable to the
compensation they have deferred through the 401(k) feature of the ESOP.
Participants are not vested in the employer contribution portion of their
accounts until after five years of service, at which time they are 100% vested.
Participants also become fully vested at age 65 or upon their death or
disability. Vested benefits are payable upon the participant's death or other
termination of employment and are generally to be paid in shares of Haverfield
Common Stock.
A Committee appointed by the Board of the Company administers the ESOP, and Mr.
Harry F. Brockman acts as trustee. As trustee of the Company's ESOP, Mr.
Brockman receives an annual fee of $1 per $1,000 of Plan assets subject to a
minimum of $1,800 per year. Under the ESOP, participants may direct the voting
of all shares of Haverfield Common Stock allocated to their accounts.
Unallocated shares are voted according to the instructions of the Committee. In
addition, the ESOP provides that the trustee will respond to a tender or
exchange offer with regard to allocated shares of Haverfield Common Stock in
accordance with the instructions of the participants to whom such shares have
been allocated and shall respond with regard to unallocated shares in the same
proportion as the trustee responds with regard to allocated shares for which
instructions were received. As of December 31, 1996, a total of 117 officers and
employees were participants in the ESOP.
The Board may amend or revise the ESOP, except that no such amendment shall be
effective if it: authorizes or permits any part of the assets held in the ESOP
(other than such part as is required to pay taxes and administration expenses)
to be used for or diverted to any purpose other than for the exclusive benefit
of the participants or their beneficiaries or estates; causes any reduction in
the amount credited to the account of any participant; or causes or permits any
portion of the assets of the ESOP to revert to or become property of the
Company.
MANAGEMENT STOCK OPTION PLAN
- --------------------------------------------------------------------------------
As a performance incentive and to encourage ownership of Haverfield Common
Stock, the Board adopted a stock option plan for the benefit of executive
officers and other employees of the Company and its subsidiaries whether or not
directors of Haverfield or its subsidiaries. Directors who are not executive
officers are not eligible to participate in the Company's stock option plan. The
Board, the Compensation Committee and management believe that significant stock
ownership is a major incentive in building shareholders' wealth and aligning the
interests of employees and shareholders. To encourage growth in shareholder
value and focus attention on managing the Company as an owner with an equity
position in the business, senior executives
11
<PAGE> 16
who are in a position to make a substantial contribution to the long-term
success of the Company should have a significant stake in its on-going success.
The 1985 Option Plan, which was approved by the shareholders at their 1985
annual meeting, terminated on July 23, 1995; however, 46,127 stock options
remain outstanding. No options have been repriced or otherwise adjusted or
amended in the past 10-year period.
The 1995 Stock Option Plan was approved by the shareholders at their 1995 annual
meeting. The maximum number of shares reserved for purchase pursuant to the
exercise of options granted under the 1995 Stock Option Plan is 164,000 shares,
subject to modification or adjustment to reflect changes in Haverfield's
capitalization as, for example, in the case of a merger, reorganization or stock
split. Authorized but unissued shares or shares previously issued and reacquired
by the Company may be used to satisfy an exercise of an option under the
Company's stock option plan, resulting in an increase in the number of shares
outstanding, which will have a dilutive effect on the holdings of existing
shareholders.
The Company's stock option plan is administered by the Compensation Committee of
the Board, all of whom are non-employee members of the Board, and all of whom
are "disinterested directors", as such term is defined under Rule 16b-3 of the
Exchange Act. The Compensation Committee is given absolute discretion under the
Company's stock option plan to select the persons to whom rights will be granted
and to determine the number of rights to be granted to each. Grants of options
under the Company's stock option plan are designed to be either incentive stock
options under Section 422A of the Code, or non-statutory stock options.
Under the 1995 Stock Option Plan, non-statutory stock options may be granted at
a purchase price which shall not be less than 65% of the fair market value of
Haverfield Common Stock on the date of grant. Incentive stock options may be
granted at a purchase price which shall not be less than 100% of the fair market
price on the date of grant, provided that grantee does not possess more than 10%
of the total combined voting power of the Company (as determined pursuant to
Section 424(d) of the Code). If the grantee does possess more than 10% of the
total combined voting power of all classes of Haverfield Common Stock, the
purchase price per share of Haverfield Common Stock deliverable upon the
exercise of each incentive stock option shall not be less than 110% of the fair
market value of Haverfield Common Stock on the date of grant.
The terms of both non-statutory stock options and incentives stock options shall
be determined by the Compensation Committee; however, no grant will be
exercisable, in whole or in part, more than 10 years from the date of grant. If
at the time an incentive stock option is granted to an employee who is deemed to
beneficially own more than 10% of the total combined voting power of the Company
as defined under Section 424(d) of the Code, then the term of such grant shall
not exceed 5 years from the date of grant. However, in the event of a change in
control of the Company, all non-statutory and incentive stock options shall
become immediately exercisable. Unless otherwise determined by the Compensation
Committee at the time of grant, termination of a participant's employment for
any reason other than disability, change of control, or death, will result in
both non-statutory and incentive stock to expire upon termination. Unless
otherwise determined by the Compensation Committee at the time of grant, in the
event of death or disability of any participant, all non-statutory options held
by the participant, whether or not exercisable at the time, shall be exercisable
by the participant or his legal representative or beneficiary for one year or
such longer period as determined by the Compensation Committee following the
date of such event, provided that in no event shall the period extend beyond the
expiration of the non-statutory stock option term. In the event of a
participant's death or disability, all incentive stock options held by the
participant, whether or not exercisable at such time, shall be exercisable by
the participant or the participant's legal representative or beneficiary for one
year following the date of the participant's death or cessation of employment
due to disability. Upon termination of the participant's employment due to a
change in control, all incentive stock options held by such participant, whether
or not exercisable at such time, shall be exercisable for a period of one year
following the date of such participant's cessation of employment but in no
event, shall the exercisable period extend beyond the expiration of the
incentive stock option term.
The following table presents individual grants of options that were made under
the 1995 Stock Option Plan during 1996 to each of the named executives in the
Summary Compensation Table. This table is intended to allow shareholders to
ascertain the relationship between the number and size of option grants made
during 1996, the exercise price and the market price on the date of grant, and
the expiration date of the grants.
12
<PAGE> 17
<TABLE>
<CAPTION>
OPTION GRANTS IN THE LAST FISCAL YEAR(1)
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
-------------------------------------------------------- ASSUMED
OF TOTAL ANNUAL RATES
OPTIONS OF STOCK PRICE
NUMBER GRANTED TO EXERCISE APPRECIATION
DATE OF EMPLOYEES OR BASE FOR OPTION TERM
OF OPTIONS IN PRICE EXPIRATION -----------------
NAME GRANT GRANTED(2) FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ----- ---------- --------------------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
William A. Valerian 12/18/96 10,000 48.27% $19.25 12/18/06 $120,276 $304,803
Richard C. Ebner 12/18/96 5,000 24.13% $19.25 12/18/06 $ 60,138 $152,402
Ennio F. Izzo 05/22/96 1,718 8.29% $18.00 05/22/06 $ 19,448 $ 49,285
Ennio F. Izzo 12/18/96 2,000 9.65% $19.25 12/18/06 $ 24,055 $ 60,961
- --------------------
</TABLE>
1. The 1995 Stock Option Plan is administered by the Compensation Committee of
the Board which has the authority to determine the individuals to whom and
the terms at which option grants shall be made, certain terms of the
options, and the number of shares to be subject to each option. The
exercise or base price per share is the fair market value of Haverfield
Common Stock on the date of the grant, and the term of the option is 10
years.
2. All grants in 1996 were incentive stock options.
The following tabulation shows, as to all persons named in the Summary
Compensation Table, the following information with respect to the exercise of
stock options during 1996 by each of the named executive officers and the fiscal
year-end value of unexercised options.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED VALUE UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME ON EXERCISE(1) REALIZED(2) DECEMBER 31, 1996(3) DECEMBER 31, 1996(4)
- ---- -------------- ----------- -------------------- --------------------
<S> <C> <C> <C> <C>
William A. Valerian 12,947 $105,368 42,915 $267,574
Richard C. Ebner 4,840 $ 39,390 28,504 $208,721
Ennio F. Izzo - - 3,718 $ 1,933
- ----------------------
</TABLE>
1. All of the options exercised during 1996 were held by the named executive
officer since 1986.
2. Value realized is calculated based on the difference between the option
exercise price and the average high and low market price on the date of
exercise.
3. All unexercised options are incentive stock options that are exercisable.
4. Based on December 31, 1996 closing stock price of $19.125 per share minus
the exercise or base price.
13
<PAGE> 18
CERTAIN TRANSACTIONS
- --------------------------------------------------------------------------------
The Bank offers loans to its officers, directors and employees. All loans to
directors and executive officers were current as of December 31, 1996. Loans are
made on substantially the same terms and conditions as those prevailing at the
time for comparable transactions with unaffiliated persons. Pursuant to the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, which
became effective on August 9, 1989, loans made by the Bank to its executive
officers and directors must comply with the requirements of Section 22(b) of the
Federal Reserve Act. Among other things, Section 22(h) prohibits the Bank from
making a loan to any executive officer or director on preferential terms, i.e.,
terms that would not be offered to an unaffiliated borrower of comparable credit
standing seeking a comparable loan. The management of the Bank believes that all
loans made since August 9, 1989, to the Company's directors and executive
officers were made in the ordinary course of business on substantially the same
terms including interest rates and collateral as those prevailing at the time
for comparable transactions with unaffiliated borrowers of comparable credit and
did not involve more than the normal risk of collectibility or present other
unfavorable features.
Prior to August 9, 1989, directors, officers and employees executed a note at
the rate then being offered by the Bank to the general public. The actual
payment rate for adjustable loans, however, is adjusted annually based on a
designated index for so long as the director, officer or employee continues
employment or service with the Bank and, in the case of directors and executive
officers, does not modify the existing note. It is the belief of management that
these loans neither involve more than normal risk of collectibility nor present
other unfavorable features.
The table below sets forth certain information with respect to directors and
executive officers for loans made from the Bank prior to August 9, 1989 that
have preferential rates and whose total loans from the Bank exceeded an
aggregate of $60,000 during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Highest Principal
Balance During Principal
Nature of Year Payment Note The Year Ended Balance as of
Name Indebtedness(i) Made Rate(2) Rate (3) December 31, 1996 December 31, 1996
- ---- --------------- ---- ------- -------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Marlene D. Culbertson Mortgage 1989 5.42% 9.88% $72,415 $70,533
Richard C. Ebner Mortgage 1985 5.10 7.75 47,453 40,918
Equity LOC 1985 7.51 9.51 62,354 61,282
MasterCard 1985 7.51 9.51 5,314 137
Mark R. Magnotto Mortgage 1987 7.04 8.25 157,273 -
Peter E. Shimrak Mortgage 1986 5.70 7.25 195,032 191,126
Equity LOC 1987 7.42 9.42 100,872 98,948
Savings 1986 6.33 8.33 16,000 16,000
Savings 1986 6.00 8.00 54,535 54,535
MasterCard 1987 7.42 9.42 5,034 4,552
Edward R. Turza Savings 1986 3.48 5.48 3,400 3,400
William A. Valerian Equity LOC 1985 7.51 9.51 98,764 94,051
MasterCard 1985 7.51 9.51 5,739 3,642
- ----------------------
</TABLE>
1. All mortgage loans are secured by first liens on residences. The equity LOC
and MasterCard are secured.
2. Payment rate on adjustable first mortgage loans, equity LOC and MasterCard
loans adjust annually based on a designated index.
3. The note rate represents that rate which would be offered to the general
public.
14
<PAGE> 19
CONSULTING AGREEMENT
- --------------------------------------------------------------------------------
Peter E. Shimrak, a director of the Company and Chairman of the Board of the
Bank, entered into a Consulting Agreement (the "Consulting Agreement") effective
August 1, 1996, which, in addition to the $1,250 per month which Mr. Shimrak
receives as Chairman of the Board of the Bank, provides that he shall receive an
hourly charge for his consulting services in the amount of $50 per hour. The
maximum hours to be actually billed to the Bank on a monthly basis may not
exceed twenty (20) hours. In addition, Mr. Shimrak is also entitled to receive
certain commission based compensation for business activities conducted on
behalf of the Bank. The term of the Consulting Agreement is one year. During
1996, Mr. Shimrak was paid $6,714 under the Consulting Agreement.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
AUDITORS
(Proposal 2)
The Board, acting upon the recommendation of its Audit Committee, has appointed
Deloitte & Touche LLP as auditors to audit the financial statements of the
Company and its subsidiaries for the year 1997. Deloitte & Touche LLP has
conducted the annual audit of the Company and its subsidiaries since 1982.
Although shareholder approval of this appointment is not required by law or
binding on the Board, the Board believes that shareholders should be given this
opportunity to express their views. If the shareholders do not ratify the
appointment of Deloitte & Touche LLP as the Company's independent auditors, the
Board will consider this vote in determining whether or not to continue the
engagement of Deloitte & Touche LLP.
A representative of Deloitte & Touche LLP will be present at the meeting with an
opportunity to make a statement if he desires to do so and to respond to
appropriate questions.
The affirmative vote of the holders of a majority of the shares of Haverfield
Common Stock present in person or by proxy and entitled to vote at the meeting
will be required for such ratification.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1997.
1998 SHAREHOLDERS' PROPOSALS
Any shareholder proposal intended for inclusion in the proxy statement and form
of proxy related to Haverfield's annual meeting of shareholders expected to be
held on or about April 22, 1998 must be received by the Company by November 18,
1997 pursuant to the proxy solicitation regulations of the SEC. Any such
proposals shall be subject to the requirements of the proxy rules adopted under
the Exchange Act. It is urged that any such proposals be sent by certified mail,
return receipt requested.
