-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LywNLuR6yM5+Fs5eBae5SivjV6WnmZ8Uo5eBCWk9KOEQ9cVziocdPWPnYeUU4KB7 jYj/F+Pd2k/X0DYRbGAqWA== 0000912057-96-021075.txt : 19960926 0000912057-96-021075.hdr.sgml : 19960926 ACCESSION NUMBER: 0000912057-96-021075 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960925 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PVF CAPITAL CORP CENTRAL INDEX KEY: 0000928592 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341659805 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-24948 FILM NUMBER: 96634084 BUSINESS ADDRESS: STREET 1: 2618 N MORELAND BLVD CITY: CLEVELAND HEIGHTS STATE: OH ZIP: 44120 BUSINESS PHONE: 2164396790 MAIL ADDRESS: STREET 1: 25350 ROCKSIDE ROAD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 10-K405 1 FORM 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1996 / / TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ---------- ------------ COMMISSION FILE NUMBER 0-24948 PVF CAPITAL CORP ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-1659805 - ------------------------- ------------------- (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 25350 ROCKSIDE ROAD, BEDFORD HTS., OHIO 44146 - ---------------------------------------- ------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 991-9600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (par value $.01 per share) --------------------------------------- Title of Class Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The registrant's voting stock is listed on the National Association of Securities Dealers Automated Quotation ("Nasdaq") System Small-Cap Market under the symbol "PVFC." The aggregate market value of the voting stock held by nonaffiliates of the registrant, based on the closing sales price of the registrant's common stock as quoted on the Nasdaq System on September 15, 1996, was $25,222,456. For purposes of this calculation, it is assumed that directors, executive officers and 5% stockholders of the registrant are affiliates. As of September 15, 1996, the registrant had 2,323,338 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1. Annual Report to Stockholders for the Fiscal Year Ended June 30, 1996. (Parts I, II and IV) 2. Proxy Statement for the 1996 Annual Meeting of Stockholders. (Part III) PART I ITEM 1. BUSINESS GENERAL PVF Capital Corp. ("PVF" or the "Company") announced the reorganization of Park View Federal Savings Bank ("Park View Federal" or the "Bank") into the holding company structure of ownership effective October 31, 1994. On that date, Park View Federal became a wholly owned subsidiary of PVF Capital Corp., and all issued and outstanding shares of common stock of the Bank were converted on a three-for-two basis into shares of common stock of PVF Capital Corp. PVF owns and operates Park View Federal Savings Bank and PVF Service Corporation ("PVFSC"), a real estate subsidiary, purchased by PVF from the Bank during fiscal 1995. Park View Federal is a federal stock savings bank operating through nine offices located in Cleveland and surrounding communities. Park View Federal has operated continuously for 76 years, having been founded as an Ohio chartered savings and loan association in 1920. Its deposits became federally insured in 1936. The Bank became federally chartered in 1950. On December 30, 1992, the Bank completed its conversion from a federally chartered mutual savings and loan association to a federally chartered stock savings bank (the "Conversion"), at which time it adopted its present name, Park View Federal. PVFSC was purchased by PVF to improve the Bank's regulatory capital ratios and for the purpose of conducting real estate activities at the holding company level. PVF Capital Corp's main office is located at 2618 N. Moreland Boulevard, Cleveland, Ohio 44120 and its telephone number is (216) 991-9600. The Bank's principal business consists of attracting deposits from the general public and investing these funds primarily in loans secured by first mortgages on real estate located in the Bank's market area, which consists of Portage, Lake, Geauga, Cuyahoga, Summit, Stark, Medina and Lorain Counties in Ohio. Park View Federal emphasizes the origination of loans for the purchase or construction of residential real estate, commercial real estate and multi-family residential property and land loans. To a lesser extent, the Bank originates loans secured by second mortgages, including home equity lines of credit and loans secured by savings deposits. The Bank derives its income principally from interest earned on loans and, to a lesser extent, loan servicing and other fees, mortgage banking activities, and interest earned on investments. The Bank's principal expenses are interest expense on deposits and borrowings and non-interest expense such as compensation and employee benefits, office occupancy expenses and other miscellaneous expenses. Funds for these activities are provided principally by deposits, FHLB advances, repayments of outstanding loans, mortgage banking activities, and operating revenues. The business of PVF consists primarily of the business of the Bank. Park View Federal is subject to examination and comprehensive regulation by the Office of Thrift Supervision (the "OTS"), and the Bank's savings deposits are insured up to applicable limits by the Savings Association Insurance Fund (the "SAIF"), which is administered by the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is a member of and owns capital stock in the Federal Home Loan Bank (the "FHLB") of Cincinnati, which is one of 12 regional banks in the FHLB System. The Bank is further subject to regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") governing reserves to be maintained and certain other matters. See " -- Regulation." 2 MARKET AREA The Bank conducts its business through nine offices located in Cuyahoga, Summit and Lake Counties in Ohio, and its market area consists of Portage, Lake, Geauga, Cuyahoga, Summit, Stark, Medina and Lorain Counties in Ohio. At June 30, 1996, over 98% of the Bank's net loan portfolio and over 98% of the Bank's deposits were in the Bank's market area. Park View Federal has targeted business development efforts in suburban sectors of its market area, such as Lake, Geauga, and Summit Counties, where demographic growth has been stronger. The economy in the Cleveland area historically has been based on the manufacture of durable goods. Though manufacturing continues to remain an important sector of the economy, diversification has occurred in recent years with the growth of service, financial and wholesale and retail trade industries. LENDING ACTIVITIES LOAN PORTFOLIO COMPOSITION The Bank's net loan portfolio, including mortgage-backed securities, totalled $297.8 million at June 30, 1996, representing 89.8% of total assets at such date. It is the Bank's policy to concentrate its lending in its market area. Single-family residential loans comprise the largest group of loans, amounting to $114.4 million, or 38.4% of the net loan portfolio at June 30, 1996. In addition, at June 30, 1996, loans for the construction of single- family residential real estate totalled $76.7 million, or 25.8% of the net loan portfolio. At June 30, 1996, loans for the purchase and construction of commercial real estate amounted to $72.5 million, or 24.4% of the net loan portfolio, at such date. The Bank also had $30.6 million of multi-family residential real estate loans and $26.0 million of land loans, most of the latter consisting of loans to acquire land on which the borrowers intended to construct single-family residences. The Bank also had $8.7 million outstanding in Home Equity Line of Credit loans. The remainder of the loan portfolio at June 30, 1996 consisted of $2.4 million in consumer loans, which included $328,000 in mobile home loans, $742,000 in loans secured by savings deposits, $43,000 in property improvement loans and $1.2 million of other consumer loans, which consist primarily of automobile loans, demand loans and lines of credit. In addition, mortgage-backed securities totaled $8.6 million at June 30, 1996. 3 Set forth below is certain data relating to the composition of the Bank's loan portfolio by type of loan on the dates indicated. As of June 30, 1996, the Bank had no concentrations of loans exceeding 10% of total loans other than as disclosed below.
AT JUNE 30, ------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------- ---------------- ------------------ ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (DOLLARS IN THOUSANDS) Real estate loans: Single-family residential (1) $114,373 38.41% $ 98,203 38.56% $ 79,901 37.93% $ 79,031 48.08% $ 78,759 48.20% Multi-family residential. . . 30,607 10.28% 39,531 15.52% 33,706 16.00% 16,647 10.13% 16,503 10.10% Commercial. . . . . . . . . . 72,543 24.36% 57,498 22.58% 53,347 25.33% 38,233 23.26% 38,187 23.37% Home equity LOC . . . . . . . 8,749 2.94% 3,314 1.30% 0 0.00% 0 0.00% 0 0.00% Construction. . . . . . . . . 76,725 25.77% 61,653 24.21% 53,774 25.53% 31,701 19.29% 23,952 14.66% Land. . . . . . . . . . . . . 26,000 8.73% 18,318 7.19% 16,488 7.83% 12,341 7.51% 9,401 5.75% Mortgage-backed securities available for sale, net . . . 7,963 2.67% 989 0.39% 0 0.00% 3,006 1.83% 5,090 3.11% Mortgage-backed securities held to maturity. . . . . . . 629 0.21% 2,747 1.08% 0 0.00% 0 0.00% 0 0.00% Consumer loans: Property improvement. . . . . 43 0.01% 76 0.03% 103 0.05% 176 0.11% 238 0.15% Passbook loans. . . . . . . . 742 0.25% 999 0.39% 842 0.40% 666 0.41% 725 0.44% Mobile home . . . . . . . . . 328 0.11% 519 0.20% 833 0.40% 1,386 0.84% 2,153 1.32% Other . . . . . . . . . . . . 1,244 0.42% 701 0.28% 486 0.23% 433 0.26% 651 0.40% ----- --- --- --- --- 339,946 114.16% 284,548 111.72% 239,480 113.70% 183,620 117.71% 175,659 107.50% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Less: Accrued interest receivable. 1,709 0.57% 1,589 0.62% 1,083 0.51% 950 0.58% 1,103 0.67% Deferred loan fees . . . . . (2,098) -0.70% (1,811) -0.71% (1,583) -0.75% (942) -0.57% (817) -0.50% Unearned discount. . . . . . (165) -0.06% (336) -0.13% (347) -0.16% (272) -0.17% (192) -0.12% Unearned discount FHLMC MBS. (158) -0.05% (2) 0.00% 0 -0.00% 0 0.00% 0 0.00% Unrealized loss FHLMC MBS. . (234) -0.08% 0 0.00% 0 -0.00% 0 0.00% 0 0.00% Undisbursed portion of loan proceeds. . . . . . . . . . (38,649) -12.98% (26,891) -10.56% (25,058) -11.90% (16,244) -9.88% (9,393) -5.75% Market valuation reserve (Mtg. banking). . . . . . . (13) -0.00% 0 0.00% (871) -0.41% 0 0.00% 0 0.00% Allowance for possible loan losses. . . . . . . . (2,565) -0.86% (2,402) -0.94% (2,075) -0.99% (2,738) -1.67% (2,949) -1.80% Total other items. . . . . (42,173) -14.16% (29,853) -11.72% (28,851) -13.70% (19,246) -11.71% (12,248) -7.50% -------- -------- -------- -------- -------- Total loans and mortgage- backed securities. . . . . $297,773 100.00% $254,695 100.00% $210,629 100.00% $164,374 100.00% $163,411 100.00% -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- -------
- ------------------------- (1) Includes loans held for sale in the amounts of $11.2 million, $4.5 million, $4.0 million, $4.9 million and $3.2 million at June 30, 1996, 1995, 1994, 1993 and 1992 respectively. 4 The following table presents at June 30, 1996 the amounts of loan principal repayments scheduled to be received by the Bank during the periods shown based upon the time remaining before contractual maturity. Loans with adjustable rates are reported as due in the year in which they reprice. Demand loans, loans having no schedule of repayments and no stated maturity. The table below does not include any estimate of prepayments which significantly shorten the average life of all mortgage loans and may cause the Bank's actual repayment experience to differ from that shown below.
DUE DURING DUE ONE DUE THREE DUE FIVE DUE 10 THE YEAR THROUGH THREE THROUGH FIVE THROUGH 10 THROUGH 20 DUE 20 YEARS ENDING YEARS AFTER YEARS AFTER YEARS AFTER YEARS AFTER OR MORE AFTER JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1997 1996 1996 1996 1996 1996 ---------- ------------- ------------ ----------- ----------- ------------- (IN THOUSANDS) Real estate mortgage loans . . . . . . . $180,921 $52,903 $29,247 $13,217 $6,844 $4,034 Consumer loans . . . . . . . . . . . . . 1,917 14 20 244 162 0 -------- ------- ------- ------- ------- ------ Total. . . . . . . . . . . . . . . . $182,838 $52,917 $29,267 $13,461 $7,006 $4,034 -------- ------- ------- ------- ------- ------ -------- ------- ------- ------- ------- ------
5 The following table apportions the dollar amount of the loans due or repricing after June 30, 1997 between those with predetermined interest rates and those with adjustable interest rates. FLOATING OR PREDETERMINED ADJUSTABLE RATES RATES TOTAL ---------------- ------------- -------- (IN THOUSANDS) Real estate mortgage loans . . $17,649 $88,596 $106,245 Consumer loans . . . . . . . . 440 0 440 ------- ------- -------- Total. . . . . . . . . . . $18,089 $88,596 $106,685 ------- ------- -------- ------- ------- -------- Scheduled contractual principal repayments of loans and mortgage-backed securities do not reflect the actual life of such assets. The average life of loans and mortgage-backed securities is substantially less than their contractual terms because of prepayments. In addition, due-on-sale clauses on loans generally give the Bank the right to declare a conventional loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase, however, when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decreases when rates on existing mortgages are substantially higher than current mortgage loan rates. ORIGINATION, PURCHASE AND SALE OF LOANS The Bank generally has authority to originate and purchase loans secured by real estate located throughout the United States. Consistent with its emphasis on being a community-oriented financial institution, the Bank concentrates its lending activities in its market area. Residential real estate loans typically are originated through salaried loan officers, while construction loans and commercial real estate loans are originated through senior management officers. Residential mortgage loan originations are attributable to depositors, walk-in customers, advertising and referrals from real estate brokers and developers. Construction and commercial real estate loan originations are attributable largely to the Bank's reputation and its long-standing ties to builders in its market area. All loan applications are evaluated by the Bank's staff to ensure compliance with the Bank's underwriting standards. See "-- Loan Underwriting Policies." The Bank originates all fixed-rate, single-family mortgage loans in conformity with FHLMC and FNMA guidelines so as to permit their being swapped with the FHLMC or the FNMA in exchange for mortgage-backed securities secured by such loans or their sale in the secondary market. All such loans are sold or swapped, as the case may be, with servicing retained, and are sold in furtherance of the Bank's goal of better matching the maturities and interest rate-sensitivity of its assets and liabilities. The Bank generally retains responsibility for collecting and remitting loan payments, inspecting the properties, making certain insurance and tax payments on behalf of borrowers and otherwise servicing the loans it sells or converts into mortgage-backed securities, and receives a fee for performing these services. Sales of loans also provide funds for additional lending and other purposes. The following table shows total loan origination and sale activity during the periods indicated. YEAR ENDED JUNE 30, ------------------------------------------- 1996 1995 1994 ---- ---- ---- (IN THOUSANDS) Loans originated: Real estate: . . . . . . . . . . Residential and commercial (1) $ 44,411 $ 37,297 $ 46,417 Construction . . . . . . . . . 90,899 72,752 53,913 Land . . . . . . . . . . . . . 19,038 11,761 14,099 Second mortgage. . . . . . . . . 533 2,733 1,204 Savings deposit. . . . . . . . . 410 747 1,496 Mobile home. . . . . . . . . . . 0 0 0 Other. . . . . . . . . . . . . . 1157 367 477 -------- -------- -------- Total loans originated . . . . $156,448 $125,657 $117,606 -------- -------- -------- -------- -------- -------- Loans refinanced . . . . . . . . . $ 20,533 $ 17,043 $ 56,208 -------- -------- -------- -------- -------- -------- Loans and mortgage-backed securities sold. . . . . . . . . $ 48,435 $ 36,251 $ 71,582 -------- -------- -------- -------- -------- -------- - ------------------- (1) Includes single-family and multi-family residential and commercial loans. 6 LOAN UNDERWRITING POLICIES The Bank's lending activities are subject to the Bank's written, non- discriminatory underwriting standards and to loan origination procedures prescribed by the Bank's Board of Directors and its management. Detailed loan applications are obtained to determine the borrower's ability to repay, and the more significant items on these applications are verified through the use of credit reports, financial statements and confirmations. Property valuations are generally performed by independent outside appraisers approved by the Bank's Board of Directors. The Bank's Loan Underwriter has authority to approve all fixed-rate single-family residential mortgage loans which meet FHLMC and FNMA underwriting guidelines and those adjustable-rate single-family residential mortgage loans which meet the Bank's underwriting standards and are in amounts of less than $400,000. The Board of Directors has established a Loan Committee comprised of the Chairman of the Board, President, Senior Vice President, other management and an outside director of the Bank. This committee reviews all loans approved by the underwriter and has the authority to approve adjustable rate single-family residential loans up to $400,000 and construction and commercial real estate loans up to $500,000. All loans in excess of the above amounts must be approved by the Board of Directors. All loans secured by savings deposits can be approved by lending officers based in the Bank's branch offices. It is the Bank's policy to have a mortgage creating a valid lien on real estate and to generally obtain a title insurance policy which insures that the property is free of prior encumbrances. When a title insurance policy is not obtained, an attorney's certificate is received. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood plain as designated by the Department of Housing and Urban Development, paid flood insurance policies. Most borrowers are also required to advance funds on a monthly basis together with each payment of principal and interest to a mortgage escrow account from which the Bank makes disbursements for items such as real estate taxes and homeowners insurance. The Bank is permitted to lend up to 100% of the appraised value of the real property securing a mortgage loan. However, if the amount of a residential loan originated or refinanced exceeds 90% of the appraised value, the Bank is required by federal regulations to obtain private mortgage insurance on that portion of the principal amount of the loan that exceeds 80% of the appraised value of the property. The Bank will make a single-family residential mortgage loan with up to a 90% loan-to-value ratio if the required private mortgage insurance is obtained. The Bank generally limits the loan-to-value ratio on multi-family and commercial real estate mortgages to 75%. Interest rates charged by the Bank on loans are affected principally by competitive factors, the demand for such loans and the supply of funds available for lending purposes and, in the case of fixed-rate, single-family residential loans, rates established by the FHLMC and the FNMA. These factors are, in turn, affected by general economic conditions, monetary policies of the federal government, including the Federal Reserve Board, legislative tax policies and government budgetary matters. RESIDENTIAL REAL ESTATE LENDING. The Bank historically has been and continues to be an originator of single-family, residential real estate loans in its market area. The Bank currently originates fixed-rate, residential mortgage loans in accordance with underwriting guidelines promulgated by the FHLMC and the FNMA and adjustable-rate mortgage loans for terms of up to 30 years. In addition, in accordance with FHLMC and FNMA guidelines, the Bank offers 30-year loans with interest rates that adjust after five or seven years to a rate which is 0.5% above the FHLMC 60 day delivery rate, at which point the rate is fixed over the remaining 25 or 23 years of the loan, respectively. At June 30, 1996, $114.4 million, or 38.4%, of the Bank's net loan and mortgage-backed securities portfolio consisted of single-family, conventional mortgage loans, of which approximately $84.6 million, or 74.0%, carried adjustable interest rates. Included in this amount are $3.4 million in second mortgage loans. Such loans are for terms of up to fifteen years and adjust annually to a rate which is 3.75% above the treasury rate. Any such loans having fixed rates are originated by the Bank to be swapped with the FHLMC and the FNMA in exchange for mortgage- backed securities available for sale or sold for cash in the secondary market. 7 The Bank offers adjustable-rate residential mortgage loans with interest rates which adjust annually based upon changes in an index based on the weekly average yield on United States Treasury securities adjusted to a constant comparable maturity of one year, as made available by the Federal Reserve Board (the "Treasury Rate"), plus a margin of 2.75%. The amount of any increase or decrease in the interest rate is presently limited to 2% per year, with a limit of 6% over the life of the loan. The adjustable-rate mortgage loans offered by the Bank, as well as many other savings institutions, provide for initial rates of interest below the rates which would prevail when the index used for repricing is applied. However, the Bank underwrites the loan on the basis of the borrower's ability to pay at the rate which would be in effect without the discount. COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE LENDING. The commercial real estate loans originated by the Bank are primarily secured by office buildings, shopping centers, warehouses and other income producing commercial property. The Bank's multi-family residential loans are primarily secured by apartment buildings. These loans are generally for a term of from 10 to 25 years with interest rates that adjust either annually or every three years based upon changes in the Treasury Rate, plus a negotiated margin of between 3.0% and 3.5%. Commercial and multi-family residential real estate loans amounted to $103.1 million, or 34.6%, of the total loan and mortgage-backed securities portfolio at June 30, 1996. Commercial real estate lending entails significant additional risks as compared with residential property lending. Commercial real estate loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the real estate project. These risks can be significantly impacted by supply and demand conditions in the market for office and retail space, and, as such, may be subject to a greater extent to adverse conditions in the economy. To minimize these risks, Park View Federal generally limits itself to its market area and to borrowers with which it has substantial experience or who are otherwise well known to the Bank. The Bank obtains financial statements and personal guarantees from all principals obtaining commercial real estate loans. CONSTRUCTION LOANS. The Bank also offers residential and commercial construction loans, with a substantial portion of such loans originated to date being for the construction of owner-occupied, single-family dwellings in the Bank's market area. Residential construction loans are offered to selected local developers to build single-family dwellings and to individuals building their primary or secondary residence. Generally, loans for the construction of owner-occupied, single-family residential properties are originated in connection with the permanent loan on the property and have a construction term of six to 18 months. Such loans are offered only on an adjustable rate basis. Interest rates on residential construction loans made to the eventual occupant are set at the prime rate plus 2%, and are fixed for the construction term. Interest rates on residential construction loans to builders are set at the prime rate plus 2%, and adjust quarterly. Interest rates on commercial construction loans float with a specified index, with construction terms generally not exceeding 18 months. Advances are generally paid directly to subcontractor's and suppliers and are made on a percentage of completion basis. At June 30, 1996, $76.7 million or 25.8%, of the Bank's total loan and mortgage- backed securities portfolio consisted of construction loans, virtually all of which were secured by single-family residences. Prior to making a commitment to fund a loan, the Bank requires both an appraisal of the property by appraisers approved by the Board of Directors and a study of the feasibility of the proposed project. The Bank also reviews and inspects each project at the commencement of construction and prior to every disbursement of funds during the term of the construction loan. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. 8 LAND LOANS. The Bank originates loans to builders and developers for the acquisition and/or development of vacant land. The proceeds of the loan are used to acquire the land and/or to make site improvements necessary to develop the land into saleable lots. The Bank will not originate land loans to individuals wishing to speculate in the value of land, and limits such loans to borrowers who have agreed to begin development of the property within two years of the date of the loan. The term of the loans are generally limited to two years. Repayments are made on the loans as the developed lots are sold. Land development and acquisition loans involve significant additional risks when compared with loans on existing residential properties. These loans typically involve large loan balances to single borrowers, and the payment experience is dependent on the successful development of the land and the sale of the lots. These risks can be significantly impacted by supply and demand conditions. To minimize these risks, Park View Federal generally limits the loans to builders and developers with whom it has substantial experience or who are otherwise well-known to the Bank, and it obtains the financial statements and personal guarantees of such builders and developers. The Bank also requires feasibility studies and market analyses to be performed with respect to the project. The amount of the loan is limited to the lesser of 80% of the estimated gross sell out value or 100% of the discounted value. If land is being acquired, the amount of the loan to be used for such purposes is limited to 75% of the cost of the land. All of these loans originated are within the Bank's market area. The Bank had $26.0 million, or 8.7% of its net loan and mortgage-backed securities portfolio, in land loans at June 30, 1996. HOME EQUITY LINE OF CREDIT LOANS. The Bank originates loans secured by mortgages on residential real estate. Such loans are for terms of 5 years with one 5 year review and renewal option followed by a balloon payment. The rate adjusts monthly to a rate ranging from the prime lending rate to prime plus 0.5%. At June 30, 1996, the Bank had $8.8 million in home equity lines of credit, which amounted to 2.9% of its net loan and mortgage-backed securities portfolio. LOAN FEES AND SERVICING In addition to interest earned on loans, Park View Federal receives fees for servicing loans which it had sold or swapped for mortgage-backed securities. During the year ended June 30, 1996, the Bank reported loan servicing fee income of $542,000, and at June 30, 1996, the Bank was servicing $171.1 million of loans for others. The Bank has been able to keep delinquencies on loans serviced for others to a relatively low level of below 1% of the aggregate outstanding balance of loans serviced as a result of its policy to limit servicing to loans it originated and subsequently sold to the FHLMC and the FNMA. Because of the success the Bank has experienced in this area and because it has data processing equipment that will allow it to expand its portfolio of serviced loans without incurring significant incremental expenses, the Bank intends in the future to augment its portfolio of loans serviced by continuing to originate and either swap such fixed-rate, single-family residential mortgage loans with the FHLMC and the FNMA in exchange for mortgage-backed securities or sell such loans for cash, while retaining servicing. On August 18, 1995, the Bank sold $146.0 million in FHLMC servicing to PVF and recognized no gain due to the transaction being an intercompany sale. PVF then entered into an agreement with the Bank to service the underlying loans for $8.00 per loan monthly. PVF borrowed $1.2 million to finance the purchase of this servicing. The servicing income from these loans will provide sufficient funds to pay both the servicing fee to the Bank and finance the debt incurred for the purchase of the servicing. In addition to loan servicing fees, the Bank receives fees in connection with loan commitments and originations, loan modifications, late payments and changes of property ownership and for miscellaneous services related to its loans. Loan origination fees are calculated as a percentage of the amount loaned. The Bank typically receives fees of up to three points (one point being equivalent to 1% of the principal amount of the loan) in connection with the origination of fixed-rate and adjustable-rate residential mortgage loans. All loan origination fees are deferred and accreted into income over the contractual life of the loan according to the interest method of recognizing income. If a loan is prepaid, refinanced or sold, all remaining deferred fees with respect to such loan are taken into income at such time. 9 Income from these activities varies from period to period with the volume and type of loans originated, sold and purchased, which in turn is dependent on prevailing mortgage interest rates and their effect on the demand for loans in the Bank's market area. MORTGAGE BANKING ACTIVITY At June 30, 1996 and June 30, 1995, the Bank had $11,204,000 and $4,451,000 of fixed rate single family mortgage loans available for sale. In connection with these activities the Bank establishes a mortgage banking reserve for market valuation losses. See Note 4 of Notes to Consolidated Financial Statements. NON-PERFORMING LOANS AND OTHER PROBLEM ASSETS It is management's policy to continually monitor its loan portfolio to anticipate and address potential and actual delinquencies. When a borrower fails to make a payment on a loan, the Bank takes immediate steps to have the delinquency cured and the loan restored to current status. Loans which are delinquent 15 days incur a late fee of 5% of the scheduled principal and interest payment. As a matter of policy, the Bank will contact the borrower after the loan has been delinquent 20 days. The Bank orders a property inspection after a loan payment becomes 45 days past due. If a delinquency exceeds 90 days in the case of a residential mortgage loan, 30 days in the case of a construction loan or 30-60 days for a loan on commercial real estate, the Bank will institute additional measures to enforce its remedies resulting from the loan's default, including, commencing foreclosure action. Loans which are delinquent 90 days or more generally are placed on non-accrual status, and formal legal proceedings are commenced to collect amounts owed. The following table sets forth information with respect to the Bank's non- performing loans and other problem assets at the dates indicated. During the periods shown, the Bank had no material restructured loans within the meaning of SFAS No. 15 as amended by SFAS No. 114 and SFAS No. 118.
