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 March 31, 1996.
[ ]Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 0-24948
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PVF Capital Corp.
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( Exact name of registrant as specified in its charter)
United States 34-1659805
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25350 Rockside Road, Bedford Heights, Ohio 44146
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(Address of principal executive offices) (Zip Code)
(216) 439-2200
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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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
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(Class) (Outstanding at April 30, 1996)
PVF CAPITAL CORP.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial
Condition, March 31, 1996 (unaudited)
and June 30, 1995. 1
Consolidated Statements of Operations for
the three and nine months ended March 31,
1996 and 1995 (unaudited). 2
Consolidated Statements of Cash Flows for
the nine months ended March 31, 1996 and
1995 (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
March 31, June 30,
ASSETS 1996 1995
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(Unaudited)
Cash and amounts due from depository institutions $4,134,729 $6,643,369
Interest bearing deposits 162,177 650,211
Federal funds sold 4,275,000 5,325,000
Investment securities, at cost 9,093,788 41,193,894
Loans receivable, net 281,256,162 246,480,233
Loans receivable available for sale, net 4,025,618 4,451,156
Mortgage-backed securities held to maturity, net 709,047 3,764,087
Mortgage-backed securities available for sale, net 7,773,912 0
Office properties and equipment, net 2,647,956 2,726,577
Real estate in development 830,308 885,750
Real estate owned 67,469 0
Investment required by law
Stock in the Federal Home Loan Bank of Cincinnati 1,847,970 1,756,135
Prepaid expenses and other assets 1,276,052 1,555,367
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Total Assets $318,100,188 $315,431,779
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Liabilities
Deposits $270,637,662 $272,290,442
Advances from the Federal Home Loan Bank of Cincinnati 17,500,000 15,000,000
Notes payable 2,810,000 1,800,000
Advances from borrowers for taxes and insurance 2,510,320 4,316,619
Income taxes payable 151,406 450,012
Accrued expenses and other liabilities 3,166,157 2,756,838
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Total Liabilities 296,775,545 296,613,911
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 11,426,042 10,647,942
Unrealized market adjustment on available for sale securities (120,550) 0
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Total Stockholders' Equity 21,324,643 18,817,868
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Total Liabilities and Stockholders' Equity $318,100,188 $315,431,779
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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 Nine Months Ended
March 31, March 31,
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1996 1995 1996 1995
Interest Income
Interest on loans $6,450,807 $5,112,015 $18,798,716 $14,769,287
Interest on mortgage-backed securities 14,942 174,152 130,652 355,723
Interest on cash and investment securities 304,461 493,767 1,614,839 1,143,925
---------- ---------- ----------- -----------
Total Interest Income 6,770,210 5,779,934 20,544,207 16,268,935
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Interest expense
Interest on deposits 3,685,846 2,925,039 11,496,205 7,814,304
Interest on borrowings 124,909 202,110 414,398 612,394
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Total interest expense 3,810,755 3,127,149 11,910,603 8,426,698
---------- ---------- ----------- -----------
Net interest income 2,959,455 2,652,785 8,633,604 7,842,237
Provisions for loan losses 23,000 125,000 417,000 225,000
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Net Interest Income after provision for loan losses 2,936,455 2,527,785 8,216,604 7,617,237
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Noninterest income, net
Loan and other fees 93,910 96,155 317,914 297,360
Mortgage banking activities, net 269,622 452,556 752,649 601,249
Other, net 18,444 18,674 215,722 128,310
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Total noninterest income 381,976 567,385 1,286,285 1,026,919
---------- ---------- ----------- -----------
Noninterest expense
Compensation and benefits 971,021 946,328 2,878,791 2,708,493
Office, occupancy, and equipment 356,874 325,506 1,070,409 898,703
Other 599,850 552,637 1,756,666 1,602,544
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Total noninterest expense 1,927,745 1,824,471 5,705,866 5,209,740
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Income before federal income tax provision 1,390,686 1,270,699 3,797,023 3,434,416
Federal income tax provision 458,000 389,000 1,193,600 979,000
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Net income $932,686 $881,699 $2,603,423 $2,455,416
