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, 1998.
[ ] 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
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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)
(440) 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
--- ---
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 2,659,827
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(Class) (Outstanding at April 30, 1998)
PVF CAPITAL CORP.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial
Condition, March 31, 1998 (unaudited)
and June 30, 1997. 1
Consolidated Statements of Operations for
the three and nine months ended March 31,
1998 and 1997 (unaudited). 2
Consolidated Statements of Cash Flows for
the nine months ended March 31, 1998 and
1997 (unaudited). 3
Notes to Consolidated Financial
Statements (unaudited). 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
Item 3 Quantitative and Qualitative Disclosures
about Market Risk 12
Part II Other Information 12
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
MARCH 31, JUNE 30,
ASSETS 1998 1997
------------ ------------
Cash and cash equivalents:
Cash and amounts due from depository institutions $7,444,750 $7,760,029
Interest bearing deposits 366,003 445,401
Federal funds sold 14,375,000 1,375,000
------------ ------------
Total cash and cash equivalents 22,185,753 9,580,430
Investment securities held to maturity, at cost 13,000,000 13,995,350
Loans receivable, net 368,102,695 341,402,566
Loans receivable held for sale, net 1,509,945 709,604
Mortgage-backed securities held to maturity, net 3,250,439 511,530
Office properties and equipment, net 2,356,181 1,882,390
Real estate owned, net 874,637 0
Real estate in development 938,071 909,758
Investment required by law
Stock in the Federal Home Loan Bank of Cincinnati 3,445,634 2,762,314
Prepaid expenses and other assets 3,264,569 1,327,358
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Total Assets $418,927,924 $373,081,300
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $331,806,117 $288,269,674
Advances from the Federal Home Loan Bank of Cincinnati 46,345,158 47,405,424
Notes payable 1,560,000 2,310,000
Advances from borrowers for taxes and insurance 2,794,798 4,511,595
Accrued expenses and other liabilities 6,247,254 4,311,191
------------ ------------
Total Liabilities 388,753,327 346,807,884
Stockholders' Equity
Serial preferred stock, none issued 0 0
Common stock 26,598 25,556
Paid in capital 14,527,945 14,522,275
Retained earnings-substantially restricted 15,620,054 11,725,585
------------ ------------
Total Stockholders' Equity 30,174,597 26,273,416
------------ ------------
Total Liabilities and Stockholders' Equity $418,927,924 $373,081,300
------------ ------------
------------ ------------
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,
---------------------------- ----------------------------
1998 1997 1998 1997
Interest income
Loans $8,280,263 $7,412,874 $24,382,174 $21,715,444
Mortgage-backed securities 52,476 9,837 105,905 275,304
Cash and investment securities 380,368 310,403 990,292 941,006
---------- ---------- ----------- -----------
Total interest income 8,713,107 7,733,114 25,478,371 22,931,754
---------- ---------- ----------- -----------
Interest expense
Deposits 4,167,891 3,472,768 12,513,402 10,458,590
Borrowings 692,790 660,824 1,812,711 1,790,062
---------- ---------- ----------- -----------
Total interest expense 4,860,681 4,133,592 14,326,113 12,248,652
---------- ---------- ----------- -----------
Net interest income 3,852,426 3,599,522 11,152,258 10,683,102
Provisions for loan losses 106,000 107,000 201,000 107,000
---------- ---------- ----------- -----------
Net interest income after provision for loan losses 3,746,426 3,492,522 10,951,258 10,576,102
---------- ---------- ----------- -----------
Noninterest income, net
Service and other fees 150,361 114,441 414,909 356,033
Mortgage banking activities, net 283,071 313,666 670,327 501,979
Other, net 27,189 36,138 167,846 135,078
---------- ---------- ----------- -----------
Total noninterest income, net 460,621 464,245 1,253,082 993,090
---------- ---------- ----------- -----------
Noninterest expense
Compensation and benefits 1,165,832 1,119,916 3,418,264 3,286,005
Office, occupancy, and equipment 412,234 411,508 1,199,779 1,202,793
Federal deposit insurance special assessment 0 0 0 1,707,867
Other 595,542 565,524 1,665,253 1,723,369
---------- ---------- ----------- -----------
Total noninterest expense 2,173,608 2,096,948 6,283,296 7,920,034
---------- ---------- ----------- -----------
Income before federal income tax provision 2,033,439 1,859,819 5,921,044 3,649,158
Federal income tax provision 699,745 637,949 2,024,745 1,256,949
---------- ---------- ----------- -----------
Net income $1,333,694 $1,221,870 $3,896,299 $2,392,209
Basic earnings per share $0.50 $0.48 $1.49 $0.94
----- ----- ----- -----
----- ----- ----- -----
Diluted earnings per share $0.48 $0.45 $1.43 $0.88