At June 30, ------------------------------- 1996 1995 1994 1993 1992 ----- ------ ------ ------ ------ (Dollars in thousands) Non-accruing loans (1): Real estate. . . . . . . . . . . . . . . . . $2,272 $3,497 $3,274 $1,846 $3,591 Consumer loans . . . . . . . . . . . . . . 80 109 151 280 439 ------ ------ ------ ------ ------ Total. . . . . . . . . . . . . . . . . . $2,352 $3,606 $3,425 $2,126 $4,030 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Accruing loans which are contractually past due 90 days or more: Real estate. . . . . . . . . . . . . . . $ 95 $1,028 $ 891 $ 688 $1,945 ------ ------ ------ ------ ------ Total. . . . . . . . . . . . . . . . . $ 95 $1,028 $ 891 $ 688 $1,945 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total nonaccrual and 90 days past due loans . . . . . . . . . . . . $2,447 $4,634 $4,316 $2,814 $5,975 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of non-performing loans to total loans and mortgage-backed securities . . . . . . 0.82% 1.81% 2.05% 1.71% 3.66% ----- ------ ------ ------ ----- ----- ------ ------ ------ ----- Other non-performing assets (2). . . . . . . 53 $ 0 $ 20 $ 521 $ 466 ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ Total non-performing assets. . . . . . . . . $2,500 $4,634 $4,336 $3,335 $6,641 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total non-performing assets to total assets . . . . . . . . . . . . . . . 0.75% 1.47% 1.82% 1.73% 3.25% ----- ------ ------ ------ ----- ----- ------ ------ ------ -----
- ------------------ (1) Non-accrual status denotes loans on which, in the opinion of management, the collection of additional interest is unlikely, or loans that meet the non-accrual criteria established by regulatory authorities. A policy change to non-accruing loans effective with the fiscal year ending June 30, 1994 provided for the non-accrual of all loans classified as substandard, doubtful, or loss and all loans greater than 90-days past due with a loan- to-value ratio greater than 65%. Payments received on a non-accrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on an assessment of the collectibility of the principal balance of the loan. (2) Other non-performing assets represent property acquired by the Bank through foreclosure or repossession. It is the Bank's policy to classify as non-accruing any loan where less than the full required interest payment is made and to not record into income such partial interest payments. During the year ended June 30, 10 1996, gross interest income of $340,000 would have been recorded on loans accounted for on a non-accrual basis if such loans had been current throughout the period. At June 30, 1996, the Bank had no restructured loans. At June 30, 1996, non-accruing loans consisted of 49 loans totalling $2.4 million, and included 1 land loan in the amount of $56,000, 1 commercial real estate loan in the amount of $160,000, 5 construction loans aggregating $556,000, 30 conventional mortgage loans aggregating $1.5 million and 12 consumer loans aggregating $80,000. Most non-accruing consumer loans at June 30, 1996 were mobile home loans. Management has reviewed its non-accruing loans and believes that the allowance for loan losses is adequate. Real estate acquired by the Bank as a result of foreclosure is classified as real estate owned until such time as it is sold. At June 30, 1996, the Bank had two real estate owned properties aggregating $52,000. ASSET CLASSIFICATION AND ALLOWANCE FOR LOAN LOSSES. Federal regulations require savings institutions to review their assets on a regular basis and to classify them as "substandard," "doubtful" or "loss," if warranted. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge off such amount. An asset which does not currently warrant classification but which possesses weaknesses or deficiencies deserving close attention is required to be designated as "special mention." The Bank has established an Asset Classification Committee, which is comprised of the Chairman of the Board, the Chief Financial Officer and senior employees of the Bank. The Asset Classification Committee meets quarterly to review the Bank's loan portfolio and determine which loans should be placed on a "watch-list" of potential problem loans which are considered to have more than normal credit risk. Currently, general loss allowances (up to 1.25% of risk-based assets) established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution's regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. See "Regulation -- Regulatory Capital Requirements." OTS examiners may disagree with the insured institution's classifications and amounts reserved. If an institution does not agree with an examiner's classification of an asset, it may appeal this determination to the OTS. At June 30, 1996, total non-accrual and 90 days past due loans and other non-performing assets were $2.5 million, of which amount approximately $2.4 million were classified as follows: $2.1 million were classified as substandard; and $267,000 were classified as loss. In addition, the Bank has determined that at June 30, 1996, it had $2.1 million in assets classified as substandard, $267,000 of assets classified as loss and $386,000 of assets designated as special mention. Special mention loans included $294,000 in single-family mortgage loans and $92,000 in commercial real estate loans, and consisted of performing loans. For additional information, see " -- Non-Performing Loans and Other Problem Assets" and Note 4 of Notes to Consolidated Financial Statements. In originating loans, the Bank recognizes that credit losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan. It is management's policy to maintain an adequate allowance for loan losses based on, among other things, the Bank's and the industry's historical loan loss experience, evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. The Bank increases its allowance for loan losses by charging provisions for possible loan losses against the Bank's income. General allowances are made pursuant to management's assessment of risk in the Bank's loan portfolio as a whole. Specific allowances are provided for individual loans when ultimate collection is considered questionable by management after reviewing the current status of loans which are contractually past due and considering the net realizable value of the security for the loan. Management continues to actively monitor the Bank's asset quality and to charge off loans against the allowance for loan losses when appropriate or to provide specific loss reserves when necessary. Although management believes it uses the best information available to make determinations with respect 11 to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the economic conditions in the assumptions used in making the initial determinations. The following table summarizes the activity in the allowance for loan losses for the periods indicated. YEAR ENDED JUNE 30, -------------------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------- (IN THOUSANDS) Balance at beginning of year . . . $2,402 $2,075 $2,738 $2,949 $2,047 ------ ------ ------ ------ ------ Charge-offs: Mortgage loans . . . . . . . . . 241 77 140 334 168 Consumer loans (1) . . . . . . . 24 18 23 70 99 ------ ------ ------ ------ ------ Total charge-offs. . . . . . . 265 95 163 404 267 ------ ------ ------ ------ ------ Recoveries: Mortgage loans . . . . . . . . . 5 4 0 0 96 Consumer loans (1) . . . . . . . 6 2 0 25 21 ------ ------ ------ ------ ------ Total recoveries . . . . . . . 11 6 0 25 117 ------ ------ ------ ------ ------ Net charge-offs. . . . . . . . . . 254 89 163 379 150 ------ ------ ------ ------ ------ Transfer to mortgage banking reserve. . . . . . . . . . . . . 0 0 500 0 0 Provision charged to income. . . . 417 416 0 168 1,052 ------ ------ ------ ------ ------ Balance at end of year . . . . . . $2,565 $2,402 $2,075 $2,738 $2,949 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of net charge-offs during the year to average loans outstanding during the year. . . 0.0% 0.0% 0.1% 0.2% 0.1% ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ - --------------------- (1) Consists primarily of mobile home loans. 12 The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.
AT JUNE 30, 1996 1995 1994 1993 1992 ------------------- ------------------- -------------------- ------------------- ------------------- % OF LOANS % OF LOANS % OF LOANS % OF LOANS % OF LOANS IN IN IN IN IN CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO TOTAL NET TOTAL NET TOTAL NET TOTAL NET TOTAL NET LOANS LOANS LOANS LOANS LOANS AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- (DOLLARS IN THOUSANDS) Mortgage Loans: Single-family . . . $ 977 55.11% $ 857 54.27% $ 743 50.34% $ 137 58.47% $ 199 58.34% Multi-family. . . . 163 10.51% 295 15.36% 188 15.91% 363 9.91% 185 10.18% Commercial. . . . . 968 24.71% 940 22.42% 636 25.03% 619 22.90% 519 23.29% Land. . . . . . . . 210 8.90% 154 7.11% 168 7.75% 27 7.49% 33 5.92% Unallocated. . . . 123 0.00% 0 0.00% 109 0.00% 959 0.00% 1,303 0.00% ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- Total mortgage loans. . . . . . $2,441 99.23% $2,246 99.16% $1,844 99.03% $2,105 98.77% $2,239 97.73% ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- Consumer loans (1) . 124 0.77% 156 0.84% 231 0.97% 633 1.23% 710 2.27% ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- Total allowance for loan losses. . $2,565 100.00% $2,402 100.00% $2,075 100.00% $2,738 100.00% $2,949 100.00% ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
- --------------- (1) Consists of property improvement loans and mobile home loans. 13 INVESTMENT ACTIVITIES Park View Federal is required under federal regulations to maintain a minimum amount of liquid assets, which can be invested in specified short-term securities, and is also permitted to make certain other investments. See "Regulation -- Liquidity Requirements". Park View Federal maintains a liquidity portfolio well in excess of the amount required to satisfy regulatory requirements. The Bank's liquidity ratio of 10.26% at June 30, 1996 exceeded the 5% regulatory requirement. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives, management's judgment as to the attractiveness of the yields then available in relation to other opportunities, its expectations of the level of yield that will be available in the future and its projections as to the short-term demand for funds to be used in the Bank's loan origination and other activities. Park View Federal's investment policy currently allows for investment in various types of liquid assets, including United States Government and Agency securities, time deposits at the FHLB of Cincinnati, certificates of deposit or bankers' acceptances at other federally insured depository institutions and mortgage-backed securities. The general objective of Park View Federal's investment policy is to maximize returns without compromising liquidity or creating undue credit or interest rate risk. In accordance with the investment policy, at June 30, 1996 Park View Federal had investments in Government and agency notes, federal funds sold, FHLB of Cincinnati stock and interest-bearing deposits in other financial institutions. In accordance with GAAP, the Bank reports its investments, other than marketable equity securities and investments available for sale, at cost as adjusted for discounts and unamortized premiums and only recognizes realized gains or losses in income. The Bank's generally holds all investment securities until maturity. Any FHLMC mortgage-backed securities created from loans originated by the Bank for sale will be designated available for sale. For additional information see Notes 1 and 2 of Notes to Consolidated Financial Statements. At present, management is not aware of any conditions or circumstances which could impair its ability to hold its remaining investment securities to maturity. Accordingly, management does not anticipate that it will be required to reclassify any other investment securities as available for sale. The following table sets forth the carrying value of the Bank's investment securities portfolio, short-term investments and FHLB of Cincinnati stock at the dates indicated. At June 30, 1996 the market values of the Bank's investment securities portfolio was $13.9 million. AT JUNE 30, --------------------------------- 1996 1995 1994 ------- ------- ------- (IN THOUSANDS) Investment securities: U.S. Government and agency securities. . $14,094 $41,194 $ 8,351 ------- ------- ------- Total investment securities. . . . . 14,094 41,194 8,351 Interest-bearing deposits. . . . . . . . . 245 650 156 Federal funds sold . . . . . . . . . . . . 6,875 5,325 9,725 FHLB of Cincinnati stock . . . . . . . . . 1,880 1,756 1,332 ------- ------- ------- Total investments. . . . . . . . . . . $23,094 $48,925 $19,564 ------- ------- ------- ------- ------- ------- 14 The following table sets forth the scheduled maturities, carrying values, market values and average yields for the Bank's investment securities at June 30, 1996.
AT JUNE 30, 1996 ------------------------------------------------------------------------------------------------------------ ONE YEAR ONE TO FIVE FIVE TO 10 MORE THAN OR LESS YEARS YEARS 10 YEARS TOTAL INVESTMENT SECURITIES ----------------- ------------------ ------------------ ------------------ ---------------------------- CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING MARKET AVERAGE VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE VALUE YIELD -------- ------- -------- ------- -------- ------- -------- ------- -------- ------ ------- (DOLLARS IN THOUSANDS) U.S. Government and agency securities . $ 100 6.40% $13,994 6.62% $0 0.00% $ 0 0.00% $14,094 $13,894 6.62% Deposits(1). . . . . 7,120 5.36% 0 0.00% 0 0.00% 0 0.00% 7,120 7,120 5.36% FHLB stock . . . . . 0 0.00% 0 0.00% 0 0.00% 1,880 7.00% 1,880 1,880 7.00% ------ ------- -- ------ ------- ------- Total. . . . . . . $7,220 5.37% $13,994 6.62% $0 0.00% $1,880 7.00% $23,094 $22,894 6.26% ------ ------- -- ------ ------- ------- ------ ------- -- ------ ------- -------
_______________ (1) Includes interest-bearing deposits at other financial institutions and federal funds sold. 15 DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS GENERAL. Deposits are the primary source of the Bank's funds for lending, investment activities and general operational purposes. In addition to deposits, Park View Federal derives funds from loan principal and interest repayments, maturities of investment securities and interest payments thereon. Although loan repayments are a relatively stable source of funds, deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds, or on a longer term basis for general operational purposes. DEPOSITS. The Bank attracts deposits principally from within its primary market area by offering a variety of deposit instruments, including checking accounts, money market accounts, regular savings accounts and certificates of deposit which range in maturity from seven days to four years. Deposit terms vary according to the minimum balance required, the length of time the funds must remain on deposit and the interest rate. Maturities, terms, service fees and withdrawal penalties for its deposit accounts are established by the Bank on a periodic basis. Park View Federal generally reviews its deposit mix and pricing on a weekly basis. In determining the characteristics of its deposit accounts, Park View Federal considers the rates offered by competing institutions, funds acquisition and liquidity requirements, growth goals and federal regulations. The Bank does not accept brokered deposits due to the volatility and rate sensitivity of such deposits. Park View Federal competes for deposits with other institutions in its market area by offering deposit instruments that are competitively priced and providing customer service through convenient and attractive offices, knowledgeable and efficient staff and hours of service that meet customers' needs. To provide additional convenience, Park View Federal participates in MAC (money access card) Automated Teller Machine networks at locations throughout Ohio and other participating states, through which customers can gain access to their accounts at any time. With improved capital levels resulting from the Conversion, the Bank was positioned for growth. Consequently, management's decision to aggressively match market savings rates along with the opening of two new branch offices during the fiscal year ended June 30, 1995 resulted in increased deposits. Deposit balances totalled $271.0 million, $272.3 million, and $197.0 million at the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Deposits in the Bank as of June 30, 1996 were represented by the various programs described below. WEIGHTED AVERAGE PERCENTAGE INTEREST MINIMUM MINIMUM BALANCE IN OF TOTAL RATE TERM CATEGORY BALANCE THOUSANDS DEPOSITS - -------- ------- -------- ------- ---------- ---------- 2.00% None NOW accounts $ 50 $ 14,528 4.40% 2.75% None Passbook statement accounts 5 31,883 11.45% 3.87% None Money market accounts 1,000 5,279 1.89% 0.00% None Non-interest-earning demand accounts 50 5,528 1.39% -------- ------ $ 57,218 19.13% -------- ------ CERTIFICATES OF DEPOSIT ----------------------- 5.47% 3 months or less 500 64,677 17.45% 5.47% 3 - 6 months 500 30,563 10.59% 5.65% 6 - 12 months 500 71,172 30.92% 6.20% 1 - 3 years 500 25,746 11.43% 6.90% More than three years 500 21,669 10.48% -------- ------ 5.76% Total certificates of deposit $213,827 80.87% -------- ------ 5.06% Total deposits $271,045 100.00% -------- ------ -------- ------ 16 The following table sets forth the change in dollar amount of deposits in the various types of accounts offered by the Bank between the dates indicated.
AT JUNE 30, 1996 AT JUNE 30, 1995 AT JUNE 30, 1994 -------------------------------- ---------------------------------- ---------------------- INCREASE INCREASE (DECREASE) (DECREASE) % OF FROM PRIOR % OF FROM PRIOR % OF BALANCE DEPOSITS YEAR BALANCE DEPOSITS YEAR BALANCE DEPOSITS ------- -------- --------- -------- -------- --------- ------- -------- (DOLLARS IN THOUSANDS) NOW checking (1) . . . $ 20,056 7.44% $ 4,294 $ 15,762 5.79% $ 1,968 $ 13,794 7.00% Super NOW checking and money market . . . . 5,279 1.91% 126 5,153 1.89% (1,940) 7,093 3.60% Passbook and regular savings. . . . . . . 31,883 11.76% 712 31,171 11.45% (5,813) 36,984 18.76% Jumbo certificates . . 31,923 11.78% (1,728) 33,651 12.36% 16,073 17,578 8.92% Other certificates . . 146,040 53.88% (5,011) 151,051 55.47% 58,568 92,483 46.94% Keogh accounts . . . . 2,261 0.83% 41 2,220 0.82% (178) 2,398 1.22% IRA accounts . . . . . 33,603 12.40% 321 33,282 12.22% 6,571 26,711 13.56% -------- ------- ------- -------- ------- -------- -------- ------- Total. . . . . . . $271,045 100.00% ($1,245) $272,290 100.00% $ 75,249 $197,041 100.00% -------- -------- ------- -------- ------- -------- -------- ------- -------- ------- ------- -------- ------- -------- -------- -------
_____________ (1) Includes non-interest-bearing demand accounts. The following table sets forth the average balances and average interest rates based on month-end balances for interest-bearing demand deposits and time deposits during the periods indicated.
FOR THE YEAR ENDED JUNE 30, ---------------------------------------------------------------------------------------- 1996 1995 1994 ----------------------------- ---------------------------- ---------------------------- INTEREST- INTEREST- INTEREST- BEARING BEARING BEARING DEMAND SAVINGS TIME DEMAND SAVINGS TIME DEMAND SAVINGS TIME DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS -------- -------- -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Average balance. . . $17,703 $31,399 $221,872 $16,469 $32,775 $182,740 $18,304 $39,862 $122,017 Average rate paid. . 2.34% 2.76% 6.13% 2.20% 2.78% 5.57% 2.36% 2.84% 4.77%
17 The following table sets forth the time deposits in the Bank classified by rates as of the dates indicated. AT JUNE 30, --------------------------------------- RATE 1996 1995 1994 - --------- --------- -------- --------- (IN THOUSANDS) 2.50% - 3.99%. . . . . $ 7 $ 0 $ 42,172 4.00% - 5.99%. . . . . 147,934 68,400 75,713 6.00% - 7.99%. . . . . 65,721 149,960 13,241 8.00% - 9.99%. . . . . 165 1,497 3,253 10.00% - 11.99%. . . . . 0 349 2,777 12.00% - 13.99%. . . . . 0 0 2,014 -------- -------- -------- $213,827 $220,206 $139,170 -------- --------- -------- The following table sets forth the amount and maturities of time deposits in specified weighted average interest rate categories at June 30, 1996.
AMOUNT DUE ----------------------------------------------------------------------- ONE YEAR AFTER RATE OR LESS 1-2 YEARS 2-3 YEARS 3 YEARS TOTAL ----------- ----------- ----------- --------- ------- ------- (IN THOUSANDS) 2.50% - 3.99% . . . . . $ 7 $ 0 $ 0 $ 0 $ 7 4.00% - 5.99%. . . . . 134,098 6,387 5,069 2,380 147,934 6.00% - 7.99%. . . . . 32,308 8,628 5,653 19,132 65,721 8.00% - 9.99%. . . . . 0 8 0 157 165 -------- -------- ------- -------- -------- $166,413 $ 15,023 $10,722 $ 21,669 $213,827 -------- -------- ------- -------- -------- -------- -------- ------- -------- --------
The rates currently paid on certificates maturing within one year or less are lower than the rates currently being paid on similar certificates of deposit maturing thereafter. The Bank will seek to retain these deposits to the extent consistent with its long-term objective of maintaining positive interest rate spreads. Depending upon interest rates existing at the time such certificates mature, the Bank's cost of funds may be significantly affected by the rollover of these funds. A decrease in such cost of funds, if any, may have a material impact on the Bank's operations. To the extent such deposits do not rollover, the Bank may, if necessary, use other sources of funds, including borrowings from the FHLB of Cincinnati, to replace such deposits. See "-- Borrowings." The following table indicates the amount of the Bank's certificates of deposit of $100,000 or more by time remaining until maturity as of June 30, 1996. CERTIFICATES MATURITY PERIOD OF DEPOSIT --------------- --------------- (IN THOUSANDS) Three months or less. . . . . . . . . . . . . $11,386 Three through six months. . . . . . . . . . . 6,778 Six through 12 months . . . . . . . . . . . . 11,310 Over 12 months. . . . . . . . . . . . . . . . 7,297 ------- Total . . . . . . . . . . . . . . . . . . $36,771 ------- ------- 18 The following table sets forth the Bank's deposit activities for the periods indicated. YEAR ENDED JUNE 30, -------------------------------------- 1996 1995 1994 --------- -------- -------- (IN THOUSANDS) Deposits . . . . . . . . . . . . . $ 50,688 $100,324 $ 50,702 Withdrawals. . . . . . . . . . . . 62,229 33,261 29,417 --------- -------- -------- Net increase (decrease) before interest credited . . . (11,541) 67,063 21,285 Interest credited. . . . . . . . . 10,296 8,186 5,140 --------- -------- -------- Net increase (decrease) in Savings deposits . . . . . . . $ (1,245) $ 75,249 $ 26,425 --------- -------- -------- --------- -------- -------- BORROWINGS. Savings deposits historically have been the primary source of funds for the Bank's lending, investments and general operating activities. The Bank is authorized, however, to use advances from the FHLB of Cincinnati to supplement its supply of lendable funds and to meet deposit withdrawal requirements. The FHLB of Cincinnati functions as a central reserve bank providing credit for savings institutions and certain other member financial institutions. As a member of the FHLB System, Park View Federal is required to own stock in the FHLB of Cincinnati and is authorized to apply for advances. Advances are pursuant to several different programs, each of which has its own interest rate and range of maturities. Park View Federal has a Blanket Agreement for advances with the FHLB under which the Bank may borrow up to 25% of assets subject to normal collateral and underwriting requirements. The Bank currently has a commitment with the Federal Home Loan Bank of Cincinnati for a flexible line of credit, referred to as a cash management advance, in the amount of $30 million that was drawn upon in the amount of $16 million at June 30, 1996. Advances from the FHLB of Cincinnati are secured by the Bank's stock in the FHLB of Cincinnati and other eligible assets. For additional information please refer to Note 8 of Notes to Consolidated Financial Statements. The following table sets forth certain information regarding the Bank's advances from the FHLB of Cincinnati for the periods indicated: YEAR ENDED JUNE 30, ------------------------------- 1996 1995 1994 -------- -------- ------ (DOLLARS IN THOUSANDS) Maximum amount outstanding at any month end. . . . . . . . . . . . . . . . . $27,482 $29,000 $22,560 Approximate average outstanding balance. . . 10,623 16,870 14,289 Approximate weighted average rate paid (1) . . . . . . . . . . . . . . . . . 5.13% 4.39% 4.94% - ------------------------ (1) Computed from average monthly balances. The weighted average rates outstanding on FHLB advances was 5.46%, 4.15% and 4.81% at June 30, 1996, 1995 and 1994, respectively. At the years ended June 30, 1996, 1995, and 1994 PVFSC had loans outstanding of $1.7 million, $1.8 million and $0.6 million collateralized by real estate and guaranteed by PVF. At the year ended June 30, 1996 PVF had a loan outstanding for $1.0 million collateralized by mortgage servicing rights. SUBSIDIARY ACTIVITIES As a result of regulatory changes mandated by FIRREA, savings associations are currently required to deduct from regulatory capital calculations their investment in and extensions of credit to service corporations engaged in activities not permissible for a national bank. The land acquisition and development activities of PVFSC are not permissible for national banks. As a result, the Bank's net investment in and extensions of credit to PVFSC must be deducted from capital in their entirety. It was for this reason that PVF purchased the stock of PVFSC from Park View Federal. The effect of this transaction to the Bank was to increase GAAP capital by $785,000 and 19 eliminate the Bank's net investment in and deduction for PVF Service Corp. from its books, thus increasing regulatory capital by $1.2 million. The Bank is now required to give the FDIC and the Director of OTS 30 days prior notice before establishing or acquiring a new subsidiary or commencing a new activity through an existing subsidiary. Both the FDIC and the Director of OTS have the authority to prohibit the initiation or to order the termination of subsidiary activities determined to pose a risk to the safety or soundness of the institution. As a federally chartered savings bank, Park View Federal is permitted to invest an amount equal to 2% of its assets in subsidiaries, with an additional investment of 1% of assets where such investment serves primarily community, inner-city and community development purposes. Under such limitations, as of June 30, 1996, Park View Federal was authorized to invest up to approximately $9.9 million in the stock of or loans to subsidiaries, including the additional 1% investment for community inner-city and community development purposes. Institutions meeting their applicable minimum regulatory capital requirements may invest up to 50% of their regulatory capital in conforming first mortgage loans to subsidiaries in which they own 10% or more of the capital stock. Park View Federal currently exceeds its regulatory capital requirements. PVF has two active subsidiaries, Park View Federal and PVFSC, which is engaged in the activities of land acquisition and development. At June 30, 1996, PVFSC had an investment in two properties aggregating $855,000, described below. In addition PVF has three non-active subsidiaries, PVF Community Development Corp., PVF Mortgage Corp., and Mid Pines Land Company, which have been chartered for future activity. MID PINES. Mid-Pines consists of two adjacent parcels of land aggregating 257 acres in Solon, Ohio. In 1983, PVFSC acquired a 150 acre parcel from the Bank, which property the Bank acquired in foreclosure. The 150 acre parcel included 85 acres of vacant land and a 65 acre golf course. PVFSC acquired the additional 107 acre parcel of land in 1985 for $150,000. PVFSC acquired the properties as an investment. Mid-Pines was appraised in 1994 at a value of $2.5 million. Mid Pines had a net book value of $820,000 at June 30, 1996. PVFSC intends to submit a Planned Unit Development (PUD) proposal to the City of Solon for their approval during the fiscal year ended June 30, 1997. DEER LAWN FARMS. In 1987, PVFSC acquired Deer Lawn Farms, which consists of 84.5 acres of vacant land in Solon, Ohio. Initially, PVFSC had sought to develop and subdivide the property into 42 lots for sale as residential building sites. However, PVFSC encountered environmental regulatory permit issues that would have delayed the development of the project. Consequently, PVFSC determined to divide the property into 10 lots of at least 4.6 acres. At June 30, 1996, Deer Lawn Farms had a net book value of $35,000. PVF estimates the fair market value of the two remaining lots to approximate book value at June 30, 1996. COMPETITION The Bank faces strong competition both in originating real estate and other loans and in attracting deposits. The Bank competes for real estate and other loans principally on the basis of interest rates and the loan fees it charges, the type of loans it originates and the quality of services it provides to borrowers. Its competition in originating real estate loans comes primarily from other savings institutions, commercial banks and mortgage bankers making loans secured by real estate located in the Bank's market area. The Bank attracts all its deposits through its branch offices primarily from the communities in which those branch offices are located. Consequently, competition for deposits is principally from other savings institutions, commercial banks, credit unions and brokers in these communities. Park View Federal competes for deposits and loans by offering a variety of deposit accounts at competitive rates, a wide array of loan products, convenient 20 business hours and branch locations, a commitment to outstanding customer service and a well-trained staff. In addition, the Bank believes it has developed strong relationships with local businesses, realtors, builders, and the public in general, giving it an excellent image in the community. EMPLOYEES As of June 30, 1996, PVF and its subsidiaries had 115 full-time employees and 17 part-time employees, none of whom was represented by a collective bargaining agreement. The Company believes it enjoys a good relationship with its personnel. REGULATION OF THE BANK GENERAL. As a savings institution, Park View Federal is subject to extensive regulation by the OTS, and its deposits are insured by the SAIF, which is administered by the FDIC. The lending activities and other investments of the Bank must comply with various federal regulatory requirements. OTS periodically examines the Bank for compliance with various regulatory requirements. The FDIC also has the authority to conduct special examinations of SAIF-insured savings institutions. The Bank must file reports with OTS describing its activities and financial condition. The Bank is also subject to certain reserve requirements promulgated by the Federal Reserve Board. This supervision and regulation is intended primarily for the protection of depositors. Certain of these regulatory requirements are referred to below or elsewhere herein. REGULATORY CAPITAL REQUIREMENTS. Under OTS regulations, savings institutions must maintain "tangible" capital equal to 1.5% of adjusted total assets, "core" capital equal to 3.0% of adjusted total assets and "total capital," a combination of core and "supplementary" capital, equal to 8.0% of "risk-weighted" assets. In addition, the OTS has adopted regulations which impose certain restrictions on savings associations that have a total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0% if the institution is rated composite 1 under the OTS examination rating system). For purposes of these regulations, Tier 1 capital has the same definitions as core capital. See "-- Prompt Corrective Regulatory Action." The Bank is in compliance with all applicable regulatory capital requirements. The core and tangible capital requirements are measured against adjusted total assets, which are a savings institution's consolidated total assets as determined under GAAP adjusted for certain goodwill amounts and increased by a pro rated portion of the assets of subsidiaries in which the savings institution holds a minority interest and which are not engaged in activities for which the capital rules require the savings institution to net its debt and equity investments in such subsidiaries against capital, as well as a pro rated portion of the assets of other subsidiaries for which netting is not fully required under phase-in rules. Adjusted total assets are reduced by the amount of assets that have been deducted from capital, the portion of savings institution's investments in subsidiaries that must be netted against capital under the capital rules and, for purposes of the core capital requirement, qualifying supervisory goodwill. At June 30, 1996, Park View Federal's adjusted total assets for purposes of the core and tangible capital requirements were $335.0 million. In determining compliance with the risk-based capital requirement, a savings institution calculates its total capital, which may include both core capital and supplementary capital, provided the amount of supplementary capital used does not exceed the savings institution's core capital. Supplementary capital is defined to include certain preferred stock issues, nonwithdrawable accounts and pledged deposits that do not qualify as core capital, certain approved subordinated debt, certain other capital instruments and a portion of the savings institution's general loss allowances. The risk-based capital requirement is measured against risk-weighted assets, which equal the sum of each asset and the credit-equivalent amount of each off-balance sheet item after being multiplied by an assigned risk 21 weight. Under the OTS risk-weighting system, single-family first mortgages not more than 90 days past due with loan-to-value ratios under 80%, and multi-family mortgages (maximum 36 dwelling units) with loan-to-value ratios under 80% and average annual occupancy rates over 80%, are assigned a risk weight of 50%. Consumer loans, residential construction loans and commercial real estate loans are assigned a risk weight of 100%. Mortgage-backed securities issued, or fully guaranteed as to principal and interest, by the FNMA or FHLMC are assigned a 20% risk weight. Cash and United States Government securities backed by the full faith and credit of the United States Government are given a 0% risk weight. Under the risk-based capital requirement, a savings institution is required to maintain total capital, consisting of core capital plus certain other components, including general valuation allowances, equal to 8.0% of risk-weighted assets. At June 30, 1996, the Bank's risk-weighted assets were $232.1 million, and its total regulatory capital was $26.5 million, or 11.4% of risk-weighted assets. The table below presents the Bank's capital position at June 30, 1996, relative to its various minimum regulatory capital requirements.
AT JUNE 30, 1996 ------------------------ PERCENT OF AMOUNT ASSETS (1) ------------------------ (DOLLARS IN THOUSANDS) Tangible Capital. . . . . . . . . . . . $24,282 7.25% Tangible Capital Requirement. . . . . . 5,026 1.50 ------- ------ Excess . . . . . . . . . . . . . . . $19,256 5.75% ------- ------ ------- ------ Tier 1/Core Capital . . . . . . . . . . $24,282 7.25% Tier 1/Core Capital Requirement.. . . . 13,402 4.00 ------- ------ Excess . . . . . . . . . . . . . . . $10,880 3.25% ------- ------ ------- ------ Tier 1 Risk-Based Capital . . . . . . . $ 24,282 10.46% Tier 1 Risk-Based Capital Requirement.. 7,986 4.00 ------- ------ Excess . . . . . . . . . . . . . . . $ 16,296 6.46% ------- ------ ------- ------ Risk-Based Capital. . . . . . . . . . . $ 26,510 11.42% Risk-Based Capital Requirement. . . . . 18,565 8.00 ------- ------ Excess. . . . . . . . . . . . . . . . $ 7,945 3.42% ------- ------ ------- ------ ---------------- (1) Based upon adjusted total assets for purposes of the tangible, core and Tier 1 capital requirements, and risk-weighted assets for purposes of the Tier 1 risk-based and risk-based capital requirements.