Net income per share $0.57 $0.54 $1.58 $1.49
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See accompanying notes to consolidated financial statements
PAGE 2
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31st
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1996 1995
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OPERATING ACTIVITIES
Net Income $2,603,423 $2,455,416
Adjustments to reconcile net income to net cash provided by operating activities
Accretion of discount on marketable securities (25,163) (64,578)
Depreciation and amortization 360,969 255,075
Provision for losses on loans, net 417,000 225,000
Provision for lower of cost or market adjustment loans available for sale 68,690 15,000
Accretion of unearned discount and deferred loan origination fees, net (698,510) (830,563)
Gain on loans available for sale, net (441,230) (18,783)
(Gain) loss on mortgage-backed securities available for sale, net 23,582 (202,717)
Gain on disposal of real estate owned, net 0 (30,207)
Gain on investment securities available for sale, net (74,721) 0
Change in accrued interest on investments, loans, and borrowings, net (108,292) (309,304)
Change in other assets and other liabilities, net (1,416,272) (1,681,996)
Change in loans receivable available for sale, net 866,768 1,828,483
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Net cash provided by operating activities 1,576,244 1,640,826
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INVESTING ACTIVITIES
Loan and mortgage-backed securities repayments and originations, net (40,197,489) (26,087,915)
Mortgage-backed securities purchased 0 (4,829,371)
Sale of mortgage-backed securities available for sale 855,477 0
Disposals of real estate owned 0 111,422
Purchase of investment securities (19,298,788) (32,957,950)
Investment securities maturities 41,491,590 200,000
Sale of investment securities available for sale 10,007,188 0
FHLB stock dividend, net (91,835) (392,746)
Additions to office properties and equipment, net (282,348) (1,054,164)
Disposal of real estate in development, net 55,442 64,380
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Net cash used in investing activities (7,460,763) (64,946,344)
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FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW, and passbook savings 3,115,356 (7,574,261)
Net increase (decrease) in time deposits (4,811,413) 68,758,155
Net increase (decrease) in FHLB advances 2,500,000 (2,560,000)
Net increase in notes payable 1,010,000 0
Proceeds from stock options exercised 25,000 0
Cash dividend paid 0 (281,427)
Cash paid in lieu of fractional shares (1,098) 0
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Net cash provided by financing activities 1,837,845 58,342,467
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Net decrease in cash and cash equivalents (4,046,674) (4,963,051)
Cash and cash equivalents at beginning of period 12,618,580 13,875,308
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Cash and cash equivalents at end of period $8,571,906 $8,912,257
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See accompanying notes to consolidated financial statements
PAGE 3
Part I Financial Information
Item 1
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(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 nine months ended March 31, 1996 are not necessarily
indicative 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:
March 31, 1996 June 30, 1995
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Cash and amounts due from depository
institutions $ 4,134,729 $ 6,643,369
Interest bearing deposits 162,177 650,211
Federal funds sold 4,275,000 5,325,000
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$ 8,571,906 $12,618,580
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4. Net income per share for the three and nine month periods ended March 31,
1996 and 1995 is based on the weighted-average number of common shares
outstanding of 1,548,957 and 147,923 in outstanding stock options.
5. On January 1, 1996, the Bank adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This standard requires that entities recognize rights to
service mortgage loans for others as separate assets whether those rights are
acquired through loan origination activities or through purchase activities.
Additionally, the enterprise must periodically assess its capitalized mortgage
servicing rights for impairment based on the fair value of those rights. The
adoption of the standard did not have a material impact on the financial
position or results of operations.
Page 4
Part I Financial Information
Item 2
MANAGEMENT'S 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 nine month periods ended March 31, 1996 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 $318.1 million as of March 31, 1996, an increase
of approximately $2.7 million or 0.9% as compared to June 30, 1995. The Bank
remained in regulatory capital compliance for tangible, core, and risk-based
capital with capital levels of 7.20%, 7.20% and 11.29% respectively at March 31,
1996.