By Order of the Board of Directors,
/s/ Nancy M. Czupik
-------------------------------
Nancy M. Czupik
Corporate Counsel and Secretary
Cleveland, Ohio
March 17, 1997
15
<PAGE> 20
APPENDIX A
Haverfield Corporation and Subsidiaries
Index to Financial Information
PAGE
- --------------------------------------------------------------------------------
Market and Dividend Information A-1
Form 10-K Copies Available A-1
Consolidated Financial Highlights A-2
Management's Discussion and Analysis A-3
Report of Management A-17
Report of Independent Auditors A-18
Consolidated Statements of Financial Condition A-19
Consolidated Statements of Income A-20
Consolidated Statements of Cash Flows A-21
Consolidated Statements of Shareholders' Equity A-22
Notes to Consolidated Financial Statements A-23
MARKET AND DIVIDEND INFORMATION
Haverfield Common Stock trades on the Nasdaq National Market tier of The Nasdaq
Stock Market under the symbol HVFD. At December 31, 1996, the number of
shareholders of record was 416. A summary of the trading ranges and cash
dividends paid on Haverfield Common Stock during each quarter of 1996 and 1995
is presented below.
<TABLE>
<CAPTION>
1996 1995
--------------------------------- -------------------------------
Sales Price Cash Dividends Sales Price Cash Dividends
High Low Paid High Low Paid
<S> <C> <C> <C> <C> <C> <C>
First Quarter $15.00 $13.50 $.135 $14.32 $12.95 $.127
Second Quarter $19.25 $14.75 $.135 $13.64 $11.82 $.127
Third Quarter $19.25 $17.00 $.135 $14.75 $12.27 $.127
Fourth Quarter $19.75 $18.25 $.135 $14.75 $13.50 $.135
</TABLE>
Information describing the Haverfield Corporation Dividend Investment Service
can be obtained from: Richard C. Ebner, Treasurer, Haverfield Corporation,
Terminal Tower, 50 Public Square, Suite 444, Cleveland, Ohio 44113-2203.
FORM 10-K COPIES AVAILABLE
UPON RECEIPT OF A WRITTEN REQUEST TO RICHARD C. EBNER, TREASURER, HAVERFIELD
CORPORATION, TERMINAL TOWER, 50 PUBLIC SQUARE, SUITE 444, CLEVELAND, OHIO 44113-
2203, HAVERFIELD WILL FURNISH TO ANY SHAREHOLDER WITHOUT CHARGE A COPY OF THE
ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS UNLESS SPECIFICALLY REQUESTED, FOR
THE YEAR ENDED DECEMBER 31, 1996.
A-1
<PAGE> 21
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
1996(1) 1995 1994 1993 1992
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31:
Total assets $346,856 $354,505 $316,768 $310,410 $317,640
Net loans 293,792 283,560 279,680 248,005 236,319
Cash and investments 42,401 59,327 24,997 33,783 50,099
Mortgage-backed securities 2,010 2,754 3,101 5,961 13,138
Deposits 279,073 317,779 279,269 268,012 284,163
Borrowed money 30,000 - 2,000 6,348 2,000
Shareholders' equity 28,352 28,058 26,868 22,510 18,761
Amount of loans serviced for others 132,693 139,498 161,968 177,763 183,592
Number of offices 10 10 11 10 10
YEAR ENDED DECEMBER 31:
Interest income $27,292 $26,505 $21,784 $ 22,964 $25,156
Interest expense 14,742 15,195 11,057 11,150 13,988
Provision for loan losses 309 123 97 897 750
Noninterest income 2,005 2,204 2,160 3,735 2,799
Noninterest expense 11,962 10,376 10,421 11,321 9,928
Provision for income taxes 777 1,020 669 1,138 1,318
Extraordinary item, net of tax - - - - (67)
Net income 1,507 1,995 1,700 2,193 1,904
PER SHARE DATA:
Net income:
Primary $ .79 $ 1.06 $ 1.03 $ 1.45 $ 1.35
Fully-diluted .79 1.06 .96 1.33 1.35
Shareholders' equity 14.87 14.90 14.25 14.15 13.23
Tangible shareholders' equity 14.86 14.82 13.73 13.11 11.43
Cash dividends declared and paid .54 .52 .51 .48 .44
Dividend payout ratio 68.35% 49.06% 49.56% 33.30% 32.02%
SELECTED RATIOS:
Return on average assets .44% .58% .55% .73% .65%
Return on average equity 5.21% 7.13% 6.96% 10.32% 10.25%
Average equity to average assets 8.50% 8.17% 7.83% 7.09% 6.30%
Weighted-average yield on interest
earning assets 8.19% 7.92% 7.18% 7.91% 8.77%
Weighted-average cost of interest
bearing liabilities 4.83% 4.93% 3.92% 4.10% 5.17%
Interest rate spread 3.36% 2.99% 3.26% 3.81% 3.60%
Net interest margin 3.76% 3.38% 3.54% 4.07% 3.90%
Shareholders' equity to total assets 8.17% 7.91% 8.48% 7.25% 5.91%
- -----------------------------
<FN>
(1) The year 1996 was significantly affected by the one-time, nonrecurring
charge associated with the recapitalization of the Savings Association
Insurance Fund ("SAIF"), which, after tax, totaled $1.3 million or $.68 per
share. Excluding this nonrecurring SAIF assessment, earnings for the year
ended December 31, 1996 totaled $2.8 million or $1.47 per share. Excluding
the nonrecurring SAIF assessment, 1996 earnings produced a return on
average assets of.82% and a return on average equity of 9.68%.
</TABLE>
A-2
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is intended to assist readers in
understanding the results of operations and changes in financial position for
the past three years. It should be read in conjunction with the audited
financial statements, accompanying footnotes and supplemental financial data
presented elsewhere in this Appendix A to the Proxy Statement
GENERAL OVERVIEW
- --------------------------------------------------------------------------------
Haverfield Corporation ("the Company") is a unitary savings and loan holding
company owning all the outstanding common stock of Home Bank, F.S.B. Effective
February 23, 1995, the Company changed the name of its banking subsidiary from
Home Federal Savings Bank, Northern Ohio to Home Bank, F.S.B. ("Banking
subsidiary" or the "Bank"). The financial statements and statistical data
presented herein are the financial statements and data for the Company on a
consolidated basis.
The operations of the Company and its Banking subsidiary are significantly
influenced by general economic conditions, monetary and fiscal policies of the
federal government, and policies of regulatory authorities, including the
Federal Reserve Board, the Securities and Exchange Commission, the Office of
Thrift Supervision (the "OTS"), the Federal Deposit Insurance Corporation (the
"FDIC") and the Office of the Comptroller of Currency. Deposit flows and cost of
funds are influenced by interest rates on competing investments and general
market rates of interest. Lending activities are affected by the demand for
mortgage financing and for consumer and other types of loans, which in turn are
affected by the interest rates at which such financing may be offered and other
factors affecting the supply of housing and the availability of funds.
The Company's net income for the year ended December 31, 1996 was $1,507,000 or
$.79 per share, compared with $1,995,000 or $1.06 per share for the year ended
December 31, 1995. The decrease in 1996 compared to 1995 was mainly due to the
one time, after tax charge associated with the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which totaled $1.3 million or $.68 per
share. Excluding the nonrecurring SAIF assessment, earnings for the twelve
months ended December 31, 1996 totaled $2,802,000 or $1.47 per share. The
increase in earnings, excluding the SAIF assessment, is mainly attributable to
an 11.0% increase in net interest income and a 3.6% decrease in noninterest
expense. The Company's net interest margin increased to 3.76% compared to 3.38%
for the same period in 1995. Excluding the nonrecurring SAIF assessment, 1996
earnings produced a return on average assets of.82% and a return on average
equity of 9.68%.
The Company's net income in 1995 increased 17.4% over 1994. The Company's net
income for the year ended December 31, 1995 was $1,995,000 or $1.06 per share,
compared with $1,700,000 or $1.03 per share for the year ended December 31,
1994. The increase in 1995 compared to 1994 was due to the improvement in net
interest income, which increased from $10,727,000 in 1994 to $11,310,000 in 1995
primarily due to the effects of increases in volume, partially offset by lower
net interest margin.
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, the primary component of the Company's earnings, is
influenced by the distribution and volume of the assets and liabilities, and the
difference, or spread, between the yields earned and the rates paid on those
assets and liabilities.
For 1996, net interest income was $12.6 million, compared to $11.3 million in
1995. The increase in 1996 resulted from an increase in the yield on
interest-earning assets of 27 basis points, while the cost of interest-bearing
liabilities decreased 10 basis points.
For 1995, net interest income totaled $11.3 million compared to $10.7 million in
1994. The general level of interest rates increased during 1995, causing
interest-bearing liabilities, particularly deposits, to reprice more quickly
than interest-earning as sets, resulting in a decrease of 27 basis points in the
interest rate spread. The decline in the interest rate spread was offset by
increased volume of the assets and liabilities which contributed $887,000 to the
increase in net interest income.
A-3
<PAGE> 23
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 rate earned or paid for that category. Average balances are determined
on a daily basis.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- -------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $290,294 $24,529 8.45% $284,385 $23,313 8.20% $273,927 $20,472 7.47%
Investment securities
and other 40,637 2,572 6.33 47,301 2,952 6.24 25,395 1,011 3.98
Mortgage-backed
securities 2,414 191 7.91 2,991 240 8.02 4,031 301 7.47
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-earning assets 333,345 27.292 8.19 334,677 26.505 7.92 303,353 21.784 7.18
------ ---- ------ ---- ------ ----
Noninterest-earning assets 7,736 7,870 8,577
-------- -------- --------
Total assets $340,581 $342,547 $311,930
======== ======== ========
Interest-bearing liabilities:
Deposits
Passbook/statement
accounts $ 42,227 1,042 2.47 $ 50,308 1,241 2.47% $ 61,460 1,524 2.48%
NOW accounts 24,684 212 .86 24,699 245 .99 26,481 285 1.08
Money market fund
accounts 58,741 2,873 4.89 41,762 2,138 5.12 38,697 1,404 3.63
Certificates of deposit 165,832 9,805 5.91 191,049 11,514 6.03 149,693 7,401 4.94
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total deposits 291,484 13,932 4.78 307,818 15,138 4.92 276,331 10,614 3.84
FHLB advances 13,986 810 5.79 575 57 9.91 2,148 213 9.92
Long-term borrowings - - - - - - 3,323 230 6.92
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities 305,470 14,742 4.83 308,393 15,195 4.93 281,802 11,057 3.92
------- ---- ------- ---- ------- ----
Noninterest-bearing
liabilities 6,178 6,174 5,700
-------- -------- --------
Total liabilities 311,648 314,567 287,502
Shareholders' equity 28,933 27,980 24,428
-------- -------- --------
Total liabilities and
shareholders' equity $340,581 $342,547 $311,930
======== ======== ========
Net interest income/interest
rate spread $12,550 3.36% $11,310 2.99% $10,727 3.26%
======= ==== ======= ==== ======= ====
Net interest margin 3.76% 3.38% 3.54%
==== ==== ====
- ---------------------------
<FN>
(1) The average balance of loans includes the principal balance of nonaccrual
loans. Interest income includes amortization of deferred loan fees of
$249,000, $167,000 and $188,000 in 1996, 1995, and 1994, respectively.
</TABLE>
A-4
<PAGE> 24
The effect on net interest income due to changes in interest rates and changes
in the amounts of interest-earning assets and interest-bearing liabilities 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>
1996 CHANGE FROM 1995
Interest income:
Loans $ 1,216 $ 160 $ 1,056
Investment securities and other (380) (421) 41
Mortgage-backed securities (49) (46) (3)
------- ------- -------
Total 787 (307) l,094
------- ------- -------
Interest expense:
Deposits (1,206) (789) (417)
FHLB advances 753 787 (34)
------- ------- -------
Total (453) (2) (451)
------- ------- -------
Change in net interest income $ 1,240 $ (305) $ 1,545
======= ======= =======
1995 CHANGE FROM 1994
Interest income:
Loans $ 2,841 $ 720 $ 2,121
Investment securities and other 1,941 1,171 770
Mortgage-backed securities (61) (82) 21
------- ------- -------
Total 4,721 1,809 2,912
------- ------- -------
Interest expense:
Deposits 4,524 1,308 3,216
FHLB advances (156) (156) -
Long-term borrowings (230) (230) -
------- ------- -------
Total 4,138 922 3,216
------- ------- -------
Change in net interest income $ 583 $ 887 $ (304)
======= ======= =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
As with most financial institutions, the Company's interest income and cost of
funds are significantly affected by general economic conditions and by policies
of regulatory authorities. 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 less-than-one-year
period is monitored closely because it is in this time frame that the greatest
exposure to sudden rate movements occurs. The Company's objective with regard to
asset/liability management is to attempt to minimize the impact of interest rate
risk in the ensuing one-year time frame.
The Board of Directors establishes policies and objectives with regard to
asset/liability management while senior management oversees the implementation
of such policies. The Pricing Committee of the Bank meets weekly to review and
establish rates on loan and deposit products, as well as to establish strategies
to monitor the flow of funds and coordinate the sources, uses and pricing of
those funds. The Company does not use derivative financial instruments in its
asset/liability strategy.