The OTS has adopted an amendment to its risk-based capital requirements that requires savings institutions with more than a "normal" level of interest rate risk to maintain additional total capital. A savings institution's interest rate risk will be measured in terms of the sensitivity of its "net portfolio value" to changes in interest rates. Net portfolio value is defined, generally, as the present value of expected cash inflows from existing assets and off-balance sheet contracts less the present value of expected cash outflows from existing liabilities. A savings institution will be considered to have a "normal" level of interest rate risk exposure if the decline in its net portfolio value after an immediate 200 basis point increase or decrease in market interest rates (whichever results in the greater decline) is less than two percent of the current estimated economic value of its assets. A savings institution with a greater than normal interest rate risk will be required to deduct from total capital, for purposes of calculating its risk-based capital requirement, an amount (the "interest rate risk component") equal to one-half the difference between the institution's measured interest rate risk and the normal level of interest rate risk, multiplied by the economic value of its total assets. At June 30, 1996 the Bank had no interest rate risk component deduction from total capital. The OTS will calculate the sensitivity of a savings institution's net portfolio value based on data submitted by the institution in a schedule to its quarterly Thrift Financial Report and using the interest rate risk measurement model adopted by the OTS. The amount of the interest rate risk component, if any, to be deducted from a savings institution's total capital will be based on the institution's Thrift Financial Report filed two quarters earlier. Savings institutions with less than $300 million in assets and a risk-based capital ratio above 12% are generally exempt from 22 filing the interest rate risk schedule with their Thrift Financial Reports. However, the OTS will require any exempt savings institution that it determines may have a high level of interest rate risk exposure to file such schedule on a quarterly basis. The OTS has proposed an amendment to its capital regulations establishing a minimum 3% core capital ratio for savings institutions in the strongest financial and managerial condition. For all other savings associations, the minimum core capital ratio would be 3% plus at least an additional 100 to 200 basis points. In determining the amount of additional capital, the OTS would assess both the quality of risk management systems and the level of overall risk in each individual savings association through the supervisory process on a case-by-case basis. As a result, the exact effect on the Bank cannot be predicted at this time. In addition to requiring generally applicable capital standards for savings institutions, the Director of OTS may establish the minimum level of capital for a savings institution at such amount or at such ratio of capital-to-assets as the Director determines to be necessary or appropriate for such institution in light of the particular circumstances of the institution. The Director of OTS may treat the failure of any savings institution to maintain capital at or above such level as an unsafe or unsound practice and may issue a directive requiring any savings institution which fails to maintain capital at or above the minimum level required by the Director to submit and adhere to a plan for increasing capital. Such an order may be enforced in the same manner as an order issued by the FDIC. PROMPT CORRECTIVE REGULATORY ACTION. Under FDICIA, the federal banking regulators are required to take prompt corrective action if an insured depository institution fails to satisfy certain minimum capital requirements. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees if the institution would thereafter fail to satisfy the minimum levels for any of its capital requirements. An institution that fails to meet the minimum level for any relevant capital measure (an "undercapitalized institution") may be: (i) subject to increased monitoring by the appropriate federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions, branching and new lines of businesses. The capital restoration plan must include a guarantee by the institution's holding company that the institution will comply with the plan until it has been adequately capitalized on average for four consecutive quarters, under which the holding company would be liable up to the lesser of 5% of the institution's total assets or the amount necessary to bring the institution into capital compliance as of the date it failed to comply with its capital restoration plan. A "significantly undercapitalized" institution, as well as any undercapitalized institution that did not submit an acceptable capital restoration plan, may be subject to regulatory demands for recapitalization, broader application of restrictions on transactions with affiliates, limitations on interest rates paid on deposits, asset growth and other activities, possible replacement of directors and officers, and restrictions on capital distributions by any bank holding company controlling the institution. Any company controlling the institution could also be required to divest the institution or the institution could be required to divest subsidiaries. Under implementing regulations, the federal banking regulators will measure a depository institution's capital adequacy on the basis of the institution's total risk-based capital ratio (the ratio of its total capital to risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core capital to risk- weighted assets) and leverage ratio (the ratio of its core capital to adjusted total assets). Under the regulations, a savings association that is not subject to an order or written directive to meet or maintain a specific capital level will be deemed "well capitalized" if it also has: (i) a total risk-based capital ratio of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) a leverage ratio of 5.0% or greater. An "adequately capitalized" savings association is a savings association that does not meet the definition of well capitalized and has: (i) a total risk-based capital ratio of 8.0% or greater; (ii) a Tier 1 capital risk-based ratio of 4.0% or greater; and (iii) a leverage ratio of 4.0% or greater (or 3.0% or greater if the savings association has a composite 1 CAMEL rating). An "undercapitalized institution" is a savings association that has (i) a total risk-based capital ratio less than 8.0%; or (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0% (or 3.0% if the association has a composite 1 23 CAMEL rating). A "significantly undercapitalized" institution is defined as a savings association that has: (i) a total risk-based capital ratio of less than 6.0%; or (ii) a Tier 1 risk-based capital ratio of less than 3.0%; or (iii) a leverage ratio of less than 3.0%. A "critically undercapitalized" savings association is defined as a savings association that has a ratio of core capital to total assets of less than 2.0%. The OTS may reclassify a well capitalized savings association as adequately capitalized and may require an adequately capitalized or undercapitalized association to comply with the supervisory actions applicable to associations in the next lower capital category if the OTS determines, after notice and an opportunity for a hearing, that the savings association is in an unsafe or unsound condition or that the association has received and not corrected a less-than-satisfactory rating for any CAMEL rating category. The Bank is classified as "well capitalized" under these regulations. SAFETY AND SOUNDNESS STANDARDS. Under FDICIA, as amended by the Riegle Community Development and Regulatory Act of 1994 (the "CDRI Act"), each Federal banking agency is required to establish safety and soundness standards for institutions under its authority. On July 10, 1995, the Federal banking agencies, including the OTS, released Interagency Guidelines Establishing Standards for Safety and Soundness and published a final rule establishing deadlines for submission and review of safety and soundness compliance plans. The final rule and the guidelines go into effect on August 9, 1995. The guidelines require savings institutions to maintain internal controls and information systems and internal audit systems that are appropriate for the size, nature and scope of the institution's business. The guidelines also establish certain basic standards for loan documentation, credit underwriting, interest rate risk exposure, and asset growth. The guidelines further provide that savings institutions should maintain safeguards to prevent the payment of compensation, fees and benefits that are excessive or that could lead to material financial loss, and should take into account factors such as comparable compensation practices at comparable institutions. If the OTS determines that a savings institution is not in compliance with the safety and soundness guidelines, it may require the institution to submit an acceptable plan to achieve compliance with the guidelines. A savings institution must submit an acceptable compliance plan to the OTS within 30 days of receipt of a request for such a plan. Failure to submit or implement a compliance plan may subject the institution to regulatory sanctions. Management believes that the Bank already meets substantially all the standards adopted in the interagency guidelines, and therefore does not believe that implementation of these regulatory standards will materially affect the Bank's operations. Additionally, under FDICIA, as amended by the CDRI Act, the Federal banking agencies are required to establish standards relating to the asset quality and earnings that the agencies determine to be appropriate. On July 10, 1995, the federal banking agencies, including the OTS, issued proposed guidelines relating to asset quality and earnings. Under the proposed guidelines, a savings institution should maintain systems, commensurate with its size and the nature and scope of its operations, to identify problem assets and prevent deterioration in those assets as well as to evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital and reserves. Management believes that the asset quality and earnings standards, in the form proposed by the bank agencies, would not have a material effect on the Bank's operations. FEDERAL HOME LOAN BANK SYSTEM. Park View Federal is a member of the FHLB System, which consists of 12 regional FHLBs subject to supervision and regulation by the Federal Housing Finance Board ("FHFB"). The FHLBs provide a central credit facility primarily for member institutions. As a member of the FHLB System, the Bank is required to acquire and hold shares of capital stock in the FHLB of Cincinnati in an amount at least equal to 1% of the aggregate unpaid principal of its home mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the FHLB of Cincinnati, whichever is greater. The Bank was in compliance with this requirement with an investment in FHLB of Cincinnati stock at June 30, 1996 of $1.9 million. The FHLB of Cincinnati serves as a reserve or central bank for its member institutions within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes advances to members in accordance with policies and procedures established by the FHFB and the Board of Directors of the FHLB of Cincinnati. Under FIRREA, long-term advances may be made only for the purpose 24 of providing funds for residential housing finance. At June 30, 1996, the Bank had $27.5 million in advances outstanding from the FHLB of Cincinnati. See " -- Deposit Activity and Other Sources of Funds -- Borrowings." LIQUIDITY REQUIREMENTS. Park View Federal is required to maintain average daily balances of liquid assets (cash, certain time deposits, bankers' acceptances, highly rated corporate debt and commercial paper, securities of certain mutual funds, mortgage loans and mortgage-related securities with less than one year to maturity or subject to purchase within one year and specified United States government, state or federal agency obligations) equal to the monthly average of not less than a specified percentage (currently 5%) of its net withdrawable savings deposits plus short term borrowings. Savings and loan associations also are required to maintain average daily balances of short-term liquid assets at a specified percentage (currently 1%) of the total of their net withdrawable savings accounts and borrowings payable in one year or less. Monetary penalties may be imposed for failure to meet liquidity requirements. The average daily liquidity and short-term liquidity ratios of the Bank for the month of June 1996 were 8.1% and 3.0%, respectively. A substantial and sustained decline in savings deposits would adversely affect the Bank's liquidity which may result in restricted operations and additional borrowings from the FHLB of Cincinnati. QUALIFIED THRIFT LENDER TEST. A savings association that does not meet the Qualified Thrift Lender test ("QTL Test") must either convert to a bank charter or comply with the following restrictions on its operations: (i) the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for a national bank; (ii) the branching powers of the institution shall be restricted to those of a national bank; (iii) the institution shall not be eligible to obtain any advances from its FHLB; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. Upon the expiration of three years from the date the institution ceases to be a Qualified Thrift Lender, it must cease any activity, and not retain any investment not permissible for a national bank and immediately repay any outstanding FHLB advances (subject to safety and soundness considerations). To meet the QTL test, an institution's "Qualified Thrift Investments" must total at least 65% of "portfolio assets." Under OTS regulations, portfolio assets are defined as total assets less intangibles, property used by a savings institution in its business and liquidity investments in an amount not exceeding 20% of assets. Qualified Thrift Investments consist of (i) loans, equity positions or securities related to domestic, residential real estate or manufactured housing, (ii) 50% of the dollar amount of residential mortgage loans subject to sale under certain conditions, and (iii) stock in an FHLB or the FHLMC or FNMA. In addition, subject to a 20% of portfolio assets limit, savings institutions are able to treat as Qualified Thrift Investments 200% of their investments in loans to finance "starter homes" and loans for construction, development or improvement of housing and community service facilities or for financing small businesses in "credit-needy" areas. In order to maintain QTL status, the savings institution must maintain a weekly average percentage of Qualified Thrift Investments to portfolio assets equal to 65% on a monthly average basis in nine out of 12 months. A savings institution that fails to maintain QTL status will be permitted to requalify once, and if it fails the QTL test a second time, it will become immediately subject to all penalties as if all time limits on such penalties had expired. Failure to qualify as a QTL results in a number of sanctions, including the imposition of certain operating restrictions imposed on national banks and a restriction on obtaining additional advances from the FHLB System. At June 30, 1996, the Bank qualified as a QTL. UNIFORM LENDING STANDARDS. Under OTS regulations, savings institutions must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards, including loan-to-value limits, that are clear and measurable, loan administration procedures and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies (the "Interagency Guidelines") that have been adopted by the federal bank regulators. 25 The Interagency Guidelines, among other things, call upon depository institutions to establish internal loan-to-value limits for real estate loans that are not in excess of the following supervisory limits; (i) for loans secured by raw land, the supervisory loan-to-value limit is 65% of the value of the collateral; (ii) for land development loans (i.e., loans for the purpose of improving unimproved property prior to the erection of structures), the supervisory limit is 75%; (iii) for loans for the construction of commercial, multifamily or other nonresidential property, the supervisory limit is 80%; (iv) for loans for the construction of one-to-four family properties, the supervisory limit is 85%; and (v) for loans secured by other improved property (e.g., farmland, completed commercial property and other income-producing property including non-owner-occupied, one-to-four family property), the limit is 85%. Although no supervisory loan-to-value limit has been established for owner- occupied, one-to-four family and home equity loans, the Interagency Guidelines state that for any such loan with a loan-to-value ratio that equals or exceeds 90% at origination, an institution should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral. The Interagency Guidelines state that it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits, based on the support provided by other credit factors. The aggregate amount of loans in excess of the supervisory loan-to- value limits, however, should not exceed 100% of total capital and the total of such loans secured by commercial, agricultural, multifamily and other non-one- to-four family residential properties should not exceed 30% of total capital. The supervisory loan-to-value limits do not apply to certain categories of loans including loans insured or guaranteed by the U.S. government and its agencies or by financially capable state, local or municipal governments or agencies, loans backed by the full faith and credit of a state government, loans that are to be sold promptly after origination without recourse to a financially responsible party, loans that are renewed, refinanced or restructured without the advancement of new funds, loans that are renewed, refinanced or restructured in connection with a workout, loans to facilitate sales of real estate acquired by the institution in the ordinary course of collecting a debt previously contracted and loans where the real estate is not the primary collateral. The Bank believes that its current lending policies conform to the Interagency Guidelines and does not anticipate that the Interagency Guidelines will have a material effect on its lending activities. DEPOSIT INSURANCE. The Bank is charged an annual premium by the Savings Association Insurance Fund ("SAIF") for federal insurance of its deposit accounts up to applicable regulatory limits. Through December 31, 1997, the assessment rate shall not be less than 0.18%. After December 31, 1997, the SAIF assessment rate will be a rate determined by the FDIC to be appropriate to increase the reserve ratio of the SAIF to 1.25% of insured deposits or such higher percentage as the FDIC determines to be appropriate but not less than 0.15%. Under the Federal Deposit Insurance Corporation's ("FDIC") risk-based assessment system, the assessment rate for an insured depository institution will depend on the assessment risk classification assigned to the institution by the FDIC which will be determined by the institution's capital level and supervisory evaluations. Institutions are assigned to one of three capital groups -- well capitalized, adequately capitalized or undercapitalized -- based on the data reported to regulators for date closest to the last day of the seventh month preceding the semi-annual assessment period. Well capitalized institutions are institutions satisfying the following capital ratio standards: (i) total risk-based capital ratio of 10.0% or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) Tier 1 leverage ratio of 5.0% or greater. Adequately capitalized institutions are institutions that do not meet the standards for well capitalized institutions but which satisfy the following capital ratio standards: (i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1 risk-based capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of 4.0% or greater. Undercapitalized institutions consist of institutions that do not qualify as either "well capitalized" or "adequately capitalized." Within each capital group, institutions are assigned to one of three subgroups on the basis of supervisory evaluations by the institution's primary supervisory authority and such other information as the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance fund. Subgroup A will consist of financially sound institutions with only a few minor weaknesses. Subgroup B consists of institutions that demonstrate weaknesses which, if not corrected, could result in significant 26 deterioration of the institution and increased risk of loss to the deposit insurance fund. Subgroup C consists of institutions that pose a substantial probability of loss to the deposit insurance fund unless effective corrective action is taken. The assessment rate will range from 0.23% of deposits for well capitalized institutions in Subgroup A to 0.31% of deposits for undercapitalized institutions in Subgroup C. The Bank's savings deposits are insured by the SAIF, which is administered by the FDIC. The assessment rate currently ranges from 0.23% of deposits for well capitalized institutions to 0.31% of deposits for undercapitalized institutions. The FDIC also administers the Bank Insurance Fund ("BIF"), which has the same designated reserve ratio as the SAIF. On August 8, 1995, the FDIC adopted an amendment to the BIF risk-based assessment schedule which lowered the deposit insurance assessment rate for most commercial banks and other depository institutions with deposits insured by the BIF to a range of from 0.31% of insured deposits for undercapitalized BIF-insured institutions to 0.04% of deposits for well-capitalized institutions, which constitute over 90% of BIF- insured institutions. Subsequently, the BIF assessment rate has been lowered to the statutory minimum of $2,000 per year. The amendments create a substantial disparity in the deposit insurance premiums paid by BIF and SAIF members and could place SAIF-insured savings institutions at a significant competitive disadvantage to BIF-insured institutions. The House of Representatives and the Senate of the United States provided for a resolution of the recapitalization of the SAIF in the Balanced Budget Act of 1995 (the "Reconciliation Bill") which was vetoed by the President in December 1995 for reasons unrelated to the recapitalization of the SAIF. The Reconciliation Bill provided that all SAIF member institutions would pay a special assessment recently estimated to be a one-time charge of 0.85% of the Company's total SAIF-assessable deposits as of March 31, 1995, or approximately $2.2 million pretax. Such special assessment would be in addition to the Company's annual deposit insurance premium. A balanced budget bill subsequently was enacted and signed by the President in April 1996. That bill did not provide for the recapitalization of the SAIF, and there can be no assurance whether the SAIF will be recapitalized, whether the premium disparity between SAIF and BIF insured institutions will be reduced or eliminated or whether a special assessment will be charged. If a special assessment as described above were to be required, it would result in a one-time charge to the Bank of up to $2.35 million, which would have the effect of reducing the Bank's tangible and core capital to $17.96 million, or 5.62% of adjusted total assets, and risk- based capital to $19.96 million, or 10.00% of risk-weighted assets, on a proforma basis as of June 30, 1995. If such a special assessment were required and the SAIF as a result was fully recapitalized, it could have the effect of reducing the Bank's deposit insurance premiums to the SAIF, thereby increasing net income in future periods. In addition, another proposal under consideration by Congress would require savings associations to convert their charters to that of commercial banks in connection with a merger of the BIF and the SAIF. Under current tax laws, a savings association converting to a commercial bank charter must recapture into taxable income the amount of its tax bad debt reserve that would not have been allowed if the savings association had operated as a commercial bank. The tax associated with the recapture of all or part of its tax bad debt reserve would immediately reduce the capital of the savings institution even though such tax would actually be paid out over the succeeding years. The Bank estimates that the amount of the tax expense associated with a recapture of its tax bad debt reserves if it were to convert to a national bank at June 30, 1996 was approximately $1.5 million. The Bank cannot predict at this time if any of the foregoing proposals would be adopted in their current form or, if adopted, whether such proposals would remedy some or all of the related adverse financial and tax effects. SAIF members are generally prohibited from converting to the status of members of the Bank Insurance Fund ("BIF"), also administered by the FDIC, or merging with or transferring assets to a BIF member before August 9, 1994. The FDIC, however, may approve such a transaction in the case of a SAIF member in default or if the transaction involves an insubstantial portion of the deposits of each participant. In addition, mergers, transfers of assets and assumptions of liabilities may be approved by the appropriate bank regulator so long as deposit insurance premiums continue to be paid to the SAIF for deposits attributable to the SAIF members plus an adjustment for the annual rate of growth of deposits in the surviving bank without regard to subsequent acquisitions. Each depository institution participating in a SAIF-to-BIF conversion transaction is required to pay an exit fee to 27 SAIF and an entrance fee to BIF. A savings association is not prohibited from adopting a commercial bank or savings bank charter prior to August 9, 1994 if the resulting bank remains a SAIF member. The FDIC has adopted a regulation which provides that any insured depository institution with a ratio of Tier 1 capital to total assets of less than 2% will be deemed to be operating in an unsafe or unsound condition, which would constitute grounds for the initiation of termination of deposit insurance proceedings. The FDIC, however, will not initiate termination of insurance proceedings if the depository institution has entered into and is in compliance with a written agreement with its primary regulator, and the FDIC is a party to the agreement, to increase its Tier 1 capital to such level as the FDIC deems appropriate. Tier 1 capital is defined as the sum of common stockholders' equity, noncumulative perpetual preferred stock (including any related surplus) and minority interests in consolidated subsidiaries, minus all intangible assets other than mortgage servicing rights and qualifying supervisory goodwill eligible for inclusion in core capital under OTS regulations and minus identified losses and investments in certain securities subsidiaries. Insured depository institutions with Tier 1 capital equal to or greater than 2% of total assets may also be deemed to be operating in an unsafe or unsound condition notwithstanding such capital level. The regulation further provides that in considering applications that must be submitted to it by savings associations, the FDIC will take into account whether the savings association is meeting with the Tier 1 capital requirement for state non-member banks of 4% of total assets for all but the most highly rated state non-member banks. DIVIDEND LIMITATIONS. Under OTS regulations, the Bank may not pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of the Bank at the time of the conversion of the bank from the mutual to stock form. In addition, savings institution subsidiaries of savings and loan holding companies are required to give the OTS 30 days' prior notice of any proposed declaration of dividends to the holding company. Federal regulations impose additional limitations on the payment of dividends and other capital distributions (including stock repurchases and cash mergers) by the Bank. Under these regulations, a savings association that, immediately prior to, and on a pro forma basis after giving effect to, a proposed capital distribution, has total capital (as defined by OTS regulation) that is equal to or greater than the amount of its fully phased-in capital requirements (a "Tier 1 Association") is generally permitted without OTS approval to make capital distributions during a calendar year in an amount equal to the greater of (i) 75% of net income for the previous four quarters or (ii) 100% of its net income to date during the calendar year plus an amount that would reduce by one-half the amount by which its total capital to assets ratio exceeded its fully phased-in capital requirement to assets ratio at the beginning of the calendar year. A savings association with total capital in excess of current minimum capital requirements but not in excess of the fully phased-in requirements (a "Tier 2 Association") is permitted to make capital distributions without OTS approval of up to 75% of its net income for the previous four quarters, less dividends already paid for such period depending on the savings association's level of risk-based capital. A savings association that fails to meet current minimum capital requirements (a "Tier 3 Association") is prohibited from making any capital distributions without the prior approval of the OTS. Tier 1 Associations that have been notified by the OTS that they are in need of more than normal supervision will be treated as either a Tier 2 or Tier 3 Association. At June 30, 1994, the Bank was a Tier 1 Association. The Bank is prohibited from making any capital distributions if after making the distribution, it would be undercapitalized as defined in the OTS' prompt corrective action regulations. After consultation with the FDIC, the OTS may permit a savings association to repurchase, redeem, retire or otherwise acquire shares or ownership interests if the repurchase, redemption, retirement or other acquisition: (i) is made in connection with the issuance of additional shares or other obligations of the institution in at least an equivalent amount; and (ii) will reduce the institution's financial obligations or otherwise improve the institution's financial condition. In addition to the foregoing, earnings of the Bank appropriated to bad debt reserves and deducted for Federal income tax purposes are not available for payment of cash dividends without payment of taxes at the then 28 current tax rate by the Bank on the amount of earnings removed from the reserves for such distributions. See "Taxation." The Bank intends to make full use of this favorable tax treatment afforded to the Bank and does not contemplate use of any earnings of the Bank in a manner which would limit the Bank's bad debt deduction or create federal tax liabilities. FEDERAL RESERVE SYSTEM. Pursuant to regulations of the Federal Reserve Board, a savings institution must maintain average daily reserves equal to 3% on the first $54.0 million of transaction accounts, plus 12% on the remainder. These percentages are subject to adjustment by the Federal Reserve Board. Because required reserves must be maintained in the form of vault cash or in a noninterest-bearing account at a Federal Reserve Bank, the effect of the reserve requirement is to reduce the amount of the institution's interest-earning assets. At June 30, 1995, Park View Federal met its reserve requirements. INTERSTATE AND INTERINDUSTRY ACQUISITIONS. OTS regulations permit federal associations to branch in any state or states of the United States and its territories. Except in supervisory cases or when interstate branching is otherwise permitted by state law or other statutory provision, a federal association may not establish an out-of-state branch unless (i) the federal association qualifies as a "domestic building and loan association" under Section 7701(a)(19) of the Internal Revenue Code and the total assets attributable to all branches of the association in the state would qualify such branches taken as a whole for treatment as a domestic building and loan association and (ii) such branch would not result in (a) formation of a prohibited multi-state multiple savings and loan holding company or (b) a violation of certain statutory restrictions on branching by savings association subsidiaries of banking holding companies. Federal associations generally may not establish new branches unless the association meets or exceeds minimum regulatory capital requirements. The OTS will also consider the association's record of compliance with the Community Reinvestment Act of 1977 in connection with any branch application. FIRREA amended the Bank Holding Company Act of 1956 to authorize the Federal Reserve Board to permit the acquisition of a savings institution by a bank holding company. In approving an application by a bank holding company to acquire a savings institution, the Federal Reserve Board is prohibited from imposing restrictions on tandem operations of the subsidiary savings institution and its holding company affiliates except as required under Sections 23A and 23B of the Federal Reserve Act, as amended. Previously, the Federal Reserve Board had only approved acquisitions of insolvent savings institutions and only subject to certain restrictions on tandem operation of the savings institutions and bank subsidiaries of the bank holding company. A bank holding company that controls a savings association may merge or consolidate the assets and liabilities of the savings association with, or transfer assets and liabilities to, any subsidiary bank which is a BIF member with the approval of the appropriate federal banking agency and the Federal Reserve Board. The resulting bank will be required to continue to pay assessments to the SAIF at the rates prescribed for SAIF members on the deposits attributable to the merged savings association plus an annual growth increment. In addition, the transaction must comply with the restrictions on interstate acquisitions of commercial banks under the Bank Holding Company Act. LOANS-TO-ONE-BORROWER LIMITATIONS. Under federal law, loans and extensions of credit outstanding at one time to a person shall not exceed 15% of the unimpaired capital and surplus of the savings association. Loans and extensions of credit fully secured by certain readily marketable collateral may represent an additional 10% of unimpaired capital and surplus. FIRREA additionally authorizes savings associations to make loans to one borrower, for any purpose, in an amount not to exceed $500,000 or, by order of the Director of OTS, in an amount not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and surplus to develop residential housing, provided: (i) the purchase price of each single-family dwelling in the development does not exceed $500,000; (ii) the savings association is in compliance with the fully phased-in capital standards of FIRREA; (iii) the loans comply with applicable loan-to-value requirements, and; (iv) the aggregate amount of loans made under this authority does not exceed 150% of unimpaired capital and surplus. FIRREA also authorizes a savings association to make loans 29 to one borrower to finance the sale of real property acquired in satisfaction of debts in an amount up to 50% of unimpaired capital and surplus. TRANSACTIONS WITH AFFILIATES. Transactions between savings associations and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings association is any company or entity which controls, is controlled by or is under common control with the savings association. In a holding company context, the parent holding company of a savings association and any companies which are controlled by such parent holding company are affiliates of the savings association. Generally, Sections 23A and 23B (i) limit the extent to which the savings institution or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions. In addition to the restrictions imposed by Sections 23A and 23B, no savings association may (i) loan or otherwise extend credit to an affiliate, except for any affiliate which engages only in activities which are permissible for bank holding companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings association. Savings institutions are also subject to the restrictions contained in Section 22(h) of the Federal Reserve Act on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, executive officer or greater than 10% stockholder of a savings association and certain affiliated interests of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated interests, the association's loans to one borrower limit (generally equal to 15% of the institution's unimpaired capital and surplus) and all loans to such persons may not exceed the institution's unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and greater than 10% stockholders of a savings association, and their respective affiliates, unless such loan is approved in advance by a majority of the board of directors of the association with any "interested" director not participating in the voting. The Federal Reserve Board has prescribed the loan amount (which includes all other outstanding loans to such person), as to which such prior board of director approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Further, the Federal Reserve Board pursuant to Section 22(h) requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons. Section 22(h) also prohibits a depository institution from paying the overdrafts of any of its executive officers or directors. Savings institutions are also subject to the requirements and restrictions of Section 22(g) of the Federal Reserve Act on loans to executive officers and the restrictions of 12 U.S.C. Section 1972 on certain tying arrangements and extensions of credit by correspondent banks. Section 22(g) of the Federal Reserve Act requires that loans to executive officers of depository institutions not be made on terms more favorable than those afforded to other borrowers, requires approval for such extensions of credit by the board of directors of the institution, and imposes reporting requirements for and additional restrictions on the type, amount and terms of credits to such officers. Section 1972 (i) prohibits a depository institution from extending credit to or offering any other services, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or certain of its affiliates or not obtain services of a competitor of the institution, subject to certain exceptions, and (ii) prohibits extensions of credit to executive officers, directors, and greater than 10% stockholders of a depository institution by any other institution which has a correspondent banking relationship with the institution, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features. 30 REGULATION OF THE COMPANY GENERAL. The company is a savings and loan holding company as defined by the HOLA. As such, the Company is registered with the OTS and is subject to OTS regulation, examination, supervision and reporting requirements. As a subsidiary of a savings and loan holding company, the Bank is subject to certain restrictions in its dealings with the Company and affiliates thereof. ACTIVITIES RESTRICTIONS. The Board of Directors of the Company presently intends to operate the Company as a unitary savings and loan holding company. There are generally no restrictions on the activities of a unitary savings and loan holding company. However, if the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings institution, the Director of the OTS may impose such restrictions as deemed necessary to address such risk including limiting: (i) payment of dividends by the savings institution; (ii) transactions between the savings institution and its affiliates; and (iii) any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings institution. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings institution subsidiary of such a holding company fails to meet the QTL test, then such unitary holding company shall also presently become subject to the activities restrictions applicable to multiple holding companies and, unless the savings institution requalifies as a QTL within one year thereafter, register as, and become subject to the restrictions applicable to a bank holding company. See "--Regulation of the Bank-- Qualified Thrift Lender Test." If the Company were to acquire control of another savings institution, other than through merger or other business combination with the Bank, the Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and where each subsidiary savings institution meets the QTL test, the activities of the Company and any of its subsidiaries (other than the Bank or other subsidiary savings institutions) would thereafter be subject to further restrictions. Among other things, no multiple savings and loan holding company or subsidiary thereof which is not a savings institution shall commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof, any business activity, upon prior notice to, and no objection by, the OTS, other than: (i) furnishing or performing management services for a subsidiary savings institution; (ii) conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings institution; (iv) holding or managing properties used or occupied by a subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple holding companies; or (vii) unless the Director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies, those activities authorized by the Federal Reserve Board as permissible for bank holding companies. Those activities described in (vii) above must also be approved by the Director of the OTS prior to being engaged in by a multiple holding company. Legislation has been passed by the U.S. House of Representatives which would subject all unitary holding companies to the same restrictions on activities as are currently applied to multiple holding companies. If such legislation is enacted in its current form, the ability of the Company to engage in certain activities that are currently permitted to a unitary holding company may be restricted. Since the Company does not and has no current plans to, engage in any business activity impermissible for a multiple holding company, such legislation would not require the Company to discontinue any current activity. In addition, such legislation would preclude companies that are engaged in activities not permitted to multiple holding companies from acquiring control of the Company. No 31 prediciton can be made at this time as to whether such legislation will be enacted or whether it will be enacted in its current form. RESTRICTIONS ON ACQUISITIONS. Savings and loan holding companies are prohibited from acquiring, without prior approval of the Director of OTS, (i) control of any other savings institution or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings institution or holding company thereof which is not a subsidiary. Under certain circumstances, a registered savings and loan holding company is permitted to acquire, with the approval of the Director of the OTS, up to 15% of the voting shares of an under-capitalized savings institution pursuant to a "qualified stock issuance" without that savings institution being deemed controlled by the holding company. In order for the shares acquired to constitute a "qualified stock issuance," the shares must consist of previously unissued stock or treasury shares, the shares must be acquired for cash, the savings and loan holding company' other subsidiaries must have tangible capital of at least 6-1/2% of total assets, there must not be more than one common director or officer between the savings and loan holding company and the issuing savings institution, and transactions between the savings institution and the savings and loan holding company and any of its affiliates must conform to Sections 23A and 23B of the Federal Reserve Act. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock, may also acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company. The Director of the OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings institutions in more than one state if: (i) the multiple savings and loan holding company involved controls a savings institution which operated a home or branch office in the state of the institution to be acquired as of March 5, 1987; (ii) the acquiror is authorized to acquire control of the savings institution pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act; or (iii) the statutes of the state in which the institution to be acquired is located specifically permit institutions to be acquired by state chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions). TAXATION GENERAL The Company and its subsidiaries currently file a consolidated federal income tax return based on a fiscal year ending June 30. Consolidated returns have the effect of eliminating intercompany distributions, including dividends, from the computation of consolidated taxable income for the taxable year in which the distributions occur. FEDERAL INCOME TAXATION Savings institutions are subject to the provisions of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") in the same general manner as other corporations. However, institutions such as Park View Federal which meet certain definitional tests and other conditions prescribed by the Internal Revenue Code previously benefitted from certain favorable provisions regarding their deductions from taxable income for annual additions to their bad debt reserve. This reserve method afforded to thrifts is repealed for tax years beginning after December 31, 1995. Large thrifts must switch to the specific charge off method of section 166 while small thrifts must switch to the reserve method of section 585(the method currently used by small commercial banks). In general, a thrift is required to recapture the excess of its qualifying and non qualifying reserves in excess of its qualifying and non qualifying base year reserves. There is an exception to the general recapture provision for small thrifts. A small thrift is required to recapture the portion of its reserves that exceeds the greater of (1) the experience method reserve computed as if the thrift had always been a small bank, or (2) the lesser of the qualifying and non qualifying base year reserves or the contractual base year reserves. The opening tax bad debt reserve for a small thrift for the first taxable year beginning after December 31, 1995 is the greater of the two amounts described in (1) and (2) above. A small thrift that switches to the section 585 experience method must make an 32 annual addition to its reserve for bad debts. Under section 593, a thrift was not required to make a minimum addition to its reserve for any taxable year. The change in a thrift's method of accounting for the bad debt reserve will generally be taken into taxable income ratably (on a straight line basis) over a six-year period. If, however, a thrift meets a "residential loan requirement" for a taxable year beginning in 1996 or 1997, the recapture of the reserve will be suspended for such tax year. Thus, recapture can potentially be deferred for up to two years. The "residential loan requirement" is met if the principal amount of housing loans made by a thrift during 1996 of 1997 is not less than the average of the principal amount of loans made during the six most recent taxable years prior to 1996. Refinancings and home equity loans are excluded. The residential loan test is applied on a combined entity basis. The base year reserves and the supplemental reserve are frozen not forgiven. These reserves continue to be subject to the section 593(e) recapture penalty and are treated as a section 381(c) attribute for purposes of certain corporate acquisitions. There are other ancillary provisions affected by the repeal of section 593, most notably the repeal of section 595 which provides thrifts with special treatment for foreclosure on property securing loans. Section 595 is repealed for property acquired in taxable years beginning after December 31, 1995. For taxable years beginning after December 31, 1986, the Tax Reform Act of 1986 (the "Tax Reform Act") changed the corporate minimum tax from an add-on tax to a tax based on alternative minimum taxable income ("AMTI"), and increased the tax rate from 15% to 20%. The excess of the bad debt reserve deduction using the percentage of taxable income method over the deduction that would have been allowable under an experience method is treated as a preference item for purposes of computing the corporate minimum tax, which has been modified significantly by the Tax Reform Act. The Internal Revenue Code provisions relating to the alternative minimum tax ("AMTI") also: (i) treat as a preference item interest on certain tax-exempt private activity bonds issued on or after August 8, 1986; and (ii) include in AMTI (for tax years beginning in 1987-1989) an amount equal to one-half of the amount by which a corporation's book income (as specifically defined) exceeds its AMTI (determined without regard to this preference and prior to reduction by net operating losses). Also, only 90% of AMTI can be offset by net operating losses. For taxable years beginning after December 31, 1989, the adjustment to AMTI based on book income is an amount equal to 75% of the amount by which a corporation's adjusted current earnings exceeds its AMTI (determined without regard to this preference and prior to reduction for net operating losses). Legislation that is effective for tax years beginning after December 31, 1995 would require savings associations to recapture into taxable income the portion of the tax loan reserve that exceeds the 1987 tax loan loss reserve. All of the Bank's tax loan loss reserves at June 30, 1996 were pre-1987 loan loss reserves and therefore this provision should not affect future operations. The Bank will no longer be allowed to use the reserve method for tax loan loss provisions, but would be allowed to use either the experience method or the specific charge-off method of accounting for bad debts. Earnings appropriated to Park View Federal's bad debt reserve and claimed as a tax deduction are not available for the payment of cash dividends or for distribution to PVF (including distributions made on dissolution or liquidation), unless the Bank includes the amount in taxable income, along with the amount deemed necessary to pay the resulting federal income tax. At June 30, 1996, the Bank had approximately $5.4 million of accumulated allocations of income for which federal income taxes had not been provided. The Bank's federal income tax returns thru June 30, 1992 were audited by the IRS. For further information regarding federal income taxes, see Note 8 of Notes to Consolidated Financial Statements. 33 STATE INCOME TAXATION The Company is subject to an Ohio franchise tax based on its equity capital plus certain reserve amounts. Total equity capital for this purpose is reduced by certain exempted assets. The resulting net taxable value of capital was taxed at a rate of 1.5% for fiscal years 1996, 1995 and 1994. 34 ITEM 2. PROPERTIES The following table sets forth the location and certain additional information regarding the Company's offices at June 30, 1996.