----- ----- ----- -----
----- ----- ----- -----
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,
--------------------------------
1998 1997
---- ----
OPERATING ACTIVITIES
Net Income $3,896,299 $2,392,209
Adjustments to reconcile net income to net cash provided by operating activities
Accretion of discount on securities (4,650) (937)
Depreciation and amortization 361,091 353,947
Provision for losses on loans 201,000 107,000
Provision for lower of cost or market adjustment on loans held for sale 0 81,930
Accretion of unearned discount and deferred loan origination fees, net (925,914) (1,111,012)
Change in loans receivable held for sale, net (421,289) 9,997,799
Gain on sale of loans, net (379,052) (347,241)
Loss on mortgage-backed securities available for sale, net 0 65,086
Gain on disposal of real estate owned, net (17,841) 0
Change in accrued interest on investments, loans, and borrowings, net (66,190) (235,753)
Change in other assets and other liabilities, net (2,184,470) (2,242,551)
----------- -----------
Net cash provided by operating activities 458,984 9,060,477
----------- -----------
INVESTING ACTIVITIES
Loan and mortgage-backed securities repayments and originations, net (26,502,364) (54,030,566)
Proceeds from mortgage-backed securities available for sale 0 12,738,470
Mortgage-backed securities held to maturity purchases, net (3,017,178) 0
Investment securities held to maturity purchases (13,000,000) 0
Investment securities maturities 14,000,000 100,000
Disposal of real estate owned properties 484,366 0
FHLB stock purchases dividends, net (683,320) (603,790)
Office properties and equipment (purchases) sales, net (834,882) 275,070
Change in real estate in development, net (28,313) (49,894)
----------- -----------
Net cash used in investing activities (29,581,691) (41,570,710)
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW, and passbook savings 2,229,338 (1,183,665)
Net increase in time deposits 41,304,076 3,673,996
Net increase (decrease) in FHLB advances (1,060,266) 21,443,263
Repayment of notes payable (750,000) (300,000)
Proceeds from exercise of stock options 7,023 0
Cash paid in lieu of fractional shares (2,141) (1,349)
----------- -----------
Net cash provided by financing activities 41,728,030 23,632,245
----------- -----------
Net increase (decrease) in cash and cash equivalents 12,605,323 (8,877,988)
Cash and cash equivalents at beginning of period 9,580,430 13,790,216
----------- -----------
Cash and cash equivalents at end of period $22,185,753 $4,912,228
----------- -----------
----------- -----------
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, 1998 AND 1997
(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 and nine months ended March 31, 1998 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. ("PVF" or the "Company")
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. 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 assessment was charged against earnings for the quarter ended
September 30, 1996 and resulted in a pre-tax charge to the Company of
approximately $1,708,000 and is reflected in the Statement of Operation for the
nine-month period ended March 31, 1997.
3. PVF Holdings Inc., a newly formed subsidiary of PVF Capital Corp., made a
$301,000 investment in two companies that will combine to provide professional
financial planning and investment services to both individuals and small
businesses throughout the Park View Federal branch system.
4. Recently Issued Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income" was issued in June, 1997 and is
effective for fiscal years beginning after December 15, 1997. The Statement
requires additional reporting of items that affect comprehensive income but not
net income. Examples of these items relevant to the Company include unrealized
gains and losses on securities. At this time, the Company does not have other
comprehensive income to be reported.
PAGE 4
Part I Financial Information
Item 1
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued in June, 1997 and is effective for fiscal years
beginning after December 15, 1997. The statement requires financial disclosure
and descriptive information about reportable operating segments. Upon its
adoption, this statement will result in additional financial statement
disclosures.
5. In February 1997, the FASB issued SFAS No. 128, Earnings per Share which
supersedes Accounting Principles Board (APB) No. 15, Earnings per Share and
replaces the presentation of primary and fully diluted earnings per share with
basic and diluted earnings per share. SFAS No. 128 was issued to simplify the
computation of earnings per share and make the U.S. standard more compatible
with the earnings per share standards of other countries and that of the
International Accounting Standards Committee (IASC). SFAS No. 128 is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. The following table discloses EPS pursuant to SFAS No. 128
for the three and nine months ended March 31, 1998 and March 31, 1997.
