1
February 11, 2009
United States
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Kevin W. Vaughn, Accounting Branch Chief
Re: PVF Capital Corp.
Form 10-K for the Fiscal Year Ended June 30, 2008
Form 10-Q for the Quarterly Period Ended September 30, 2008
File No. 0-24948
Dear Mr. Vaughn:
Following is our response and additional information requested in your comment
letter dated January 30, 2009.
June 30, 2008 Form 10-K
- -----------------------
Nonperforming Loans and Other Problem Assets, page 6
- ----------------------------------------------------
1. Comment/question: In future filings, please consider disclosing your
--------------------------------------------------------------------
exposure to sub-prime, Alt A, or other relatively high risk loans. To the extent
- --------------------------------------------------------------------------------
you believe the amounts of such exposure are immaterial, please consider
- ------------------------------------------------------------------------
disclosing a statement to that effect and tell us the amounts involved.
- ----------------------------------------------------------------------
Response: Park View Federal Savings Bank (the "Bank") does not originate
sub-prime loans and only originates Alt A loans for sale, without recourse, in
the secondary market. All one-to-four family loans are underwritten according to
agency underwriting standards. Exceptions, if any, are submitted to the loan
committee for approval. Given that our policies prohibit sub-prime lending or
Alt-A lending for our portfolio, to the best of our knowledge, we have no direct
exposure to these loans.
We will provide this disclosure in the future.
2. Comment/question: You disclose that your allowance for loan losses
------------------------------------------------------------------
consists of specific and general components, that your general allowance is
- ---------------------------------------------------------------------------
established based on risk categories for each type of loan in your portfolio and
- --------------------------------------------------------------------------------
that the general allowance is based on historical loss experience adjusted for
- ------------------------------------------------------------------------------
current factors. Please address the following:
- ---------------------------------------------
2
United States
Securities and Exchange Commission
Kevin W. Vaughn, Accounting Branch Chief
February 11, 2009
Page 2 of 5
a. Quantify for us the amount of specific and general allowance at
June 30, 2008 and September 30, 2008. Please consider revising
future filings to disclose this information as of each balance
sheet date presented.
Response:
June 30, 2008 September 30, 2008
------------- ------------------
General allowance $6,315,252 $6,075,113
Specific allowance 3,338,720 2,768,165
----------- ----------
Total allowance $9,653,972 $8,843,278
We will provide this disclosure in the future.
b. From our calculation based on your disclosure of the total
allowance for loan losses and the specific allowance it appears
that the general allowance decreased from June 30, 2008 to
September 30, 2008. During this same time period it appears that
credit risk has worsened and the loan portfolio balance related to
the general reserve has stayed the same or increased. Please tell
us the underlying reasons for the change in the general reserve
from June 30, 2008 to September 30, 2008. Please consider revising
future filings to disclose information related to the change in
the general reserve for each period presented.
Response: The general reserve declined by $240,139 from $6,315,252
at June 30, 2008 to $6,075,113 at September 30, 2008. As of June
30, 2008, the Bank made significant adjustments to its analysis of
the allowance for loan losses, including the addition of several
environmental adjustments to its historical loss experience for
its various portfolios in recognition of the significant
challenges faced by the Company's borrowers as they repay their
loans. We made these adjustments in consultation with our bank
subsidiary's primary federal regulator, the Office of Thrift
Supervision. As an interim measure as we updated our analysis, we
provided an additional $4 million for loan losses as of June 30,
2008. Once our revision was complete, we were left with an
unallocated balance of approximately $180,000. We did not believe
this unallocated balance to be material. In the quarter ended
September 30, 2008, we reversed out this unallocated amount. We
did not believe the impact of reversing this amount in the first
quarter to be material. . In making these determinations about the
materiality of this item, we considered the qualitative
considerations of the SEC's Staff Accounting Bulletin No. 99,
MATERIALITY. Included in our considerations was the fact that the
reversal of the unallocated amount did not change the direction of
the provision for loan losses for the period compared to the
immediately preceding quarter or the comparable prior year period,
it did not change the direction of the allowance for loan losses
compared to June 30, 2008, and it did not change the direction of
our reported results for the period.
3
United States
Securities and Exchange Commission
Kevin W. Vaughn, Accounting Branch Chief
February 11, 2009
Page 3 of 5
We believe the significant adjustments made to the allowance as of
June 30, 2008 represented an adequate loss accrual for the
deterioration of conditions that we reported in the quarter ended
September 30, 2008. In other words, we did not think additional
adjustments to our historical experience needed to be made in the
quarter ended September 30, 2008. We will revise future filings to
disclose information related to changes in the general reserve for
each period presented.
c. Related to your general reserve, tell us and consider revising
future filings to identify the basis for each risk category and
the method for determining the loss factor applied to each
category. Specifically tell us how you adjusted historical loss
trends based on current factors.
Response: The loan portfolio is segregated into categories based
on collateral type and a loss factor is applied to each category.