YEAR NET BOOK OWNED OR APPROXIMATE OPENED/ TOTAL VALUE AT LEASED/ SQUARE LOCATION ACQUIRED DEPOSITS JUNE 30, 1995 EXPIRATION FOOTAGE - -------- -------- -------- ------------- ---------- -------- (DOLLARS IN THOUSANDS) MAIN OFFICE: 2618 N. Moreland Blvd. 1963 $39,100 $ 422 Owned 16,800 Cleveland, Ohio BRANCH OFFICES: 2111 Richmond Road 1967 45,764 5 Lease 2,750 Beachwood, Ohio 3/1/99 25350 Rockside Road 1969 48,129 110 Lease 14,400 Bedford Heights, Ohio 3/1/03 11010 Clifton Blvd. 1974 20,573 14 Lease 1,550 Cleveland, Ohio 8/1/05 7448 Ridge Road 1979 28,242 552 Owned 3,200 Parma, Ohio 6990 Heisley Road 1994 24,417 76 Lease 2,400 Mentor, Ohio 10/25/98 1456 SOM Center Road 1995 24,706 282 Lease 2,200 Mayfield Heights, Ohio 9/30/04 497 East Aurora Road 1994 17,117 112 Lease 2,400 Macedonia, Ohio 9/30/04 8500 Washington Street 1995 22,997 126 Lease 2,700 Chagrin Falls, Ohio 11/30/04
At June 30, 1996, the net book value of the Bank's premises, furniture, fixtures and equipment was $2.6 million. See Note 5 of Notes to Consolidated Financial Statements for further information. The Company also owns real estate in the City of Solon, Ohio. See Subsidiary Activities for further information. 35 ITEM 3. LEGAL PROCEEDINGS. From time to time, the Bank is a party to various legal proceedings incident to its business. There are no other material legal proceedings to which the Bank or PVF is a party or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS The information contained under the section captioned "Market Information" in the Company's Annual Report to Stockholders for the Fiscal Year Ended June 30, 1996 (the "Annual Report") is incorporated herein by reference. For information regarding restrictions on the payment of dividends see "Item 1. Business -- Regulation -- Dividend Limitations." ITEM 6. SELECTED FINANCIAL DATA The information contained in the table captioned "Selected Financial Data" in the Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements contained in the Annual Report which are listed under Item 14 herein are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the section captioned "Proposal I -- Election of Directors" in the Company's definitive proxy statement for the Company's 1996 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference. 36 ITEM 11. EXECUTIVE COMPENSATION The information contained under the section captioned "Proposal I -- Election of Directors -- Executive Compensation" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) and (b) The information required by this item is incorporated herein by reference to the sections captioned "Proposal I - Election of Directors" and "Voting Securities and Principal Holders Thereof" of the Proxy Statement. (c) Management knows of no arrangements, including any pledge by any person of securities of the Bank, the operation of which may at a subsequent date result in a change in control of the registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section captioned "Proposal I -- Election of Directors" of the Proxy Statement. 37 PART IV ITEM 14. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Independent Auditors' Report (incorporated by reference to the Annual Report) Consolidated Financial Statements (incorporated by reference to the Annual Report) (a) Consolidated Statements of Financial Condition, at June 30, 1996 and 1995 (b) Consolidated Statements of Operations for the Years Ended June 30, 1996, 1995 and 1994 (c) Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1996, 1995 and 1994 (d) Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995 and 1994 (e) Notes to Consolidated Financial Statements. 2. All schedules have been omitted as the required information is either inapplicable or included in the Notes to Consolidated Financial Statements. 3. Exhibits and Index to Exhibits The following exhibits are either attached to or incorporated by reference in this Annual Report on Form 10-K.
Page No. in Sequentially No. Description Numbered Copy - ---- ----------- --------------- 3.1 Certificate of Incorporation 3.2 Code of Regulations 3.3 Bylaws 4 Specimen Stock Certificate 10.1 Park View Federal Savings Bank Conversion Stock Option Plan 10.2 PVF Capital Corp. 1996 Incentive Stock Option Plan 13 PVF Capital Corp. Annual Report to Stockholders for the year ended June 30, 1996 21 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule
- --------------- * Incorporated by reference to the Bank's Registration Statement on Form 10 filed with the Office of Thrift Supervision on December 30, 1992. 38 (b) During the last quarter of the fiscal year ended June 30, 1996, the Company did not file any Current Reports on Form 8-K. (c) All required exhibits are filed as attached. (d) No financial statement schedules are required. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PVF CAPITAL CORP. September 24, 1996 By: /s/ John R. Male ----------------------------- John R. Male President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ John R. Male September 24, 1996 - ---------------------------- John R. Male President and Chief Executive Officer (Principal Executive Officer) /s/ C. Keith Swaney September 24, 1996 - ---------------------------- C. Keith Swaney Vice President and Treasurer (Principal Financial and Accounting Officer) /s/ James W. Male September 24, 1996 - ---------------------------- James W. Male Chairman of the Board /s/ Robert K. Healey September 24, 1996 - ---------------------------- Robert K. Healey Director /s/ Richard J. Moriarty September 24, 1996 - ---------------------------- Richard J. Moriarty Director /s/ Creighton E. Miller September 24, 1996 - ---------------------------- Creighton E. Miller Director /s/ Robert F. Urban September 24, 1996 - ---------------------------- Robert F. Urban Director /s/ Stuart D. Neidus September 24, 1996 - ---------------------------- Stuart D. Neidus Director EX-3.1 2 EX 3.1 FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION OF PVF CAPITAL CORP. FIRST: The name of the corporation is PVF Capital Corp. (herein the "Corporation"). SECOND: The place in Ohio where the principal office of the Corporation is located is 2618 North Moreland Boulevard, in the City of Cleveland, Cuyahoga County. THIRD: The purpose for which the Corporation is formed is to become a savings bank holding company and to engage in any lawful act or activity for which corporations may be formed under Chapter 1701 of the Revised Code of Ohio. FOURTH: The number of directors constituting the initial board of directors of the Corporation is six. FIFTH: The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is 6,000,000 shares, of which 5,000,000 shares are to be shares of common stock, $.01 par value per share, and of which 1,000,000 are to be shares of serial preferred stock, $.01 par value per share. The shares may be issued by the Corporation from time to time as approved by the Board of Directors of the Corporation without the approval of the stockholders except as otherwise provided in these Articles of Incorporation or the rules of a national securities exchange, if applicable. The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before their issuance and shall not be less than the par value per share. The consideration for the issuance of the shares may be paid in whole or in part, in real property, in tangible or intangible personal property, in labor or services actually performed for the Corporation or in its formation, or as otherwise permitted by Ohio law. In the absence of actual fraud in the transaction, the judgment of the Board of Directors or the stockholders as the case may be as to the value of such consideration shall be conclusive. Upon payment of such consideration such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. A description of the different classes and series (if any) of the Corporation's capital stock, and a statement of the relative rights, preferences and limitations of the shares of each class and series (if any) of capital stock, are as follows: A. COMMON STOCK. Except as provided in these Articles of Incorporation, the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holders. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when and as declared by the Board of Directors of the Corporation. In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preference over the common stock in any such event, the full preferential amounts to which they are respectively entitled, the 1 holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, including the payment of all fees, taxes and other expenses incidental thereto, to receive the remaining assets of the Corporation available for distribution, in cash or in kind. Each share of common stock shall have the same relative rights, preferences and limitations as, and shall be identical in all respects with, all the other shares of common stock of the Corporation. B. SERIAL PREFERRED STOCK. Except as provided in these Articles of Incorporation, the Board of Directors of the Corporation is authorized, by resolution or resolutions from time to time adopted, to further amend these Articles to provide for the specific terms of serial preferred stock to be issued in series and to fix and state the rights, preferences, limitations and relative, participating, optional or other special rights of the shares of each such series, and the qualifications, limitations or restrictions thereof. The terms of shares of different series shall be identical except as to the following rights and preferences, as to which there may be variations between different series: 1. the distinctive serial designation and the number of shares constituting such series; 2. the voting rights, full, conditional or limited, of shares of such series; 3. the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; 4. whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which such shares may be redeemed; 5. the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 6. whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such funds; 7. whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rates or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; 8. the price or other consideration for which the shares of such series shall be issued; 9. restrictions, if any, on the issuance of shares of the same series or any other class or series; and 10. any other designations, preferences, limitations or rights that are now or hereafter permitted by the laws of the State of Ohio and are not inconsistent with the provisions of this Paragraph B. Each share of each series of serial preferred stock shall have the same relative rights, preferences and limitations as, and shall be identical in all respects with, all the other shares of capital stock of the Corporation of the same series. 2 SIXTH: By resolution adopted by the directors in the manner set forth in division (E) of Section 1701.13 of the Revised Code of Ohio or its successor, the Corporation shall indemnify or agree to indemnify: 1. Any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against expenses, including attorney's fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful; and 2. Any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any of the following: a. Any claim, issue or matter as to which such person is adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless, and only to the extent that the court of common pleas or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; b. Any action or suit in which the only liability asserted against a director is pursuant to section 1701.95 of the Revised Code of Ohio. 3. To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in subsections (1) and (2) of this Article Sixth, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the action, suit or proceeding. 4. Any indemnification under subsections (1) and (2) of this Article Sixth, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (1) and (2) of this Article Sixth. Such determination shall be made by the directors of the Corporation in the manner set forth in division (E)(4) of Section 1701.13 of the Revised Code of Ohio. 3 SEVENTH: No stockholder of the Corporation shall have, as a matter of right, the preemptive right to purchase or subscribe for shares of any class, now or hereafter authorized, or to purchase or subscribe for securities or other obligations convertible into or exchangeable for such shares or which by warrants or otherwise entitle the holders thereof to subscribe for or purchase any such shares. EIGHTH: The Corporation may from time to time, pursuant to authorization by the board of directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of any class, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the board of directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question or as are imposed by law. NINTH: A. Notwithstanding any other provision of these Articles or the Code of Regulations of the Corporation, no action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. B. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the chairman of the board, the president, the board of directors by action at a meeting or a majority of the board of directors acting without a meeting, and shall be called by the chairman of the board, the president, or the secretary upon the written request of the holders of 50% of all the shares outstanding and entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered at the principal executive office of the Corporation addressed to the president or the secretary. C. There shall be no cumulative voting by stockholders of any class or series in the election of directors of the Corporation. D. Meetings of stockholders may be held within or without the State of Ohio, as the Code of Regulations may provide. E. Nominations for the election of directors and proposals for any new business to be taken up at any annual or special meeting of stockholders may be made by the board of directors of the Corporation or by any stockholder of the Corporation entitled to vote generally in the election of directors. In order for a stockholder of the Corporation to make any such nominations and/or proposals, he or she shall give notice thereof in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than thirty days nor more than sixty days prior to any such meeting; provided, however, that if less than forty days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the tenth day following the day on which notice of the meeting was mailed to stockholders. Each such notice given by a stockholder with respect to nominations for the election of directors shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. In addition, the stockholder making such nomination shall promptly provide any other information reasonably requested by the Corporation. F. Each such notice given by a stockholder to the Secretary with respect to business proposals to bring before a meeting shall set forth in writing as to each matter: (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder; and (iv) any material interest of the 4 stockholder in such business. Notwithstanding anything in the Articles of Incorporation or Code of Regulations to the contrary, no business shall be conducted at the meeting except in accordance with the procedures set forth in this Article Ninth. G. The Chairman of the annual or special meeting of stockholders may, if the facts warrant, determine and declare to such meeting that a nomination or proposal was not made in accordance with the foregoing procedure, and, if he should so determine, he shall so declare to the meeting and the defective nomination or proposal shall be disregarded and laid over for action at the next succeeding adjourned, special or annual meeting of the stockholders taking place thirty days or more thereafter. This provision shall not require the holding of any adjourned or special meeting of stockholders for the purpose of considering such defective nomination or proposal. TENTH: The number of directors of the Corporation shall be such number, not less than five nor more than 15 (exclusive of directors, if any, to be elected by holders of preferred stock of the Corporation, voting separately as a class), as shall be provided from time to time in or in accordance with the Bylaws of the Board of Directors, provided that no decrease in the number of directors shall have the effect of shortening the term of any incumbent director, and provided further that no action shall be taken to decrease or increase the number of directors from time to time unless at least two-thirds of the directors then in office shall concur in said action. Vacancies in the board of directors of the Corporation and newly created directorships shall be filled by a vote of two-thirds of the directors then in office, whether or not a quorum, and any director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which the director has been chosen expires and when the director's successor is elected and qualified. Directors shall not be required to own any shares of the Corporation's common stock and need not be residents of any particular state, country or other jurisdiction. The board of directors of the corporation shall be divided into two classes, which shall be designated Class I and Class II, if the board of directors consists of six, seven or eight members, or into three classes, which shall be designated Class I, Class II and Class III, if the board of directors consists of nine or more members. Such classes shall consist of no fewer than three members each. The members of each class shall be elected for a term of two years if the board of directors consists of six, seven or eight members, or three years if the board of directors consists of nine or more members, and until their successors are elected and qualified. Such classes shall be as nearly equal in number as the then total number of directors constituting the entire board of directors shall permit, with the terms of office of all members of one class expiring each year. Should the number of directors not be equally divisible by three, the excess director or directors shall be assigned to Classes I or II as follows: (i) if there shall be an excess of one directorship over a number equally divisible by three, such extra directorship shall be classified in Class I; and (ii) if there be an excess of two directorships over a number equally divisible by three, one shall be classified in Class I and the other in Class II. At the first annual meeting of stockholders, directors of Class I shall be elected to hold office for a term expiring at the second or third succeeding annual meeting thereafter, depending on whether the board of directors consists of less than nine members or nine or more members. At the second annual meeting of stockholders, directors of Class II shall be elected to hold office for a term expiring at the second or third succeeding annual meeting thereafter, depending on whether the board of directors consists of less than nine members or nine or more members. If the board of directors consists of nine or more members, at the third annual meeting of stockholders, directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting thereafter. Thereafter, at each succeeding annual meeting, directors of each class shall be elected for two or three year terms, depending on whether the board of directors is classified into two or three classes, respectively. Notwithstanding the foregoing, the director whose term shall expire at any annual meeting shall continue to serve until such time as his successor shall have been duly elected and shall have qualified unless his position on the board of directors shall have been abolished by action taken to reduce the size of the board of directors prior to said meeting. 5 Should the number of directors of the Corporation be reduced, the directorship(s) eliminated shall be allocated among classes as appropriate so that the number of directors in each class is as specified above. The board of directors shall designate, by the name of the incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Should the number of directors of the Corporation be increased, the additional directorships shall be allocated among classes as appropriate so that the number of directors in each class is as specified above, and, if such increase increases the number of directors to nine or more, the new and existing directorships may be reallocated as appropriate so as to create a third class of directors, with the number of directors in each class as specified above. ELEVENTH: Notwithstanding any other provision of these Articles or the Code of Regulations of the Corporation, no director of the Corporation may be removed from office at any time, unless for cause and by the affirmative vote of the holders of at least 80 percent of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. In the case of a removal of a director by the stockholders, a new director may be elected at the same meeting of stockholders to hold office for the remainder of the term of the removed director. Failure by the stockholders to fill the unexpired term of a removed director at such meeting of stockholders shall be deemed to create a vacancy in the board of directors, which shall be filled by the Board of Directors as provided in Article Tenth. TWELFTH: A director shall perform his duties as a director, including his duties as a member of any committee of the directors upon which he may serve, in good faith, in a manner he reasonably believes to be in or not opposed to the best interests of the Corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In performing his duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, that are prepared or presented by one or more directors, officers, or employees of the Corporation, counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person's professional or expert competence, or a committee of the directors upon which he does not serve. A director shall not be found to have violated his duties as described in this Article Twelfth, unless it is proved by clear and convincing evidence that the director has not acted in good faith, in a manner he reasonably believes to be in or not opposed to the best interests of the Corporation, or with the care that an ordinarily prudent person in a like position would use under similar circumstances, in any action brought against a director, including actions involving or affecting any of the following: (a) a change or potential change in control of the Corporation, including a determination to resist a change or potential change in control made pursuant to division (F)(7) of section 1701.13 of the Revised Code of Ohio; (b) a termination or potential termination of his service to the Corporation as a director; or (c) his service in any other position or relationship with the Corporation. A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause reliance on information, opinions, reports, or statements that are prepared or presented by the persons described above to be unwarranted. A director shall be liable in damages for any action he takes or fails to take as a director only if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation. Nothing contained in this Article Twelfth shall affect the liability of directors under Section 1701.95 of the Revised Code of Ohio or limit relief available under Section 1701.60 of the Revised Code of Ohio. For purposes of this Article Twelfth, a director, in determining what he reasonably believes to be in the best interests of the Corporation shall consider the interests of the Corporation's shareholders and, in his discretion, may consider any of the following: (a) the interests of the Corporation's employees, suppliers, creditors, and customers; (b) the economy of the state and nation; (c) community and societal considerations; and (d) the long-term as well as short-term interests of the Corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the Corporation. 6 Nothing contained herein affects the duties of either of the following: (a) a director who acts in any capacity other than his capacity as a director; or (b) a director of a corporation that does not have issued and outstanding shares that are listed on a national securities exchange or are regularly quoted in an over-the-counter market by one or more members of a national or affiliated securities association, who votes for or assents to any action taken by the directors of the corporation that, in connection with a change in control of the corporation, directly results in the holder or holders of a majority of the outstanding shares of the corporation receiving a greater consideration for their shares than other shareholders. THIRTEENTH: A. THREE YEAR PROHIBITION. For a period of three years from the effective date of the completion of the conversion of Park View Federal Savings Bank (the "Bank") from mutual to stock form, no person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of equity security of the Corporation, unless such offer or acquisition shall have been approved in advance by a two-thirds vote of the Continuing Directors, as defined in Article Fourteenth below, or unless such 10% beneficial ownership shall have resulted solely from the issuance of the Corporation's common stock to a former 10% stockholder of the Bank in connection with the reorganization of the Bank into the holding company form of ownership, pursuant to which the Bank will become a wholly owned subsidiary of the Corporation. In addition, for a period of three years from the completion of the conversion of the Bank from mutual to stock form, and notwithstanding any provision to the contrary in these Articles or the Code of Regulations of the Corporation, where any person directly or indirectly acquires beneficial ownership of more than 10% of any class of equity security of the Corporation in violation of this Article Thirteenth (a "10% Stockholder"), the securities beneficially owned in excess of 10% shall not be counted as shares entitled to vote, shall not be voted by any person or counted as voting shares in connection with any matter submitted to the shareholders for a vote, and shall not be counted as outstanding for purposes of determining a quorum or the affirmative vote necessary to approve any matter submitted to the shareholders for a vote. B. DEFINITIONS. The term "person" means an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group acting in concert formed for the purpose of acquiring, holding or disposing of securities of the Corporation. The term "acquire" includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise. The term "offer" includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for or request for invitation for tenders of, a security or interest in a security for value. The term "acting in concert" includes (1) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement and (2) a combination or pooling of voting or other interests in the Corporation's outstanding shares for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. The term "beneficial ownership" shall have the meaning defined in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of filing these articles. C. EXCLUSION FOR EMPLOYEE BENEFIT PLANS, DIRECTORS, OFFICER, EMPLOYEE AND CERTAIN PROXIES. The restrictions contained in this Article Thirteenth shall not apply to (1) any underwriter or member of an underwriting or selling group involving a public sale or resale of securities of the Corporation or a subsidiary thereof; provided, however, that upon completion of the sale or resale of such securities, no such underwriter or member of such selling group is a beneficial owner of more than 10% of any class of equity security of the Corporation; (2) any proxy granted to one or more Continuing Directors by a shareholder of the Corporation; or (3) any employee benefit plans of the Corporation or a subsidiary thereof. In addition, the Continuing Directors, the officers and employees of the Corporation and its subsidiaries, the directors of subsidiaries of the Corporation, the employee benefit plans of the Corporation and its subsidiaries, entities organized or established by the Corporation or any subsidiary thereof pursuant to the terms of such plans and trustees and fiduciaries with respect to such plans acting in such capacity shall not be deemed to be a group with respect to their beneficial ownership of voting stock of the Corporation solely by virtue of their being directors, officers or employees of the Corporation or a subsidiary thereof or by virtue of the Continuing Directors, the officers and employees of the Corporation and its subsidiaries and the directors of subsidiaries of the Corporation being fiduciaries or beneficiaries of an employee benefit plan of the Corporation or 7 a subsidiary of the Corporation. Notwithstanding the foregoing, no director, officer or employee of the Corporation or any of its subsidiaries, or group of any of them, shall be exempt from the provisions of this Article Thirteenth of these Articles, should any such person or group become a beneficial owner of more than 10% of any class of equity security of the Corporation. D. DETERMINATIONS. A majority of the Continuing Directors shall have the power to construe and apply the provisions of this Article Thirteenth and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (a) the number of shares beneficially owned by any person; (b) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of beneficial ownership; (c) the application of any other definition or operative provision of this Article Thirteenth to the given facts; or (d) any other matter relating to the applicability or effect of this Article Thirteenth. Any constructions, applications or determinations made by the Continuing Directors, as defined below, pursuant to this Article Thirteenth in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its shareholders. FOURTEENTH: The shareholder vote required to approve a Business Combination (as hereinafter defined) shall be as set forth in this Article Fourteenth, in addition to any other requirements under applicable law. A. (1) Except as otherwise expressly provided in this Article Fourteenth, the affirmative vote of the holders of (i) at least 80% of the outstanding shares entitled to vote thereon (and, if any class or series of shares is entitled to vote thereon separately, the affirmative vote of the holders of at least two-thirds of the outstanding shares of each such class or series) and (ii) a majority of the outstanding shares entitled to vote thereon not including shares deemed beneficially owned by a Related Person (as hereinafter defined) shall be required in order to authorize any of the following: (a) any merger, share exchange or consolidation of the Corporation with or into a Related Person; (b) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage, or any other security device, of all or any Substantial Part (as hereinafter defined) of the assets of the Corporation (including, without limitation, any voting securities of a subsidiary) or of a subsidiary to a Related Person; (c) any merger or consolidation of a Related Person with or into the Corporation or a subsidiary; (d) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage, or any other capital device, of all or any Substantial Part of the assets of a Related Person to the Corporation or a subsidiary; (e) the issuance of any securities of the Corporation or a subsidiary to a Related Person; (f) the acquisition by the Corporation or a subsidiary of any securities of a Related Person; (g) any reclassification of the common stock of the Corporation, or any recapitalization involving the common stock of the Corporation; and (h) any agreement, contract or other arrangement providing for any of the transactions described in this Paragraph A. 8 (2) Such affirmative vote shall be required notwithstanding any other provision of these Articles, any provision of law, or any agreement with any national securities exchange or automated quotation system which might otherwise permit a lesser vote or no vote. (3) The term "Business Combination" as used in this Article Fourteenth shall mean any transaction which is referred to in any one or more of paragraphs (1)(a) through (1)(h) of this Article Fourteenth. B. The provisions of Paragraph (A) of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by any other provision of these Articles, any provisions of law or any agreement with any federal regulatory agency, national securities exchange or automated quotation system, if the Business Combination shall have been approved by at least two-thirds of the Continuing Directors (as hereinafter defined); provided, however, that such approval shall be effective only if obtained at a meeting at which a Continuing Director Quorum (as hereinafter defined) is present. C. For the purpose of this Article Fourteenth the following definitions apply: (1) The term "Related Person" shall mean (a) any individual, corporation, partnership or other person or entity which together with its "affiliates" (as that term is defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934) "beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934) in the aggregate 10% or more of the outstanding shares of the common stock of the Corporation; and (b) any "affiliate" (as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of any such individual, corporation, partnership or other person or entity. Without limitation, any shares of the common stock of the Corporation which any Related Person has the right to acquire pursuant to any agreement, upon exercise of conversion rights, warrants or options or otherwise shall be deemed "beneficially owned" by such Related Person. (2) The term "Substantial Part" shall mean more than 25 percent of the total assets of the Corporation, as of the end of its most recent fiscal year ending prior to the time the determination is made. (3) The term "Continuing Director" shall mean any member of the board of directors of the Corporation who is unaffiliated with a Related Person and was a member of the board of directors prior to the time that the Related Person became a Related Person, and any successor of a Continuing Director who is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the board of directors. (4) The term "Continuing Director Quorum" shall mean at least two- thirds of the Continuing Directors capable of exercising the powers conferred on them. D. In addition to Paragraphs (A) through (C) of this Article Fourteenth, the Ohio Control Share Acquisition Act, appearing at Section 1701.831 of the Revised Code of Ohio, shall apply to the Corporation. FIFTEENTH: The Code of Regulations may be made, repealed, altered, amended or rescinded by the stockholders of the Corporation by the vote of the holders of not less than two-thirds of the voting power of the Corporation entitled to vote at a meeting of stockholders called for that purpose. SIXTEENTH: The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in these Articles in the manner now or hereafter prescribed by law upon the affirmative vote of at least a majority of the voting power of the Corporation, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions of Articles Fourth, Sixth, Ninth, Tenth, Eleventh, Twelfth, 9 Thirteenth, Fourteenth, Fifteenth and this Article Sixteenth of these Articles may not be repealed, replaced, altered, amended or rescinded in any respect unless the same is approved by the affirmative vote of the holders of not less than 80 percent of the voting power of the Corporation entitled to vote at a meeting of stockholders called for that purpose (provided that notice of such proposed adoption, repeal, replacement, alteration, amendment or recision is included in the notice of such meeting); except that such repeal, alteration, amendment or rescission may be made by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote at a meeting of stockholders (considered for this purpose as a single class) if the same is first approved by a majority of the Continuing Directors, as defined in Article Fourteenth of these Articles. IN WITNESS WHEREOF, the undersigned hereby declare and certify that the facts herein stated are true, and accordingly have hereunto signed their names this 26th day of July, 1994. /s/ John R. Male ---------------------------------------- John R. Male President /s/ Jeffrey N. Male ---------------------------------------- Jeffrey N. Male Secretary 10 EX-3.2 3 EX 3.2 FIRST AMENDED AND RESTATED CODE OF REGULATIONS OF PVF CAPITAL CORP. ARTICLE I HOME OFFICE The place in Ohio where the principal office of PVF Capital Corp. (herein the "Corporation") is located is 2618 North Moreland Boulevard, in the City of Cleveland, Cuyahoga County. The home office of the Corporation shall be at 2618 North Moreland Boulevard, Cleveland, Ohio 44120. The Corporation may also have offices at such other places within or without the State of Ohio as the board of directors shall from time to time determine. ARTICLE II SHAREHOLDERS SECTION 1. PLACE OF MEETINGS. All annual and special meetings of shareholders shall be held at the principal executive office of the Corporation or at such other place within or without the State in which the principal executive office of the Corporation is located as the board of directors may determine and as designated in the notice of such meeting. SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes may be called by the chairman of the board, the president or the board of directors in accordance with the Corporation's Articles of Incorporation. SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be conducted in accordance with the rules and procedures established by the board of directors. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings. SECTION 5. NOTICE OF MEETING. Written notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed by the secretary or the officer performing his duties, not less than seven days nor more than sixty days before the meeting to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II, with postage thereon prepaid. If a shareholder is present at a meeting, or in writing waives notice thereof before or after the meeting, notice of the meeting to such shareholder shall be unnecessary. When any shareholders' meeting, either annual or special, is adjourned, notice of adjournment need not be given if the time and place to which such meeting is adjourned are fixed and announced at such meeting. Upon request in writing delivered either in person or by registered mail to the president or the secretary by any persons entitled to call a meeting of shareholders, the president or the secretary shall give written notice of the meeting to be held on a date not less than seven nor more than sixty days following the provision of such notice. If such notice is not given within fifteen days after the delivery or mailing of such request, the persons calling the meeting may fix the time of the meeting and give notice thereof as provided in the preceeding paragraph, or cause notice to be given by any designated representative. SECTION 6. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall not be a date earlier than the date on which the record date is fixed and shall not be more than sixty days and, in case of a meeting of shareholders, not less than twenty days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 7. VOTING LISTS. The Corporation shall make available upon the request of any shareholder at any meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of shareholders. SECTION 8. QUORUM. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding voting shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. Every appointment of a proxy shall be revocable unless such appointment is coupled with an interest. SECTION 10. VOTING. Every shareholder entitled to vote shall be entitled to one vote for each share of stock held by him. Unless otherwise provided in the Articles of Incorporation, by applicable law, or by this Code of Regulations, a majority of those votes cast by shareholders at a lawful meeting shall be sufficient to pass on a transaction or matter. SECTION 11. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the shareholders of the Corporation any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose name shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. SECTION 12. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation may be voted by any officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, and except to the extent inconsistent with applicable law, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, conservator or a trustee in bankruptcy may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee, other than a trustee in bankruptcy, shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a re- 2 ceiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of shareholders, the board of directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one or three. If the board of directors so appoints either one or three inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, and on the request of not less than ten percent of the votes represented at the meeting shall, make such appointment at the meeting. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III OFFICERS SECTION 1. POSITIONS. The officers of the Corporation shall be a president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The president shall be the chief executive officer, unless the board of directors designates another person as the chief executive officer. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders or at such other meeting of the board of directors as is determined by the board of directors. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article III. 3 SECTION 3. REMOVAL. Any officer may be removed by the board of directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed from time to time by the board of directors. ARTICLE IV CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. To the extent permitted by applicable law, and except as otherwise prescribed by the Corporation's Articles of Incorporation or this Code of Regulations with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by the board of directors. SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the board of directors may select. ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. The shares of the Corporation shall be represented by certificates signed by the chairman of the board of directors or by the president or a vice president and by the treasurer, an assistant treasurer, the secretary, or an assistant secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself of an employee of the Corporation. If any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. SECTION 2. FORM OF SHARE CERTIFICATES. All certificates representing shares issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to any shareholder upon request and without charge within five days after receipt of written request therefor a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined, and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. 4 Each certificate representing shares shall state upon the face thereof: that the Corporation is organized under the laws of the State of Ohio; the name of the person to whom issued; the number of shares represented by such certificate; the date of issue; the designation of the series or class, if any, which such certificate represents. Other matters in regard to the form of the certificates shall be determined by the board of directors. SECTION 3. PAYMENT FOR SHARES. No certificate shall be issued for any shares until such share is fully paid. SECTION 4. FORM OF PAYMENT FOR SHARES. The consideration for the issuance of shares shall be paid in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 5. TRANSFER OF SHARES. Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. SECTION 6. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the shareholders entitled to examine the stock ledger, the list required by Section 7 of Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of shareholders. SECTION 7. LOST CERTIFICATES. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. SECTION 8. RECORD OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI FISCAL YEAR; ANNUAL AUDIT The fiscal year of the Corporation shall end on the last day of June of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. ARTICLE VII DIVIDENDS Subject to the provisions of the Articles of Incorporation and applicable law, the board of directors may, at any regular or special meeting, declare dividends on the Corporation's outstanding capital stock. Dividends may be paid in cash, in property or in the Corporation's own stock. 5 ARTICLE VIII CORPORATE SEAL The corporate seal of the Corporation shall be in such form as the board of directors shall prescribe. ARTICLE IX AMENDMENTS In accordance with the Corporation's Articles of Incorporation, this Code of Regulations may be repealed, altered, amended or rescinded by the shareholders of the Corporation by vote of not less than a two-thirds of the outstanding voting power of the Corporation entitled to vote at a meeting of the shareholders called for that purpose. 6 EX-3.3 4 EX 3.3 BYLAWS OF THE BOARD OF DIRECTORS OF PVF CAPITAL CORP. ARTICLE I BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of PVF Capital Corp. (herein the "Corporation") shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board from among its members. The chairman of the board shall preside at all meetings of the board of directors. SECTION 2. NUMBER AND CLASSIFICATION. The board of directors shall initially consist of six members. The number of members of the board of directors may be increased or decreased by resolution of the board of directors within the range set forth in the Corporation's Articles of Incorporation. The board of directors shall be divided into classes in accordance with the provisions of the Corporation's Articles of Incorporation. SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors shall be held without other notice than this Section immediately after, and at the same place as, the annual meeting of stockholders. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board or the president, or by one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors called by such persons. Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person. SECTION 5. NOTICE. Written notice of any special meeting shall be given to each director at least two days previous thereto delivered personally or by telegram or at least five days previous thereto delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, unless, prior to or at the commencement of such meeting, such director objects to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 6. QUORUM. A majority of the number of directors fixed by Section 2 of this Article I shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of this Article I. SECTION 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Articles of Incorporation, or the laws of Ohio. SECTION 8. ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. SECTION 9. RESIGNATION. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the chairman of the board or the president. Unless otherwise specified therein such resignation shall take effect upon receipt thereof by the chairman of the board or the president. SECTION 10. VACANCIES. Vacancies occuring in the board of directors shall be filled in accordance with the provisions of the Corporation's Articles of Incorporation. A director elected to fill a vacancy shall be elected to serve until the annual meeting of stockholders at which the term of the class to which the director has been chosen expires. SECTION 11. PRESUMPTION OF ASSENT. Unless Ohio law provides otherwise, a director of the Corporation who is present at a meeting of the board of directors at which action on any Corporation matter is taken shall be presumed to have assented to the action taken unless (i) he objects at the beginning of the meeting (or promptly upon his arrival) to holding the meeting or transacting business at the meeting; (ii) his dissent or abstention from the action taken is entered in the minutes of the meeting; or (iii) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. SECTION 12. COMPENSATION. The board of directors may, by resolution, from time to time establish the compensation to be paid to directors for their service as such. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. ARTICLE II COMMITTEES OF THE BOARD OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of the Corporation, and may prescribe the duties, constitution and procedures thereof. Each committee shall consist of not less than three directors of the Corporation. The board may designate not less than three directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The board of directors shall have power, by the affirmative vote of a majority of the number of directors fixed by Article I, Section 2, at any time to change the members of, to fill vacancies in, and to discharge any committee of the board. Any member of any such committee may resign at any time by giving notice to the Corporation; provided, however, that notice to the board, the chairman of the board, the chief executive officer, the chairman of such committee, or the secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the board called for that purpose. ARTICLE III AMENDMENT These Bylaws may be amended in whole or in part at any time by the Board of Directors by the affirmative vote of a majority of the authorized number of directors. 2 EX-4 5 EX 4 CUSIP: ------- PVF CAPITAL CORP. INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO This certifies that _____________________ is the owner of __________________ fully paid and nonassessable shares of common stock, par value $0.01 per share, of PVF Capital Corp. (the "Corporation"), an Ohio corporation. The shares represented by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar. IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by the facsimile signature of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed. Dated: --------------------------- ------------------- Jeffrey N. Male John R. Male Secretary President Countersigned and Registered: ------------------------------- Transfer Agent and Registrar By: ------------------------------- Authorized Signature SEE REVERSE FOR CERTAIN RESTRICTIONS ON TRANSFER The shares represented by this certificate are issued subject to all the provisions of the Articles of Incorporation, Bylaws and Code of Regulations of the Corporation as from time to time amended (copies of which are on file at the principal executive office of the Corporation), to all of which the holder by acceptance hereof assents. The Corporation will mail to each stockholder the express terms of the shares represented by this certificate within five days after receipt of a written request therefor. Such request shall be made in writing to the Secretary of the Corporation. The Articles of Incorporation of the Corporation include a provision which prohibits any person from directly or indirectly acquiring the beneficial ownership of more than 10% of any class of equity security of the Corporation. This provision does not apply to the purchase of shares by underwriters in connection with a public offering, the granting of proxies to certain directors of the Corporation by stockholders of the Corporation or the acquisition of shares by an employee benefit plan of the Corporation or a subsidiary. Such provision eliminates the voting rights of securities acquired in violation of the provision. Such provision will expire five years from the date of completion of the conversion of Park View Federal Savings Bank, from mutual to stock form. The Articles of Incorporation also impose certain restrictions on the voting rights of beneficial owners of more than 10% of any class of equity security of the Corporation after five years from the date of completion of the conversion of Park View Federal Savings Bank, from mutual to stock form. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF TRANSFER MIN ACT -..........Custodian......... under Uniform Transfers to (Cust) (Minor) Minors Act....................... (State) Additional abbreviations may also be used though not in the above list. NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND ----------------------------- TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - ------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------- SHARES OF THE COMMON STOCK EVIDENCED BY THIS CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT , ATTORNEY, TO TRANSFER ---------------------------------- THE SAID SHARES ON THE BOOKS OF THE CORPORATION, WITH FULL POWER OF SUBSTITUTION. DATED --------------------- ----------------------------------- SIGNATURE ----------------------------------- SIGNATURE IN PRESENCE OF: ------------------ EX-10.1 6 EX 10.1 PARK VIEW FEDERAL SAVINGS BANK CONVERSION STOCK OPTION PLAN 1. Purpose of the Plan. The Plan shall be known as the Park View Federal Savings Bank Conversion Stock Option Plan (the "Plan"). The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentive to officers and other key employees of Park View Federal Savings Bank (the "Bank") or any present or future parent or subsidiary of the Bank to promote the success of the business. Except as otherwise provided in Section 5(b) below, it is intended that the options issued pursuant to this Plan will constitute incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986. 2. Definitions. As used herein, the following definitions shall apply. (a) "Association" shall mean Park View Federal Savings and Loan Association. (b) "Bank" shall mean Park View Federal Savings Bank, the continuing entity of Park View Federal Savings and Loan Association as a Federal Capital Stock Savings Bank. (c) "Board" shall mean the Board of Directors of the Bank or any Parent thereof. (d) "Common Stock" shall mean Common Stock, $0.01 par value per share, of the Bank. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended. (f) "Committee" shall mean the Stock Option Committee appointed by the Board in accordance with Subparagraph 4(a) of the Plan. (g) "Continuous Employment" or "Continuous Status as an Employee" shall mean the absence of any interruption or termination of the Employee's employment with the Bank or any present or future Parent or Subsidiary of the Bank. Employment shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Bank or in the case of transfers between payroll locations of the Bank or between the Bank, its Parent, its Subsidiaries or a successor. (h) "Director" shall mean a member of the Board of the Bank. (i) "Effective Date" shall mean the date specified in Paragraph 12 hereof. (j) "Employee" shall mean any person employed by the Bank or any present or future Parent or Subsidiary of the Bank. (k) "Option" shall mean an option to purchase Common Stock granted pursuant to this Plan. (l) "Optioned Stock" shall mean stock subject to an option granted pursuant to this Plan. (m) "Optionee" shall mean a person who receives an Option pursuant to the Plan. (n) "Parent" shall mean any present or future corporation which would be a "parent corporation" as defined in Subsections 424(e) and (g) of the Code. (o) "Plan" shall mean the Park View Federal Savings Bank Conversion Stock Option Plan. (p) "Share" shall mean one share of the Common Stock. (q) "Subsidiary" shall mean any present or future corporation which would be a "subsidiary corporation" as defined in Sections 424(f) and (g) of the Code. 3. Shares Subject to the Plan. (a) Except as otherwise required by the provisions of Paragraph 10 hereof, the aggregate number of shares of Common Stock deliverable upon the exercise of Options pursuant to the Plan shall be equal to ten percent (10%) of the common stock sold in the conversion of the Association to the Bank less 10,000 shares. Such shares issued upon exercise of an Option may either be authorized but unissued or treasury shares. (b) If Options should expire, become unexercisable or forfeited for any reason without having been exercised in full, the unpurchased shares which were subject thereto shall, unless 2 the Plan shall have been terminated, be available for the grant of other Options under the Plan. 4. Administration of the Plan. (a) Composition of Option Committee. The Plan shall be administered by the Committee which shall consist of not less than three non-employee directors who are appointed by the Board and who have not received a grant of options within the prior twelve (12) months other than options granted under the plan of conversion of the Association to the Bank and not granted under this Plan. All members of the Committee shall serve at the pleasure of the Board. (b) Powers of the Committee. The Committee shall have discretionary authority (but only to the extent not contrary to the express provisions of the Plan or to resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the form and content of Options to be issued under the Plan and to make other determinations necessary or advisable for the administration of the Plan, and shall have and may exercise such other power and authority as may be delegated to it by the Board from time to time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. (c) Effect of Committee's Decision. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby. 5. Eligibility. (a) Options may be granted to each such Employee of the Bank or any present or future Parent or Subsidiary as shall be designated by the Committee. An Optionee who has been granted an Option may, if otherwise eligible, be granted an additional Option or Options. 3 (b) The aggregate fair market value (determined pursuant to Paragraph 7 hereof as of the date the Option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans, as defined in Section 422 of the Code, of the Bank or any present or future Parent or Subsidiary of the Bank) shall not exceed $100,000. Notwithstanding the prior provisions of this Paragraph, the Committee may grant Options in excess of the foregoing limitations, in which case such Options granted in excess of such limitation shall be treated as Options which are not incentive stock options, as defined in Section 422 of the Code, pursuant to Section 422(d) of the Code. 6. Term of Plan; Term of Options. (a) The Plan shall continue in effect for a term of ten years from its Effective Date, unless sooner terminated pursuant to Paragraph 15. No Option shall be granted under the Plan after ten years from the Effective Date. (b) The term of each Option granted under the Plan shall be established by the Committee, but shall not exceed 10 years; provided however that in the case of an Employee who owns stock representing more than ten (10) percent of the Bank's outstanding Common Stock at the time the Option is granted, the term of such Option shall not exceed five (5) years. 7. Exercise Price. The price per share at which each Option granted under the Plan may be exercised shall not, as to any particular Option, be less than the fair market value of the stock to which the Option relates at the time such Option is granted. In the case of an Employee who owns stock representing more than ten percent of the Bank's outstanding Common Stock at the time the Option is granted, the exercise price shall not be less than 110% of the fair market value of the stock at the time the Option is granted. Such exercise price shall be determined in good faith by the Committee. 4 8. Exercise of Option. (a) Procedure for Exercise. (1) Any Option granted hereunder shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Option granted to an Optionee. An Option may not be exercised for a fractional Share. (2) An Option granted pursuant to the Plan may be exercised, subject to provisions relative to its termination and limitations on its exercise, from time to time only by (a) written notice of intent to exercise the Option with respect to a specified number of shares, and (b) payment to the Bank, (contemporaneously with delivery of such notice), in cash, of the amount of the Option price for the number of Shares with respect to which the Option is then being exercised. Each such notice and payment shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Treasurer of the Bank at the Bank's executive offices. (b) Exercise During Employment or Following Death or Disability. (1) Except as may be specifically provided for by the terms of an Option as may be authorized by the Committee at the time of such grant, an Option constituting an incentive stock option under the Code may be exercised by an Optionee only while he is an Employee and has maintained Continuous Status as an Employee since the date of the grant of the Option or within three months after termination of status as an Employee (but not later than the date on which the Option would otherwise expire), except if his Continuous Employment is terminated by reason of (a) "Cause" (which for purposes hereof shall have the same meaning as defined in the then existing employment agreement between the Optionee and the Bank or any of its Parent or Subsidiaries and, in the absence of any such agreement, shall have the meaning defined in 12 C.F.R. Section 563.39(b)(1) as in effect on the Effective Date of this Plan) then the Optionee's rights to exercise such Option shall expire on the date of such termination, (b) death, then to the extent that the Optionee would have been entitled to exercise the Option immediately prior to his death, such Option of the deceased Optionee may be exercised within two years from the date of his death (but not later than the date on which the Option would otherwise expire) by the personal representatives of his estate or by the person or persons to whom his rights under such Option shall have passed by will or by laws of descent and distribution, or (c) Permanent and Total Disability (as such term is defined in Section 22(e)(3) of the Code), then to the extent that the Optionee would have been entitled to exercise the Option immediately prior to his Permanent and Total Disability, such Option may be exercised within 5 one year from the date of termination of status as an Employee due to such Permanent and Total Disability, but not later than the date on which the Option would otherwise expire. Notwithstanding the provisions of any Option which provides for its exercise in installments as designated by the Committee, such Option shall become immediately exercisable upon death or Permanent and Total Disability, as defined herein, of the Optionee. (2) The Committee's determination whether an Optionee's employment has ceased, and the effective date thereof, shall be final and conclusive on all persons affected thereby. (c) Notwithstanding anything herein to the contrary, in no event shall any Option granted as an incentive stock option pursuant to the Plan be exercisable for six months from the date of grant, except in the event of the Death or Permanent and Total Disability of the Optionee; and, provided the Bank's shareholders shall ratify the Plan. 9. Non-Transferability of Options. Options granted under the Plan may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. An Option may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. Effect on Change in Stock Subject to the Plan. (a) In the event that each of the outstanding shares of Common Stock (other than shares held by dissenting shareholders) shall be changed into or exchanged for a different number or kind of shares of stock of the Bank or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock dividend, split- up, combination of shares, or otherwise), then there shall be substituted for each share of Common Stock then under Option or available for Option the number and kind of shares of stock into which each outstanding share of Common Stock (other than shares held by dissenting shareholders) shall be so changed or for which each such share shall be so exchanged, together with an appropriate adjustment of the exercise price. 6 (b) In the event there shall be any change in the number of, or kind of, issued shares of Common Stock, or of any stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, then if the Committee shall, in its discretion, determine that such change equitably requires an adjustment in the number, or kind, or exercise price of shares then subject to an Option or available for Option, such adjustment shall be made by the Board and shall be effective and binding for all purposes of the Plan. 11. Time of Granting Options. The date of grant of an Option under the Plan shall be the date on which the Committee makes the determination of granting such Option. Notice of the determination shall be given to each Employee to whom an Option is so granted within a reasonable time after the date of such grant. 12. Effective Date. The Plan shall become effective upon the commencement of business activities by the Bank, which for purposes hereof shall be deemed to have occurred upon the consummation of the conversion of the Association to the Bank (the "Effective Date"). Options may be granted prior to ratification of the Plan by the stockholders of the Bank if the exercise of such Options is subject to such stockholder ratification of the Plan. The Plan shall continue in effect for a term of ten years from the Effective Date, unless sooner terminated under Paragraph 15 of the Plan. 13. Approval by Shareholders. The Plan is in all respects conditioned upon approval by ratification of the Plan by Bank's stockholders within twelve (12) months after the Effective Date. 14. Modification of Options. At any time and from time to time the Board may authorize the Committee to direct execution of an instrument providing for the modification of any outstanding Option, provided no such modification, extension or renewal shall confer on the holder of said Option any right or benefit which could not be conferred on him by the grant of a new Option at such time, or impair the Option without the consent of the holder of the Option. 7 15. Amendment and Termination of the Plan. (a) The Plan shall terminate and be of no further force and effect in the event the Bank's shareholders shall not ratify and approve the Plan within twelve (12) months after the Effective Date. (b) The Board may amend, modify or terminate the Plan except that no action of the Board may materially increase (other than as provided in Paragraph 10) the maximum number of shares permitted to be optioned or become available for the granting of Options under the Plan, materially increase the benefits accruing to participants, or materially modify the requirements for eligibility for participation in the Plan, unless such action of the Board shall be subject to approval or ratification by the shareholders of the Bank. (c) No action of the Board may, without the consent of the holder of the Option, impair any then outstanding Option. 16. Conditions Upon Issuance of Shares. (a) Shares shall not be issued with respect to any Option granted under the Plan unless the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, any applicable state securities law, and the requirements of any stock exchange upon which the Shares may then be listed. (b) Inability of the Bank to obtain from any regulatory body the authority deemed by the Bank's counsel to be necessary to the lawful issuance and sale of any Shares hereunder shall relieve the Bank of any liability in respect of the non- issuance or sale of such Shares. As a condition to the exercise of an Option, the Bank may require the person exercising to make such representations and warranties as may be necessary to assure the availability of an exemption from the registration requirements of federal or state securities law. 8 17. Reservation of Shares. The Bank, during the term of this Plan, will reserve and keep available a number of Shares sufficient to satisfy the requirements of the Plan. 18. Withholding Tax. Where an Optionee or other person is entitled to receive Shares pursuant to the exercise of an Option pursuant to the Plan, the Bank shall have the right to require the Optionee or such other person to pay the Bank the amount of any taxes which the Bank is required to withhold with respect to such Shares. 19. Governing Law. The Plan shall be governed and construed in accordance with the laws of the State of Ohio except to the extent that Federal law shall be deemed to apply. 9 EX-10.2 7 EX 10.2 EXHIBIT A PVF CAPITAL CORP. 1996 INCENTIVE STOCK OPTION PLAN SECTION I PURPOSE The purpose of PVF Capital Corp. 1996 Incentive Stock Option Plan (the "Plan") is to promote the interest of PVF Capital Corp. ("Company") and its stockholders by providing a method whereby key executives (as determined by the Committee in its sole discretion) ("Optionees") of the Company and its subsidiaries may be encouraged to invest in the Company's Common Stock, thereby increasing their proprietary interest in its business, providing them with additional incentive to remain in the employ of the Company and increasing their personal interest in its continued success and progress. These employees will be granted options ("Options") to purchase shares of the common stock, $.01 par value, of the Company ("Common Stock"). It is intended that Options issued hereunder will constitute Incentive Stock Options within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). SECTION II ADMINISTRATION 2.1 THE COMMITTEE. The Plan shall be administrated by a Committee of the Board of Directors of the Company (the "Committee"). The Committee shall consist of not less than two nonemployee directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and shall be appointed by the Board of Directors. A majority of the members of the Committee shall constitute a quorum. All decisions of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by all the members of the Committee shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a chairman from among the members and a secretary (who need not be a member) and may make such rules and regulations for the conduct of its business as it shall deem advisable. No member of the Committee shall be liable, in the absence of bad faith, for any act or omission with respect to his or her service on the Committee. Service on the Committee shall constitute service as a Director of the Company so that members of the committee shall be entitled to indemnification and reimbursement as Directors of the Company. 2.2 AUTHORITY OF THE COMMITTEE. Subject to the express provisions of the Plan, the Committee shall have plenary authority to determine, in its discretion, the employees to whom, and the time to times within which (during the term of the Option) all or a portion of such Options may be exercised. In making such determination, the Committee may take into account the nature of the services rendered or expected to be rendered by the respective employees, their present and potential contributions to the Company's success, the anticipated number of years of effective service remaining and such other factors as the Committee in its discretion shall deem relevant. Subject to the express provisions of the Plan, Section 422A of the Code and any regulations or rulings thereunder, the Committee shall also have plenary authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and conditions of the respective Options (which terms and conditions need not be the same in each case), to impose restrictions on any shares issued upon the exercise of an Option and to determine the manner in which such restrictions may be removed, and to make all other determinations deemed necessary or advisable in administering the Plan. The Committee may specify in the original terms of any Option, or, if not so specified, shall determine whether any authorized leave of absence or absence on military or governmental service or for any other reason shall constitute a termination of employment for purposes of the Plan. The determination of the Committee on the matters referred to in the Plan shall be conclusive; provided that it shall be the Board of Directors of the Company which shall determine whether unissued or treasury shares shall be issued upon the exercise of any Option. 