During the nine months ended March 31, 1996, the Company's cash and cash
equivalents, which consist of cash, interest-bearing deposits and federal funds
sold, decreased $4.0 million or 32.1% as compared to June 30, 1995. The change
in the Company's cash and cash equivalents consisted of a decrease in cash and
interest-bearing deposits of $3.0 million and a decrease in federal funds sold
of $1.0 million.
The net $39.1 million or 15.3% increase in loans receivable and mortgage-backed
securities during the nine months ended March 31, 1996 resulted from a net
increase of $31.2 million in real estate mortgage loans, a net increase of $4.7
million in mortgage-backed securities, and a net increase of $3.2 million in
home equity line of credit loans. The net increase of $31.2 million in real
estate mortgage loans included an increase of $12.4 million in commercial real
estate loans, an increase of $11.6 million in construction and land loans, an
increase of $4.8 million in single-family loans, and an increase of $2.4 million
in multi-family mortgage loans. The net increase of $4.7 million in mortgage-
backed securities is the result of the Bank swapping $8.0 million in single-
family mortgage loans with the Federal Home Loan Mortgage Corporation ("FHLMC")
for mortgage-backed securities and the repayment and sale of $2.4 million and
$0.9 million of mortgage-backed securities, respectively. The decrease in
investment securities of $32.1 million was the result of the purchase of $19.3
million of investment securities and the sale and maturity of $10.0 million and
$41.4 million of investment securities, respectively. In December 1995, the
Bank reclassified approximately $10.0 million of investment securities held to
maturity to investment securities available for sale.
Page 5
Part I Financial Information
Item 2
FINANCIAL CONDITION CONTINUED
The reclassification was in accordance with the Financial Accounting Standards
Board (FASB) issuing a special report, "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities," that
permitted this one-time reassessment. The aforementioned securities were
subsequently sold by the Bank in December 1995. Gains or losses on dispositions
are based on net proceeds and the carrying value of securities sold, using the
specific identification method.
During the nine months ended March 31, 1996, management's decision to borrow
funds rather than aggressively match market savings rates resulted in a decrease
of $1.7 million or 0.6% in savings deposits and an increase in Federal Home Loan
Bank advances of $2.5 million or 16.7%. The increase in notes payable of $1.0
million was the result of a loan secured by PVF in order to fund the
intercompany purchase of $146.0 million in FHLMC servicing from the Bank during
the nine month period ended March 31, 1996. This transaction resulted in an
increase of $1.2 million to the Bank's regulatory capital. The decrease in
income taxes payable and advances from borrowers for taxes and insurance of $0.3
million and $1.8 million, respectively, is the result of timing differences
between the accrual and payment of federal income taxes and real estate taxes
and homeowners insurance.
The net proceeds received on investment securities of $32.1 million, the
reduction of $4.0 million in cash and cash equivalents, and the increase of $3.5
million in borrowed funds were used to fund the net increase in loans receivable
and mortgage-backed securities of $39.1 million.
RESULTS OF OPERATIONS Three months ended March 31, 1996,
compared to three months ended
March 31, 1995.
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
Page 6
Part I Financial Information
Item 2
RESULTS OF OPERATION CONTINUED
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 March 31, 1996 was $933,000.
This represents a 5.8% increase when compared with the prior year comparable
period.
Net interest income for the three months ended March 31, 1996 increased by
$307,000 or 11.6% primarily due to an increase of $990,000 or 17.1% in interest
income that resulted from an increase of $42.8 million in the average balance of
the loan and mortgage-backed securities portfolios and a decrease in the average
balance of the investment portfolio of $9.5 million and a 34 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
$26.8 million from the prior year comparable period. This increased balance
along with a 36 basis point increase in the average cost of funds for the
current period resulted in an overall increase in interest expense of $683,000
or 21.9%. Despite higher average interest rates and a decrease of 2 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 March 31, 1996, a provision for loan losses of
$23,000 was recorded as compared to $125,000 for the three months ended March
31, 1995. 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 March 31, 1996 and 1995,
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 March 31, 1996, the allowance for loan
losses was $2.6 million, which represented 69.2% of nonperforming loans and 0.9%
of net loans and mortgage-backed securities.
