UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20552
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1995.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- -----------------------------
Commission File Number 0-24948
--------------------------------------------------------
PVF Capital Corp.
- - -------------------------------------------------------------------------------
( Exact name of registrant as specified in its charter)
United States 34-1659805
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25350 Rockside Road, Bedford Heights, Ohio 44146
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 439-2200
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value 1,548,957
- - ----------------------------- -----------------------------------------------
(Class) (Outstanding at January 31, 1996)
PVF CAPITAL CORP.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial
Condition, December 31, 1995 (unaudited)
and June 30, 1995. 1
Consolidated Statements of Operations for
the three and six months ended December 31,
1995 and 1994 (unaudited). 2
Consolidated Statements of Cash Flows for
the six months ended December 31, 1995 and
1994 (unaudited). 3
Notes to Consolidated Financial
Statements (unaudited). 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 5
Part II Other Information 10
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, JUNE 30,
ASSETS 1995 1995
------ ----------- -----------
(UNAUDITED)
Cash and amounts due from depository institutions $6,898,834 $6,643,369
Interest bearing deposits 538,256 650,211
Federal funds sold 17,275,000 5,325,000
Investment securities, at cost 8,505,276 41,193,894
Loans receivable held for long-term investment, net 268,119,104 246,480,233
Loans receivable available for sale, net 3,045,837 4,451,156
Mortgage-backed securities held for investment, net 775,687 3,764,087
Office properties and equipment, net 2,733,740 2,726,577
Real estate in development 900,882 885,750
Investment required by law
Stock in the Federal Home Loan Bank of Cincinnati 1,814,025 1,756,135
Prepaid expenses and other assets 1,859,201 1,555,367
------------ ------------
Total Assets $312,465,842 $315,431,779
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Liabilities
Deposits $281,238,462 $272,290,442
Advances from the Federal Home Loan Bank of Cincinn 0 15,000,000
Notes payable 3,000,000 1,800,000
Advances from borrowers for taxes and insurance 4,473,015 4,316,619
Income taxes payable 223,407 450,012
Accrued expenses and other liabilities 3,018,451 2,756,838
------------ ------------
Total Liabilities 291,953,335 296,613,911
Stockholders' Equity
Serial preferred stock, none issued 0 0
Common stock 15,490 14,041
Paid in capital 10,003,661 8,155,885
Retained earnings-substantially restricted 10,493,356 10,647,942
------------ ------------
Total Stockholders' Equity 20,512,507 18,817,868
------------ ------------
Total Liabilities and Stockholders' Equity $312,465,842 $315,431,779
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements
Page 1
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- --------------------------
1995 1994 1995 1994
INTEREST INCOME
Interest on Loans $6,350,547 $4,935,450 $12,347,909 $9,657,272
Interest on mortgage-backed securities 46,313 132,382 115,710 181,571
Interest on cash and investment securities 515,231 364,059 1,310,378 650,158
---------- ---------- ----------- ----------
Total Interest Income 6,912,091 5,431,891 13,773,997 10,489,001
---------- ---------- ----------- ----------
INTEREST EXPENSE
Interest on deposits 3,896,143 2,585,489 7,810,359 4,889,265
Interest on borrowings 74,620 241,246 289,489 410,284
---------- ---------- ----------- ----------
Total interest expense 3,970,763 2,826,735 8,099,848 5,299,549
---------- ---------- ----------- ----------
Net interest income 2,941,328 2,605,156 5,674,149 5,189,452
Provisions for loan losses 374,000 20,000 394,000 100,000
---------- ---------- ----------- ----------
Net Interest Income after provision for loan losses 2,567,328 2,585,156 5,280,149 5,089,452
---------- ---------- ----------- ----------
NONINTEREST INCOME, NET
Loan and other fees 116,696 110,175 224,004 201,205
Mortgage banking activities, net 355,215 5,660 483,027 148,693
Other, net 112,919 72,410 197,278 109,636
---------- ---------- ----------- ----------
Total noninterest income 584,830 188,245 904,309 459,534
---------- ---------- ----------- ----------
NONINTEREST EXPENSE
Compensation and benefits 928,807 919,432 1,907,770 1,762,165