2.3 OPTION AGREEMENT. Each Option shall be evidenced by an option agreement which shall contain such terms and conditions as may be approved by the Committee, and the said agreement shall be signed by an officer of the Company and the Optionee. SECTION III SHARES SUBJECT TO THE PLAN An aggregate of 150,000 shares of Common Stock shall be subject to the Plan, subject to adjustment in accordance with Section 8 hereof. Such shares may be either authorized but unissued shares or shares now or hereafter held in the treasury of the Company. In the event that any Option under the Plan expires unexercised or is terminated, surrendered or cancelled, the shares subject to such Option, or the unexercised portion thereof, shall again become available for Option under the Plan, including to the former holder of such Option, upon such terms as the Committee shall determine in accordance with the Plan and which terms may be more or less favorable than those applicable to such former Option. SECTION IV GRANTING DATE The action of the Committee with respect to the granting of an Option shall take place on such date as a majority of the members of the Committee at a meeting shall make a determination with respect to the granting of an Option or, in the absence of a meeting, on such date as of which written designation covering such Option shall have been executed by all members of the Committee. The effective date of the grant of an Option (the "Granting Date") shall be the date specified by the Committee in its determination or designation relating to the award of such Option or, in the absence of such a specification, the date on which the action of the Committee relating to the award of such Option took place. However, the Granting Date shall not be later than the termination date of Section 9.2. SECTION V ELIGIBILITY Options may be granted only to key executives (which term shall be deemed to include among others, the president, any vice president, secretary, treasurer or any manager in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function, or any other person who performs similar policy making functions for the Company or any of its subsidiaries) and who on the Granting Date are in the employ of the company or one of its then subsidiary corporations, as defined in Section 425 of the Code (the "subsidiaries"). No Option shall be granted to any Director of the Company or of a subsidiary corporation who is not also such an employee or officer of the Company or of one of its subsidiary corporations on the Granting Date. SECTION VI TERMS AND CONDITIONS OF OPTIONS 6.1 OPTION PRICE. Subject to the provision of Section 6.5 below, the purchase price of the Common Stock under each option shall be determined by the Committee as of the Granting Date, but shall not be less than 100% of the fair market value of the stock on the Granting Date. The fair market value of the stock shall be, for purposes of the Plan, determined in accordance with the requirements of Section 422A of the Code. 6.2 TERMS. Subject to the provisions of Section 6.5 below, the term of each Option granted under the Plan shall be for a period not exceeding ten years from the Granting Date. Each Option granted under the Plan may be exercised by the Optionee as stated in his or her individual option agreement, but in no event may any option be exercised before one year of continued employment with the Company, or a subsidiary, immediately following the Granting Date. 6.3 RESTRICTIONS ON TRANSFER AND EXERCISE. (a) Except as hereinafter provided, no Option granted pursuant to the Plan may be exercised at any time unless the holder thereof is then an employee of the Company or of a subsidiary. Options granted under the Plan shall not be affected by any change of employment so long as the Optionee continues to be an employee of the Company or of a subsidiary corporation. (b) The Option of any Optionee whose employment is terminated for any reason, other than for death, disability (as defined in Section 105(d)(4) of the Code) or discharge for cause (as defined in Section 6.3(d) below), shall be exercisable or payable to the extent provided therein, through the earlier of the date which is three months after termination of employment or the date that such Option expires in accordance with its terms, and shall expire thereafter. (c) In the event of the death of an Optionee (1) while an employee of the Company or a subsidiary corporation, or (2) within three months after the termination of employment of the Optionee for other than cause, or in the event of the termination of employment by an Optionee for permanent disability, the Option may be exercised as follows: (i) In the event of the death of an Optionee during employment or the death of the Optionee within three months after the termination of employment for other than cause, each Option granted to such Optionee shall be exercisable or payable to the extent provided therein but not later than one year after his or her death (but not beyond the stated duration of the Option). Any such exercise or payment shall be made only: (1) by or to the executor or administrator of the estate of the deceased Optionee or person or persons to whom the deceased Optionee's rights under the Option shall pass by will or the laws of descent and distribution; and (2) to the extent, if any, that the deceased Optionee was entitled at the date of his or her death. (ii) In the case of an Optionee who becomes disabled, the Option shall be exercisable or payable to the extent provided therein on the earlier of one year after termination of employment or the date that such Option expires in accordance with its terms. During such period, the Option may be exercised by an Optionee who becomes disabled with respect to the same number of shares, in the same manner and to the same extent as if the Optionee had continued employment during such period. (d) Any unexercised Options shall lapse immediately upon termination of employment of the Optionee through discharge for "cause". "Cause" shall mean, in the good faith determination of the Company's Board of Directors, the Optionee's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, or willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and- desist order. No act, or failure to act, on the Optionee's part shall be considered "willful" unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or its subsidiaries. (e) Each Option granted under the Plan shall, by its terms, not be transferable otherwise than by will or the laws of descent and distribution. During the Optionee's lifetime, an Option granted under the Plan can be exercised only by him or her. 6.4 MANNER OF EXERCISE. An Option shall be exercised by giving a written notice to the President of the Company stating the number of shares of stock with respect to which the Option is being exercised and containing such other information as the President may request and by tendering payment therefor with a cashier's check, certified check, or with existing holdings of Common Stock. 6.5 LIMITATIONS ON OPTIONS. (a) Notwithstanding the provision of Sections 6.1 and 6.2 above, if an Optionee, at the time of Option is granted, owns (as defined in Section 425(d) of the Code) Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, any subsidiary thereof or of the Company's parent (if any), the option price for such Option shall be at least 110% of the fair market value of the stock subject to such Option, and such Option by its term shall not be exercisable after the expiration of five years from the date such Option is granted. (b) If the aggregate fair market value (determined as of the time the Option is granted) with respect to which Options are exercisable for the first time by Employee during any calendar year (under this Plan or any other plan of the Company and its parent and subsidiary corporations) exceeds $100,000, such Options in excess of $100,000 shall be treated as Options which are not Incentive Stock Options as defined in Section 422A of the Code. SECTION VII STOCKHOLDER AND EMPLOYMENT RIGHTS A holder of an Option shall have none of the rights of a stockholder with respect to any of the shares subject to Option until such shares shall be issued upon the exercise of the Option. Nothing in the Plan or in any Option granted pursuant to the Plan shall, in the absence of an express provision to the contrary, confer on any individual any right to be or to continue in the employ of the Company or any of its subsidiaries or shall interfere in any way with the right to the Company or any of its subsidiaries to terminate the employment of any individual at any time. SECTION VIII ADJUSTMENTS TO COMMON STOCK The aggregate number of shares of Common Stock of the Company on which Options may be granted hereunder, the number of shares thereof covered by each outstanding Option and the price per share thereof in each such Option may all be appropriately adjusted, as the Board of Directors may determine, for any increase or decrease in the number of shares of stock of the Company resulting from a subdivision or consolidation of shares whether through reorganization, recapitalization, stock split-up or combination of shares, or the payment of a stock dividend or other increase or decrease in such shares effected without receipt of consideration by the Company. No fractional shares of stock shall be issued upon exercise of an Option by reason of a stock dividend or otherwise, the grantee holding such Option shall not be entitled to exercise it with respect to such fractional share. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger or consolidation, any Option granted hereunder shall pertain to and apply to the securities to which a holder of the number of shares of stock subject to the Option would have been entitled. Upon a dissolution of the Company, a merger or consolidation in which the Company is not the surviving corporation, or sale or disposition of all or substantially all of the Company's assets (any of the foregoing to be referred to herein as a "Transaction"), every Option outstanding hereunder together with the exercise price thereof shall be equitably adjusted for any changes or exchange of Common Stock for a different number of kind of shares or other securities which results from the Transaction, provided, however, that in the event of a Transaction, then during the period thirty days prior to the effective date of such event, each holder of an Option granted pursuant to the Plan shall have a right to exercise the Option, in whole or in part. SECTION IX EFFECTIVE DATE AND TERMINATION EFFECTIVE DATE 9.1 EFFECTIVE DATE. The Plan shall become operative and in effect on the date the Plan is approved by a vote of a majority of all members of the Board of Directors provided, however, that the Plan shall be submitted to the stockholders of the Company for approval within twelve months of the date of adoption of the Plan, and if such approval shall not be obtained within that period by a vote of the holders of a majority of the total outstanding capital stock of the Company entitled to vote, voting as a single class, the Plan shall be null and void and all Options, if any, granted thereunder shall automatically be cancelled. 9.2 TERMINATION EFFECTIVE DATE. The Plan shall remain in effect until and shall terminate within 10 years from the date the Plan is adopted or the Plan was approved by the shareholders, whichever is earlier, but it may be terminated at an earlier date by action of the Board of Directors. Except as provided in paragraph 9.1 above, termination of this Plan shall not affect the rights of grantees under Options theretofore granted to purchase stock under the Plan, and, all such Options shall continue in force and operation after termination of the Plan, except as provided in subparagraph A above and except as may be terminated through death or other termination of employment in accordance with the terms of the Plan. SECTION X AMENDMENTS The Board of Directors shall have complete power and authority to amend the Plan, provided, however, that except as expressly permitted in the Plan, the Board of Directors shall not, without the affirmative vote of the holders of a majority of the voting stock of the Company, make any amendment which would (a) abolish the Committee without designating such other committee, change the qualifications of its members, or withdraw the administration of the Plan from its supervision, (b) increase the maximum number of shares for which options may be granted under the Plan, (c) amend the formula for determination of the purchase price of shares on which options may be granted, (d) extend the terms of the Plan or the maximum option price or (e) amend the requirements as to the employees eligible to receive Options. SECTION XI GOVERNMENT AND OTHER REGULATIONS The obligation of the Company to sell or deliver shares under Options granted pursuant to the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by and registrations with any governmental agencies as may be required. SECTION XII LOAN AGREEMENTS Each Option shall be subject to the condition that the Company shall not be obliged to issue or transfer any of its stock to a holder of an Option, in the exercise thereof, if at any time the Committee or the Board of Directors shall determine that the issuance or transfer of such stock would be in violation of any covenant in any of the Company's loan agreements or other contracts. The Company hereby agrees to the provisions of this Plan, and in Witness Thereof, the Company causes this Agreement to be executed on this day of --- , 1996. - ------------------- PVF CAPITAL CORP. By: ----------------------------------------- President ATTEST: ---------------------------------------- Secretary EX-13 8 EX 13 [LOGO] ANNUAL REPORT JUNE 30, 1996 TABLE OF CONTENTS Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . 1 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 2 Real Estate Lending. . . . . . . . . . . . . . . . . . . . . . . . . 2 Looking Forward. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Selected Consolidated Financial and Other Data . . . . . . . . . . . 4 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . 6 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 14 TO OUR SHAREHOLDERS Looking back at the highlights of the fiscal year ended June 30, 1996 should give our shareholders much pleasure. PVF Capital Corp. stock was selling at $14.50 per share at June 30, 1995, and in addition to a 10% stock dividend paid in August 1995, the stock closed at $19.00 per share at June 30, 1996. The net income from operations for the fiscal year ended June 30, 1996 of $3.8 million was an all-time high for the corporation. As a result of this performance, the Board of Directors authorized a three-for-two stock split that became effective Friday, August 16, 1996. On Monday morning, August 19, 1996, the stock opened for trading at $14.00 per share. Although the number of outstanding shares of common stock increased from 1,404,095 at June 30, 1995 to 2,323,338 at August 19, 1996, the price per share remained approximately the same. Fiscal year 1996 was also a record year in mortgage lending with total growth in loans and mortgage-backed securities of approximately $43.1 million. Management was also pleased by the sharp drop in non-performing loans as a percentage of total loans and mortgage-backed securities from 1.81% at fiscal year end 1995 to 0.82% at fiscal year end 1996. On the following page, we have provided a chart that shows the composition of Park View Federal Savings Bank's loan and mortgage-backed securities portfolio for the last three years. On the liability side of the balance sheet, management made a strategic decision to fund our increased lending activity with Federal Home Loan Bank advances rather than competing for deposits with the current high returns being generated by the stock market and mutual fund industry. Our Annual Meeting of Shareholders will take place at the Cleveland Marriott East in Beachwood, Ohio, at 10:00 a.m. on Monday, October 21, 1996. We hope that you will be able to attend the meeting. The Board of Directors will submit two important issues to the shareholders at the meeting. They are recommending the expansion of the Board to seven members and are nominating Stuart D. Neidus, a former Audit Partner of KPMG Peat Marwick LLP, for re- election to that seat. They also recommend the passage of an Incentive Stock Option Plan for key officers of the corporation and its wholly-owned subsidiary, Park View Federal Savings Bank. A detailed explanation of this plan is included in the proxy statement accompanying this annual report. We pledge to continue our commitment to the community, customers and shareholders to provide the innovative services that only a dedicated community bank can provide. Sincerely, /s/ John R. Male --------------------------- John R. Male President BOARD OF DIRECTORS This group, who have been together for many years and who continue to serve with distinction, recruited a new member to join the Board. He is Stuart D. Neidus, a former Audit Partner with KPMG Peat Marwick LLP, who handled the Park View Federal Savings Bank account for many years. Mr. Neidus joined KPMG upon graduation from Kent State University in 1973 and remained with the firm for about 20 years, the last three as Partner in Charge of the audit practice in Northeast Ohio supervising 150 professionals in three offices. A substantial portion of his work was devoted to serving clients in the financial services industry that included a very large group of savings and loans and thrift holding companies. He brings a vast amount of knowledge and experience in the thrift industry to our Board of Directors. In 1992, Mr. Neidus left KPMG to join Premier Industrial Corporation as an Executive Vice President with a multitude of corporate responsibilities. Upon Premier's acquisition in April 1996 by Farnell Electronics, a British company, he decided to leave the merged company. Desiring to remain in Cleveland, where he has always lived and worked, he recently joined ESSEF Corporation in Chardon, Ohio as Executive Vice President and Chief Financial Officer. ESSEF is a publicly-traded company in the design and manufacture of components to move, treat and store water. Mr. Neidus will chair the Audit Committee of the Bank and will make his expertise available in the compensation and human resources areas. We are all very pleased to have this highly qualified individual join our Board of Directors. REAL ESTATE LENDING The Board and management agreed long ago that Park View Federal Savings Bank (the "Bank") would operate as a community savings bank concentrating on a wide range of real-estate-related lending opportunities in its immediate market area with borrowers and investors personally guaranteeing the loans on the collateral security. The Bank's interest-rate spread has remained strong, in a very volatile interest-rate environment, at 3.45%, 3.67%, and 4.04% during fiscal years 1996, 1995, and 1994 respectively. In addition, as of June 30, 1996, the Bank was servicing a portfolio of owner- occupied, single-family loans totaling $171.1 million for third-party investors. PVF Capital Corp. purchased most of that servicing portfolio from the Bank during fiscal 1996 in a transaction that resulted in an increase to the Bank's regulatory capital of $1.2 million. Income from mortgage banking activities amounted to $925,000, net, in fiscal 1996. The following table indicates the composition of the Bank's loan and mortgage- backed securities portfolio at the dates indicated: At June 30, --------------------------------- 1996 1995 1994 --------------------------------- (in millions) Real estate loans: Single-family residential $114.4 $ 98.2 $ 79.9 Multi-family residential 30.6 39.5 33.7 Commercial 72.5 57.5 53.3 Construction 76.7 61.7 53.8 Land 26.0 18.3 16.5 Home equity line of credit 8.7 3.3 0.0 Mortgage-backed securities 8.6 3.7 0.0 Other loans 2.4 2.3 2.3 Less: total other items (42.1) (29.8) (28.9) ------ ------ ------ Total real estate loans $297.8 $254.7 $210.6 2 LOOKING FORWARD OPPORTUNITY We are most optimistic about the future of the small community bank that provides the one-on-one solution to a financial problem of its customer. We see evidence every day of the dissatisfaction of customers with the large commercial banking fee approach to customer service. We also are very much aware that if we are to prosper in the financial community, we must fulfill the requirements and needs of the people we serve. If you have a real-estate-related financial problem, we urge you to try Park View Federal Savings Bank -- we will be able to help. SAVINGS ASSOCIATION INSURANCE FUND Last year, we anticipated the Savings Association Insurance Fund (SAIF) would be funded by an assessment on all of its insured banks, however, an intense lobbying campaign on the part of the commercial banking interest has derailed that effort so far. We anticipate that some compromise will be worked out sometime in 1997. This is expected to result in a significant one-time expense, but substantially lower costs for deposit insurance that should be reflected in higher net earnings, such as those being enjoyed currently by the commercial banks who now are paying virtually no deposit insurance premiums. SOLON LAND DEVELOPMENT In the coming fiscal year, we also anticipate that the Corporation will be submitting a Planned Unit Development (PUD) proposal to the City of Solon for their approval. The parcel of land in question is a 257-acre parcel located on the south side of Aurora Road running east from the intersection of Pettibone Road to the Cuyahoga County line. PVF Service Corporation has owned the land for many years and it remains one of the largest pieces of undeveloped land in Solon. We anticipate that it will take much time and effort to get final approval. However, we do anticipate increased future net earnings when we successfully reach some agreement with Solon. BRANCH OFFICES The major overhaul of our branch office network accomplished in 1995 continues, but in a much less dramatic fashion. The older offices have been totally renovated, and new technology has been installed in many offices that permits the immediate preparation of loan documents and accelerates the closing of a loan for the customer. 3 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FINANCIAL CONDITION DATA: At June 30, ------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------------- (in thousands) Total assets . . . . . . . . . . . . . . . . . . . . . $331,634 $315,432 $238,245 $193,289 $198,382 Loans receivable and mortgage-backed securities held for investment, net. . . . . . . . . 278,956 250,244 206,674 156,402 155,133 Loans receivable and mortgage-backed securities available for sale, net . . . . . . . . . 18,817 4,451 3,954 7,972 8,278 Cash and investment securities . . . . . . . . . . . . 27,884 53,812 22,226 23,708 29,365 Savings deposits . . . . . . . . . . . . . . . . . . . 271,045 272,290 197,042 170,617 181,751 FHLB advances and notes payable. . . . . . . . . . . . 30,191 16,800 18,160 2,560 7,835 Stockholders' equity . . . . . . . . . . . . . . . . . 22,474 18,818 15,742 11,848 1,269 Number of: Real estate loans outstanding . . . . . . . . . . . 2,527 2,512 2,259 2,165 2,163 Savings accounts. . . . . . . . . . . . . . . . . . 23,259 24,007 19,007 18,777 19,404 Offices . . . . . . . . . . . . . . . . . . . . . . 9 9 7 8 8
OPERATING DATA: Year Ended June 30, ------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------------- (in thousands) Interest income. . . . . . . . . . . . . . . . . . . . $ 27,761 $ 22,941 $ 17,050 $ 15,503 $ 18,642 Interest expense . . . . . . . . . . . . . . . . . . . 15,703 12,261 8,113 8,531 12,290 -------- -------- -------- -------- -------- Net interest income before provision for loan losses . . . . . . . . . . 12,058 10,680 8,937 6,972 6,352 Provision for loan losses. . . . . . . . . . . . . . . 417 416 0 168 1,052 -------- -------- -------- -------- -------- Net interest income after provision for loan losses. . . . . . . . . . . 11,641 10,264 8,937 6,804 5,300 Non-interest income. . . . . . . . . . . . . . . . . . 1,747 1,514 1,703 2,468 2,175 Non-interest expense . . . . . . . . . . . . . . . . . 7,989 7,177 6,295 5,622 5,556 -------- -------- -------- -------- -------- Income before federal income tax expense and extraordinary items. . . . . . . . . . . 5,399 4,601 4,345 3,650 1,919 Federal income taxes . . . . . . . . . . . . . . . . . 1,613 1,244 1,215 1,147 927 Extraordinary items. . . . . . . . . . . . . . . . . . 0 0 0 0 472 Cumulative effect of a change in accounting principle. . . . . . . . . . . . . . . 0 0 755 0 0 -------- -------- -------- -------- -------- Net income . . . . . . . . . . . . . . . . . . . . . . $ 3,786 $ 3,357 $ 3,885 $ 2,503 $ 1,464 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
4
OTHER DATA: At or For the Year Ended June 30, ------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------------------------------------------------------------- (in thousands) Interest rate spread information: Average during year. . . . . . . . . . . . . . . . 3.45% 3.67% 4.04% 3.58% 3.29% Average end of year. . . . . . . . . . . . . . . . 3.51% 3.84% 4.25% 4.14% 2.65% Net interest margin at end of year . . . . . . . . . . 3.90% 4.00% 4.30% 3.78% 3.27% Average interest-earning assets to average interest-bearing liabilities . . . . . . . . 108.83% 107.08% 106.64% 104.42% 99.78% Non-accruing loans (> 90 days) and repossessed assets to total assets . . . . . . . . . 0.73% 1.14% 1.45% 1.37% 2.27% Stockholders' equity to total assets . . . . . . . . . 6.78% 5.97% 6.61% 6.13% 0.64% Return on average assets . . . . . . . . . . . . . . . 1.19% 1.23% 1.78% 1.29% 0.71% Return on average equity . . . . . . . . . . . . . . . 18.43% 19.61% 27.53% 34.56% 268.13% Ratio of average equity to average assets . . . . . . . . . . . . . . . . . . . 6.47% 6.26% 6.46% 3.74% 0.26% Ratio of tangible capital to adjusted total assets. . . . . . . . . . . . . . . . 7.25% 6.10% 6.37% 5.71% 0.78% Ratio of core capital to adjusted total assets. . . . . . . . . . . . . . . . 7.25% 6.10% 6.37% 5.71% 0.78% Ratio of total capital to risk-weighted assets . . . . . . . . . . . . . . . . 11.42% 10.77% 10.37% 10.83% 2.61% Dividend payout ratio. . . . . . . . . . . . . . . . . 0.00% 8.37% 0.00% 0.00% 0.00%
5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL PVF Capital Corp. ("PVF" or the "Company") owns and operates Park View Federal Savings Bank ("Park View Federal" or the "Bank"), its principal and wholly-owned subsidiary, and PVF Service Corporation, a real estate subsidiary, also wholly- owned, purchased by PVF from the Bank during fiscal 1995. Park View Federal has nine offices located in Cleveland and surrounding communities, including two recently opened branches in Macedonia and Bainbridge. The Bank's principal business consists of attracting deposits from the general public through its branch offices and investing these funds in loans secured by first mortgages on real estate located in its market area, which consists of Portage, Lake, Geauga, Cuyahoga, Summit, Stark, Medina and Lorain Counties in Ohio. The Bank has concentrated its activities on serving the borrowing needs of local homeowners and builders in its market area by originating both fixed-rate and adjustable- rate single-family mortgage loans, as well as construction loans and commercial real estate and multi-family residential real estate loans. In addition, to a lesser extent, the Bank originates loans secured by second mortgages, including home equity line of credit loans secured by single-family residential properties and loans secured by savings deposits. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and cost of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities, and the level of personal income and savings in the market area. OVERVIEW OF FINANCIAL CONDITION AT JUNE 30, 1996, 1995, AND 1994 PVF had total assets of $331.6 million, $315.4 million and $238.2 million at the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The primary source of the Bank's increase in total assets has been its loan and investment portfolios. Net loans receivable and mortgage-backed securities totaled $297.8 million, $254.7 million, and $210.6 million at June 30, 1996, 1995, and 1994 respectively. The Bank's current loans-to-one-borrower limitation was approximately $3.9 million at June 30, 1996. In addition, investment securities totaled $14.1 million, $41.2 million, and $8.4 million at the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The decrease of $27.1 million in investment securities at June 30, 1996 resulted from management's decision to reinvest funds from investment maturities and sales into the origination of real estate loans. The investment portfolio has been, and will continue to be used, primarily to meet the regulatory liquidity requirements of the Bank in its deposit taking and lending activities. The Bank has adopted an investment policy that permits investment only in U.S. government and agency securities or Triple-A-rated securities. The Bank invests primarily in securities having a final maturity of five years or less that qualify as regulatory liquidity, federal funds sold, and deposits at the Federal Home Loan Bank ("FHLB") of Cincinnati. Approximately $7.2 million, or 31.3% of the investment portfolio has a repricing period of one year or less, and the Bank has no plans to change the short-term nature of its investment portfolio. The Bank's deposits totaled $271.0 million, $272.3 million, and $197.0 million at the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Advances from the FHLB of Cincinnati amounted to $27.5 million, $15.0 million, and $17.6 million at the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Management's decision to borrow funds from the FHLB rather than aggressively matching market savings rates resulted in a decrease of $1.3 million in savings deposits and an increase in FHLB advances of $12.5 million. CAPITAL PVF's shareholders' equity totaled $22.5 million, $18.8 million, and $15.7 million at the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The increases were the result of the retention of net earnings after payment of dividends to shareholders, net of capital adjustments resulting from unrealized gains and losses on securities available for sale. The sale of PVF Service Corporation during fiscal 1995 and mortgage servicing rights during fiscal 1996 from the Bank to PVF, net of dividends paid by the Bank to PVF, resulted in an increase of $1.9 million to the Bank's capital. The Bank's primary regulator, The Office of Thrift Supervision ("OTS") has implemented a statutory framework for capital requirements which establishes five categories of capital strength, ranging from "well capitalized" to "critically undercapitalized." An institution's category depends upon its capital level in relation to relevant capital measures, including two risk-based capital measures, a tangible capital measure and a core/leverage capital measure. At June 30, 1996, the Bank was in compliance with all of the current applicable regulatory 6 capital measurements to meet the definition of a well-capitalized institution, as demonstrated in the following table: Park View Requirement for Federal Percent of Well-Capitalized Capital Assets (1) Institution --------------------------------------------- (in thousands) GAAP capital $ 24,128 7.21% N/A Tangible capital $ 24,282 7.25% N/A Core capital $ 24,282 7.25% 5.00% Tier 1 risk-based capital $ 24,282 10.46% 6.00% Risk-based capital $ 26,510 11.42% 10.00% (1) Tangible and core capital levels are shown as a percentage of total adjusted assets; risk-based capital levels are shown as a percentage of risk-weighted assets. COMMON STOCK AND DIVIDENDS On December 30, 1992, Park View Federal converted to a stock company by issuing 850,000 shares of common stock. A 10% stock dividend was issued in February 1994. PVF Capital Corp. announced the reorganization of Park View Federal into the holding company structure of ownership effective October 31, 1994, and concurrently converted all outstanding shares of common stock of the Bank on a three-for-two basis into shares of common stock of PVF Capital Corp. The Company's common stock trades under the symbol "PVFC" on the Nasdaq Small-Cap Market. A 10% stock dividend was issued in August 1995 and a three-for-two stock split effected in the form of a dividend was issued in August 1996. As adjusted to reflect stock dividends and the three-for-two stock split, the Company had 2,323,338 shares of common stock outstanding and approximately 305 holders of record of the common stock at August 31, 1996. OTS regulations applicable to all Federal Savings Banks such as Park View Federal limit the dividends that may be paid by the Bank to PVF. Any dividends paid may not reduce the Bank's capital below minimum regulatory requirements. The payment of cash dividends is continually reviewed by management and the Board of Directors. A $0.12 per share cash dividend as adjusted for stock dividends was paid by the Bank in August 1994. The following table sets forth certain information as to the range of the high and low bid prices for the Bank's common stock for the calendar quarters indicated.(1) Fiscal 1996 Fiscal 1995 --------------------------------------------- High Bid Low Bid High Bid Low Bid --------------------- -------------------- Fourth Quarter $ 13.50 $ 12.17 $ 8.03 $ 7.88 Third Quarter 13.83 11.67 7.88 7.88 Second Quarter 11.33 9.50 7.88 7.88 First Quarter 9.50 7.88 8.49 6.06 (1) Quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Bid prices have been adjusted to reflect the previously described stock dividends and stock splits. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity measures its ability to fund loans and meet withdrawals of deposits and other cash outflows in a cost-effective manner. The Company's primary sources of funds for operations are deposits from its primary market area, principal and interest payments on loans and mortgage-backed securities, sales of loans and mortgage-backed securities, and proceeds from maturing investment securities and advances from the FHLB of Cincinnati. While loan and mortgage-backed securities payments and maturing investments are relatively stable sources of funds, deposit flows and loan prepayments are greatly influenced by prevailing interest rates, economic conditions and competition. FHLB advances may be used on a short-term basis to compensate for deposit outflows or on a long-term basis to support expanded lending and investment activities. The Bank uses its capital resources principally to meet its ongoing commitment to fund maturing certificates of deposit and deposit withdrawals, repay borrowings, fund existing and continuing loan commitments, maintain its liquidity, and meet operating expenses. At June 30, 1996, the Bank had commitments to originate loans totaling $24.9 million and had $38.6 million of undisbursed loans in process. Scheduled maturities of certificates of deposit during the twelve months following June 30, 1996 totaled $166.5 million. Management believes that a significant portion of the amounts maturing during fiscal 1997 will be reinvested with the Bank because they are retail deposits, however, no assurances can be made that this will occur. Park View Federal is required by current OTS regulations to maintain specified liquid assets of at least 5% of its net withdrawable accounts plus short-term borrowings. Such investments serve as a source of liquid funds which the Bank may use to meet deposit withdrawals and other short-term needs. The Bank's most liquid assets are cash and cash equivalents, which are short-term, highly-liquid investments with original maturities equal to or less than twelve months 7 that are readily convertible to known amounts of cash. The levels of such assets are dependent upon the Bank's operating, financing and investment activities at any given time. Management believes that the liquidity levels maintained are more than adequate to meet potential deposit outflows, repay maturing FHLB advances, fund new loan demand, and cover normal operations. Park View Federal's average daily liquidity ratio for the month of June 1996 was 8.1%, and its average short-term liquidity ratio for such period was significantly above regulatory requirements. ASSET/LIABILITY MANAGEMENT The Company's asset and liability committee, which includes senior management representatives, monitors and considers methods of managing the rate sensitivity and repricing characteristics of the balance sheet components consistent with maintaining acceptable levels of net interest income. Park View Federal's asset and liability management program is designed to minimize the impact of significant changes in interest rates on net interest income. In order to reduce the exposure to interest-rate fluctuations, the Company has developed strategies to manage its liquidity, shorten its effective maturity, and increase the interest-rate sensitivity of its asset base. Management has sought to decrease the average maturity of its assets by emphasizing the origination of adjustable-rate residential mortgage loans and adjustable-rate loans for the acquisition, development and construction of residential and commercial real estate, all of which are retained by the Bank for its portfolio. In addition, all long-term, fixed-rate mortgages are underwritten according to guidelines of the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA") and are either swapped with the FHLMC and the FNMA in exchange for mortgage-backed securities secured by such loans which are then sold in the market or sold directly for cash in the secondary market. At June 30, 1996, as a result of these strategies, the Bank held approximately $241.6 million in loans with adjustable interest rates, which represented approximately 81.1% of the Bank's net loan and mortgage-backed securities portfolio. PROFILE OF LOAN PORTFOLIO [PIE CHART] (81.1%) Adjustable-rate mortgage (0.8%) Consumer loans (18.1%) Fixed-rate mortgage loans PROFILE OF DEPOSITS [PIE CHART] (61.4%) CD's 12 months or less (6.5%) CD's 13 to 24 months (3.9%) CD's 26 to 36 months (8.0%) CD's over 35 months (3.3%) NOW Accounts (11.8%) Passbook accounts An industry measurement of a financial institution's general sensitivity to interest rates is called the gap. The interest-rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities, and is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate- sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income and a positive gap would negatively affect net interest income. Management's goal is to maintain a reasonable balance between exposure to interest-rate fluctuations and earnings. The table on the following page sets forth the repricing schedule of the Bank's interest-earning assets and interest-bearing liabilities at June 30, 1996, and the Bank's interest-rate sensitivity gap percentages at the dates indicated. The table illustrates loans based on contractual maturity and does not include prepayment assumptions. Had prepayment assumptions been utilized, balances maturing would have been pushed into shorter time buckets resulting in a more positive gap position for each period. Decay rates used on non-maturing deposits are based on the FDICIA 305 maturity distribution table. According to this table, passbook and NOW accounts mature at rates of 60% in years one through three, 20% in years 8 three through five, and 20% in years five through ten. Demand deposit accounts mature at a rate of 50% in the first year, 30% in years one through three, and 20% in years three through five. All other interest-earning assets and interest-bearing liabilities are shown based on their contractual maturity.