Interest rate sensitivity arises from differences between the dollar amounts of
assets and liabilities which mature or reprice within a time period. These
differences, or "gaps", provide an indication of the extent to which net
interest income is affected by interest rate movements in future periods. Net
interest income is also affected by changes in the slope of the yield curve and
by the price sensitivity of assets and liabilities which may have different
effects on profit volatility - factors which cannot be quantified from gap data
alone. For example, a decline in short-term market rates may not result in
corresponding declines in the rates paid on consumer deposits. Interest rate
sensitivity gap data does not provide an absolute measure of net interest income
vulnerability; however, it is useful for identifying trends of changing interest
rate sensitivity over time within an institution, and for providing comparisons
between institutions. Although the interest rate sensitivity gap is subject to a
number of assumptions and is only one of a number of
A-5
<PAGE> 25
measurements, management believes the measure is an important indication of the
Company's exposure to interest rate risk and the related volatility of net
interest income in a changing interest rate environment, However, even a perfect
interest rate sensitivity gap of 0% (i.e., where the repricing of
interest-earning assets and interest-bearing liabilities is perfectly matched)
does not assure a stable net interest margin in a period of changing interest
rates. Depending on which indices are affected and when the interest-earning
assets and interest-bearing liabilities reprice, the change in interest rates
may have a favorable or unfavorable impact on net interest income.
The following table sets forth at December 31, 1996 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.
<TABLE>
<CAPTION>
Scheduled Maturity or Repricing
--------------------------------------------------------------------
6 Months 6 Months 1 Year 3 Years More
or to to to than
Less 1 Year 3 Years 5 Years 5 Years Total
---- ------ ------- ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Real estate loans:
Conventional:
Fixed-rate $ 976 $ 2,979 $ 8,666 $ 9,479 $ 49,670 $ 71,770
Adjustable-rate 26,328 77,588 56,479 7,137 - 167,532
Construction 2,772 - 1,500 - - 4,272
Land loans 2,372 530 780 - - 3,682
Consumer loans 34,852 9,355 522 195 104 45,028
Business loans 5,170 1,471 14 65 - 6,720
Loans in process,
allowance for loan losses
and net deferred loan fees - - - - (5212) (5,212)
--------- -------- -------- -------- -------- --------
Total loans (1) 72,470 91,923 67,961 16,876 44,562 293,792
Investment securities and other 4,902 - 1,498 10,429 20,083 36,912
Mortgage-backed
securities 25 75 201 201 1,508 2,010
--------- -------- -------- -------- -------- --------
Total interest-earning assets $ 77,397 $ 91,998 $ 69,660 $ 27,506 $ 66,153 $332,714
========= ======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and NOW
accounts(2) $ - $ - $ - $ - $ 56,493 $ 56,493
Money market fund
accounts 62,263 - - - - 62,263
Certificates of deposit 38,981 56,895 40,484 10,408 6,434 153,202
--------- -------- -------- -------- -------- --------
Total deposits 101,244 56,895 40,484 10,408 62,927 271,958
FHLB advances 27,000 - 3,000 - - 30,000
--------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities $ 128,244 $ 56,895 $ 43,484 $ 10,408 $ 62,927 $301,958
========= ======== ======== ======== ======== ========
GAP $ (50,847) $ 35,103 $ 26,176 $ 17,098 $ 3,226 $ 30,756
Cumulative GAP $ (50,847) $(15,744) $ 10,432 $ 27,530 $ 30,756
- -------------------
<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>
A-6
<PAGE> 26
The Company is negatively mismatched on a one-year basis at December 31, 1996,
because more liabilities than assets are expected to mature or reprice in the
next twelve months. A negative mismatch implies that a decrease in interest rate
levels may have a positive impact on the Company's results of operations, while
an increase in interest rate levels may have the opposite effect. The Company
will continue to actively manage its interest rate sensitivity position to
maintain a reasonable balance between earnings and exposure to interest rate
fluctuations.
PROVISION FOR LOAN LOSSES
- --------------------------------------------------------------------------------
The provision for loan losses represents a charge against current earnings in
order to maintain the allowance for loan losses at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based upon an ongoing review
and analysis of the risk characteristics of the loan portfolio, historical
charge-offs and recoveries, current economic conditions, volume, growth and
composition of the loan portfolio, and other relevant factors. In 1996, based on
management's assessment of the adequacy of the allowance, the provision for loan
losses was $309,000, compared to $123,000 in 1995 and $97,000 in 1994 primarily
due to increased charge-offs and increased nonperforming loans. A significant
portion of the provision in 1995 and 1994 was for the purpose of maintaining the
general loan loss reserve. which covers potential losses inherent in the
portfolio which have not been specifically identified.
See "Credit Risk Management" for a discussion of the adequacy of the Company's
allowance for loan losses.
NONINTEREST INCOME
- --------------------------------------------------------------------------------
In 1996, noninterest income totaled $2.0 million, compared to $2.2 million in
1995 and $2.2 million in 1994. Included in the noninterest income category are
the following items: (i) service fees and other charges, (ii) servicing income,
(iii) gain on the sale of loans, and (iv) other income.
In 1996, service fees and other charges increased to $1.3 million, compared to
$1.2 million in 1995 and $971,000 in 1994. This increase resulted from a
revision of the service charges earned on certain deposit accounts and certain
automated teller machine transactions. Other income for 1995 includes a pre-tax
gain of $309,000 realized during the fourth quarter in connection with the sale
of the Bank's Madison Avenue office. This gain was largely offset by a reduction
in fee income earned by the Bank's financial services subsidiary, Home
Financial, Inc.
Servicing income was $454,000 in 1996, compared to $536,000 in 1995 and $634,000
in 1994. This decline is attributable to the decrease in the average balance of
loans serviced for others from $171.4 million in 1994 to $151.2 million in 1995
and to $130.4 million in 1996, due to loan repayments and no additional loan
sales in 1996 or 1995. Although the Company may resume its involvement in the
secondary market, on April 1, 1994, the Company changed its policy with regard
to current originations of fixed-rate loans to hold them for portfolio
investment; previously, such loans had been designated as held for sale. As
such, no loans were sold during 1996 and 1995. The volume of loans sold was
$23.7 million in 1994. Substantially all of the residential mortgage loans,
whether fixed-rate or adjustable-rate, are originated under terms, conditions,
and documentation which enable them to be sold in the secondary market. Under
its loan sale agreements, the Company continues to collect payments on loans as
they become due, to inspect the security property when appropriate, to make
certain insurance and tax payments on behalf of borrowers, and to otherwise
service the loans. The Company pays the purchaser under its participation and
sales agreements an agreed yield on the loans or participation interest in loans
sold. Amounts not paid to the purchaser are retained and recognized as servicing
income. Servicing income includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees. Servicing income is
partially offset by amortization expense representing the estimated diminution
in value over time of the Company's purchased mortgage servicing rights.
Although the rights to service loans can be sold in the secondary market to
generate additional revenue, the Company did not sell loan servicing rights
during 1996, 1995 or 1994.
A-7
<PAGE> 27
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Noninterest expense totaled $12.0 million in 1996, compared to $10.4 million in
1995 and $10.4 million in 1994. The increase in 1996 is mainly attributable to
the one time nonrecurring charge associated with the recapitalization of the
SAIF which totaled $2.0 million. Excluding the nonrecurring SAIF assessment,
noninterest expense for 1996 would have totaled $10.0 million, a 3.6% reduction
from 1995. Other expenses increased to $2.3 million in 1996 from $2.1 million in
1995 and $1.9 million in 1994. The composition of other expenses is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Business and management development $ 114 $ 163 $ 113
Examination/audit expense 190 224 245
OTS assessment 86 82 79
Postage 149 148 133
Supplies 126 114 159
Telephone 148 134 154
Franchise/sales tax 388 365 355
Director fees 98 92 90
Consulting fees 213 52 53
Legal fees 177 145 85
Provision for HUD indemnification claim 100 - -
Recovery of credit loss - standby letter of credit (322) - -
Loss (gain) on sale of real estate owned 25 (2) (150)
Provision for real estate owned losses 80 51 1
Miscellaneous expenses 771 531 586
------ ------ ------
$2,343 $2,099 $1,903
====== ====== ======
</TABLE>
Other expenses increased $244,000 due to a $100,000 loss provision recorded in
connection with an indemnification claim, an increase of $161,000 in consulting
fees as a result of a recently completed revenue enhancement study, costs
incurred in connection with the establishment of a new retail banking facility,
and general increases in the prices of goods and services, partially offset by a
$322,000 recovery of a credit loss provision.
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. 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 Bank was a 19.6% participant in a standby letter of credit totaling $10.2
million. This standby letter of credit was issued to guarantee the payment of
principal and interest on multi-family housing revenue bonds, issued to finance
a 240-unit apartment complex in Stone Mountain, Georgia. The Bank had
outstanding commitments under this standby letter of credit of $2.1 million at
December 31, 1995 and a $322,000 liability for credit loss for this standby
letter of credit. On July 15, 1996, this standby letter of credit was called and
the entire $2.1 million plus interest was advanced. The property was sold in
August, 1996, and the Bank received $1.7 million in cash and a second mortgage
position for $416,000. Since there was no longer any commitment outstanding
under the letter of credit and the Bank did not suffer any loss on the
transaction, the $322,000 liability for credit loss was recognized as a
recovery.
INCOME TAXES
- --------------------------------------------------------------------------------
The Company has provided $777,000 for federal income taxes in 1996, $1,020,000
in 1995 and $669,000 in 1994. Changes from year to year are primarily due to
changes in the level of pre-tax income. The 1994 provision reflects the receipt
of a favorable "no change" letter from the Internal Revenue Service regarding
the 1991 tax year, which allowed the Company to reduce its tax liabilities for
certain estimated contingent items. Refer to Note 13 in the consolidated
financial statements for additional analysis of the tax position of the Company.
A-8
<PAGE> 28
REVIEW OF MAJOR ASSET PORTFOLIOS
- --------------------------------------------------------------------------------
The Company's total assets decreased $7.6 million from $354.5 million at
December 31, 1995 to $346.9 million at December 31, 1996. Although loans
increased $10.2 million, other earning assets decreased $15.5 million. The
following table shows each individual asset category as a percent of total
assets.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1996 1995
------------------------ ---------------------
Percent of Percent of
Balance Assets Balance Assets
------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due from banks-interest bearing $ 100 - $ 100 -
Federal funds sold 2,822 .8% 4,396 1.2%
Investment securities 33,990 9.8 47,184 13.3
Mortgage-backed securities 2,010 .6 2,754 .8
Loans-net 293,792 84.7 283,560 80.0
-------- ----- -------- -----
Total earning assets 332,714 95.9 337,994 95.3
Cash 5,489 1.6 7,647 2.2
Premises and equipment 4,176 1.2 3,953 1.1
Accrued interest and other assets 4477 1.3 4,911 1.4
-------- ----- -------- -----
$346,856 100.0% $354,505 100.0%
======== ===== ======== =====
</TABLE>
The largest asset portfolio is loans. The following table reflects the
composition of the loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Real estate loans: (In thousands)
<S> <C> <C> <C> <C> <C>
Conventional:
One-to-four units $194,804 $194,894 $204,807 $174,250 $156,275
Over four units 14,254 12,551 10,354 12,516 12,528
Construction:
Residential 1,272 1,616 3,490 3,859 2,993
Commercial 3,000 - - 650 650
Commercial real estate 30,244 30,736 30,876 33,478 39,047
Land 3,682 4,461 3,359 1,611 801
Consumer loans 45,028 40,055 31,431 27,554 30,129
Business loans 6,720 4,758 1,673 999 -
-------- -------- -------- -------- --------
299,004 289,071 285,990 254,917 242,423
-------- -------- -------- -------- --------
Less:
Undisbursed portion of loans in process (1,293) (1,711) (2,640) (3,594) (3,019)
Unearned income on consumer loans (6) (18) (40) (69) (115)
Amount due other financial institutions
relating to wrap-around mortgage loans (114) (145) (175) (297) (472)
Net deferred loan fees (877) (903) (790) (340) (777)
Allowance for loan losses (2,922) (2,734) (2,665) (2,612) (1,721)
-------- -------- -------- -------- --------
(5,212) (5,511) (6,310) (6,912) (6,104)
-------- -------- -------- -------- --------
Total loans held for investment $293,792 $283,560 $279,680 $248,005 $236,319
======== ======== ======== ======== ========
Loans held for sale $ - $ - $ - $ 13,386 $ 7,750
======== ======== ======== ======== ========
</TABLE>
A-9
<PAGE> 29
The following table shows the change in the Company's net loan portfolio,
including loans held for sale, for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Loans originated: (In thousands)
<S> <C> <C> <C> <C> <C>
Real estate loans:
Loans for purchase of existing property $65,517 $63,262 $101,399 $ 173,931 $154,791
Construction 3,322 1,211 5,916 6,845 5,429
Loans refinanced 7.171 7,587 12,372 19,163 18,942
------- ------- -------- --------- --------
Total real estate loans originated 76,010 72,060 119,687 199,939 179,162
Business loans originated 4,860 3,724 679 1,000 -
Other originations (1) 3,691 3,523 3,266 3,443 3,507
------- ------- -------- --------- --------
Total loans originated 84,561 79,307 123,632 204,382 182,669
Loans purchased 10,401 855 364 854 1,026
Loans sold - - (23,717) (79,600) (73,671)
Loan principal payments (84,299) (76,229) (81,528) (107,144) (91,777)
Other decreases (431) (53) (462) (1,170) (888)
------- ------- -------- --------- --------
Change in net loan portfolio including
loans held for sale $10,232 $ 3,880 $ 18,289 $ 17,322 $ 17,359
======= ======= ======== ========= ========
- -----------------------------
<FN>
(1) Other loans consist of MasterCard, property improvement, student, and
savings account loans.