Office, occupancy, and equipment 350,057 274,065 713,535 573,197
Other 534,512 502,861 1,156,816 1,049,907
---------- ---------- ----------- ----------
Total noninterest expense 1,813,376 1,696,358 3,778,121 3,385,269
---------- ---------- ----------- ----------
Income before federal income tax 1,338,782 1,077,043 2,406,337 2,163,717
Federal income tax provision 420,000 243,500 735,600 590,000
---------- ---------- ----------- ----------
Net income $918,782 $833,543 $1,670,737 $1,573,717
Net income per share $0.56 $0.51 $1.02 $0.96
----- ----- ----- -----
----- ----- ----- -----
See accompanying notes to consolidated financial statements
Page 2
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31ST
-------------------------------
1995 1994
---- ----
OPERATING ACTIVITIES
Net Income $1,670,737 $1,573,717
Adjustments to reconcile net income to net cash provided by operating activities
Accretion of discount on marketable securities (25,163) (39,189)
Depreciation and amortization 244,144 160,046
Provision for losses on loans, net 394,000 100,000
Accretion of unearned discount and deferred loan origination fees, net (515,675) (552,746)
Gain on loans available for sale, net (239,121) (752)
Loss on mortgage-backed securities available for sale, net 23,582 575
Gain on disposal of real estate owned, net 0 (25,000)
Gain on investment securities available for sale, net (74,721) 0
Change in accrued interest on investments, loans, and borrowings, net (60,905) (218,040)
Change in other assets and other liabilities, net (112,430) (1,877,175)
Change in loans receivable available for sale, net 1,644,440 2,514,987
----------- ----------
Net cash provided by (used in) operating activities 2,948,888 1,636,423
----------- ----------
INVESTING ACTIVITIES
Loan and mortgage-backed securities repayments and originations,net (19,369,802) (32,394,817)
Mortgage-backed securities purchased 0 (4,829,371)
Sale of mortgage-backed securities available for sale 855,477 0
Disposals of real estate owned 0 106,214
Purchase of investment securities (10,305,000) (12,979,844)
Investment securities maturities 33,086,314 100,000
Sale of investment securities available for sale 10,007,188 0
FHLB stock dividend, net (57,890) (136,580)
Additions to office properties and equipment, net (251,307) (349,794)
Disposal (additions) to real estate in development, net (15,132) 64,380
----------- ----------
Net cash used in investing activities 13,949,848 (50,419,812)
----------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW, and passbook savings 2,007,353 (4,075,221)
Net increase in time deposits 6,963,519 30,832,381
Proceeds from (payment on) FHLB advances (15,000,000) 11,440,000
Proceeds from note payable 1,200,000 0
Stock options exercised 25,000 0
Cash dividend paid 0 (281,427)
Cash paid in lieu of fractional shares (1,098) 0
----------- ----------
Net cash provided by (used in) financing activities (4,805,226) 37,915,733
----------- ----------
Net increase (decrease) in cash and cash equivalents 12,093,510 (10,867,656)
Cash and cash equivalents at beginning of period 12,618,580 13,875,308
----------- ----------
Cash and cash equivalents at end of period $24,712,090 $3,007,652
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements
Page 3
Part I Financial Information
Item 1
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED)
1. The accompanying consolidated interim financial statements were prepared in
accordance with regulations of the Securities and Exchange Commission for Form
10-Q. All information in the consolidated interim financial statements is
unaudited except for the June 30, 1995 consolidated statement of financial
condition which was derived from the Corporation's audited financial statements.
Certain information required for a complete presentation in accordance with
generally accepted accounting principles has been condensed or omitted.
However, in the opinion of management, these interim financial statements
contain all adjustments, consisting only of normal recurring accruals, necessary
to fairly present the interim financial information. The results of operations
for the three and six months ended December 31, 1995 are not necessarily
indictive of the results to be expected for the entire year ending June 30,
1996. The results of operations for PVF Capital Corp. for the periods being
reported have been derived primarily from the results of operation of Park View
Federal Savings Bank (the"Bank"). PVF Capital Corp.'s common stock is traded on
the NASDAQ SMALL-CAP ISSUES under the symbol PVFC.