Over Over Over Over One Year 1-3 3-5 5-10 10 (in thousands) or less Years Years Years Years Total - ------------------------------------------------------------------------------------------------------------------------------- Assets: Adjustable-rate mortgage loans . . . . . . . . . $153,033 $ 51,584 $ 25,859 $ 10,902 $ 251 $241,629 Fixed-rate mortgage loans. . . . . . . . . . . . 36,138 1,319 3,388 2,315 10,627 53,787 Consumer loans . . . . . . . . . . . . . . . . . 1,917 14 20 244 162 2,357 Investment securities (1) . . . . . . . . . . . 7,220 0 13,994 0 0 21,214 -------- -------- -------- -------- ------- -------- Interest-earning assets. . . . . . . . . . . . 198,308 52,917 43,261 13,461 11,040 318,987 Liabilities: Fixed maturity deposits. . . . . . . . . . . . . 166,514 25,746 20,559 1,008 0 213,827 Non-maturing deposits. . . . . . . . . . . . . . 0 31,014 10,338 10,338 0 51,690 FHLB advances. . . . . . . . . . . . . . . . . . . 16,000 5,000 5,000 1,482 0 27,482 Other borrowings . . . . . . . . . . . . . . . . 0 0 2,710 0 0 2,710 -------- -------- -------- -------- ------- -------- Total liabilities. . . . . . . . . . . . . . . 182,514 61,760 38,607 12,828 0 295,709 Interest sensitivity gap . . . . . . . . . . . . . 15,794 (8,843) 4,654 633 11,040 23,278 Cumulative interest sensitivity gap. . . . . . . . 15,794 6,951 11,605 12,238 23,278 23,278 Ratio of cumulative interest-earning assets to cumulative interest-bearing liabilities . . . 1.09 1.03 1.04 1.04 1.08 1.08 Ratio of cumulative interest sensitivity gap to total assets. . . . . . . . . 4.76% 2.10% 3.50% 3.69% 7.02% 7.02%
- ------------------ (1) Consists of U.S. government and agency securities, federal funds sold and interest-bearing deposits at other financial institutions. It should be noted that the amounts in the gap table could be significantly affected by external factors such as prepayment rates and early withdrawal of deposits. A change in interest rates would most likely cause the results calculated in the table to deviate significantly. RESULTS OF OPERATIONS GENERAL PVF Capital Corp.'s net income for the fiscal year ended June 30, 1996 was $3.8 million, or $1.53 per share (fully diluted), as compared to $3.4 million, or $1.37 per share (fully diluted) for fiscal 1995, and $3.9 million, or $1.61 per share (fully diluted) for fiscal 1994. All per share amounts have been adjusted for stock dividends, the three-for-two stock split effective with the holding company reorganization on October 31, 1994, and a three-for-two stock split effected in the form of a dividend issued on August 16, 1996. Net income for the current year increased by $429,000 from the prior fiscal year and exceeded net income for fiscal 1994 by $656,000 before the cumulative effect of an accounting change. In the first quarter of fiscal 1994, the Bank recorded a non-recurring benefit from an accounting change related to accounting for income taxes that amounted to $755,000, or $0.31 per share. 9 NET INTEREST INCOME Net interest income amounted to $12.1 million for the fiscal year ended June 30, 1996, as compared to $10.7 million and $8.9 million for the fiscal years ended June 30, 1995 and 1994 respectively. The increase in net interest income of $1.4 million and $1.8 million from the fiscal year ended June 30, 1995 to 1996 and from the fiscal year ended June 30, 1994 to 1995, respectively, is due to changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities. Following are two tables that will provide information as to change in the Bank's net interest income. The first table sets forth certain information relating to the Bank's average interest-earning assets (loans and investments) and interest-bearing liabilities (deposits and borrowings) and reflects the average yield on assets and average cost of liabilities for the periods and at the dates indicated. Such yields and costs are derived by dividing interest income or interest expense by the average daily balance of assets or liabilities, respectively, for the periods presented. During the periods indicated, non-accrual loans are included in the net loan category. This table also presents information for the periods indicated and at June 30, 1996 with respect to the difference between the weighted-average yield earned on interest-earning assets and weighted-average rate paid on interest-bearing liabilities, or "interest-rate spread," which savings institutions have traditionally used as an indicator of profitability. Another indicator of an institution's net interest income is its "net yield on interest-earning assets," which is its net interest income divided by the average balance of net interest- earning assets. Net interest income is affected by the interest-rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities.
Table 1 AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES FOR THE YEAR ENDED JUNE 30, 1996 1995 ---------------------------------------------------------------- At 6/30/96 Yield/ Average Yield/ Average (in thousands) Cost Balance Interest Cost Balance Interest - ----------------------------------------------------------------------------------------------------------------------------------- Interest-earning assets: Loans. . . . . . . . . . . . . . . . . . . . . . . . 8.94% $272,768 $ 25,572 9.38% $230,846 $ 20,624 Mortgage-backed securities . . . . . . . . . . . . . 6.56 3,961 269 6.79 5,635 432 Investment securities and other interest-earning assets. . . . . . . . . . . . . . 6.21 32,732 1,920 5.87 30,633 1,886 -------- -------- -------- -------- Total interest-earning assets. . . . . . . . . . 8.68 309,461 27,761 8.97 267,114 22,942 -------- -------- Non-interest-earning assets. . . . . . . . . . . . . . 7,775 6,595 -------- -------- Total assets. . . . . . . . . . . . . . . . . . $317,236 $273,709 -------- -------- -------- -------- Interest-bearing liabilities: Deposits . . . . . . . . . . . . . . . . . . . . . . 5.06 $270,975 $ 14,889 5.49 $231,984 $ 11,462 FHLB advances. . . . . . . . . . . . . . . . . . . . 5.78 10,638 546 5.13 16,870 740 Note payable . . . . . . . . . . . . . . . . . . . . 9.72 2,746 268 9.80 600 59 -------- -------- -------- -------- Total interest-bearing liabilities. . . . . . . 5.17 284,359 15,703 5.52 249,454 12,261 ---- -------- ---- -------- Non-interest-bearing liabilities . . . . . . . . . . 12,337 7,132 -------- -------- Total liabilities . . . . . . . . . . . . . . . 296,696 256,586 Stockholders' equity . . . . . . . . . . . . . . . . . 20,540 17,123 -------- -------- Total liabilities and stockholders' equity. . . $317,236 $273,709 -------- -------- -------- -------- Net interest income. . . . . . . . . . . . . . . . . . $ 12,058 $ 10,681 -------- -------- -------- -------- Interest-rate spread . . . . . . . . . . . . . . . . . 3.51% 3.45% ---- ---- ---- ---- Net yield on interest-earning assets . . . . . . . . . 3.90% ---- ---- Ratio of average interest-earning assets to average interest-bearing liabilities. . . . . . . 108.83% 107.08% ------ ------ ------ ------ 1994 ---------------------------------------------- Yield/ Average Yield/ Cost Balance Interest Cost - ------------------------------------------------------------------------------------------------------ Interest-earning assets: Loans. . . . . . . . . . . . . . . . . . . . . . . . 8.93% $190,386 $ 16,338 8.58% Mortgage-backed securities . . . . . . . . . . . . . 7.67 382 29 7.59 Investment securities and other interest-earning assets. . . . . . . . . . . . . . 6.16 16,493 683 4.03 -------- -------- Total interest-earning assets. . . . . . . . . . . . . 8.59 207,711 17,050 8.21 -------- Non-interest-earning assets. . . . . . . . . . . . . . 10,670 -------- Total assets. . . . . . . . . . . . . . . . . . $218,381 -------- -------- Interest-bearing liabilities: Deposits . . . . . . . . . . . . . . . . . . . . . . 4.94 $180,183 $ 7,384 4.10 FHLB advances. . . . . . . . . . . . . . . . . . . . 4.39 14,289 706 4.94 Note payable . . . . . . . . . . . . . . . . . . . . 9.83 300 23 7.67 -------- -------- Total interest-bearing liabilities. . . . . . . 4.92 194,772 8,113 4.17 ---- -------- ---- Non-interest-bearing liabilities . . . . . . . . . . 9,498 -------- Total liabilities . . . . . . . . . . . . . . . 204,270 Stockholders' equity . . . . . . . . . . . . . . . . . 14,111 -------- Total liabilities and stockholders' equity. . . $218,381 -------- -------- Net interest income. . . . . . . . . . . . . . . . . . $ 8,937 -------- -------- Interest-rate spread . . . . . . . . . . . . . . . . . 3.67% 4.04% ---- ---- ---- ---- Net yield on interest-earning assets . . . . . . . . . 4.00% 4.30% ---- ---- ---- ---- Ratio of average interest-earning assets to average interest-bearing liabilities. . . . . . . 106.64% ------ ------
10 The second table illustrates the extent to which changes in interest rates and shifts in the volume of interest-related assets and liabilities have affected the Bank's interest income and expense during the years indicated. The table shows the changes by major component, distinguishing between changes relating to volume (changes in average volume multiplied by average old rate), changes relating to rate (changes in average rate multiplied by average old volume), and changes relating to rate and volume (changes in average rate multiplied by changes in average volume). As is evidenced by these tables, interest-rate changes unfavorably affected the Bank's net interest income for the fiscal years ended June 30, 1996 and 1995. Due to the long-term nature of the Bank's loan portfolio and short-term nature of its deposit portfolio, along with increasing interest rates and a relatively flat yield curve during much of the fiscal year ended June 30, 1996, the Bank experienced a decrease of 22 basis points in its interest-rate spread to 3.45% for fiscal 1996 from 3.67% for fiscal 1995, while during fiscal 1995 its interest-rate spread decreased 37 basis points from 4.04% for fiscal 1994. These changes in average interest-rate spread resulted in a decrease in net interest income for the year ended June 30, 1996 of $532,000 due to interest rate changes and a decrease of $417,000 for the year ended June 30, 1995. Net interest income was favorably affected by volume changes during the two years ended June 30, 1996 and 1995. Accordingly, net interest income grew by $1.9 million and $2.2 million due to volume changes for the fiscal years ended June 30, 1996 and 1995 respectively. Changes attributable to both rate and volume impacted net interest income positively during the fiscal years ended June 30, 1996 and 1995, with the reduction in average interest-rate spread being offset by an increase in average volume during the fiscal years ended June 30, 1996 and 1995. The rate/volume analysis illustrates the effect that volatile interest-rate environments can have on a financial institution. Increasing interest rates or a flattening yield curve will both have a negative effect on net interest income, while decreasing interest rates or a steepening yield curve will both have a positive effect on net interest income.
Table 2 Year Ended June 30, ---------------------------------------------------------------------------------- 1996 vs. 1995 1995 vs. 1994 ---------------------------------------- --------------------------------------- Increase (Decrease) Increase (Decrease) Due to Due to ---------------------------------------- --------------------------------------- Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total ---------------------------------------- --------------------------------------- (in thousands) Interest income: Loans. . . . . . . . . . . . . . . . $ 3,746 $ 1,017 $ 185 $ 4,948 $ 3,473 $ 671 $ 143 $ 4,287 Mortgage-backed securities . . . . . (128) (50) 15 (163) 399 0 4 403 Investment securities and other interest-earning assets. . . 129 (89) (6) 34 552 360 291 1,203 ------- ------- ------- ------- ------- ------- ------- ------- Total interest-earning assets. . 3,747 878 194 4,819 4,424 1,031 438 5,893 ------- ------- ------- ------- ------- ------- ------- ------- Interest expense: Savings deposits . . . . . . . . . . 1,925 1,285 216 3,426 2,121 1,520 437 4,078 FHLB advances. . . . . . . . . . . . (274) 125 (46) (195) 128 (78) (14) 36 Other borrowings . . . . . . . . . . 210 0 1 211 23 6 66 35 ------- ------- ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities. . . . . . . . . . 1,861 1,410 171 3,442 2,272 1,448 429 4,149 ------- ------- ------- ------- ------- ------- ------- ------- Net interest income. . . . . . . . . . $ 1,886 $ (532) $ 23 $ 1,377 $ 2,152 $ (417) $ 9 $ 1,744 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
11 PROVISION FOR LOAN LOSSES Due to the increased risks associated with commercial real estate, construction and land loans, the Bank carefully monitors its loan portfolio and establishes levels of unallocated and specific reserves for loan losses. Provisions for loan losses are charged to earnings to bring the total allowances for loan losses to a level considered adequate by management to provide for probable loan losses, based on prior loss experience, volume and type of lending conducted by the Bank, industry standards, and past due loans in the Bank's loan portfolio. The Bank's policies require the review of assets on a regular basis and the Bank appropriately classifies loans, as well as other assets, if warranted. The Bank establishes specific provisions for loan losses when a loan is deemed to be uncollectible in an amount equal to the net book value of the loan or to any portion of the loan deemed uncollectible. A loan that is classified as either substandard or doubtful is assigned an allowance based upon the specific circumstances on a loan-by-loan basis after consideration of the underlying collateral and other pertinent economic and market conditions. In addition, the Bank maintains unallocated allowances based upon the establishment of a risk category for each type of loan in the Bank's portfolio. Management believes it uses the best information available to make a determination with respect to the allowance for loan losses, recognizing that future adjustments may be necessary depending upon a change in economic conditions. The allowance for loan losses increased from $2.1 million at June 30, 1994 to $2.4 million at June 30, 1995 and to $2.6 million at June 30, 1996. At June 30, 1996, the allowance for loan losses represented 104.8% of total non-performing loans, compared to 51.8% and 48.0% of total non-performing loans at June 30, 1995 and 1994 respectively. Non-performing loans consist of all non-accrual loans and all loans ninety days or more past due. For the fiscal years ended June 30, 1996 and 1995, the Bank recorded provisions for loan losses of $417,000 and $416,000, respectively, while no provision was considered necessary for the fiscal year ended June 30, 1994. During fiscal years 1995 and 1996, the Bank increased its unallocated reserves for loan losses based on management's evaluation of the quality of the loan portfolio, prevailing economic conditions, changes in the volume of the loan portfolio, and other factors deemed relevant. Actual net charge-offs totaled $254,000, $89,000 and $163,000 for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. At June 30, 1996, the allowance for loan losses represented 0.9% of net loans and mortgage-backed securities. [Bar Graph] NON-PERFORMING ASSETS TO TOTAL ASSETS 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1992 1993 1994 1995 1996 12 NON-INTEREST INCOME Non-interest income amounted to $1.7 million, $1.5 million, and $1.7 million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The fluctuations in non-interest income are due primarily to fluctuations in income derived from mortgage banking activities and fee income on deposit accounts. Income attributable to mortgage banking activities consists of loan servicing income, gains and losses on the sale of loans and mortgage-backed securities, and market valuation provisions and recoveries. Income from mortgage banking activities amounted to $925,000, $906,000, and $685,000 for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Other non-interest income amounted to $822,000, $607,000, and $1.0 million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Changes in other non-interest income are the result of servicing income, income realized on the sale of assets and investments, the disposal of real estate owned properties, and other miscellaneous fee income. NON-INTEREST EXPENSE Non-interest expense amounted to $8.0 million, $7.2 million, and $6.3 million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The principal component of non-interest expense is compensation and related benefits which amounted to $4.1 million, $3.7 million, and $3.3 million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The increase in compensation for the fiscal years ended June 30, 1996 and 1995 is due primarily to growth in the staff, the opening of two new branches in fiscal 1995, employee 401K benefits, a compensation incentive plan for both management and loan originators, and inflationary salary and wage adjustments to employees. Office occupancy totaled $1.4 million, $1.2 million, and $1.1 million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The increased occupancy expense is attributable to maintenance and repairs to office buildings and costs attributable to opening and operating two additional branch offices. Other non- interest expense totaled $2.4 million, $2.2 million, and $1.8 million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. This was the result of increased advertising, professional and legal services, regulatory and insurance expenses, and franchise tax expense. FEDERAL INCOME TAXES The Bank's federal income tax expense was $1.6 million, $1.2 million, and $1.2 million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Due to the availability of statutory bad debt deductions for the fiscal years ended June 30, 1995 and 1994, and other miscellaneous deductions, the Bank's effective federal income tax rate was below the expected tax rate of 35% with an effective rate of 30%, 27%, and 28% for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Effective July 1, 1993, the Bank adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The cumulative effect of this change in accounting for income taxes resulted in the Bank recording $755,000 to income for the fiscal year ended June 30, 1994 as the cumulative effect at July 1, 1993 of a change in accounting for income taxes. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a more significant impact on the Bank's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services since such prices are affected by inflation to a larger extent than interest rates. For further information regarding the effect of interest rate fluctuations on the Bank, see "Asset/Liability Management." 13 INDEPENDENT AUDITORS' REPORT The Board of Directors PVF Capital Corp. and Subsidiaries Cleveland, Ohio: We have audited the accompanying consolidated statements of financial condition of PVF Capital Corp. and subsidiaries (Company) as of June 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PVF Capital Corp. and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statements of Financial Accounting Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, in 1996; No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURES, in 1995; and No. 109, ACCOUNTING FOR INCOME TAXES, No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, and No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, in 1994. KPMG Peat Marwick LLP Cleveland, Ohio July 17, 1996 14 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Financial Condition June 30, 1996 and 1995
Assets 1996 1995 ------ ---- ---- Cash and amounts due from depository institutions $ 6,670,604 6,643,369 Interest bearing deposits 244,612 650,211 Federal funds sold 6,875,000 5,325,000 Investment securities held to maturity 14,094,100 41,193,894 Mortgage-backed securities held to maturity, net 637,022 3,764,087 Mortgage-backed securities available for sale, net 7,613,365 - Loans receivable held for long-term investment, net of allowance for loan losses of $2,564,720 and $2,402,098, respectively 278,318,945 246,480,233 Loans receivable held for sale, net 11,203,705 4,451,156 Office properties and equipment, net 2,571,566 2,726,577 Real estate in development 854,891 885,750 Investment required by law Stock in the Federal Home Loan Bank of Cincinnati 1,880,000 1,756,135 Prepaid expenses and other assets 670,271 1,555,367 ----------- ----------- Total assets $ 331,634,081 315,431,779 ----------- ----------- ----------- ----------- Liabilities and Stockholders' Equity ------------------------------------ Liabilities Deposits $ 271,045,085 272,290,442 Advances from the Federal Home Loan Bank of Cincinnati 27,481,651 15,000,000 Notes payable 2,710,000 1,800,000 Advances from borrowers for taxes and insurance 4,205,151 4,316,619 Accrued expenses and other liabilities 3,718,536 3,206,850 ----------- ----------- Total liabilities 309,160,423 296,613,911 Stockholders' equity Serial preferred stock, $.01 par value, 1,000,000 shares authorized; none issued - - Common stock, $.01 par value, 5,000,000 shares authorized; 2,323,436 and 1,404,100 shares issued and outstanding, respectively 23,235 14,041 Additional paid-in capital 9,995,916 8,155,885 Retained earnings (substantially restricted) 12,608,775 10,647,942 Net unrealized securities losses (154,268) - ----------- ----------- Total stockholders' equity 22,473,658 18,817,868 Commitments ----------- ----------- Total liabilities and stockholders' equity $ 331,634,081 315,431,779 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 15 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Operations Years ended June 30, 1996, 1995, and 1994
1996 1995 1994 ---- ---- ---- Interest income Loans $ 25,572,082 20,623,768 16,337,764 Mortgage-backed securities 268,604 432,016 29,210 Cash and investment securities 1,920,620 1,885,677 683,115 ---------- ---------- ---------- Total interest income 27,761,306 22,941,461 17,050,089 Interest expense Deposits 14,888,819 11,462,392 7,384,293 Short-term borrowings - 798,518 221,440 Long-term borrowings 814,360 - 507,214 ---------- ---------- ---------- Total interest expense 15,703,179 12,260,910 8,112,947 ---------- ---------- ---------- Net interest income 12,058,127 10,680,551 8,937,142 Provision for loan losses 417,000 416,000 - ---------- ---------- ---------- Net interest income after provision for loan losses 11,641,127 10,264,551 8,937,142 ---------- ---------- ---------- Noninterest income, net Service and other fees 462,985 434,150 450,181 Mortgage banking activities, net 924,657 906,347 685,243 Gain on sale of investment securities, net 74,721 - 55,000 Other, net 284,505 172,934 512,191 ---------- ---------- ---------- Total noninterest income, net 1,746,868 1,513,431 1,702,615 Noninterest expense Compensation and benefits 4,136,243 3,693,088 3,328,144 Office, occupancy, and equipment 1,433,037 1,233,111 1,145,100 Insurance 737,845 593,836 528,837 Professional and legal 167,689 248,697 235,683 Other 1,513,650 1,408,135 1,057,082 ---------- ---------- ---------- Total noninterest expense 7,988,464 7,176,867 6,294,846 ---------- ---------- ---------- Income before federal income taxes and cumulative effect of change in accounting principle 5,399,531 4,601,115 4,344,911 Federal income taxes Current 1,280,375 1,097,800 746,863 Deferred 333,000 146,200 468,137 ---------- ---------- ---------- 1,613,375 1,244,000 1,215,000 ---------- ---------- ---------- Income before cumulative effect of change in accounting principle 3,786,156 3,357,115 3,129,911 Cumulative effect at July 1, 1993 of change in accounting for income taxes - - 754,769 ---------- ---------- ---------- Net income $ 3,786,156 3,357,115 3,884,680 ---------- ---------- ---------- Earnings per share Earnings per share before cumulative effect of change in accounting principle $ 1.53 1.37 1.30 Cumulative effect of change in accounting principle - - 0.31 ---- ---- ---- Earnings per share $ 1.53 1.37 1.61 ---- ---- ---- ---- ---- ----
See accompanying notes to consolidated financial statements. 16 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended June 30, 1996, 1995, and 1994
Net Additional Unrealized Common Paid-In Retained Securities Stock Capital Earnings Losses Total ------ ---------- ---------- ---------- ----- Balance at June 30, 1993 $ 8,500 8,066,336 3,772,830 - 11,847,666 Net income - - 3,884,680 - 3,884,680 Stock options exercised, 1,000 shares 10 9,990 - - 10,000 Stock dividend issued, 85,100 shares 851 84,239 (85,090) - - Cash paid in-lieu of fractional shares - - (166) - (166) ------ --------- ---------- ------- ---------- Balance at June 30, 1994 9,361 8,160,565 7,572,254 - 15,742,180 Net income - - 3,357,115 - 3,357,115 Cash dividend, $.18 per share - - (281,427) - (281,427) Three-for-two stock exchange in connection with formation of the holding company 4,680 (4,680) - - - ------ --------- ---------- ------- ---------- Balance at June 30, 1995 14,041 8,155,885 10,647,942 - 18,817,868 Net income - - 3,786,156 - 3,786,156 Stock dividend issued, 140,325 shares 1,404 1,822,821 (1,824,225) - - Cash paid in-lieu of fractional shares - - (1,098) - (1,098) Stock options exercised, 4,537 shares 45 24,955 - - 25,000 Net change in unrealized securities losses, net of taxes of $79,471 - - - (154,268) (154,268) Three-for-two stock split effected in the form of a dividend 7,745 (7,745) - - - ------ --------- ---------- ------- ---------- Balance at June 30, 1996 $ 23,235 9,995,916 12,608,775 (154,268) 22,473,658 ------ --------- ---------- ------- ---------- ------ --------- ---------- ------- ----------
See accompanying notes to consolidated financial statements. 17 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 1996, 1995, and 1994
1996 1995 1994 ---- ---- ---- Operating activities Net income $ 3,786,156 3,357,115 3,884,680 Adjustments required to reconcile net income to net cash used in operating activities Accretion of discount on securities (25,475) (42,767) (61,708) Depreciation and amortization 477,946 359,450 261,655 Provision for loan losses 417,000 416,000 - Accretion of unearned discount and deferred loan origination fees, net (1,554,098) (1,245,139) (1,247,791) Deferred income tax provision (333,000) (146,200) (468,137) Gain on sale of investment securities, net (74,721) - (55,000) Proceeds from loans held for sale 36,564,603 14,623,166 66,479,488 Originations of loans held for sale (51,350,242) (23,526,731) (67,563,486) Mortgage banking operations, excluding mortgage loan servicing fees (382,898) (345,978) (108,013) Net change in other assets and other liabilities 1,461,043 (204,158) (1,619,612) ----------- ----------- ----------- Net cash used in operating activities (11,013,686) (6,755,242) (497,924) ----------- ----------- ----------- Investing activities Loans originated (105,097,698) (102,130,657) (50,493,403) Principal repayments on loans 76,464,071 60,937,038 15,868,390 Loans purchased (13,161,755) (11,169,245) (14,860,922) Loans sold 10,976,057 13,422,886 - Proceeds from sales of mortgage-backed securities available for sale 894,443 8,205,393 5,102,018 Principal repayments on mortgage-backed securities available for sale 195,177 - 10,177 Purchase of mortgage-backed securities held to maturity - (4,829,371) - Principal repayments on mortgage-backed securities held to maturity 2,246,171 1,095,219 - Proceeds from sales of investment securities available for sale 10,007,188 - 1,000,000 Purchase of investment securities held to maturity (24,298,789) (53,000,000) (6,000,000) Maturities of investment securities held to maturity 41,491,590 20,200,000 4,200,000 Federal Home Loan Bank (FHLB) stock purchased, net (123,865) (423,805) (64,309) Additions to office properties and equipment, net (322,935) (1,361,726) (554,383) Disposals of real estate owned 826,080 373,337 1,351,170 Disposals of real estate in development, net 30,859 123,162 128,743 ----------- ----------- ----------- Net cash used in investing activities 126,594 (68,557,769) (44,312,519) ----------- ----------- -----------
(Continued) 18 2 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 1996, 1995, and 1994