</TABLE>
CREDIT RISK MANAGEMENT
- --------------------------------------------------------------------------------
The Company has consistently maintained a conservative posture with respect to
credit risk. The Company has no investment securities that are less than
investment grade, no foreign loans, nor significant loan concentrations to any
one borrower; The Company's credit policies emphasize evaluation of a borrower's
financial condition before a loan is approved and close monitoring of loan
repayment after credit is extended. Most loan delinquencies that occur are
remedied within 90 days as a result of actions taken by the Company's collection
staff. If a mortgage loan delinquency exceeds 90 days, measures are instituted
to enforce collection, including the commencement of a foreclosure action. Loss
experience as a result of foreclosure with respect to residential loans
originated by the Company has historically been very low. See Note 1 and Note 6
to the Consolidated Financial Statements for additional information on impaired
loans and the Company's policies related to such loans.
Net charge-offs (recoveries) as a percentage of average loans by portfolio type
are shown in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residential real estate (.002)% .004% .002% (.007)% .012%
Commercial real estate - - - - 1.918%
Business .412% - - -
Consumer .236% .114% .126% .054% .080%
Net charge-offs/
average loans outstanding .042% .019% .016% .002% .380%
</TABLE>
A-10
<PAGE> 30
The table below sets forth the amounts and categories of risk elements in the
loan portfolio. For all years presented, there has been no troubled debt
restructuring which involved forgiving a portion of interest or principal on any
loans or making loans at rates materially less than market rates. Repossessed
assets include assets acquired in settlement of loans. See Note 1 to the
Consolidated Financial Statements for a discussion of the Company's policy for
classifying loans as nonperforming.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Residential real estate $ 773 $1,002 $1,091 $ 591 $1,093
Commercial real estate 514 99 170 - 582
Business 1,170 - - - -
Consumer 240 202 54 280 273
------ ------ ------ ------ ------
Total 2,697 1,303 1,315 871 1,948
------ ------ ------ ------ ------
Accruing loans delinquent more than 90 days:
Residential real estate - - - - -
Commercial real estate - - - - -
Business
Consumer 5 21 44 11 13
------ ------ ------ ------ ------
Total 5 21 44 11 13
------ ------ ------ ------ ------
Total nonperforming loans 2,702 1,324 1,359 882 1,961
------ ------ ------ ------ ------
Repossessed assets:
Residential real estate - 197 695 567 208
Commercial real estate - 540 - 103 922
Business - - - - -
Consumer - - - - -
------ ------ ------ ------ ------
Total - 737 695 670 1,130
------ ------ ------ ------ ------
Total nonperforming assets $2,702 $2,061 $2,054 $1,552 $3,091
====== ====== ====== ====== ======
Nonperforming loans as a percent of
total loans .90% .46% .48% .35% .81%
=== === === === ===
Nonperforming assets as a percent of
total assets .78% .58% .65% .50% .97%
=== === === === ===
</TABLE>
The loans included above are secured by real estate or other collateral which
limits the Company's exposure to loss. At December 31, 1996, there were no
commitments to lend additional funds to borrowers with nonperforming loans. As
of December 31, 1996, there were no concentrations of loans in any types of
industries which exceeded 10% of the total loans that are not included as a loan
category in the table above.
In addition to the loans disclosed in the table above, the Company's Banking
subsidiary 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 throughout 1996. 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.
A-l1
<PAGE> 31
The ratio of nonperforming loans to total loans increased from December 31, 1995
to December 31, 1996. This increase is primarily due to a business loan being
placed on nonaccrual status. The Bank is working with the customer to cure this
delinquency.
The ratio of nonperforming loans to total loans decreased significantly from
December 31, 1992 to December 31, 1993. This improvement resulted mainly from
the increased effectiveness of the Company's collections efforts. Repossessed
assets also decreased significantly during 1993, as a commercial property with a
carrying value of $573,000 was disposed of. The improvement in the ratio of
nonperforming assets to total assets from December 31, 1992 to December 31, 1993
reflects both the increased effectiveness of the Company's collections efforts
and the successful disposal of its largest foreclosed property.
A summary of the potential income from nonperforming loans based on their
original terms, the actual interest income recorded and the interest foregone
is set forth below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Income potential based on original terms $81 $131 $130 $99 $191
Income recorded - - - - 1
--- ---- ---- --- ----
Interest foregone $81 $131 $130 $99 $190
=== ==== ==== === ====
Activity in the loan loss allowance over the past five years is presented below.
Year Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,734 $ 2,665 $ 2,612 $ 1,721 $ 1,839
Provision for loan losses 309 123 97 897 750
Charge-offs:
Residential real estate (1) (8) (4) - (27)
Commercial real estate - - - - (824)
Business (16) - - -
Consumer (128) (52) (40) (18) (26)
--------- --------- --------- --------- ---------
Total charge-offs (145) (60) (44) (18) (877)
--------- --------- --------- --------- ---------
Recoveries:
Residential real estate 5 - - 12 9
Commercial real estate - - - - -
Business - - - - -
Consumer 19 6 - - -
--------- --------- --------- --------- ---------
Total recoveries 24 6 - 12 9
--------- --------- --------- --------- ---------
Net (charge-offs) recoveries (121) (54) (44) (6) (868)
--------- --------- --------- --------- ---------
Balance at end of year $ 2,922 $ 2,734 $ 2,665 $ 2,612 $ 1,721
========= ========= ========= ========= =========
Average loans $ 290,294 $ 284,385 $ 273,927 $ 255,661 $ 228,417
Loans at end of period 299,004 289,071 285,990 254,918 242,423
Allowance/average loans 1.01% .96% .97% 1.02% .75%
Allowance/end-of-period loans .98% .95% .93% 1.02% .71%
Net charge-offs/allowance 4.14% 1.98% 1.65% .23% 50.44%
Net charge-offs/provision for
loan losses 39.16% 3.90% 45.36% .67% 115.73%
Allowance/nonperforming loans 108.14% 206.50% 196.10% 296.15% 87.76%
Allowance/nonperforming assets 108.14% 132.65% 129.75% 168.30% 55.68%
</TABLE>
A-12
<PAGE> 32
An allocation of the ending allowance for loan losses by major loan type
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Residential real estate $1,353 $1,251 $1,293 $ 935 $ 510
Commercial real estate 729 665 643 684 1,00
Business 274 87 - - -
Consumer 206 179 143 114 184
Unallocated 360 552 586 879 18
------ ------ ------ ------ ------
$2,922 $2,734 $2,665 $2,612 $1,721
====== ====== ====== ====== ======
</TABLE>
The above allocation is made for analytical purposes. General reserves are
available to absorb losses from any segment of the portfolio.
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. If actual
circumstances and losses differ substantially from management' 5 assumptions and
estimates, such allowance for loan losses may not be sufficient to absorb all
future losses, and net earnings could be significantly and adversely affected.
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.
Although management believes that it uses the best information available to make
such determinations and that the allowance for loan losses is adequate at
December 31, 1996, 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. Any downturn in the Ohio real estate market could result in the
Company experiencing increased levels of nonperforming assets and charge-offs,
significant provisions for loan losses and significant reductions in income.
Additionally, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the recognition of additions to the allowance
based on their judgments of information available to them at the time of their
examination.
DEPOSITS
- --------------------------------------------------------------------------------
The Company's deposits decreased $38.7 million from $317.8 million at December
31, 1995 to $279.1 million at December 31, 1996. The Company had no brokered
deposits at December 31, 1996, 1995 and 1994. The following table sets forth the
distribution of deposits at the dates indicated.
<TABLE>
<CAPTION>
December 31 1996 December 31, 1995 December 31, 1994
---------------- ----------------- -----------------
%of %of %of
Balance Deposits Balance Deposits Balance Deposits
------- -------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing NOW accounts $ 7,115 2.5% $ 11,072 3.5% $ 11,286 4.0%
NOW accounts 17,188 6.2 13,804 4.3 14,344 5.1
Passbook/statement accounts 39,305 14.1 45,564 14.3 56,533 20.2
Money market fund accounts 62,263 22.3 53,876 17.0 36,342 13.1
-------- ----- -------- ----- -------- -----
Total non-certificate accounts 125,871 45.1 124,316 39.1 118,505 42.4
-------- ----- -------- ----- -------- -----
Certificate accounts:
Time deposits ($100,000 and over) 10,860 3.9 7,825 2.5 7,792 2.8
7-31 day accounts 27 - 27 - 47 -
32-91 day accounts 1,162 .4 1,312 .4 920 .3
92-182 day accounts 9,643 4.5 14,178 4.5 14,348 5.2
Greater than 6 months through 1
year accounts 42,786 17.0 54,131 17.0 33,294 11.9
Greater than 1 year to 2 1/2 year
accounts 29,187 13.5 42,974 13.5 53,229 19.1
2 1/2 year and over accounts 59,537 23.0 73,016 23.0 51,134 18.3
-------- ----- -------- ----- -------- -----
Total certificate accounts 153,202 54.9 193,463 60.9 160,764 57.6
-------- ----- -------- ----- -------- -----
Total deposits $279,073 100.0% $317,779 100.0% $279,269 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
A-13
<PAGE> 33
The following table provides the maturity distribution of time deposits in
amounts of $100,000 or more at December 31,1996,1995 and 1994.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Time remaining to maturity:
Three months or less $ 3,445 $2,771 $3,015
Three through six months 2,696 1,000 901
Six through twelve months 2,168 1,100 723
Over twelve months 2,551 2,954 3,153
----- ----- -----
Total $10,860 $7,825 $7,792
======= ====== ======
</TABLE>
CAPITAL AND DIVIDENDS
- --------------------------------------------------------------------------------
Federal regulations prescribe three separate regulatory capital requirements for
savings associations: (i) a risk-based capital requirement, (ii) a leverage
limit (core capital requirement), and (iii) a tangible capital requirement.
Under the risk-based requirement, assets are risk-weighted from 0% to 100% with
cash and other non-risk assets requiring no risk weighting, certain
mortgage-backed securities 20%, qualifying (borne) mortgage loans 50% and
commercial loans, other non-residential loans and real estate owned 100%. The
risk-based regulation requires that risk-based capital be maintained in an
amount equal to at least 8% of risk-weighted assets. The leverage limit requires
that core capital, which is generally defined as shareholders' equity minus
non-qualifying intangible assets, be maintained in an amount not less than 3% of
adjusted total assets. Under the tangible capital requirement, tangible capital,
defined as core capital minus all intangible assets (other than a limited amount
of purchased mortgage servicing rights), must be maintained in an amount equal
to at least 1.5% of adjusted total assets. The Company's Banking subsidiary was
in compliance with these regulatory capital regulations on December 31, 1996 and
1995. See note 12 to the Consolidated Financial Statements.
At December 31, 1996, shareholders' equity totaled $28.4 million, an increase of
$294,000 over year-end 1995. The primary sources of this increase was the
retention of earnings.
Dividends have been increased each year since 1985, and amounted to $.54 per
share in 1996 for a dividend payout ratio of 68.35%. This increase reflects the
Company's policy of seeking to ensure a dividend return to its shareholders that
is reflective of the Company's capital position and earnings growth.
LIQUIDITY
- --------------------------------------------------------------------------------
The Company's liquidity is a measure of its ability to fund loans, withdrawals
of deposits and other cash outflows in a cost-effective manner. Deposits,
scheduled amortization and prepayments of loan principal, maturities of
investment securities and mortgage-backed securities, borrowings, and funds
provided by operations are the principal sources of funds. While loan payments
and maturing investment and mortgage-backed securities are relatively
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition.
As presented in the Consolidated Statements of Cash Flows, operating activities,
including net income, generally provide cash.
The primary investing activity during each period was lending. New loan
originations were funded by significant principal repayments and maturities on
loans and investment securities, which totaled $110.3 million in 1996, $95.6
million in 1995 and $85.9 million in 1994).
Under financing activities, cash was used in 1996 primarily to fund a net
decrease in certificate of deposit accounts, while cash was provided by
borrowings. In 1995 and 1994, funds were provided by net increases in
certificate of deposit accounts.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments. If
the Company requires funds beyond its ability to generate them internally,
borrowing agreements exist with the Federal Home Loan Bank of Cincinnati (the
"FHLB"), which provide an additional source of funds. Under these borrowing
agreements, the maximum level of advances available is generally limited to
A-14
<PAGE> 34
25% of the Company's Banking subsidiary's total assets; however, the FHLB may
approve advances in excess of this limit based upon the Bank meeting all of its
regulatory capital requirements. At December 31, 1996, the Company had $30.0
million in outstanding borrowings from the FHLB.
Currently, the Company anticipates that it will have sufficient funds to meet
its existing loan commitments. At December 31, 1996, the commitments to
borrowers for unused lines of credit and to originate loans totaled $75.5
million. Certificates of deposit which were scheduled to mature in one year or
less at December 31, 1996 totaled $95.4 million.
As a member of the FHLB, the Company's Banking subsidiary is required to
maintain specific levels of "liquid" investments. Regulations currently in
effect require liquid assets of not less than 5% of net withdrawable accounts
plus short-term borrowings to assure that demands for repayment of debt and
withdrawals are met. This requirement may be changed from time to time to
reflect current economic conditions. The Company's Banking subsidiary was in
compliance with these regulations at December 31, 1996 and anticipates remaining
in compliance. It is the intention of the Company's cash management efforts to
keep liquidity levels within regulatory guidelines, but at minimal levels in
order to maximize interest income from investing in loans versus lower yielding
short-term investment securities.
In June, 1996, the Company renewed a one-year secured revolving credit facility
from a third-party lender in the amount of $l.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.