Page 7
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
For the three months ended March 31, 1996, noninterest income decreased $185,000
or 32.7% from the prior year comparable period. This was primarily the result
of a decrease of $188,200 in gains recorded on the sale of loans classified as
held for sale from $321,600 for the three months ended March 31, 1995 to
$133,400 for the three months ended March 31, 1996. During these periods, PVF
pursued a strategy of originating long-term, fixed-rate loans pursuant to FHLMC
and Federal National Mortgage Association ("FNMA") guidelines and selling such
loans to the FHLMC or the FNMA, while retaining the servicing.
Noninterest expense for the three months ended March 31, 1996 increased by
$103,300 or 5.7% from the prior year comparable period. This was primarily the
result of an increase in overall operating expenses during the current period
attributable to the opening of two new branch offices and the relocation of
another branch.
The federal income tax provision for the three month period ended March 31, 1996
increased to an effective rate of 32.9% for the current period from an effective
rate of 30.6% 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 Nine months ended March 31, 1996,
compared to nine months ended
March 31, 1995.
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.
Page 8
Part I Financial Information
Item 2
RESULTS OF OPERATION CONTINUED
The Company's net income for the nine months ended March 31, 1996 was
$2,603,000. This represents a 6.0% increase when compared with the prior year
comparable period.
Net interest income for the nine months ended March 31, 1996 increased by
$791,000 or 10.1% primarily due to an increase of $4,275,000 or 26.3% in
interest income that resulted from an increase of $37.9 million in the average
balance of the loan and mortgage-backed securities portfolios along with an
increase in the average balance of the investment portfolio of $10.4 million and
a 52 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 $43.6 million from the prior year comparable period. This increased
balance along with an 83 basis point increase in the average cost of funds for
the current period resulted in an overall increase in interest expense of
$3,484,000 or 41.3%. Despite higher average interest rates and a decrease of 31
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 nine months ended March 31, 1996, a provision for loan losses of
$417,000 was recorded as compared to $225,000 for the nine months ended March
31, 1995. 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 nine months ended March 31, 1996 and 1995,
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 March 31, 1996, the allowance for loan
losses was $2.6 million, which represented 69.2% of nonperforming loans and 0.9%
of net loans.
For the nine months ended March 31, 1996, noninterest income increased $259,000
or 25.3% from the prior year comparable period. This is primarily attributible
to an increase of $142,000 in gains recorded on the sale of loans classified as
held for sale from $207,000 for the nine months ended March 31, 1995 to $349,000
for the nine months ended March 31, 1996. During these periods, PVF pursued a
strategy of originating long-term, fixed-rate loans pursuant to FHLMC and FNMA
guidelines
Page 9
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
and selling such loans to the FHLMC or the FNMA, while retaining the servicing.
Other noninterest income, net increased by $88,000 or 68.1% from the previous
year comparable period primarily due to gains realized on the sale of investment
securities classified available for sale recorded during the current period.
Noninterest expense for the nine months ended March 31, 1996 increased by
$496,000 or 9.5% from the prior year comparable period. This was primarily the
result of a $170,000 or 6.3% increase in compensation and benefits attributable
to additional employees, employee 401K benefits, and salary and wage
adjustments. Office occupancy increased by $172,000 or 19.1% during the current
period as a result of the opening of two new branch offices and the relocation
of another branch. Other noninterest expense increased by $154,000 or 9.6% as a
result of increased advertising, professional and legal services, regulatory and
insurance expenses, and franchise tax expense.
The federal income tax provision for the nine month period ended March 31, 1996
increased to an effective rate of 31.4% for the current period from an effective
rate of 28.5% 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 March 31, 1996 was 5.2%. 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 March 31, 1996.
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.
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(Registrant)
Date: May 14, 1996 /s/ C. Keith Swaney
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C. Keith Swaney
Vice President and Treasurer