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 September 30, 1997.
[ ] 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 2,590,485
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(Class) (Outstanding at October 31, 1997)
PVF CAPITAL CORP.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial
Condition, September 30, 1997 (unaudited)
and June 30, 1997. 1
Consolidated Statements of Operations for
the three months ended September 30, 1997
and 1996 (unaudited). 2
Consolidated Statements of Cash Flows for
the three months ended September 30, 1997
and 1996 (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 8
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, JUNE 30,
ASSETS 1997 1997
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(UNAUDITED)
Cash and amounts due from depository institutions $3,814,699 $7,760,029
Interest bearing deposits 583,546 445,401
Federal funds sold 4,375,000 1,375,000
Investment securities, at cost 8,995,662 13,995,350
Loans receivable, net 354,764,517 341,402,566
Loans receivable available for sale, net 977,593 709,604
Mortgage-backed securities held to maturity, net 503,006 511,530
Office properties and equipment, net 1,838,173 1,882,390
Real estate owned 1,359,001 0
Real estate in development 916,213 909,758
Investment required by law
Stock in the Federal Home Loan Bank of Cincinnati 2,815,922 2,762,314
Prepaid expenses and other assets 2,334,714 1,327,358
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Total Assets $383,278,046 $373,081,300
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $314,778,748 $288,269,674
Advances from the Federal Home Loan Bank of
Cincinnati 30,885,638 47,405,424
Notes payable 2,010,000 2,310,000
Advances from borrowers for taxes and insurance 2,734,692 4,511,595
Accrued expenses and other liabilities 5,331,897 4,311,191
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Total Liabilities 355,740,975 346,807,884
Stockholders' Equity
Serial preferred stock, none issued 0 0
Common stock 25,905 25,556
Paid in capital 14,526,121 14,522,275
Retained earnings-substantially restricted 12,985,045 11,725,585
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Total Stockholders' Equity 27,537,071 26,273,416
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Total Liabilities and Stockholders' Equity $383,278,046 $373,081,300
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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
SEPTEMBER 30,
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1997 1996
Interest income
Loans $7,874,340 $7,030,534
Mortgage-backed securities 9,773 180,383
Cash and investment securities 311,731 325,322
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Total interest income 8,195,844 7,536,239
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Interest expense
Deposits 4,160,745 3,456,197
Borrowings 522,312 559,371
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Total interest expense 4,683,057 4,015,568
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Net interest income 3,512,787 3,520,671
Provisions for loan losses 45,000 0
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Net interest income after provision
for loan losses 3,467,787 3,520,671
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Noninterest income, net
Service and other fees 137,135 121,713
Mortgage banking activities, net 188,715 36,382
Other, net 99,586 75,898
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Total noninterest income, net 425,436 233,993
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Noninterest expense
Compensation and benefits 1,105,322 1,085,037
Office, occupancy, and equipment 399,217 377,275
Special SAIF assessment 0 1,707,867
Other 501,395 585,341
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Total noninterest expense 2,005,934 3,755,520
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Income before federal income tax provision 1,887,289 (856)
Federal income tax provision 626,000 10,000
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Net income $1,261,289 ($10,856)
Net income per share $0.46 ($0.00)
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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)
THREE MONTHS ENDED
SEPTEMBER 30,
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1997 1996
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OPERATING ACTIVITIES
Net Income $1,261,289 ($10,856)
Adjustments to reconcile net income to net
cash provided by operating activities
Accretion of discount on marketable securities (312) (313)
Depreciation and amortization 113,880 118,388
Provision for losses on loans, net 45,000 0
Provision for lower of cost or market
adjustment on loans available for sale 0 111,930
Accretion of unearned discount and deferred
loan origination fees, net (207,750) (320,560)
Gain on loans available for sale, net (74,994) (67,556)
Gain on disposal of real estate owned, net 0 (17,686)
Change in accrued interest on investments,
loans, and borrowings, net (163,466) (239,550)
Change in other assets and other
liabilities, net (1,763,553) (1,676,280)
Change in loans receivable available for
sale, net (192,995) 8,469,574