IMPACT OF INFLATION AND CHANGING PRICES
- --------------------------------------------------------------------------------
The consolidated financial statements and related data contained herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars. Changes in the relative purchasing power of money over time
due to inflation are not recognized in the financial statements.
Unlike most industrial companies, substantially all the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rate
fluctuations generally have a more significant and direct impact on a financial
institution's performance than do the effects of inflation. To the extent
inflation affects interest rates, real estate values and other costs, the
Company's lending activities are impacted. Changes in inflation may cause
changes in interest rates. Significant increases in interest rates make it more
difficult for potential borrowers to qualify for business and mortgage loans. As
a result, the volume and related income on loan originations may be reduced.
Significant decreases in interest rates may result in higher loan prepayment
activity, although such conditions may enable potential borrowers to qualify for
a relatively high mortgage loan balance.
FOURTH QUARTER RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company's net income for the three months ended December 31, 1996 was
$830,000 or $.43 per share compared with $699,000 or $.37 per share for the
three months ended December 31, 1995. The 18.7% increase in 1996 compared to
1995 was due to an increase in net interest income to $3,155,000 for the three
months ended December 31, 1996, compared to $2,952,000 for the three months
ended December 31, 1995 resulting from an improvement in the spread between
the ratio of interest-earning assets to total assets and the ratio of
interest-bearing liabilities to total liabilities. In addition, noninterest
income for the fourth quarter of 1996 decreased $318,000 over the fourth
quarter of 1995, due mainly to the gain on the sale of the Bank's Madison
Avenue office in December 1995. Noninterest expense decreased $488,000 or 18.3%
compared to the same period in 1995, principally due to an insurance recovery
received in the fourth quarter of 1996.
A-15
<PAGE> 35
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
The following is a summary of selected quarterly financial data for the periods
indicated.
<TABLE>
<CAPTION>
1996
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter(1) Quarter
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $6,869 $6,694 $ 6,806 $6,923
Net interest income 3,065 3,193 3,137 3,155
Provision for loan losses 34 34 34 207
Noninterest income 521 462 534 488
Noninterest expense 2,585 2,651 4,547 2,179
Net income (loss) 638 640 (601) 830
Net income (loss) per share $ .34 $ .33 $(.31) $ .43
- ---------------------
<FN>
(1) Included in noninterest expense is a one-time, nonrecurring charge
associated with the recapitalization of the Savings Association Insurance
Fund ("SAIF") in the amount of $1,962. Excluding the nonrecurring SAIF
assessment, earnings for the third quarter of 1996 totaled $693 or $.37 per
share.
</FN>
1995
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
Interest income $5,953 $6,666 $6,873 $7,013
Net interest income 2,787 2,817 2,754 2,952
Provision for loan losses 31 30 30 32
Noninterest income 478 472 448 806
Noninterest expense 2,667 2,577 2,465 2,667
Net income 374 453 469 699
Net income per share $ .20 $ .24 $ .25 $ .37
</TABLE>
A-16
<PAGE> 36
REPORT OF MANAGEMENT
The management of Haverfield Corporation is responsible for the preparation,
content and integrity of the financial statements and related information
contained in Appendix A to the Proxy Statement. The financial statements have
been prepared in accordance with generally accepted accounting principles and,
as such, include amounts based on informed judgments and estimates made by
management.
The management of Haverfield Corporation is also responsible for maintaining a
system of internal controls designed to provide reasonable assurance as to the
protection of assets and integrity of financial statements. This system of
controls includes written policies and procedures including a code of conduct to
foster a strong ethical climate, proper delegation of authority and
organizational division of responsibility and the careful selection and training
of qualified personnel. In addition, an effective internal audit function
periodically tests the system of internal controls. Management believes that the
system of internal controls provides reasonable assurance that financial
transactions are recorded properly to permit the preparation of reliable
financial statements. The system contains monitoring mechanisms, and actions are
taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of an
internal control system may vary over time.
The accounting policies and system of internal controls, including the
recommendation of the independent auditors, are under the general oversight of
the Board of Directors, acting through the Audit Committee. The Auditor of
Haverfield Corporation, who reports directly to the Audit Committee, conducts an
extensive program of audits and risk asset reviews that tests the system of
internal controls. The Audit Committee meets periodically with management, the
independent auditors, and the internal auditors to ensure that they are carrying
out their responsibilities. The Audit Committee is also responsible for
performing an oversight role by reviewing and monitoring the financial,
accounting and auditing procedures of Haverfield Corporation in addition to
reviewing the financial reports. The independent auditors and the internal
auditors have full and free access to the Audit Committee, with or without the
presence of management, to discuss the adequacy of the internal control
structure for financial reporting and any other matters which they believe
should be brought to the attention of the Audit Committee.
William A. Valerian Richard C. Ebner
President and Chief Executive Officer Executive Vice President, Chief
Operating Officer, Chief Financial
Officer and Treasurer
A-17
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Haverfield Corporation
We have audited the accompanying consolidated statements of financial condition
of Haverfield Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Haverfield's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Haverfield Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
January 28, 1997
A-18
<PAGE> 38
HAVERFIELD CORPORATION
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,489 $ 7,647
Due from banks - interest bearing 100 100
Federal funds sold 2,822 4,396
Investment securities:
Available for sale, at fair value (Amortized cost of $34,367
in 1996 and $47,034 in 1995) 33,990 47,184
Mortgage-backed securities:
Available for sale, at fair value (Amortized cost of $1,937
in 1996 and $2,672 in 1995) 2,010 2,754
Loans (net of allowance for loan losses of $2,922 in 1996
and S2,734 in 1995) 293,792 283,560
Premises and equipment 4,176 3,953
Accrued interest and other assets 4,477 4,911
-------- --------
Total $346,856 $354,505
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Passbook/statement accounts $ 39,305 $ 45,564
Noninterest-bearing NOW accounts 7,115 11,072
Interest-bearing NOW accounts 17,188 13,804
Money market fund accounts 62,263 53,876
Certificates of deposit 153,202 193,463
-------- --------
Total deposits 279,073 317,779
Advances from Federal Home Loan Bank 30,000 -
Advances by borrowers for taxes and insurance 6,207 5,740
Accrued interest and other liabilities 3,224 2,928
-------- --------
Total liabilities 318,504 326,447
-------- --------
Shareholders' Equity:
Preferred stock; 1,000,000 shares authorized;
none issued - -
Common stock, par value $.01 per share; 5,000,000
shares authorized; issued: 1,915,892 shares in 1996
and 1,894,475 shares in 1995 19 19
Capital in excess of par value 16,510 16,353
Retained earnings 12,146 11,669
Net unrealized appreciation
(depreciation) in the fair value of securities
(net of tax of $(103) in 1996 and $79 in 1995) (201) 153
Common shares in treasury, at cost (9,543 shares in 1996 and
11,790 shares in 1995) (122) (136)
-------- --------
Total shareholders' equity 28,352 28,058
-------- --------
Total $346,856 $354,505
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
A-19
<PAGE> 39
HAVERFIELD CORPORATION
Consolidated Statements of Income
(Dollars in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans $24,529 $23,313 $20,472
Investment securities and other 2,572 2,952 1,011
Mortgage-backed securities 191 240 301
------- ------- -------
Total interest income 27,292 26,505 21,784
------- ------- -------
INTEREST EXPENSE
Deposits 13,932 15,138 10,614
Advances from Federal Home Loan Bank 810 57 213
Long-term borrowings - - 230
------- ------- -------
Total interest expense 14,742 15,195 11,057
------- ------- -------
Net interest income 12,550 11,310 10,727
Provision for loan losses 309 123 97
------- ------- -------
Net interest income after
provision for loan losses 12,241 11,187 10,630
------- ------- -------
NONINTEREST INCOME
Service fees and other charges 1,288 1,184 971
Servicing income 454 536 634
Gain on sale of loans - - 80
Other income 263 484 475
------- ------- -------
Total noninterest income 2,005 2,204 2,160
------- ------- -------
NONINTEREST EXPENSE
Employee compensation and benefits 3,810 3,965 4,280
Occupancy and equipment 2,077 1,896 1,992
Advertising 454 477 374
Insurance premiums 2,739 761 718
Amortization of intangibles 189 827 808
Data processing fees 350 351 346
Other expenses 2,343 2,099 1,903
------- ------- -------
Total noninterest expense 11,962 10,376 10,421
------- ------- -------
Income before income taxes 2,284 3,015 2,369
Provision for income taxes 777 1020 669
------- ------- -------
Net income $ 1,507 $ 1,995 $ 1,700
======= ======= =======
EARNINGS PER COMMON SHARE
Primary $ .79 $ 1.06 $ 1.03
======= ======= =======
Fully diluted $ .79 $ 1.06 $ .96
======= ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
A-20
<PAGE> 40
<TABLE>
<CAPTION>
HAVERFIELD CORPORATION
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,507 $ 1,995 $ 1,700
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 309 123 97
Net gain on sale of loans - - (80)
Net gain on sale of premises and equipment (1) (309) (3)
Amortization of intangibles 189 827 808
Depreciation 721 782 803
Amortization of deferred loan fees (249) (167) (188)
Provision for deferred taxes 233 (69) (192)
Federal Home Loan Bank stock dividends (188) (169) (129)
Net change in other assets and other liabilities (415) 390 (4,374)
Net change in accrued interest receivable and accrued
interest payable 307 (981) (405)
Proceeds from sale of loans originated for resale - 23,797
Disbursements on loans originated for resale - (12,784)
Other 57 (232) (574)
-------- -------- ---------
Net cash provided by operating activities 2,470 2,190 8,476
-------- -------- ---------
INVESTING ACTIVITIES:
Disbursements on loans originated (84,562) (79,307) (110,460)
Proceeds from:
Loan repayments and maturities 84,299 76,229 81,528
Mortgage-backed security repayments and maturities 732 450 2,580
Investment security calls and maturities 26,000 19,400 4,405
Sale of premises and equipment 5 464 3
Sale of real estate owned 617 2 456
Purchases of:
Loans (10,401) (855) (364)
Investment securities (13,097) (54,514) (7,375)
Premises and equipment (953) (570) (1,066)
Decrease in due from banks - interest bearing 100 1,100
Decrease in federal funds sold 1,575 2,504 12,300
Net cash and cash equivalents received in connection with
the acquisition of certain assets and liabilities of other
financial institutions - - 3,832
Other 254 83 165
-------- -------- ---------
Net cash provided by (used in) investing activities 4,469 (36,014) (12,896)
-------- -------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in passbook/statement, NOW,
and money market fund accounts 1,555 5,811 (12,180)
Net increase (decrease) in certificates of deposit (40,260) 32,698 19,329
Net increase (decrease) in mortgage escrow deposits 467 (295) 62
Proceeds from exercise of stock options 175 16 23
Proceeds from borrowings 41,000 - -
Repayments of borrowings (11,000) (2,016) (387)
Payment of cash dividends (1,030) (975) (858)
Purchase of treasury shares (4) (63) (7)
-------- -------- ---------
Net cash provided by (used in) financing activities (9,097) 35,176 5,982
-------- -------- ---------
Net increase (decrease) in cash and due from banks (2,158) 1,352 1,562
Cash and due from banks at beginning of year 7,647 6.295 4,733
-------- -------- ---------
Cash and due from banks at end of year $ 5,489 $ 7,647 $ 6,295
======== ======== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
A-21
<PAGE> 41
HAVERFIELD CORPORATION
Consolidated Statements of Shareholders' Equity
(Dollars in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
Net
Capital Unrealized Borrowings
in Appreciation of
Excess (Depreciation) Employee Common
of in the Fair Stock Shares Total
Common Par Retained Value of Ownership in Shareholders'
Stock Value Earnings Securities Plan Treasury Equity
----- ----- -------- ---------- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 14 $10,097 $12,323 $ 219 $ (106) $ (37) $ 22,510
Net income 1,700 1,700
Issuance of 2,200 common shares upon
exercise of stock options 23 23
Issuance of 268,157 common shares
upon redemption of convertible
subordinated debt 3 3,703 3,706
Net unrealized depreciation in the
fair value of securities (283) (283)
Dividends paid - $.51 per share (858) (858)
Purchase of 2,029 treasury shares (36) (36)
Repayments of borrowings of ESOP 106 106
------ ------- ------- ----- ------ ----- ---------
BALANCE, DECEMBER 31, 1994 17 13,823 13,165 (64) - (73) 26,868
Net income 1,995 1,995
Issuance of 172,030 shares as a
10% stock dividend 2 2,514 (2,516) -
Issuance of 2,310 common shares upon
exercise of stock options 16 16
Net unrealized appreciation in the
fair value of securities 217 217
Dividends paid - $.52 per share (975) (975)
Purchase of 5,021 treasury shares (63) (63)
------ ------- ------- ----- ------ ----- ---------
BALANCE, DECEMBER 31, 1995 19 16,353 11,669 153 - (136) 28,058
Net income 1,507 1,507
Issuance of 23,906 common shares upon
exercise of stock options 157 18 175
Net unrealized depreciation
in the fair value of securities (354) (354)
Dividends paid - $.54 per share (1,030) (1,030)
Purchase of 242 treasury shares (4) (4)
------ ------- ------- ----- ------ ----- ---------
BALANCE, DECEMBER 31, 1996 $ 19 $16,510 $12,146 $(201) $ - $(122) $ 28,352
====== ======= ======= ===== ======= ===== =========
</TABLE>
See notes to consolidated financial statements.
A-22
<PAGE> 42
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. ("Banking subsidiary"
or the "Bank"). Effective February 23, 1995, the Bank changed its corporate name
from "Home Federal Savings Bank, Northern Ohio" to Home Bank, F.S.B. 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.
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. 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 held for investment 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.
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.