2. The undercapitalized status of the Federal Deposit Insurance Corporation's
Savings Association Insurance Fund (SAIF) has resulted in the introduction of
federal legislation to recapitalize the SAIF which, if enacted, would require
institutions like the Bank to pay a one-time charge to recapitalize the depleted
insurance fund. Although the ultimate amount of the one-time charge has yet to
be determined, the special assessment will be calculated on the Bank's deposit
base at a specific, determined point in time.
3. Cash and cash equivalents consist of the following:
December 31, 1995 June 30, 1995
----------------- -------------
Cash and amounts due from depository
institutions $ 6,898,834 $ 6,643,369
Interest bearing deposits 538,256 650,211
Federal funds sold 17,275,000 5,325,000
----------- -----------
$24,712,090 $12,618,580
----------- -----------
----------- -----------
4. Net income per share is based on the weighted average number of common
shares outstanding of 1,548,957 and 147,923 in outstanding stock options.
Page 4
Part I Financial Information
Item 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis discusses changes in financial condition and results of
operations at and for the three and six month periods ended December 31, 1995
for PVF Capital Corp ("PVF" or the "Company") and Park View Federal Savings Bank
(the "Bank"), its principal and wholly owned subsidiary.
FINANCIAL CONDITION
Consolidated assets of PVF were $312.5 million as of December 31, 1995, a
decrease of approximately $3.0 million or 1.0% as compared to June 30, 1995.
The Bank remained in regulatory capital compliance for tangible, core, and risk-
based capital on a fully phased-in basis with capital levels of 7.09%, 7.09% and
11.44% respectively at December 31, 1995.
During the six months ended December 31, 1995 the Company's cash and cash
equivalents, which consist of cash, interest bearing deposits and federal funds
sold, increased $12.1 million or 95.8% as compared to June 30, 1995. The change
in the Company's cash and cash equivalents consisted of an increase in cash and
interest bearing deposits of $0.1 million and an increase in federal funds sold
of $12.0 million.
The net $17.2 million or 6.8% increase in loans receivable and mortgage-backed
securities during the six months ended December 31, 1995 resulted from an
increase of $18.8 million in real estate mortgage loans, the repayment of $2.1
million on mortgage-backed securities, the sale of $0.9 million on mortgage-
backed securities, an increase of $1.7 million in home equity line of credit
loans, and a decrease of $0.3 million in installment loans. The increase of
$18.8 million in real estate mortgage loans included an increase of $14.1
million in construction and land loans and an increase of $4.7 million in all
other mortgage loans. The decrease in investment securities of $32.7 million
was the result of the purchase of $10.3 million of investment securities and the
sale and maturity of $10.0 million and $33.0 million of investment securities,
respectively. The reclassification and sale of investment securities and
mortgage-backed securities formerly classified as held for long term investment
was in accordance with the one time window of opportunity granted under FASB 115
for the reclassification of securites.
During the six months ended December 31, 1995 management's decision to
aggressively match market savings rates resulted in an increase of $8.9 million
or 3.3% in savings deposits. The increase in savings deposits along with net
proceeds received on
Page 5
Part I Financial Information
Item 2
FINANCIAL CONDITION CONTINUED
investment securities of $32.7 million were used to repay advances of $15.0
million from the Federal Home Loan Bank of Cincinnati and fund the net increases
in loans receivable and mortgage-backed securities of $17.2 million and federal
funds sold of $12.0 million. The increase in notes payable of $1.2 million was
the result of a loan secured by PVF in order to fund the intercompany purchase
of $146.0 million in Federal Home Loan Mortgage Corporation servicing from the
Bank during the six month period ended December 31, 1995. This transaction
resulted in an increase of $1.2 million to the Bank's regulatory capital. The
decrease in income taxes payable of $0.2 million is the result of timing
differences between the accrual and payment of federal income taxes due.
RESULTS OF OPERATIONS Three months ended December 31, 1995,
compared to three months ended
December 31, 1994.
PVF's net income is dependent primarily on its net interest income, which is the
difference between interest earned on its loans and investments and interest
paid on interest-bearing liabilities. Net interest income also includes
amortization of loan origination fees, net of origination costs.