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Net cash provided by operating activities (982,901) 6,367,091
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INVESTING ACTIVITIES
Loan and mortgage-backed securities
repayments and originations, net (14,470,767) (27,742,872)
Disposals of real estate owned 0 70,582
Investment securities maturities 5,000,000 100,000
FHLB stock dividend, net (53,608) (32,953)
Additions to office properties and
equipment, net (69,663) (43,915)
Change in real estate in development, net (6,455) (21,034)
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Net cash used in investing activities (9,600,493) (27,670,192)
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FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW, and passbook savings 783,888 (2,701,462)
Net increase in time deposits 25,809,741 3,508,937
Net increase (decrease) in FHLB advances (16,519,786) 13,981,373
Repayment of notes payable (300,000) (100,000)
Proceeds from exercise of stock options 4,507 0
Cash paid in lieu of fractional shares (2,141) (1,350)
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Net cash provided by financing activities 9,776,209 14,687,498
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Net decrease in cash and cash equivalents (807,185) (6,615,603)
Cash and cash equivalents at beginning of period 9,580,430 13,790,216
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Cash and cash equivalents at end of period $8,773,245 $7,174,613
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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
SEPTEMBER 30, 1997 AND 1996
(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, 1997 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 months ended September 30, 1997 are not necessarily indicative of
the results to be expected for the entire year ending June 30, 1998. 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. Cash and cash equivalents consist of the following:
September 30, 1997 June 30, 1997
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Cash and amounts due from depository
institutions $ 3,814,699 $ 7,760,029
Interest bearing deposits 583,546 445,401
Federal funds sold 4,375,000 1,375,000
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$ 8,773,245 $ 9,580,430
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3. A ten percent stock dividend was issued on the 1st day of September 1997,
to the shareholders of record at the close of business on August 11, 1997. Net
income per share is based on the weighted-average number of common shares
outstanding of 2,590,485 and 222,540 in outstanding stock options.
4. Legislation was signed into law on September 30, 1996 to recapitalize the
Savings Association Insurance Fund ("SAIF") that required SAIF-insured savings
institutions to pay a one-time special assessment of 65.7 cents for every $100
of deposits. This resulted in a pre-tax charge to the Company of $1,708,867 for
the quarter ended September 30, 1996.
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 the financial condition and results
of operations at and for the three-month period ended September 30, 1997 for PVF
Capital Corp. ("PVF" or the "Company").
FINANCIAL CONDITION
Consolidated assets of PVF were $383.3 million as of September 30, 1997, an
increase of approximately $10.2 million or 2.7% as compared to June 30, 1997.
The Bank remained in regulatory capital compliance for tangible, core, and
risk-based capital on a fully phased-in basis, with capital levels of 7.38%,
7.38% and 10.55% respectively at September 30, 1997.
During the three months ended September 30, 1997, the Bank's cash and cash
equivalents, which consist of cash, interest-bearing deposits and federal funds
sold, decreased $0.8 million or 8.4% as compared to June 30, 1997. The change
in the Bank's cash and cash equivalents consisted of a decrease in cash and
interest- bearing deposits of $3.8 million and an increase in federal funds sold
of $3.0 million.
The net $13.6 million or 4.0% increase in loans receivable during the three
months ended September 30, 1997 was the result of an increase of $13.9 million
in real estate mortgage loans and a decrease of $0.3 million in installment
loans. The increase of $13.9 million in real estate mortgage loans included an
increase of $4.7 million in one-to-four family residential loans, an increase in
construction and land loans of $4.0 million, and an increase of $5.2 million in
commercial real estate and multi-family loans. The increase of $1.4 million in
real estate owned consists of $0.2 million in one-to-four family residential
loans and $1.2 million in land loans, and was attributable to one borrower.
During the three months ended September 30, 1997, management's decision to
compete aggressively with market savings rates to attract new deposits resulted
in an increase of $26.5 million, or 9.2%, in deposits. This $26.5 million in
new deposits along with the maturity of $5.0 million in investment securities
were used to repay $16.5 million, or 34.8%, in advances from the Federal Home
Loan Bank of Cincinnati ("FHLB"), repay $0.3 million in notes payable, and fund
the net growth of $13.6 million in the loan portfolio.