A-23
<PAGE> 43
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
===============================================================================
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 14 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. See Note 8 to
the consolidated financial statements.
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.
A-24
<PAGE> 44
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
INTANGIBLE ASSETS - Cost in excess of fair value of net assets acquired is being
amortized to expense using the interest method over a period of three years. The
amortization periods for intangible assets are continually monitored to
determine if events and circumstances require such periods to be reduced.
FEDERAL INCOME TAXES - The Company and its subsidiaries file a consolidated
income tax return on a calendar-year basis. 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 is 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
6-8 year period depending upon the maintenance of certain loan origination
levels. The recapture amount of $1.2 million will result in payments totalling
$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 - Primary 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 primary earnings per common
share was 1,901,094 shares, 1,883,795 shares, and 1,662,019 shares during the
years ended December 31, 1996, 1995 and 1994, respectively.
Fully diluted earnings per common share was computed giving appropriate
consideration to the dilutive effect of stock options and, for 1994, shares
issuable upon conversion of the 6.50% Convertible Subordinated Debentures. In
computing fully diluted earnings per common share for 1994, net income has been
adjusted to eliminate interest expense associated with the debentures, net of
estimated income taxes.
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 $685,000 and $658,000 at December 31, 1996 and 1995,
respectively.
Income tax payments of $1,100,000, 1,000,000 and $1,050,000 were made in 1996,
1995 and 1994, respectively. Interest paid on deposits and other borrowings
totaled $14,665,000, $15,270,000 and $11,211,000 in 1996, 1995 and 1994,
respectively. There were no mortgage loans exchanged for mortgage-backed
securities in 1996, 1995 or 1994. There were no transfers from loans to real
estate owned in 1996. Transfers from loans to real estate owned for 1995 and
1994) were $168,000 and $750,000, respectively. There were no loans made to
finance the sale of real estate owned during 1996 or 1995. Loans made to finance
the sale of real estate owned for 1994 totaled $388,000.
NEW ACCOUNTING STANDARDS - The Company maintains compensation plans which
provide for grants of stock options to officers. The Company currently follows
Accounting Principles Board Opinion No.25 ("Opinion 25"), Accounting for Stock
Issued to Employees in accounting for its plans. In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123 entitled Accounting for
Stock-Based Compensation which encourages, but does not require, companies to
use a fair value based method of accounting for stock-based employee
compensation plans. Under this method, compensation cost is measured as of the
date stock awards are granted based on the fair value rather than the intrinsic
value of the award, and such cost is recognized over the service period, which
is usually the vesting period. The Company has elected to continue using the
intrinsic value based method under Opinion 25. Pro forma disclosures of net
income, as if the fair value based method had been applied, have been included
in Note 14.
In June 1996, the FASB issued 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
A-25
<PAGE> 45
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
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. SFAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
will be applied prospectively. The 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. Management intends to adopt
these statements when they become effective. The impact of adopting these
statements on the financial condition and results of operations of the Company
is not expected to be significant.
2. INVESTMENT SECURITIES
Amortized cost, estimated market values and weighted average end-of-period
yields of investment securities by contractual maturity are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1996 1995
------------------------------ -------------------------------
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 1 year or less $ 2,497 $ 2,499 5.82% $ 2,000 $ 2,016 5.81%
Due after 1 year through 5 years 9,490 9,411 6.68% 23,977 24,055 6.81%
Due after 5 years through 10 years 19,479 19,180 6.93% 18,443 18,499 6.97%
------ ------ ------ ------
Total 31,466 31,090 6.76% 44,420 44,570 6.83%
------ ------ ------ ------
Marketable equity securities 100 99 6.38% - - -
Federal Home Loan Bank stock 2,801 2,801 7.00% 2,614 2,614 7.00%
------ ------ ------ ------
Total $34,367 $33,990 6.78% $47,034 $47,184 6.84%
====== ====== ====== ======
</TABLE>
All investment securities are classified as available for sale at December 31,
1996 and 1995. There were no sales of investment securities in 1996, 1995 or
1994. There were no obligations or investments of any one issuer, other than the
federal government or an agency of the federal government, with an aggregate
carrying value in excess of 10% of the Company's shareholders' equity at
December 31, 1996. The Company's Banking subsidiary, as a member of the Federal
Home Loan Bank system, is required to maintain an investment in capital stock of
the Federal Home Loan Bank in an amount equal to the greater of 1% of its
outstanding home loans or 5% of advances from the Federal Home Loan Bank. No
ready market exists for this stock, and it has no quoted market value. For
presentation purposes, such stock is assumed to have a market value which is
equal to the price at which it may be resold to the Federal Home Loan Bank. The
Company's Banking subsidiary is contractually prohibited from disposing of the
stock in any other manner. The Federal Home Loan Bank stock does not have a
contractual maturity.
At December 31, 1996, 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.
A-26
<PAGE> 46
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Gross unrealized gains and losses are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995
----------------------- -----------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
----------------------- -----------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $2 $378 $175 $25
Marketable equity securities - 1 - -
Federal Home Loan Bank stock - - - -
-- ---- ---- ---
Total $2 $379 $175 $25
== ==== ==== ===
</TABLE>
3. MORTGAGE-BACKED SECURITIES
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. Mortgage-backed securities are generally subject to the
risk that mortgages collateralizing the securities may prepay more rapidly or
more slowly than expected, thereby affecting the yield of the securities and
future cash flows. There were no mortgage loans exchanged for mortgage-backed
securities in 1996, 1995 or 1994. At December 31, 1996, and 1995, all
mortgage-backed securities are classified as available for sale. There were no
sales of mortgage-backed securities in 1996, 1995 or 1994.
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>
December 31,
----------------------------------------------------------------
1996 1995
------------------------------ -------------------------------
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 $ 10 $ 10 7.50% $ 14 $ 14 7.50%
Due after 10 years 1,751 1,822 8.60% 2,085 2,168 8.62%
------ ------ ------ ------
Total 1,761 1,832 8.59% 2,099 2,182 8.61%
------ ------ ------ ------
Government National Mortgage Association:
Due after 1 year through 5 years - - - 1 1 8.35%
Due after 5 years through 10 years 176 178 9.02% 250 249 9.20%
------ ------ ------ ------
Total 176 178 9.02% 251 250 9.20%
------ ------ ------ ------
Collateralized mortgage obligations:
Due in 1 year or less - - - 201 201 5.47%
Due after l0 years - - - 121 121 5.68%
------ ------ ------ ------
Total - - - 322 322 5.55%
------ ------ ------ ------
Total $1,937 $2,010 8.63% $2,672 $2,754 8.30%
====== ====== ====== ======
</TABLE>
A-27
<PAGE> 47
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Gross unrealized gains and losses are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995
----------------------- -----------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
----------------------- -----------------------
(In thousands)
<S> <C> <C> <C> <C>
Pass-through certificates:
Federal Home Loan Mortgage
Corporation $71 $ - $83 $ -
Government National Mortgage
Association 2 - - 1
--- --- --- --
Total $73 $ - $83 $1
=== === === ==
</TABLE>
At December 31, 1996, mortgage-backed securities totaling $841,000 were pledged
as collateral for public funds on deposit with the Company's Banking subsidiary.
4. LOANS
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Real estate - mortgage $239,302 $238,181
Real estate - construction 4,272 1,616
Land 3,682 4,461
Business loans 6,720 4,758
Consumer and other loans 45,028 40,055
-------- --------
299,004 289,071
LESS:
Undisbursed portion of loans in process (1,293) (1,711)
Unearned income on consumer loans (6) (18)
Amount due other financial institutions
relating to wrap-around mortgage loans (114) (145)
Net deferred loan fees (877) (903)
Allowance for loan losses (2,922) (2,734)
-------- --------
$293,792 $283,560
======== ========
</TABLE>
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 Company has a diversified loan portfolio, its
debtors' ability to honor their contracts is substantially dependent upon the
general economic conditions of the region. Real estate loans to one borrower
cannot exceed 15% of unimpaired capital and surplus. This 15% limitation results
in a dollar limitation of approximately $4.0 million at December 31, 1996. The
Company's Banking subsidiary is in compliance with this regulation.
At December 31, 1996 and 1995, no real estate loans were held for sale.
A-28
<PAGE> 48
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Commercial real estate loans totaled $33.2 million and $30.7 million at December
31, 1996 and 1995, respectively. These loans are considered by management to be
of somewhat greater risk of uncollectibility due to the dependency on income
production or future development of the real estate. All real estate
collateralizing the commercial real estate loans is located in Ohio. The
following table presents information as to the number and type of commercial
real estate loans in the loan portfolio.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- -------------------
Number Principal Number Principal
Security Type of Loans Balance of Loans Balance
- ------------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Combination retail/residential 103 $14,818 122 $17,522
Stores and/or shopping centers 9 3,650 8 3,319
Office 14 10,379 9 5,980
Warehouse 2 1,014 3 1,907
Church 2 594 3 666
Other 8 2,789 6 1,342
--- ------- --- -------
138 $33,244 151 $30,736
=== ======= === =======
</TABLE>
The Company's Banking subsidiary's aggregate commercial real estate loans may
not exceed 400% of its capital as determined under the regulatory capital
standards. At December 31, 1996, the Company estimates that it would be
permitted under this limitation to add an additional $62.9 million of commercial
real estate loans to its existing portfolio.
Both adjustable and fixed interest rate loans are originated. The
adjustable-rate loans have interest rate adjustment limitations and are
generally indexed to the weekly U.S. Treasury constant maturity index. The
composition of these loans was as follows:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
- -------------------------------------- ------------------------------------
Book Value Term to Rate Book Value
Term to Maturity at December 31, Adjustment at December 31,
- ---------------- --------------- ---------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C>
1 mo. - 1 yr. $ 887 $ 43 1 mo. - 1 yr. $154,558 $181,976
1 yr. - 2 yr. 181 55 1 yr. - 2 yr. 24,654 14,366
2 yr. - 3 yr. 210 177 2 yr. - 3 yr. 36,861 23,621
3 yr. - 5 yr. 1,712 1,171 3 yr. - 5 yr. 8,930 6,845
5 yr. - 10 yr. 24,524 24,619
10 yr. - 20 yr. 16,729 12,461
Over 20 years 29,758 23,737
------- ------- -------- --------
$74,001 $62,263 $225,003 $226,808
======= ======= ======== ========
</TABLE>
A-29
<PAGE> 49
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Commitments to purchase or sell loans are summarized below:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Commitments to sell loans $ - $ -
Commitments to purchase loans 411 357
</TABLE>
Substantially all commitments disclosed in the table above are for fixed rate
loans.
In the ordinary course of business, the Company's Banking subsidiary has granted
loans to directors and executive officers, and to their associates. These loans
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons except that certain persons receive a reduction in the
interest rate for loans granted prior to August 9, 1989. The Company's Banking
subsidiary also grants mortgage loans to non-executive officers and employees at
rates based on a designated index. Of the 1996 and 1995 loans outstanding, none
were nonperforming. A summary of the aggregate activity related to loans to
directors and executive officers is shown below:
<TABLE>
<S> <C>
Balance at January 1, 1996 $2,431,000
Additions 804,000
Repayments 916,000
----------
Balance at December 31, 1996 $2,319,000
==========
</TABLE>
5. LOANS SERVICED FOR OTHERS
At December 31, 1996, 1995 and 1994, loans serviced for others amounted to
$132.7 million, $139.5 million and $162.0 million, respectively. The majority
of these loans are serviced for the Federal National Mortgage Association.
Servicing loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and foreclosure
processing. In connection with loans serviced for others, borrowers' escrow
balances of $2,354,000, $2,215,000 and $2,428,000 were held at December 31,
1996, 1995 and 1994, respectively.
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Beginning balance $2,734 $2,665 $2,612
Provision for loan losses 309 123 97
Loans charged off:
Mortgage loans (1) (8) (4)
Business loans (16) - -
Consumer loans (128) (52) (40)
Recoveries:
Mortgage loans 5 - -
Consumer loans 19 6 -
------ ------ ------
Ending balance $2,922 $2,734 $2,665
====== ====== ======
</TABLE>
A-30
<PAGE> 50
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Impaired loans at December 31, 1996 totaled $4,391,000 and was comprised of
$3,391,000 in loans with no related allowances and $1,045,000 of loans gross of
related allowances of $45,000. Impaired loans at December 31, 1995 totaled
$3,107,000 and was comprised of $2,099,000 in loans with no related allowances
and $1,088,000 of loans gross of related allowances of $80,000. The average
recorded investment in impaired loans during 1996, 1995, and 1994 was
$3,749,000, $4,481,000, and $4,641,000, respectively, while interest income
recognized on impaired loans during those periods was approximately $357,000,
$435,000 and $394,000, respectively.
7. PREMISES AND EQUIPMENT
The composition of premises and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Land and improvements $ 673 $ 669
Buildings and improvements 1,704 1,658
Furniture and fixtures 4,749 5,023
Leasehold improvements 1,892 1,799
------ ------
9,018 9,149
Accumulated depreciation and amortization 4,842 5,196
------ ------
$4,176 $3,953
====== ======
</TABLE>
In May, 1995, the Company's Banking subsidiary entered into a sale agreement on
its Madison office. The sale of the office was consummated in December, 1995,
and resulted in an after-tax gain of $204,000.
At December 31, 1996, the Company's Banking subsidiary was obligated under a
number of noncancelable leases for land and buildings. Minimum future rental
commitments under these lease agreements at December 31, 1996 are as follows:
$579,000 in 1997, $562,000 in 1998, $535,000 in 1999, $531,000 in 2000, $493,000
in 2001 and 4.1 million for years after 2001. Most of the operating leases
permit renewal of the leases at rentals specified by the lease agreements.