PVF's net income is also affected by the generation of non-interest income,
which primarily consists of loan servicing income, service fees on deposit
accounts and gains on the sale of loans and mortgage-backed securities. Net
interest income is determined by (i) the difference between yields earned on
interest-earning assets and rates paid on interest-bearing liabilities
("interest rate spread") and (ii) the relative amounts of interest-earning
assets and interest-bearing liabilities. The Company's interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. In addition, net income is affected by
the level of operating expenses and loan loss provisions.
The Company's net income for the three months ended December 31, 1995 was
$919,000. This represents a 10.2% increase when compared with the prior year
comparable period.
Net interest income for the three months ended December 31, 1995 increased by
$336,000 or 12.9% primarily due to an increase of $1,480,000 or 27.2% in
interest income that resulted from an increase of $33.6 million in the average
balance of the loan and mortgage-backed securities portfolio's along with an
increase in the average balance of the investment portfolio of $9.7 million and
a 72 basis point increase in the average return on interest
Page 6
Part I Financial Information
Item 2
RESULTS OF OPERATION CONTINUED
earning assets from the prior year comparable period. The average balance on
deposits and advances increased by $38.4 million from the prior year comparable
period. This increased balance along with a 93 basis point increase in the
average cost of funds for the current period resulted in an overall increase in
interest expense of $1,144,000 or 40.5%. Despite higher average interest rates
and a decrease of 21 basis points in the Company's interest rate spread during
the current period as compared to the prior year comparable period, the
Company's net interest income increased due to balance sheet growth in both
interest-earning assets and interest-bearing liabilities.
For the three months ended December 31, 1995 a provision for loan losses of
$374,000 was recorded as compared to $20,000 for the three months ended December
31, 1994. These provisions were based on management's analysis of the various
factors which affect the loan portfolio and management's desire to maintain the
allowance for loan losses at a level considered adequate to provide for probable
future loan losses. During the three months ended December 31, 1995 and 1994
management increased its unallocated reserves for loan losses based primarily on
current growth of the loan portfolio, along with prevailing economic conditions
and other factors deemed relevant. At December 31, 1995, the allowance for loan
losses was $2.7 million, which represented 69.3% of nonperforming loans and 1.0%
of net loans.
For the three months ended December 31, 1995 noninterest income increased
$397,000 or 210.7% from the prior year comparable period. During the three
months ended December 31, 1995, PVF sold loans classified as held for sale and
due to a downward trend in interest rates during the period recorded a gain of
approximately $220,700, while income recognized on servicing amounted to
approximately $134,500. For the comparable period in 1994, PVF sold loans
classified as held for sale and due to an upward trend in interest rates during
the period recorded a loss of approximately $126,300, while income recognized on
servicing amounted to approximately $132,000. During these periods, PVF pursued
a strategy of originating long term, fixed-rate loans pursuant to Federal Home
Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association
("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while
retaining the servicing. Other noninterest income, net increased by $40,500 or
56.0% from the previous years comparable period primarily due to net gains
realized on the sale of investment securities during the current period.
Noninterest expense for the three months ended December 31, 1995 increased by
$117,000 or 6.9% from the prior year comparable period. This was primarily the
result of a 76,000 or 27.7% increase in office occupancy attributable to the
opening of two
Page 7
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
new branch offices and the relocation of another branch during the current
period.
The federal income tax provision for the three month period ended December 31,
1995 increased to an effective rate of 31.4% for the current period from an
effective rate of 22.6% for the prior year comparable period. This increase is
due to the decrease in tax statutory bad debt deductions available in the
current year versus the prior year comparable period.
RESULTS OF OPERATIONS Six months ended December 31, 1995,
compared to six months ended
December 31, 1994.
PVF's net income is dependent primarily on its net interest income, which is the
difference between interest earned on its loans and investments and interest
paid on interest-bearing liabilities. Net interest income also includes
amortization of loan origination fees, net of origination costs.
PVF's net income is also affected by the generation of non-interest income,
which primarily consists of loan servicing income, service fees on deposit
accounts and gains on the sale of loans and mortgage-backed securities. Net
interest income is determined by (i) the difference between yields earned on
interest-earning assets and rates paid on interest-bearing liabilities
("interest rate spread") and (ii) the relative amounts of interest-earning
assets and interest-bearing liabilities. The Company's interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. In addition, net income is affected by
the level of operating expenses and loan loss provisions.