Three months ended March 31,
1998 1997
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Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
BASIC EPS
Income available to
common stockholders $1,333,694 2,659,640 $ 0.50 $1,221,870 2,555,562 $ 0.48
EFFECT OF DILUTIVE SECURITIES
Stock options 101,331 0.02 176,279 0.03
DILUTED EPS
Income available to
common stockholders $1,333,694 2,760,971 $ 0.48 $1,221,870 2,731,841 $ 0.45
Nine months ended March 31,
1998 1997
---------------------------------------- ----------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
BASIC EPS
Income available to
common stockholders $3,896,299 2,615,239 $ 1.49 $2,392,209 2,555,562 $ 0.94
EFFECT OF DILUTIVE SECURITIES
Stock options 101,331 0.06 176,279 0.06
DILUTED EPS
Income available to
common stockholders $3,896,299 2,716,570 $ 1.43 $2,392,209 2,731,841 $ 0.88
PAGE 5
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-month and nine-month periods ended March 31,
1998 for PVF Capital Corp. ("PVF" or the "Company") and Park View Federal
Savings Bank (the "Bank"), its principal and wholly-owned subsidiary.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events.
FINANCIAL CONDITION
Consolidated assets of PVF were $418.9 million as of March 31, 1998, an increase
of approximately $45.8 million or 12.3% 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 7.21%, 7.21% and
10.68% respectively at March 31, 1998.
During the nine months ended March 31, 1998, the Company's cash and cash
equivalents, which consist of cash, interest-bearing deposits and federal funds
sold, increased $12.6 million or 131.6% as compared to June 30, 1997. The
change in the Company's cash and cash equivalents consisted of a decrease in
cash and interest-bearing deposits of $0.4 million and an increase in federal
funds sold of $13.0 million.
PAGE 6
Part I Financial Information
Item 2
FINANCIAL CONDITION CONTINUED
The net $30.2 million, or 8.8%, increase in loans receivable and
mortgage-backed securities during the nine months ended March 31, 1998,
resulted from an increase in loans receivable of $27.5 million and an
increase in mortgage-backed securities of $2.7 million. The increase of
$27.5 million in loans receivable included increases of $15.6 million in
single-family mortgage loans, $10.0 million in commercial real estate loans,
$2.3 million in construction loans, $1.3 million in home equity loans, $0.3
million in land loans, $0.2 million in installment loans, and a decrease of
$2.2 million in multi-family mortgage loans. The increase in mortgage-backed
securities of $2.7 million was the result of the purchase of a $3.0 million
security less payments received of $0.3 million. The growth of the loan
portfolio was as anticipated and resulted in no material change to the
composition of the portfolio.
The increase in office properties and equipment of $0.5 million
was primarily the result of the opening of a new branch office in Chardon, Ohio.
The increase in Federal Home Loan Bank of Cincinnati stock of $0.7 million is
the result of the purchase of $0.5 million in additional stock and stock
dividend payments received of $0.2 million. The increase in prepaid expenses
and other assets of $1.9 million is primarily the result of the Bank's
commitment to invest $1.3 million in a low-income affordable housing partnership
on an installment basis through the year 2005 along with an increase in prepaid
maintenance agreements of $0.3 million. The increase of $0.9 million in real
estate owned ("REO") is the result of the foreclosure on two loans made to one
borrower and the subsequent acquisition into REO of the fully developed building
lots securing these loans.
During the nine months ended March 31, 1998, the opening of a new branch office
along with management's decision to compete aggressively with market savings
rates for additional deposits resulted in an increase of $43.5 million, or
15.1%, in deposits. The decrease in notes payable resulted from management's
decision to prepay $0.7 million, or 32.5%, in notes held by the Company.
The decrease in advances from borrowers for taxes and insurance of $1.7 million,
or 38.0%, is due to timing differences between the collection and payment of
escrow funds. The increase of $1.9 million in accrued expenses and other
liabilities is primarily the result of the Bank's obligation to make future
installment payments on its investment in the low-income affordable housing
limited partnership.
The increase in savings deposits of $43.5 million was used to fund the increase
in loans receivable of $27.5 million, purchase a mortgage-backed security of
$3.0 million, repay $1.0 million in Federal Home Loan Bank advances, and support
the increase in cash and cash equivalents of $12.6 million.