Rental expense under all leases aggregated $664,000 in 1996, $617,000 in 1995
and $569,000 in 1994.
8. ACCRUED INTEREST AND OTHER
Accrued interest receivable and other assets consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Accrued interest receivable $2,372 $2,602
Purchased mortgage servicing rights 191 -
Real estate owned - 737
Cost in excess of fair value of net assets
acquired 21 166
Other assets 1,893 1,406
------ ------
$4,477 $4,911
====== ======
</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 am-
A-31
<PAGE> 51
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
ortization 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 December 31, 1996.
The balance of the allowance for losses on real estate owned was $57,000 and
$109,000 at December 31, 1996 and 1995, respectively. The provision for loss on
real estate owned was $80,000, $51,000 and $1,000 for 1996, 1995 and 1994,
respectively.
Accrued interest payable and other liabilities consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Accrued interest payable $ 753 $ 676
Collections on loans serviced 376 465
Other liabilities 2,095 1,787
------ ------
$3,224 $2,928
====== ======
</TABLE>
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the ordinary 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>
December 31,
----------------
1996 1995
(In thousands)
<S> <C> <C>
Commitments to originate:
Fixed rate loans $ 3,415 $ 856
Variable rate loans 1,367 2,765
Unused lines of credit 70,712 57,134
</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. The Company evaluates each customer's
creditworthiness 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.
A-32
<PAGE> 52
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
10. DEPOSITS
The following table as of December 3l, 1996 presents, by various rate
categories, the amounts of certificates of deposit maturing during the periods
indicated:
<TABLE>
<CAPTION>
Accounts Maturing in the Twelve Months Ended December 31,
---------------------------------------------------------
2002 &
1997 1998 1999 2000 2001 Later Total
---- ---- ---- ---- ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1.001 to 2.000% $ - $ - $ - $ - $ - $ 2,551 $ 2,551
2.001 to 3.000% 133 - - - - - 133
3.001 to 4.000% 4,617 501 - - - - 5,118
4.001 to 5.000% 31,494 879 638 43 1 104 33,159
5.001 to 6.000% 39,289 7,002 3,279 2,356 206 1,020 53,152
6.001 to 7.000% 17,915 3,496 1,902 1,032 110 464 24,919
7.001 to 8.000% 1,882 18,364 3,068 5,704 599 2,238 31,855
8.001 to 9.000% 29 583 539 340 - - 1,491
9.001 to 10.000% 4 415 339 - - - 758
10.001 to 11.000% 31 - - - - - 31
11.001 and over - - - 9 9 17 35
------- ------- ------ ------- ------- ------- ---------
$95,394 $31,240 $9,765 $ 9,484 $ 925 $ 6,394 $ 153,202
======= ======= ====== ======= ======= ======= =========
</TABLE>
Deposits are obtained primarily from persons who are residents of Ohio,
particularly the Cleveland area. The Company does not advertise for deposits
outside of Ohio, and management believes that an insignificant amount of the
deposits are from non-residents of Ohio at December 31, 1996.
11. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Cincinnati (the "FHLB") at December
31, 1996 consist of:
<TABLE>
<CAPTION>
Maturity Date Balance Rate
- ------------- ------- ----
(In thousands)
<S> <C> <C>
June 20, 1997 $ 2,000 5.55%
September 23, 1997 2,000 5.65%
June 23, 1998 1,500 6.45%
July 2, 1998 4,000 5.75%
July 15, 1998 4,000 5.75%
July 17, 1998 4,000 5.75%
July 24, 1998 4,000 5.75%
August 23, 1998 2,000 5.75%
September 23, 1998 5,000 5.75%
September 23, 1998 1,500 6.55%
-------
$30,000
=======
</TABLE>
No advances were outstanding from the FHLB at December 31, 1995. At December 31,
1994, a $2 million advance with an interest rate of 10.30% and a maturity date
of June 26, 1995 was outstanding. This advance was repaid, including a
prepayment penalty of $16,000 on April 4, 1995. The Bank has pledged qualifying
collateral, primarily mortgage loans, with a market value of at least 150% of
the amount of the advances.
A-33
<PAGE> 53
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
12. REGULATORY CAPITAL
The Company's Banking subsidiary 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 the Company's Banking subsidiary 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 Company's Banking subsidiary 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.
As of December 31, 1996, the most recent notification from the Office of Thrift
Supervision categorized the Company's Banking subsidiary as well capitalized
under the regulatory framework for Prompt Corrective Action. To be categorized
as well capitalized, the Company's Banking subsidiary 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 December 31, 1996
---------------------------------------------------
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) $26,888 11.04% $19,483 8.00% $24,354 10.00%
Tier 1 capital (to risk-weighted assets) 24,030 9.87% - - 14,612 6.00%
Tier I capital (to adjusted tangible assets) 24,030 6.95% 10,377 3.00% 17,296 5.00%
Tangible capital (to tangible assets) 24,030 6.95% 5,189 1.50% - -
</TABLE>
<TABLE>
<CAPTION>
As of December 3l, 1995
----------------------------------------------------
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) $26,122 11.39% $18,345 8.00% $22,931 10.00%
Tier 1 capital (to risk-weighted assets) 23,496 10.25% - - 13,759 6.00%
Tier 1 capital (to adjusted tangible assets) 23,496 6.66% 10,591 3.00% 17,660 5.00%
Tangible capital (to tangible assets) 23,496 6.66% 5,296 1.50% - -
</TABLE>
A-34
<PAGE> 54
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Management believes, as of December 31, 1996, that the Bank meets all capital
requirements to which it is subject. Events beyond management's control, such as
fluctuations in interest rates or a downturn in the local economy of
northeastern Ohio where the Company has most of its loans, could adversely
affect future earnings and, consequently, the Bank's ability to meet its future
capital requirements.
13. FEDERAL INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current income taxes $ 544 $ 1,089 $ 861
Deferred income taxes 233 (69) (192)
------- ------- -------
$ 777 $ 1,020 $ 669
======= ======= =======
</TABLE>
A reconciliation from the statutory income tax rate to the effective
consolidated income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Benefit of graduated rates (1.0) (1.0) (1.0)
IRS examination - - (6.1)
Other .3 (.2) .3
---- ---- ----
Effective consolidated income tax rate 34.3% 33.8% 28.2%
==== ==== ====
</TABLE>
A-35
<PAGE> 55
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
The lower effective income tax rate in 1994 resulted from receipt of a favorable
"no change" letter from the Internal Revenue Service regarding the 1991 tax
year, which allowed the Company to reduce its tax liabilities for certain
estimated contingent items. Significant components of the deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Book loss reserves $(1,013) $(1,076) $(1,036)
Deferred loan fees (298) (307) (268)
Reserve for uncollected interest (33) (76) (58)
Excess servicing fees (78) (81) (144)
Mark-to-market accounting (103) -- (33)
Other (160) (67) (20)
------- ------- -------
Total deferred tax assets (1,685) (1,607) (1,559)
------- ------- -------
Deferred tax liabilities:
FHLB stock dividend 403 339 282
Tax bad debt reserves 418 429 338
Mark-to-market accounting -- 79 --
Difference between book and tax depreciation 2 27 19
Purchase accounting 46 19 182
Other 153 -- --
------- ------- -------
Total deferred tax liabilities 1,022 893 821
------- ------- -------
Net deferred tax liability (asset) $ (663) $ (714) $ (738)
======= ======= =======
</TABLE>
14. MANAGEMENT OPTION PLAN
The Company's stock option plan is administered by the Compensation Committee of
the Board of Directors, which is given absolute discretion under the Company's
stock option plan to select certain officers to whom rights will be granted, and
to determine the number of rights to be granted to each. Two kinds of rights
are contained in the Company's stock option plan and are available for grant:
incentive stock options and nonqualified compensatory stock options. No
compensatory stock options have been granted. A summary of incentive stock
option transactions is as follows:
<TABLE>
<CAPTION>
Stock Options Option Price
------------- ------------
<S> <C> <C>
January 1, 1994 67,177 $ 6.612-15.227
Granted 5,797 14.318
Exercised (2,420) 7.851-11.157
Lapsed or cancelled (1,100) 15.227
------ --------------
December 31, 1994 69,454 6.612-14.545
Granted 19,000 13.875
Exercised (2,420) 6.612
------ --------------
December 31, 1995 86,034 6.612-14.545
Granted 20,718 18.000-19.250
Exercised (23,906) 6.612-14.545
------ --------------
December 31, 1996 82,846 $ 6.818-19.250
====== ==============
</TABLE>
A-36
<PAGE> 56
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
The 1985 Stock Option Plan terminated on July 23, 1995; however, 44,128 stock
options remain outstanding. The 1995 Stock Option Plan has 164,000 shares of
authorized but unissued common stock reserved for future issuance pursuant to
the exercise of stock options, subject to modification or adjustment to reflect
changes in the capitalization of the Company as, for example, in the case of a
merger, reorganization, or stock split. The exercise price of options granted
may not be less than the fair market value of the common stock at the date of
grant.
The following summarizes the pro forma net income as if the fair value method of
accounting for stock-based compensation plans (as described in SFAS No. 123) had
been utilized:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
(In thousands, except per share data)
<S> <C> <C>
As Reported:
Net income $ 1,507 $ 1,995
Earnings per common share .79 1.06
Proforma:
Net income 1,418 1,940
Earnings per common share .75 1.03
</TABLE>
The fair value of the 1996 and 1995 option grants were estimated using the Black
Scholes Options Pricing Method using the following assumptions: Volatility of
4O% for both years, dividend yield of 2.81% and 3.50%, risk-free interest rate
of 5.87% and 6.49%, and an expected life of 9 for both years. The fair value of
options granted during 1996 and 1995 was $135,000 and $83,000, respectively. The
weighted average remaining contractual life of options outstanding at December
31, 1996 was 6.5 years.
15. EMPLOYEE STOCK OWNERSHIP PLAN
Contributions to the employee stock ownership plan ("ESOP") by the Company are
made at the discretion of the Company. For the years ended December 31, 1996,
1995 and 1994, contributions in the amount of $31,000, $18,000, and $91,000,
respectively, were expensed as costs of the ESOP.
At December 31, 1996, the ESOP held approximately 7.3% of the total outstanding
shares of the Company.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, and risk characteristics of various
financial instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and short-term investments, accrued interest receivable, advances by
borrowers for taxes and insurance, and other liabilities. The carrying amounts
reported in the consolidated statement of financial condition are a reasonable
estimate of fair value.
Investment securities and mortgage-backed securities - Fair values for
securities are based on quoted market prices or dealer quotes. If quoted market
prices are not available, fair value is estimated using quoted market prices for
securities with similar coupons, maturities and credit ratings.
A-37
<PAGE> 57
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Loans held for investment - The fair value is based on the estimated future cash
flows, discounted at current market rates for similar loans.
Time deposits - The fair value is estimated using current market rates for
certificate of deposits of similar remaining maturities.
Other deposits - The fair values disclosed for deposit liabilities with no
stated maturity, including passbook/statement accounts, NOW accounts and money
market fund accounts, are the amounts payable on demand at year-end, which is
their carrying amounts.
Advances from Federal Home Loan Bank - The fair value is estimated by
discounting the future cash flows at the rate currently available on borrowings
with similar characteristics.
Off-balance sheet financial instruments - The fair value of the off-balance
sheet financial instruments, including commitments to originate loans, is
considered to be equivalent to the value of the current fees charged to enter
into the commitments. At December 31, 1996 and 1995, those fees were
approximately $44,000, and $33,000, respectively.