Page 5
Part I Financial Information
Item 2
FINANCIAL CONDITION (CONTINUED)
The decrease in advances from borrowers for taxes and insurance of $1.8 million
is attributable to timing differences between the collection and payment of
escrow funds. The increases of approximately $1.0 million in both prepaid
expenses and other assets and accrued expenses and other liabilities is
primarily the result of the Bank's investment of $1.3 million in a low- income
affordable housing limited partnership and a $1.0 million obligation to make
future installment payments to the partnership. The Bank's entry into this
partnership will result in the recognition of future tax credits and federal
income tax deductions, provided the project remains in compliance as a qualified
low-income housing project.
RESULTS OF OPERATIONS Three months ended September 30, 1997,
compared to three months ended
September 30, 1996.
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 Bank'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 September 30, 1997 was
$1,261,000 as compared to a loss of $11,000 for the prior year comparable
period. The net loss for the quarter ended September 30, 1996 was due to a
one-time charge of approximately $1,708,000, or $1,127,000 after tax,
representing a special assessment of 65.7 basis points on the Bank's deposits
held as of March 31, 1995, as a result of the legislation enacted to
recapitalize the SAIF. Excluding the impact to earnings of the SAIF assessment,
earnings from operations for the quarter ended September 30, 1996 were
$1,116,000. Comparing this amount to
Page 6
Part I Financial Information
Item 2
RESULTS OF OPERATION (CONTINUED)
earnings from operations for the three month period ended September 30, 1997
resulted in an increase of $145,000, or 13.0%, for the current year comparable
period.
Net interest income for the three months ended September 30, 1997 decreased by
$8,000, or 0.2%, from the prior year comparable period. Interest income
increased by $660,000, or 8.8%, as a result of an increase of $41.5 million in
the average balance of interest-earning assets which was partially offset by a
31 basis point decrease in the average return on interest-earning assets from
the prior year comparable period. The average balance on interest-bearing
liabilities increased by $37.0 million from the prior year comparable period.
This increased balance along with a 22 basis point increase in the average cost
of funds for the current period resulted in an overall increase in interest
expense of $668,000 or 16.6%. Despite balance sheet growth in both
interest-earning assets and interest-bearing liabilities, the Bank's net
interest income decreased slightly due to a decrease of 53 basis points in its
interest rate spread during the current period as compared to the prior year
comparable period. The decrease in net interest income and interest rate spread
for the period ended September 30, 1997, as compared to the prior year
comparable period, is the result of both a flatter yield curve during the
current period and the write-off of $190,000 in interest receivable on
nonperforming loans in the current period. The write-off of interest receivable
was primarily attributable to the acquisition into real estate owned of property
held by one individual borrower.
For the three months ended September 30, 1997, a provision for loan losses of
$45,000 was recorded, while no provision was required for the three months ended
September 30, 1996. These provisions are 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. At September 30, 1997, the allowance for loan
losses was $2.6 million, which represented 82.5% of nonperforming loans and 0.7%
of net loans.
For the three months ended September 30, 1997, noninterest income increased
$191,000 or 81.8% from the prior year comparable period. This was primarily
attributable to an increase of $152,000 in income from mortgage-banking
activities that resulted from a net gain on loans sold and securitized, net of
mortgage banking provisions, during the current period. During these periods,
PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to
Federal Home Loan Mortgage Corporation
Page 7
Part I Financial Information
Item 2
RESULTS OF OPERATIONS (CONTINUED)
("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and
either selling such loans to the FHLMC or the FNMA or swapping those loans with
the FHLMC or the FNMA in exchange for mortgage-backed securities which were
subsequently sold.
Noninterest expense for the three months ended September 30, 1997 decreased by
$1,750,000 or 46.6% from the prior year comparable period. This was primarily
the result of the previously noted SAIF assessment of $1,708,000 in the prior
period.
The federal income tax provision for the three-month period ended September 30,
1997 increased by $616,000 to $626,000 for the current year comparable period as
compared to $10,000 for the prior year comparable period. This was due to the
absense of taxable income in the prior year comparable period resulting from the
deductibility of the SAIF assessment.
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 OTS is 5% of the sum of net withdrawable
savings and borrowings due within one year. The Bank's liquidity at September
30, 1997 was 5.6%. 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 September 30, 1997.
Page 8
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: November 7, 1997 /s/ C. Keith Swaney
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C. Keith Swaney
Vice President and Treasurer