PAGE 7
Part I Financial Information
Item 2
RESULTS OF OPERATIONS Three months ended March 31, 1998
Compared to the three months ended
March 31, 1997.
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
available for sale. 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, 1998 was
$1,333,694. This represents a 9.1% increase when compared with the prior year
comparable period.
Net interest income for the three months ended March 31, 1998 increased by
$252,900, or 7.0%, as compared to the prior year comparable period, primarily
due to an increase of $980,000, or 12.7%, in interest income that resulted
from an increase of $42.0 million in the average balance of the loan and
mortgage-backed securities portfolios and an increase in the average balance
of the investment portfolio of $5.3 million. This increased balance was
partially offset by a 10 basis point decrease in the return on
interest-earning assets from the prior year comparable period. The average
balance on deposits and advances increased by $46.2 million from the prior
year comparable period. This increased balance in addition to a 16 basis
point increase in the average cost of funds for the current period resulted
in an overall increase in interest expense of $727,100, or 17.6%. The
Company's net interest income increased despite a decrease of 26 basis points
in the Company's interest-rate spread during the current period as compared
to the prior year comparable period because of balance sheet growth in both
interest-earning assets and interest-bearing liabilities.
For the three months ended March 31, 1998 and 1997, provisions for loan losses
of $106,000 and $107,000, respectively, were recorded. The Company uses a
systematic approach to determine the adequacy of its loan loss allowance and the
necessary provision for loan losses. The loan portfolio is reviewed and
delinquent loan accounts are analyzed individually on a monthly basis, with
respect to payment history, ability to repay, probability of repayment, and
loan-to-value percentage. Consideration is given to the types of loans in the
portfolio and the overall risk inherent in the
PAGE 8
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
portfolio. After reviewing current economic conditions, changes to the size
and composition of the loan portfolio, changes in delinquency status, levels
of non-accruing loans, non-performing assets, impaired loans, and actual loan
losses incurred by the Company, management establishes an appropriate reserve
percentage applicable to each category of loans, and a provision for loan
losses is recorded when necessary to bring the allowance to a level
consistent with this analysis. Management believes it uses the best
information available to make a determination as to the adequacy of the
allowance for loan losses.
During the three months ended March 31, 1998, the Company experienced
decreases in the levels of impaired loans and classified assets of $0.7
million and $0.5 million, respectively. Despite these decreases, growth in
the loan portfolio of $4.1 million and net charge-offs of $105,000 made it
necessary to record a provision for loan losses of $106,000 in the current
period. For the three months ended March 31, 1997, the Company experienced
increases in the levels of impaired loans and classified assets of $1.3
million and $0.6 million, respectively. The increase in impaired loans and
classified assets along with growth in the loan portfolio of $9.4 million and
net charge-offs of $38,000 made it necessary to record a provision for loan
losses of $107,000 in the period. At March 31, 1998, the allowance for loan
losses was $2.7 million, which represented 130.2% of nonperforming loans and
0.7% of net loans.
For the three months ended March 31, 1998, noninterest income decreased $3,600,
or 0.8%, from the prior year comparable period. This resulted from a decrease
of $30,600, or 9.8%, in income from mortgage-banking activities that resulted
from a decrease in net servicing income of $32,100 in the current period
attributable to the amortization of the servicing asset. 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. Loan and other fees increased by $35,900, or
31.4%, from the prior year comparable period, primarily due to increases in NOW
account fee income. Other noninterest income, net, decreased by $8,900, or
24.8%, from the previous year's comparable period, primarily due to a gain
recognized on the sale of real estate in the prior period.
Noninterest expense for the three months ended March 31, 1998 increased by
$76,700, or 3.7%, from the prior year comparable period. This was primarily
the result of a $45,900, or 4.1%, increase in compensation and benefits
attributable to increased staffing, employee 401K benefits, incentive bonuses
paid, and salary and wage adjustments. In addition, other noninterest
expense increased by $30,000, or 5.3%, primarily attributable to increased
advertising expenses in the current period.
PAGE 9
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
The federal income tax provision for the three month period ended March 31, 1998
increased to an effective rate of 34.4% for the current period from an effective
rate of 34.3% for the prior year comparable period.
RESULTS OF OPERATIONS Nine months ended March 31, 1998
Compared to the nine months ended
March 31, 1997.