The following table presents the estimated fair values of the Company's
financial instruments:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1996 1995
--------------------- ----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 8,411 $ 8,411 $ 12,143 $ 12,143
Investment securities 33,990 33,990 47,184 47,184
Mortgage-backed securities 2,010 2,010 2,754 2,754
Loans held for investment 293,792 294,135 283,560 284,782
Accrued interest receivable 2,372 2,372 2,602 2,602
Financial liabilities:
Time deposits 153,202 154,001 193,463 194,737
Other deposits 125,871 125,871 124,316 124,316
Advances from Federal Home Loan Bank 30,000 30,133 - -
Advances by borrowers for taxes and insurance 6,207 6,207 5,740 5,740
Other liabilities 1,129 1,129 1,141 1,141
</TABLE>
A-38
<PAGE> 58
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
17. HAVERFIELD CORPORATION (Parent Company Only)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
---- ----
(Dollars in thousands, except per share data)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,554 $ 3,197
Investment securities, at fair value (Amortized cost
of $1,497 in 1996 and $1,493 in 1995) 1,498 1,514
Investment in Home Bank, F.S.B 23,869 23,802
Other assets 15 15
-------- --------
$ 28,936 $ 28,528
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Other liabilities $ 584 $ 470
Preferred stock; 1,000,000 shares authorized; none issued - -
Common stock, par value $.01 per share; 5,000,000 shares authorized;
issued: 1,915,892 shares in 1996 and 1,894,475 shares in 1995 19 19
Capital in excess of par value 16,510 16,353
Retained earnings 12,146 11,669
Net unrealized appreciation (depreciation) in the fair value of securities
(net of tax of $(103) in 1996 and $79 in 1995) (201) 153
Common shares in treasury, at cost (9,543 shares in 1996
and 11,790 shares in 1995) (122) (136)
-------- --------
$ 28,936 $ 28,528
======== ========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
INCOME:
Dividends from subsidiary $1,400 $1,400 $1,550
Interest on investment securities 90 56 42
------ ------ ------
Total income 1,490 1,456 1,592
------ ------ ------
EXPENSE:
Interest on long-term borrowings - - 230
Employee compensation and benefits 31 18 91
Advertising 93 53 46
Other expenses 267 257 328
------ ------ ------
Total expense 391 328 695
------ ------ ------
Income before income taxes 1,099 1,128 897
Provision for income taxes - - -
------ ------ ------
Income before equity in undistributed net income
of subsidiary 1,099 1,128 897
Equity in undistributed net income of subsidiary 408 867 803
------ ------ ------
Net income $1,507 $1,995 $1,700
====== ====== ======
</TABLE>
A-39
<PAGE> 59
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $1,507 $1,995 $1,700
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net earnings of subsidiary (408) (867) (803)
Net change in other assets and other liabilities 104 133 32
Other operating flows 13 (14) (63)
------ ------ ------
Net cash provided by operating activities 1,216 1,247 866
------ ------ ------
INVESTING ACTIVITIES:
Purchases of investment securities - (1,492) -
Maturities of investment securities - 1,000 -
Proceeds from ESOP loan repayments - - 30
------ ------ ------
Net cash provided by (used in) investing activities - (492) 30
------ ------ ------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 175 16 23
Repayments of borrowings - - (387)
Payment of cash dividends
Purchase of treasury shares (1,030) (975) (858)
(4) (63) (7)
------ ------ ------
Net cash used in financing activities (859) (1,022) (1,229)
------ ------ ------
Increase (decrease) in cash and cash equivalents 357 (267) (333)
Cash and cash equivalents at beginning of year 3,197 3,464 3,797
------ ------ ------
Cash and cash equivalents at end of year $3,554 $3,197 $3,464
====== ====== ======
</TABLE>
18. SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, the President signed into law an omnibus appropriations
act for fiscal year 1997 that included, among other things, the recapitalization
of the Savings Association Insurance Fund ("SAIF") in a section entitled the
Deposit Insurance Funds Act of 1996. The Act included a provision whereby all
insured depository institutions would be charged a one-time special assessment
on their SAIF assessable deposits as of March 31, 1995. The Company recorded a
pretax charge of $2.0 million ($1.3 million after tax), which represented 65.7
basis points of the March 31, 1995 assessable deposits. This charge was recorded
upon enactment on September 30, 1996, and later paid on November 27, 1996. The
deposit insurance rate that had been in effect prior to this recapitalization
has been reduced to 6.5 basis points of insured deposits.
A-40
<PAGE> 1
EXHIBIT 28.2
FORM 11-K
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE,
SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d)
OF THE SECURITIES AND EXCHANCE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
----- TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from _________ to ________
Commission file number 0-17947
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
- --------------------------------------------------------------------------------
(Full title of the Plan)
HAVERFIELD CORPORATION
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
- --------------------------------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan
and address of its principal executive office.)
<PAGE> 3
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
Index to Form 11-K
Page(s)
-------
Independent Auditors' Report F-3
Financial Statements:
Statements of Net Assets Available for Plan
Benefits at December 31, 1996 and 1995 F-4
Statements of Changes in Net Assets
Available for Plan Benefits for the years
ended December 31, 1996, 1995, and 1994 F-5
Notes to Financial Statements F-6 - F-8
Supplemental Schedules:
Item 27d - Schedule of Reportable Transactions
for the year ended December 31, 1996 F-9
Item 27a - Schedule of Assets Held for
Investment Purposes at December 31, 1996 F-10
Signature F-1l
- ------------------------
Note: Supplemental schedules required by the Employee Retirement Income Security
Act that have not been included herein are not applicable to the
Haverfield Corporation Employee Stock Ownership Plan.
F-2
<PAGE> 4
DELOITTE & TOUCHE LLP
Suite 2500
127 Public Square
Cleveland, Ohio 44114-1303
Telephone: (216) 589-1300
Facsimile: (216) 589-1369
INDEPENDENT AUDITORS' REPORT
Haverfield Corporation Employee Stock Ownership Plan
Cleveland, Ohio
We have audited the accompanying statements of net assets available for plan
benefits of Haverfield Corporation Employee Stock Ownership Plan as of December
31, 1996 and 1995, and the related statements of changes in net assets
available for plan benefits for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for plan benefits of the Haverfield
Corporation Employee Stock Ownership Plan as of December 31, 1996 and 1995, and
the changes in net assets available for plan benefits for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of (1)
reportable transactions for the year ended December 31, 1996 and (2) assets
held for investment purposes as of December 31, 1996, are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements, but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These schedules are the
responsibility of the Plan's management. Such schedules have been subjected to
the auditing procedures applied in our audit of the basic 1996 financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic financial statements as a whole.
/s/ Deloitte & Touche LLP
March 14, 1997
Deloitte Touche Tohmatsu International
F-3
<PAGE> 5
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Net Assets Available for Plan Benefits
At December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash $ 73 $ 723
Investments at fair value:
Haverfield Corporation common stock (cost of
$1,272,628 and $1,328,039 at December 31, 1996
and 1995, respectively) 2,652,905 2,058,413
--------- ---------
Net assets available for plan benefits $2,652,978 $2,059,136
========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 6
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Changes in Net Assets Available for Plan Benefits
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Contributions:
Employer contributions $ 31,073 $ 17,655 $ 91,177
Employee 401(k) salary contributions 64,800 68,551 86,354
--------- --------- ---------
Total contributions 95,873 86,206 177,531
--------- --------- ---------
Investment income:
Dividends 75,552 81,434 80,469
Interest 183 343 294
Net appreciation (depreciation) in
market value of investment 745,297 43,426 (319,782)
--------- --------- ---------
Total investment income 821,032 125,203 (239,019)
--------- --------- ---------
Total additions 916,905 211,409 (61,488)
--------- --------- ---------
DEDUCTIONS IN NET ASSETS ATTRIBUTED TO:
Interest paid on loans - - 1,492
Expenses 16,956 13,636 7,602
Participant withdrawals 306,107 299,275 33,403
--------- --------- ---------
Total deductions 323,063 312,911 42,497
--------- --------- ---------
Net increase (decrease) in net assets
available for plan benefits 593,842 (101,502) (103,985)
Net assets available for plan benefits at
beginning of period 2,059,136 2,160,638 2,264,623
--------- --------- ---------
Net assets available for plan benefits at
end of period $2,652,978 $2,059,136 $2,160,638
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 7
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
DESCRIPTION OF PLAN
- --------------------------------------------------------------------------------
The following description of the Haverfield Corporation Employee Stock Ownership
Plan (the "Plan") provides only general information. Reference should be made to
the Plan agreement for a more complete description.
GENERAL
The Plan was established effective July 1, 1990 to provide funds for employees
for their normal or disability retirement, or for their beneficiaries in the
event of death, and to supplement benefits which may be available from social
security or insurance contracts. The Plan incorporates both discretionary
employer contributions and a 401(k) employee salary reduction feature.
In addition, the Plan is permitted to operate as a leveraged employee stock
ownership plan. As such, the Plan may borrow to purchase shares of Haverfield
Corporation's common stock, par value $.01 per share ("Haverfield Common Stock")
for the benefit of Plan participants.
ELIGIBILITY
The Plan covers employees who have attained age 21 and have completed one year
of service with Haverfield Corporation (the "Company"), Home Bank, F.S.B. (the
"Bank") or Home Financial, Inc.
As of December 31, 1996, a total of 117 officers and employees were participants
in the Plan.
INVESTMENT OF CONTRIBUTIONS
The assets of the Plan are invested primarily in shares of Haverfield Common
Stock.
CONTRIBUTIONS
The Company or its subsidiaries may, in any plan year, make discretionary
contributions in either shares of Haverfield Common Stock or cash; however, the
Company has formally expressed its intention to make sufficient contributions
to pay any debt service under the Plan's loan agreements. Under the terms of
the Plan, any contributions made by the Company must first be used to pay debt
service on any loans of the Plan before being credited to participants'
accounts. During the year ended December 31, 1996, the Company and its
subsidiaries made discretionary cash contributions to the Plan in the amount of
$5,341. During the year ended December 31, 1995, the Company and its
subsidiaries made no discretionary cash contributions to the Plan. During the
year ended December 31, 1994, the Company and its subsidiaries made
discretionary cash contributions to the Plan in the amount of $48,000. From
time to time, the Plan may purchase additional shares of Haverfield Common
Stock for the Plan through purchases of outstanding shares in the market or
upon the sale of treasury shares by the Company. Such purchases, if made, may
be funded through borrowings by the Plan or further contributions and
borrowings. Participants may make elective contributions to the Plan. For the
year ended December 31, 1996, 1995 and 1994, participants 401(k) employee
salary reduction contributions to the Plan totaled $64,800, $68,551 and
$86,354, respectively.
MATCHING
Each active participant is eligible for a matching contribution on elective
contributions up to six percent of each participants salary. Matching
contributions are equal to fifty percent of each participants elective
contribution (subject to the limit above). For the years ended December 31,
1996, 1995 and 1994, matching contributions totaled $25,732, $17,655 and
$43,177, respectively.
F-6
<PAGE> 8
PARTICIPANT ACCOUNT
Discretionary contributions to the Plan and forfeitures are allocated among the
participants in proportion to their compensation. All participants must be
employed on the last day of the plan year to be entitled to share in an
allocation with respect to such plan year. A participant who has attained the
age of 55 and completed ten years of participation in the Plan may direct that a
percentage of the value of his or her account balance be distributed in cash.
VESTING
After five years of service, the portion of a participant's account attributable
to employer contributions is vested in that participant. A participant also
becomes fully vested in said portion of his or her account at age 65 or upon
his or her death or disability. Participants are 100% vested in that part of
their account attributable to the compensation they have deferred through the
401(k) feature of the Plan. The maximum benefit to which a participant is
entitled is the vested portion of his or her account. Vested benefits are
payable upon the participant's death or other termination of employment and are
generally paid in shares of Haverfield Common Stock.
DISTRIBUTIONS
Upon termination of service, a participant with a vested balance of more than
$3,500 may elect to receive the value of his or her account in a lump-sum or in
annual installments over a period not to exceed fifteen years. A participant
with a vested account balance of $3,500 or less will receive a lump-sum payment
equal to the vested value of the account.
PLAN ADMINISTRATION AND TRUSTEE
The Plan is administered by the Administrative Committee which is appointed by
the Board of Directors of the Company. The Administrative Committee has the
responsibility for interpreting the Plan, authorizing disbursements, and
directing the Trustee in the voting of unallocated Haverfield Common Stock held
by the Plan. No fees have been paid to the Administrative Committee members.
Harry F. Brockman serves as trustee for the Plan. An annual fee equal to the
greater of $1 per $1,000 of Plan assets, defined as the fair market value as of
the Anniversary Date (described in Article VI, Section 6.1 of the Plan), or
$1,800 is paid to the Trustee. Under the Plan, participants direct the voting of
all shares of Haverfield Common Stock allocated to their accounts.
In addition, the Plan provides that the trustee will respond to a tender or
exchange offer with regard to allocated shares of Haverfield Common Stock in
accordance with the instructions of the participants to whom such shares have
been allocated and shall respond with regard to unallocated shares in the same
proportion as the trustee responds with regard to allocated shares which are
tendered.
PLAN TERMINATION
Although it has not expressed any intention to do so, the Company has reserved
the right to terminate the Plan, at any time, subject to the provisions of the
Plan. In the event of termination, participants shall become 100 percent vested
in their accounts. In addition, the Company may amend the Plan at any time,
subject to the limitations of the Plan.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
VALUATION OF INVESTMENTS
Investments are stated at fair market value as determined by quoted market
prices.
F-7
<PAGE> 9
INCOME RECOGNITION
Purchases and sales of securities are recorded on a trade-date basis. Realized
gains and losses from the sales of securities are reported based on the average
cost of the securities sold.
Dividend income is recorded on the ex-dividend date.
TAX-EXEMPT STATUS
- --------------------------------------------------------------------------------
The Plan is designed to be exempt from federal income taxes. The Plan received
a determination letter dated May 24, 1993 from the Internal Revenue Service
stating that the Plan is qualified under Section 401(a) of the Internal
Revenue Code and is tax exempt under Section 501(a) of the Internal Revenue
Code. Accordingly, no provision has been made in the accompanying financial
statements for federal income taxes.
F-8
<PAGE> 10
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
Item 27d - Schedule of Reportable Transactions
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
(h)
(f) Current
Expense Value
(a) (b) (c) (d) (e) Incurred (g) of Assets on (i)
Identity of Description Purchase Selling Lease with Cost of Transaction Net Gain
Party Involved of Assets Price Price Rental Transaction Asset(1) Date or (Loss)(2)
- --------------- ----------------------- -------- ------- ------ ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Haverfield Corporation Common Stock $155,302 None $155,302 $155,302 N/A
(Series of transactions)
Haverfield Corporation Common Stock $306,107 None $210,713 $306,107 $95,394
(Series of transactions)
<FN>
(1) Historical cost.
(2) Realized gain (loss) based on historical cost.
</TABLE>
F-9
<PAGE> 11
HAVERFIELD CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1996
<TABLE>
<CAPTION>
(b) Identity
of issuer, borrower (e)
(a) lessor, or similar party (c) Description of investment (d) Cost Current Value
- --- ------------------------ ----------------------------- -------- -------------
<S> <C> <C> <C> <C>
* Haverfield Corporation 138,714 shares of common stock $1,272,628 $2,652,905
<FN>
* Represents a party-in-interest to the Plan.
</TABLE>
F-10
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustee
has duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
Haverfield Corporation Employee
Stock Ownership Plan
/s/ Harry F. Brockman
-------------------------------
Harry F. Brockman, Trustee
Date: March 26, 1997
--------------
F-1l