The Company's net income for the six months ended December 31, 1995 was
$1,671,000. This represents a 6.2% increase when compared with the prior year
comparable period.
Net interest income for the six months ended December 31, 1995 increased by
$485,000 or 9.3% primarily due to an increase of $3,285,000 or 31.3% in
interest income that resulted from an increase of $35.5 million in the average
balance of the loan and mortgage-backed securities portfolio's along with an
increase in the average balance of the investment portfolio of $20.3 million
and a 61 basis point increase in the average return on interest earning assets
from the prior year comparable period. The average balance on deposits and
advances increased by $52.0 million from the prior year comparable period.
This increased balance along with a 106 basis point increase in the average
cost of funds for the current period resulted in an overall increase in
interest expense of $2,800,000 or 52.8%. Despite higher
Page 8
Part I Financial Information
Item 2
RESULTS OF OPERATION CONTINUED
average interest rates and a decrease of 45 basis points in the Bank's interest
rate spread during the current period as compared to the prior year comparable
period, the Company's net interest income increased due to balance sheet growth
in both interest-earning assets and interest-bearing liabilities.
For the six months ended December 31, 1995 a provision for loan losses of
$394,000 was recorded as compared to $100,000 for the six months ended December
31, 1994. These provisions were based on management's analysis of the various
factors which affect the loan portfolio and management's desire to maintain the
allowance for loan losses at a level considered adequate to provide for probable
future loan losses. During the six months ended December 31, 1995 and 1994
management increased its unallocated reserves for loan losses based primarily on
current growth of the loan portfolio, along with prevailing economic conditions
and other factors deemed relevant. At December 31, 1995, the allowance for loan
losses was $2.7 million, which represented 69.3% of nonperforming loans and 1.0%
of net loans.
For the six months ended December 31, 1995 noninterest income increased $445,000
or 96.8% from the prior year comparable period. During the six months ended
December 31, 1995, PVF sold loans classified as held for sale and due to a
downward trend in interest rates during the period recorded a gain of
approximately $216,000, while income recognized on servicing amounted to
approximately $267,000. For the comparable period in 1994, PVF sold loans
classified as held for sale and due to an upward trend in interest rates during
the period recorded a loss of approximately $115,000, while income recognized on
servicing amounted to approximately $264,000. During these periods, PVF pursued
a strategy of originating long term, fixed-rate loans pursuant to Federal Home
Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association
("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while
retaining the servicing. Other noninterest income, net increased by $88,000 or
80.0% from the previous years comparable period primarily due to gains realized
on the sale of investment securities recorded during the current period.
Noninterest expense for the six months ended December 31, 1995 increased by
$393,000 or 11.6% from the prior year comparable period. This was primarily the
result of a $146,000 or 8.3% increase in compensation and benefits attributable
to additional employees, employee 401K benefits, and salary and wage
adjustments. Office occupancy increased by $140,000 or 24.5% as a result of the
opening of two new branch offices and the relocation of another branch during
the current period. Other noninterest expense increased by $107,000 or 10.2% as
a result of increased advertising, professional and legal services, regulatory
and insurance expenses, and franchise tax expense.
Page 9
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
The federal income tax provision for the six month period ended December 31,
1995 increased to an effective rate of 30.6% for the current period from an
effective rate of 27.3% for the prior year comparable period. This increase is
due to the decrease in tax statutory bad debt deductions available in the
current year versus the prior year comparable period.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required by Federal regulations to maintain specific levels of
"liquid" assets consisting of cash and other eligible investments. The current
level of liquidity required by the Office of Thrift Supervision is 5% of the sum
of net withdrawable savings and borrowings due within one year. The Bank's
liquidity at December 31, 1995 was 11.7%. Management believes the Bank has
sufficient liquidity to meet its operational needs.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) PVF did not file any reports on Form 8-K
during the quarter ended December 31, 1995.
Page 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PVF Capital Corp.
-----------------
(Registrant)
Date: February 9, 1996 /s/ C. Keith Swaney
------------------ -----------------------------
C. Keith Swaney
Vice President and Treasurer