The Company's net income for the nine months ended March 31, 1998 was
$3,896,300. This represents a 62.9% increase when compared with the prior
year comparable period. The increase for the current period is primarily 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 Savings Association Insurance Fund. The Company's operating
income excluding this assessment for the nine-month period ended March 31,
1997 was $3,519,200. Comparing this amount to earnings from operations for
the nine-month period ended March 31, 1998 resulted in an increase of
$377,100, or 10.7%, for the current year comparable period.
Net interest income for the nine months ended March 31, 1998 increased by
$469,100, or 4.4%, resulting from an increase of $2,546,600, or 11.1%, in
interest income that resulted from an increase of $43.7 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 $1.7 million.
This increased balance was partially offset by a 20 basis point decrease in the
return on interest-earning assets from the prior year comparable period. The
average balance on deposits and advances increased by $42.2 million from the
prior year comparable period. This increased balance, in addition to a 17 basis
point increase in the average cost of funds for the current period, resulted in
an overall increase in interest expense of $2,077,500, or 17.0%. Despite a
decrease of 37 basis points in the Bank's interest-rate spread during the
current period, as compared to the prior year comparable period, the Bank'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, 1998 and 1997, provisions for loan losses of
$201,000 and $107,000, respectively, were recorded. The Company uses a
systematic approach to determine the adequacy of its loan loss allowance and the
necessary provision for loan losses. The loan portfolio is reviewed and
delinquent loan accounts are analyzed individually on a monthly basis, with
respect to payment history, ability to repay, probability of repayment, and
loan-to-value percentage. Consideration is given to the types of loans in the
portfolio and the overall risk inherent in the portfolio. After reviewing
current economic conditions, changes to the size and composition of the loan
portfolio, changes in
PAGE 10
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
delinquency status, levels of non-accruing loans, non-performing assets,
impaired loans, and actual loan losses incurred by the Company, management
establishes an appropriate reserve percentage applicable to each category of
loans, and a provision for loan losses is recorded when necessary to bring
the allowance to a level consistent with this analysis. Management believes
it uses the best information available to make a determination as to the
adequacy of the allowance for loan losses.
During the nine months ended March 31, 1998, the Company experienced
decreases in the levels of impaired loans and classified assets of $2.2
million and $0.9 million, respectively. Despite these decreases, growth in
the loan portfolio of $27.5 million and net charge-offs of $115,000 made it
necessary to record a provision for loan losses of $201,000 in the current
period. For the nine months ended March 31, 1997, the Company experienced
an increase in the level of impaired loans of $0.8 million, while classified
assets remained approximately the same. The increase in impaired loans along
with growth in the loan portfolio of $40.7 million and net charge-offs of
$43,000 made it necessary to record a provision for loan losses of $107,000
in the period. At March 31, 1998, the allowance for loan losses was $2.7
million, which represented 130.2% of nonperforming loans and 0.7% of net
loans.
For the nine months ended March 31, 1998, noninterest income increased
$260,000, or 26.2%, from the prior year comparable period. This was
primarily attributable to an increase of $168,300, or 33.5%, in income from
mortgage-banking activities that resulted from an increase in gains on the
sale of loans available for sale and mortgage-backed securities available for
sale of $178,800 from the prior year comparable period, and a decrease in net
servicing income of $10,500 in the current period attributable to the
amortization of the servicing asset. 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. Loan and other fees increased by $58,900, or 16.5%,
from the prior year comparable period primarily due to increases in NOW
account fee income. Other noninterest income, net, increased by $32,800, or
24.3%, from the previous year's comparable period, primarily due to an
increase in rental income in the current period.
Noninterest expense for the nine months ended March 31, 1998 decreased by $1.6
million, or 20.7%, from the prior year comparable period. This was primarily
the result of the previously noted federal deposit insurance special assessment
of $1,708,000. In addition, a $132,200, or 4.0%, increase in compensation and
benefits was attributable to increased staffing, employee 401K benefits,
incentive bonuses paid, and salary and wage adjustments.
PAGE 11
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
The federal income tax provision for the nine-month period ended March 31, 1998
decreased to an effective rate of 34.2% for the current period from an effective
rate of 34.4% for 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 4% of the sum
of net withdrawable savings and borrowings due within one year. The Bank's
liquidity at March 31, 1998 was 9.6%. Management believes the Bank has
sufficient liquidity to meet its operational needs.
Part I Financial Information
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to the Company's interest rate risk
position or any changes to how the Company manages its Asset/Liability position
since June 30, 1997.
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, 1998.
PAGE 12
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 12, 1998 /s/ C. Keith Swaney
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C. Keith Swaney
Vice President and Treasurer