The initial basis for each loss factor is the Company's loss
experience for each category. Historical loss percentages are
calculated and adjusted by taking charge-offs in each risk
category during the past 12 months and dividing the total by the
average balance of each. The Bank's historical charge-offs, prior
to fiscal 2008, are limited and the application of historical
charge-offs per our formula resulted in extremely small historical
loss factors at June 30, 2008 and September 30, 2008. Note that in
the quarter ended December 31, 2008, since charge-off activity has
increased, the historical loss factors were revised to reflect the
most current 12-month rolling average. Presently, we are updating
our historical loss percentages on a monthly basis using a
12-month rolling average. These historical experiences are
adjusted for management's subjective evaluation of the impact of
the credit environment on each category. Broadly speaking, we
considered three risk factors to be the most meaningful and
pervasive with respect to our loan portfolio: trends in
nonperforming and delinquent loans; trends in local residential
foreclosure activity; and, trends in the local population and
economic environment. The adjustments to each category are
different depending on our assessment of the impact of each of
these factors on the collectibility of the loans in the category.
These adjustments were established as of June 30, 2008 based on
our evaluation of the credit environment. Given our limited actual
loss experience through June 30, 2008, it was impossible to truly
quantify what the impact of current credit conditions would have
on our loss rate with a great deal of precision. We established
guidelines for the timing of when two of the adjustments may be
reduced or removed in our analysis. We allowed more flexibility
with respect to adjustments to the third risk factor. We will
continually monitor these to make determinations as to whether
they should be increased.
4
United States
Securities and Exchange Commission
Kevin W. Vaughn, Accounting Branch Chief
February 11, 2009
Page 4 of 5
We will provide more information about these risk categories in
future filings.
Note 4 - Loans Receivable, page 62
- ----------------------------------
3. Comment/question: You disclose the following related to impaired loans
----------------------------------------------------------------------
as of June 30, 2008:
- -------------------
Impaired loans totaled $24,298,587
Impaired loans with a valuation allowance totaled $13,956,806, and
Impaired loans without a valuation allowance totaled $5,259,155.
It appears that the sum of impaired loans with and without a specific allowance
does not equal the amount of total impaired loans. We also note a similar
inconsistency in your disclosure of impaired loans as of June 30, 2008 in Note 2
to your financial statements in the September 30, 2008 Form 10-Q and that you
disclose different amounts for total impaired loans and impaired loans with a
valuation allowance. Please reconcile these apparent inconsistencies or tell us
the appropriate amounts related to this disclosure. Please revise your future
filings accordingly.
Response: Impaired loans without a specific valuation allowance in both filings
was reported in error. The correct amount of impaired loans without a valuation
allowance as of June 30, 2008 is $10,341,781. We will make this correction in
future filings.
September 30, 2008 Form 10-Q
- ----------------------------
Note 2 - Allowance for Loan Losses, page 4
- ------------------------------------------
4. Comment/question: You disclose that nonaccrual loans identified as
------------------------------------------------------------------
impaired increased from $16.0 million at June 30, 2008 to $22.4 million at
- --------------------------------------------------------------------------
September 30, 2008 but that the specific loss reserves related to these loans
- -----------------------------------------------------------------------------
decreased from $2.8 million to $2.1 million for the same period. You also
- -------------------------------------------------------------------------
disclose that specific loss reserves are primarily based on the value of the
- ----------------------------------------------------------------------------
underlying collateral. Please tell us in detail and revise your MD&A in future
- ------------------------------------------------------------------------------
filings to explain the lack of directional consistency in the disclosed amount
- ------------------------------------------------------------------------------
of non-accrual loans identified as impaired and the related specific reserve.
- -----------------------------------------------------------------------------
Specifically disclose if this trend was caused by new higher collateral
- -----------------------------------------------------------------------
valuations, charge-off's of impaired loans with a specific allowance during the
- -------------------------------------------------------------------------------
quarter, or some other reason and provide additional information to allow an
- ----------------------------------------------------------------------------
investor to fully understand this trend and underlying causes, especially if the
- --------------------------------------------------------------------------------
reason is due to new collateral valuations.
- ------------------------------------------
5
United States
Securities and Exchange Commission
Kevin W. Vaughn, Accounting Branch Chief
February 11, 2009
Page 5 of 5
Response: Please note that on page 8 in our June 30, 2008 Annual Report on Form
10-K, we disclosed that certain land and construction loans not included in
non-accrual loans were considered to be impaired. To the extent necessary,
specific loss reserves were established for these loans as of June 30. In the
quarter ended September 30, these loans were designated as nonaccrual. For this
reason, the dollar amount of impaired loans did not change significantly from
June 30 to September 30, despite the increase in nonaccrual loans identified as
impaired. Certain impaired loans were charged-off in the quarter ended September
30, 2008. Loans newly identified as impaired were determined to be adequately
collateralized, resulting in the apparent directional inconsistency you cite in
your comment.
We will provide more information in management's discussion and analysis in
future filings to make the reasons for this directional inconsistency more
apparent.
In addition, on behalf of the Company, the undersigned acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filings reviewed by the Commission staff;
o staff comments or changes to disclosure in response to staff comments
in the filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Sincerely,
PVF Capital Corp.
/s/ Edward B. Debevec
Edward B. Debevec
Principal Financial Officer