1996 1995 1994 ---- ---- ---- Financing activities Payments on FHLB advances $ (25,018,349) (28,560,000) (5,000,000) Proceeds from FHLB advances 37,500,000 26,000,000 20,000,000 Proceeds from notes payable 1,200,000 1,800,000 600,000 Repayment of notes payable (290,000) (600,000) - Net increase (decrease) in NOW and passbook savings 5,132,229 (5,785,818) (2,798,545) Proceeds from issuance of certificates of deposit 45,556,108 106,109,678 53,501,029 Payments on maturing certificates of deposit (51,933,694) (25,074,965) (24,277,525) Other (87,566) 167,388 442,045 ---------- ---------- ---------- Net cash provided by financing activities 12,058,728 74,056,283 42,467,004 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,171,636 (1,256,728) (2,343,439) Cash and cash equivalents at beginning of year 12,618,580 13,875,308 16,218,747 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 13,790,216 12,618,580 13,875,308 ---------- ---------- ---------- ---------- ---------- ---------- Supplemental disclosures of cash flow information Cash payments of interest expense $ 15,611,439 12,254,542 8,050,044 Cash payments of income taxes 1,165,000 1,297,000 790,000 ---------- ---------- ---------- ---------- ---------- ---------- Supplemental schedule of noncash investing and financing activities Loans exchanged for mortgage-backed securities $ 8,052,331 8,812,249 2,066,733 Transfers from real estate owned (706,538) (342,867) (511,655) Transfers to real estate owned 759,122 322,867 10,496 ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. 19 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1996, 1995, and 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS The accounting and reporting policies of PVF Capital Corp. and its subsidiaries (Company) conform to generally accepted accounting principles and general industry practice. The Company's principal subsidiary, Park View Federal Savings Bank (Bank), is principally engaged in the business of offering savings deposits through the issuance of savings accounts, money market accounts, and certificates of deposit and lending funds primarily for the purchase, construction, and improvement of real estate in Cuyahoga, Summit, Geauga, and Lake Counties, Ohio. The deposit accounts of the Bank are insured under the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC) and are backed by the full faith and credit of the United States government. The following is a description of the significant policies which the Company follows in preparing and presenting its consolidated financial statements. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of PVF Capital Corp. and its wholly owned subsidiaries, Park View Federal Savings Bank and PVF Service Corporation. All significant intercompany transactions and balances are eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ALLOWANCE FOR LOSSES Under Statement of Financial Accounting Standards No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, and No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURES, a loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest according to the contractual terms of the loan agreement. Since the Bank's loans are primarily collateral dependent, measurement of impairment is based on the fair value of the collateral. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries) based on the Bank's evaluation of impairment of its loans. The adequacy of the allowance for loan losses is periodically evaluated by the Bank based upon the overall portfolio composition and general market conditions. While management uses the best information available to make these evaluations, future adjustments to the allowance may be necessary if economic conditions change substantially from the assumptions used in making the evaluations. Future adjustments to the allowance may also be required by regulatory examiners based on their judgments about information available to them at the time of their examination. (Continued) 20 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Uncollectible interest on loans that are contractually 90 days or more past due is charged off, or an allowance is established. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments is back to normal, in which case the loan is returned to accrual status. MORTGAGE BANKING ACTIVITIES Mortgage loans held for sale are carried at the lower of cost or market value, determined on a net aggregate basis. The Company retains servicing on loans that are sold. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. This pronouncement requires separate recognition of an asset for mortgage servicing rights based on allocation of total loan cost using relative fair values. The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on current market interest rates and prepayment assumptions. For purposes of measuring impairment, the rights are stratified based on predominant risk characteristics of the underlying loans such as interest rates and scheduled maturity. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights exceed their fair value. The Bank monitors prepayments, and in the event that actual prepayments exceed original estimates, amortization is adjusted accordingly. There was no impact on amortization as a result of accelerated prepayments at June 30, 1996. INVESTMENT AND MORTGAGE-BACKED SECURITIES In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Statement 115 requires that debt and equity securities be classified into one of three categories: held to maturity, available for sale, or held for trading. Securities held to maturity are limited to debt securities that the holder has the positive intent and the ability to hold to maturity; these securities are reported at amortized cost. Securities held for trading are limited to debt and equity securities that are held principally to be sold in the near term; these securities are reported at fair value, and unrealized gains and losses are reflected in earnings. Securities held as available for sale consist of all other securities; these securities are reported at fair value, and unrealized gains and losses are not reflected in earnings but are reflected as a separate component of stockholders' equity, net of tax. Under Statement 115, investment and mortgage-backed securities that could be sold in the future because of changes in interest rates or other factors may not be classified as held to maturity. Gains or losses on the sales of all securities are recognized at the date of sale (trade date). (Continued) 21 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements OFFICE PROPERTIES AND EQUIPMENT Depreciation and amortization are computed using the straight-line method at rates expected to amortize the cost of the assets over their estimated useful lives or, with respect to leasehold improvements, the term of the lease, if shorter. FEDERAL INCOME TAXES The Company files a consolidated tax return with its wholly owned subsidiaries and provides deferred federal income taxes in recognition of timing differences between financial statement and income tax reporting. Effective July 1, 1993, the Bank adopted Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, and the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. LOAN ORIGINATION AND COMMITMENT FEES The Bank defers loan origination and commitment fees and certain direct loan origination costs and amortizes the net amount over the lives of the related loans as a yield adjustment if the loans are held for investment. REAL ESTATE IN DEVELOPMENT Real estate in development is carried at the lower of cost, including capitalized holding costs, or fair value less estimated selling costs. STATEMENTS OF CASH FLOWS For purposes of the consolidated statements of cash flows, the Company considers cash and amounts due from depository institutions, interest bearing deposits, and federal funds sold with original maturities of less than three months to be cash equivalents. EARNINGS PER SHARE The per share data for 1996, 1995, and 1994 are calculated on a primary basis because of the dilutive effect of unexercised options and are adjusted to reflect the three-for-two stock issuance of PVF Capital Corp. on October 31, 1994; the 10 percent stock dividends declared February 1994 and July 1995; and the three-for-two stock issuance declared July 1996. The weighted average number of shares of common stock and common stocks equivalents outstanding during the years ended June 30, 1996, 1995, and 1994 were 2,471,675, 2,447,772, and 2,409,895, respectively. Fully diluted earnings per share is not materially different than primary earnings per share. (Continued) 22 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements RECLASSIFICATION Certain reclassifications have been made to 1995 and 1994 amounts to conform to the 1996 presentation. (2) INVESTMENT SECURITIES Investment securities, held to maturity, at June 30, 1996 and 1995, are summarized as follows:
1996 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- ---------- United States Government and agency securities $ 14,094,100 - (200,264) 13,893,836 ---------- ------- ------ ---------- ---------- ------- ------ ---------- Due in one year or less $ 100,000 - - 100,000 Due after one year through five years 13,994,100 - (200,264) 13,793,836 ---------- ------- ------ ---------- $ 14,094,100 - (200,264) 13,893,836 ---------- ------- ------ ---------- ---------- ------- ------ ---------- 1995 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- ---------- United States Government and agency securities $ 41,193,894 102,746 (21,940) 41,274,700 ---------- ------- ------ ---------- ---------- ------- ------ ----------
Realized gains on sales of investment securities were $100,658, $-0-, and $55,000 for the years ended June 30, 1996, 1995, and 1994, respectively, and realized losses for the year ended June 30, 1996 were $25,937. There were no realized losses on sales of investments for the years ended June 30, 1995 and 1994. On November 16, 1995, the Company adopted the implementation guidance in the Special Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued by the Financial Accounting Standards Board in November 1995, and reassessed the appropriateness of the classification of all securities held at that date. Investment securities held to maturity and mortgage-backed securities with amortized costs of $9,932,467 and $879,059, respectively, were transferred to the available-for-sale classification, and a valuation account was established for the unrealized gain, totaling $90,105, to increase the recorded balance of such securities to their fair value on that date. Subsequent to the transfer to the available-for-sale category, the investment securities and mortgage-backed securities were sold, and net realized gains of $74,721 and $15,384, respectively, were recognized. (Continued) 23 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) MORTGAGE-BACKED SECURITIES Mortgage-backed securities at June 30, 1996 and 1995, are summarized as follows:
1996 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- ---------- Held to maturity FHLMC mortgage-backed securities $ 628,640 11,148 - 639,788 Accrued interest receivable 8,382 - - 8,382 ---------- ------- ------ ---------- $ 637,022 11,148 - 648,170 ---------- ------- ------ ---------- ---------- ------- ------ ---------- Due after ten years $ 637,022 11,148 - 648,170 ---------- ------- ------ ---------- ---------- ------- ------ ---------- Available for sale FHLMC mortgage-backed securities $ 7,963,363 - (233,739) 7,729,624 Accrued interest receivable 41,608 - - 41,608 Unearned discount (157,867) - - (157,867) ---------- ------- ------ ---------- $ 7,847,104 - (233,739) 7,613,365 ---------- ------- ------ ---------- ---------- ------- ------ ---------- Due after ten years $ 7,847,104 - (233,739) 7,613,365 ---------- ------- ------ ---------- ---------- ------- ------ ---------- 1995 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- ---------- Held to maturity FHLMC mortgage-backed securities $ 1,952,407 44,214 - 1,996,621 FNMA mortgage-backed securities 1,783,620 28,414 - 1,812,034 Accrued interest receivable 29,935 - - 29,935 Unearned discount (1,875) - - (1,875) ---------- ------- ------ ---------- $ 3,764,087 72,628 - 3,836,715 ---------- ------- ------ ---------- ---------- ------- ------ ----------
(Continued) 24 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (4) LOANS RECEIVABLE Loans receivable held for long-term investment at June 30, 1996 and 1995, consist of the following: 1996 1995 ---- ---- Real estate mortgages One-to-four family residential $ 103,123,347 93,708,212 Home equity line of credit 8,748,668 3,314,374 Multifamily residential 30,607,353 39,531,000 Commercial 72,542,642 57,498,000 Land acquisition 26,000,195 18,318,728 One-to-four family residential construction 76,725,176 61,653,114 ----------- ----------- Total real estate mortgages 317,747,381 274,023,428 Consumer 2,356,776 2,294,504 ----------- ----------- 320,104,157 276,317,932 Accrued interest receivable 1,615,633 1,542,129 Deferred loan origination fees (2,021,580) (1,749,417) Unearned discount (165,295) (336,989) Undisbursed portion of loan proceeds (38,649,250) (26,891,324) Allowance for loan losses (2,564,720) (2,402,098) ----------- ----------- $ 278,318,945 246,480,233 ----------- ----------- ----------- ----------- A summary of the changes in the allowance for loan losses for the years ended June 30, 1996, 1995, and 1994, is as follows (write-offs include transfers to real estate owned): Balance at June 30, 1993 $ 2,737,594 Transfers to mortgage banking allowance for losses (500,000) (Write-offs) recoveries, net (163,041) --------- Balance at June 30, 1994 2,074,553 Provision charged to operations 416,000 (Write-offs) recoveries, net (88,455) --------- Balance at June 30, 1995 2,402,098 Provision charged to operations 417,000 (Write-offs) recoveries, net (254,378) --------- Balance at June 30, 1996 $ 2,564,720 --------- --------- (Continued) 25 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following is a summary of the principal balances (as rounded) of loans on nonaccrual status, and loans past due 90 days or more which were on accrual status, at June 30: 1996 1995 ---- ---- Loans on nonaccrual status Real estate mortgages One-to-four family residential $ 1,500,000 2,149,000 Construction and land 612,000 766,000 Commercial 160,000 582,000 Consumer 80,000 109,000 --------- --------- Total loans on nonaccrual status 2,352,000 3,606,000 --------- --------- Past due loans on accrual status Real estate mortgages One-to-four family residential - 271,000 Construction and land 95,000 757,000 --------- --------- Total past due loans on accrual status 95,000 1,028,000 --------- --------- Total past due loans $ 2,447,000 4,634,000 --------- --------- --------- --------- It is the Bank's policy to classify as nonaccruing any loan where less than the full required interest payment is made and to not record into income partial interest payments. During the years ended June 30, 1996 and 1995, gross interest income of $340,350 and $404,600, respectively, would have been recorded on loans accounted for on a nonaccrual basis if the loans had been current throughout the period. At June 30, 1996 and 1995, the recorded investment in loans which have been identified as being impaired and have been evaluated in accordance with Statement of Financial Accounting Standards No. 114 and No. 118 totaled $2,352,000 and $3,606,000, respectively. Included in the impaired amount at June 30, 1996 and 1995, is $480,840 and $969,719, respectively, related to loans with a corresponding valuation allowance of $393,730 and $403,855, respectively. The Company recognized no interest on impaired loans in 1996, 1995, and 1994 (during the portion of the respective years that they were impaired). Average impaired loans for the years ended June 30, 1996, 1995, and 1994 amounted to $2,979,000, $3,515,000, and $2,775,000, respectively. (Continued) 26 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements Loans receivable held for sale at June 30, 1996 and 1995, consist of the following:
1996 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- ---------- Real estate mortgages $ 11,249,868 - (13,314) 11,236,554 Accrued interest receivable 43,188 - - 43,188 Deferred loan origination fees (76,037) - - (76,037) ---------- ------- ------ ---------- $ 11,217,019 - (13,314) 11,203,705 ---------- ------- ------ ---------- ---------- ------- ------ ---------- 1995 -------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- ---------- Real estate mortgages $ 4,495,308 201,339 - 4,696,647 Accrued interest receivable 17,365 - - 17,365 Deferred loan origination fees (61,517) - - (61,517) ---------- ------- ------ ---------- $ 4,451,156 201,339 - 4,652,495 ---------- ------- ------ ---------- ---------- ------- ------ ----------
Mortgage banking activities, net, for each of the years in the three-year period ended June 30, 1996, consist of the following:
1996 1995 1994 ---- ---- ---- Mortgage loan servicing fees $ 541,759 560,379 577,230 Amortization of deferred premiums - (35,685) (55,232) Gross realized Gains on sales of loans 831,283 144,827 624,793 Losses on sales of loans (347,142) (27,742) (92,467) Gains on sales of mortgage-backed securities 21,386 - 120,919 Losses on sales of mortgage-backed securities (40,625) (606,856) - Market valuation provision for losses on loans held for sale (82,004) (115,000) (490,000) Market valuation recoveries - 986,434 - ------- ------- ------- $ 924,657 906,357 685,243 ------- ------- ------- ------- ------- -------
(Continued) 27 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of the changes in the allowance for mortgage banking market value losses for the years ended June 30, 1996, 1995, and 1994 is as follows:
1996 1995 1994 ---- ---- ---- Balance at beginning of year $ - 871,434 - Market valuation provision for losses on loans held for sale 82,004 115,000 490,000 Transfer from the allowance for loan losses - - 500,000 Recoveries - (986,434) - Discount on loans transferred to held for investment (68,690) - (118,566) ------- ------- ------- Balance at end of year $ 13,314 - 871,434 ------- ------- ------- ------- ------- -------
At June 30, 1996, 1995, and 1994, the Bank was servicing whole and participation mortgage loans for others aggregating approximately $171,043,000; $156,423,000; and $149,807,000, respectively. The Bank had $2,431,750 and $1,575,417 at June 30, 1996 and 1995, respectively, of funds collected on mortgage loans serviced for others due to investors, which is included in accrued expenses and other liabilities. Originated mortgage servicing rights capitalized during the year ended June 30, 1996, as a result of the adoption of Statement of Financial Accounting Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, was approximately $241,000. Fair value of the asset, as determined by market quotes, approximated carrying value at June 30, 1996. Amortization during the period was not significant. (5) OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment at cost, less accumulated depreciation and amortization at June 30, 1996 and 1995, are summarized as follows: 1996 1995 ---- ---- Land and land improvements $ 520,402 520,402 Building and building improvements 1,479,913 1,469,673 Leasehold improvements 1,334,532 1,188,264 Furniture and equipment 3,040,041 2,929,949 --------- --------- 6,374,888 6,108,288 Less accumulated depreciation and amortization (3,803,322) (3,381,711) --------- --------- $ 2,571,566 2,726,577 --------- --------- --------- --------- (Continued) 28 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) DEPOSITS Deposit balances at June 30, 1996 and 1995, are summarized by interest rate as follows:
1996 1994 ----------------- ----------------- Amount % Amount % ------ --- ------ --- NOW and money market accounts Noninterest bearing $ 5,528,238 2.0% 3,788,294 1.4% 2.00 - 5.00% 19,807,255 7.3 17,126,283 6.3 ---------- ---- ---------- ---- 25,335,493 9.3 20,914,577 7.7 Passbook savings 3.00 - 5.00% 31,882,656 11.8 31,171,343 11.4 Certificates of deposit 2.50 - 2.99% 7,455 - - - 3.00 - 3.99 - - - - 4.00 - 4.99 23,125,606 8.5 7,588,155 2.8 5.00 - 5.99 124,808,178 46.1 60,811,496 22.3 6.00 - 6.99 46,387,193 17.1 89,986,026 33.1 7.00 - 7.99 19,333,358 7.1 59,973,724 22.0 8.00 - 8.99 157,173 0.1 1,008,698 0.4 9.00 - 9.99 7,973 - 487,892 0.2 10.00 - 10.99 - - 348,531 0.1 ---------- ---- ---------- ---- 213,826,936 78.9 220,204,522 80.9 ---------- ---- ---------- ---- $ 271,045,085 100.0% 272,290,442 100.0% ---------- ----- ---------- ----- ---------- ----- ---------- ----- Weighted average rate on deposits 5.06% 5.63% ---- ---- ---- ---- Remaining term to maturity of certificates of deposit 12 months or less $ 166,412,661 77.8% 159,365,855 72.4% 13 to 24 months 15,023,122 7.0 23,579,043 10.7 25 to 36 months 10,722,530 5.0 8,713,239 3.9 Over 36 months 21,668,623 10.2 28,546,385 13.0 ---------- ---- ---------- ---- $ 213,826,936 100.0% 220,204,522 100.0% ---------- ----- ---------- ----- ---------- ----- ---------- ----- Weighted average rate on certificates of deposit 5.76% 6.39% ---- ---- ---- ----
Time deposits in amounts of $100,000 or more totaled $36,771,491 and $38,108,945 at June 30, 1996 and 1995, respectively. Interest expense on deposits is summarized as follows: 1996 1995 1994 ---- ---- ---- NOW accounts $ 414,869 362,059 432,884 Passbook accounts 865,170 910,723 1,130,769 Certificates of deposit 13,608,780 10,189,610 5,820,640 ------------ ---------- --------- $ 14,888,819 11,462,392 7,384,293 ------------ ---------- --------- ------------ ---------- --------- (Continued) 29 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI Advances from the Federal Home Loan Bank of Cincinnati, with maturities and interest rates thereon at June 30, 1996 and 1995, were as follows: Maturity Interest Rate 1996 1995 -------- ------------- ---- ---- October 1995 4.15% $ - 15,000,000 December 1996 5.25 16,000,000 - March 1998 5.50 5,000,000 - March 2001 5.93 5,000,000 - February 2003 6.00 500,000 - February 2006 6.05 981,651 - ---------- ---------- $ 27,481,651 15,000,000 ---------- ---------- ---------- ---------- Weighted average interest rate 5.46% 4.15% ---- ---- ---- ---- The Bank maintains a $30,000,000 line of credit with the Federal Home Loan Bank of Cincinnati (FHLB) which matures in December 1996. At June 30, 1996, the amount outstanding in related weighted average interest rate totaled $16,000,000 and 5.25 percent, respectively. Serving as collateral for such advances, the Bank has pledged mortgage loans with unpaid principal balances aggregating approximately $41,222,000 and $22,500,000 at June 30, 1996 and 1995, respectively. In addition, stock in the FHLB is pledged for such advances. The Bank has the capacity to borrow up to 25 percent of its assets, upon approval of the FHLB. At June 30, 1996 and 1995, the Bank had the capacity to borrow an additional $55,000,000 and $64,000,000, respectively, in FHLB advances. (8) NOTES PAYABLE Notes payable consist of the following at June 30, 1996 and 1995: Maturity Interest Rate 1996 1995 -------- ------------- ---- ---- Promissory note September 2000 9.25% $ 1,000,000 - Mortgage note July 2000 10.00% 1,710,000 1,800,000 --------- --------- $ 2,710,000 1,800,000 --------- --------- --------- --------- On June 30, 1995, PVF Capital Corp. secured a mortgage note from a federally insured institution at a fixed interest rate. Interest payments are due on the first day of each month, and principal payments of $10,000 per month are due beginning in August 1998 through the date of maturity, July 2000, at which time the remaining unpaid principal balance is due and payable in full. (Continued) 30 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements On August 16, 1995, PVF Service Corporation, a wholly owned subsidiary of the Company, secured a promissory note from another federally insured institution at a variable interest rate that adjusts to prime plus 1 percent without notice to the Company on the effective date of each change in the lender's prime rate. Interest payments are due on the first day of each month, and principal payments of $50,000 per quarter are due commencing January 1996 through the date of maturity, September 2000, at which time any remaining unpaid principal balance is due and payable in full. Additional principal payments may be required in accordance with the terms of the note. (9) FEDERAL INCOME TAXES AND RETAINED EARNINGS As discussed in note 1, the Company adopted Statement of Financial Accounting Standards No. 109 in 1994 and has applied the provisions of Statement 109 effective July 1, 1993. The cumulative effect of this change in accounting for income taxes of $754,769 is reported separately in the 1994 consolidated statement of operations. The accompanying consolidated financial statements reflect provisions for federal income taxes differing from the amounts computed by applying the U.S. federal income tax statutory rates to income before federal income taxes and cumulative effect of change in accounting principle. These differences are reconciled as follows:
1996 1995 1994 ----------------- ----------------- ----------------- Percent Percent Percent of Pretax of Pretax of Pretax Amount Income Amount Income Amount Income ------ --------- ------ --------- ------ --------- Computed expected tax $ 1,889,836 35.0% 1,610,390 35.0% 1,520,719 35.0% Decrease in tax resulting from Book under tax bad debt deduction - - (108,893) (2.4) (189,302) (4.3) Benefit of graduated rates (53,995) (1.0) (46,011) (1.0) (43,450) (1.0) Other, net (222,466) (4.1) (211,486) (4.6) (72,967) (1.7) --------- ---- --------- ---- --------- ---- $ 1,613,375 29.9% 1,244,000 27.0% 1,215,000 28.0% --------- ---- --------- ---- --------- ---- --------- ---- --------- ---- --------- ----
(Continued) 31 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements The net tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 1996 and 1995, are: 1996 1995 ---- ---- Deferred tax assets Loan loss and other reserves $ 815,639 733,898 Other 38,954 40,792 ------- ------- Total gross deferred tax assets 854,593 774,690 ------- ------- Deferred tax liabilities Deferred loan fees 162,162 40,156 FHLB stock dividend 389,759 328,241 Unrealized gains on loan sales, net 199,325 45,034 Originated mortgage servicing asset 81,997 - Bad debt reserves over base year reserves - 103 Other 131,227 138,033 ------- ------- Total gross deferred tax liabilities 964,470 551,567 ------- ------- Net deferred tax asset (liability) $ (109,877) 223,123 ------- ------- ------- ------- The deferred tax asset and liability at June 30, 1996 was $854,593 and $964,470, respectively; of this amount, a deferred tax liability of $79,471 is included in unrealized losses on securities available for sale. Under Statement 109, a valuation allowance is established to reduce the deferred tax asset if it is more likely than not that the related tax benefits will not be realized. In management's opinion, it is more likely than not that the tax benefits will be realized; consequently, no valuation allowance has been established as of June 30, 1995. If certain conditions are met, savings institutions, in determining taxable income, are allowed a special bad debt deduction based on specified experience formulas or on a percentage of taxable income before such deduction. The Bank utilized the experience method in 1996, 1995, and 1994. At June 30, 1996, the Bank had accumulated approximately $4,514,000 representing accumulated bad debt deductions on which no federal income tax has been paid. If the reserves are charged for purposes other than to absorb bad debt losses, taxable income will be created to the extent of the amount so charged. (10) LEASES Future minimum payments under noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at June 30, 1996: Year Ending June 30, -------------------- 1997 $ 309,706 1998 309,706 1999 268,674 2000 198,614 2001 192,245 Thereafter 500,460 --------- Total minimum lease payments $ 1,779,405 --------- --------- (Continued) 32 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements During the years ended June 30, 1996, 1995, and 1994, rental expense consisted of: 1996 1995 1994 ---- ---- ---- Rental expense $ 331,941 295,145 303,393 Sublease rentals - - (4,725) ------- ------- ------- Net rental expense $ 331,941 295,145 298,668 ------- ------- ------- ------- ------- ------- (11) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Bank enters into commitments with off-balance sheet risk to meet the financing needs of its customers. Commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Bank's exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of 60 to 120 days or other termination clauses and may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on management's credit evaluation of the applicant. Collateral held is generally residential and commercial real estate. The Bank's lending is concentrated in Northeastern Ohio, and as a result, the economic conditions and market for real estate in Northeastern Ohio could have a significant impact on the Bank. At June 30, 1996, the Bank had commitments of $1,169,000 to sell mortgage loans in the secondary market and had commitments to fund variable and fixed rate mortgage loans of approximately $21,945,000 and $2,951,000, respectively. At June 30, 1995, the Bank had commitments of $1,704,000 to sell mortgage loans in the secondary market and had commitments to fund variable and fixed rate mortgage loans of approximately $12,620,900 and $4,462,650, respectively. There are pending against the Company various lawsuits and claims which arise in the normal course of business. In the opinion of management, any liabilities that may result from pending lawsuits and claims will not materially affect the financial position of the Company. (Continued) 33 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements The undercapitalized status of the 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 institution's deposit base at a specific, determined point in time, and is expected to have a material one-time effect on the Bank's financial position. (12) REGULATORY CAPITAL The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) imposes stringent capital requirements upon savings institutions (institutions). The capital standards require institutions to have minimum regulatory tangible capital equal to 1.5 percent of tangible assets, minimum core capital of not less than 3 percent of adjusted tangible assets, and risk-based capital of not less than 8 percent of risk-weighted assets. In conjunction with the risk-based capital requirement, the Office of Thrift Supervision (OTS) has assigned risk-weighting factors to all assets and certain commitments which are to be utilized in computing the amount of required capital. The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was signed into law on December 19, 1991. Regulations implementing the prompt corrective action provisions of FDICIA became effective on December 19, 1992. In addition to the prompt corrective action requirements, FDICIA includes significant changes to the legal and regulatory environment for insured depository institutions, including reductions in insurance coverage for certain kinds of deposits, increased supervision by the federal regulatory agencies, increased reporting requirements for insured institutions, and new regulations concerning internal controls, accounting, and operations. The prompt corrective action regulations define specific capital categories based on an institution's capital ratios. The capital categories, in declining order, are "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." To be considered "well capitalized," an institution must generally have a leverage ratio of at least 5 percent, a Tier 1 risk- based capital ratio of at least 6 percent, and a total risk-based capital ratio of at least 10 percent. As of June 30, 1996, the most recent notification from the OTS categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. (Continued) 34 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements At June 30, 1996 and 1995, the Bank was in compliance with regulatory capital requirements as set forth below (dollars in thousands):
Tier-1 Total Core/ Risk- Risk- Equity Tangible Leverage Based Based Capital Capital Capital Capital Capital ------- -------- -------- ------- ------- June 30, 1996 GAAP capital $ 24,128 24,128 24,128 24,128 24,128 Unrealized depreciation or loss on securities available for sale, net 154 154 154 154 General loan valuation allowances - - - 2,228 ------- ------- ------- ------- Regulatory capital 24,282 24,282 24,282 26,510 Total assets 334,765 ------- Adjusted total assets 335,022 335,022 ------- ------- Risk-weighted assets 232,060 232,060 ------- ------- Capital ratio 7.21% 7.25% 7.25% 10.46% 11.42% Regulatory requirement 1.50% 3.00% 8.00% Regulatory capital category Well capitalized - equal to or greater than 5.00% 6.00% 10.00% Tier-1 Total Core/ Risk- Risk- Equity Tangible Leverage Based Based Capital Capital Capital Capital Capital ------- -------- -------- ------- ------- June 30, 1995 GAAP capital $ 19,503 19,503 19,503 19,503 19,503 Unrealized depreciation or loss on securities available for sale, net - - - - General loan valuation allowances - - - 2,007 ------- ------- ------- ------- Regulatory capital 19,503 19,503 19,503 21,510 Total assets 319,336 ------- Adjusted total assets 319,482 319,482 ------- ------- Risk-weighted assets 199,661 199,661 ------- ------- Capital ratio 6.11% 6.10% 6.10% 9.77% 10.77% Regulatory requirement 1.50% 3.00% 8.00% Regulatory capital category Well capitalized - equal to or greater than 5.00% 6.00% 10.00%
(Continued) 35 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (13) CONVERSION On December 30, 1992, the Bank converted from a federally chartered mutual savings association to a federally chartered stock savings bank. The stock offering provided for the issuance of 850,000 shares of $.01 par value common stock. Proceeds from the stock offering, after deducting offering expenses of $425,000, totaled approximately $8,075,000. At the time of conversion, the Bank established a liquidation account equal to its retained earnings as of June 30, 1992. The liquidation account is being maintained for depositors of record at December 31, 1991, who continue to maintain deposits in the Bank. In the event of a complete liquidation of the Bank (and only in such event), each eligible account holder shall be entitled to receive a liquidation distribution equal to their interest in the liquidation account before any liquidation distribution may be made with respect to the Bank's stockholders. The Bank may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect of such dividend or repurchase would cause its retained earnings to be reduced below the aggregate amount then required for the liquidation account. At June 30, 1996, the liquidation account balance was $548,010. (14) STOCK OPTIONS During 1994, the Bank offered stock options to the directors and officers of the Bank. These options are exercisable for a ten-year period, and can be exercised at any time. At June 30, 1996 and 1995, there were 221,885 and 228,690 options outstanding, respectively, after giving effect to the three-for-two stock split declared July 17, 1996. During 1996, 4,537 shares were exercised at a price of $5.51 per share (approximately 6,805 shares at a price of $3.67 per share after giving effect to the three-for-two stock split). Options may be exercised for $3.67 per share. (15) FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. (Continued) 36 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements
June 30, 1996 June 30, 1995 ------------------------ ------------------------ Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- Assets Cash and amounts due from depository institutions $ 6,670,604 6,670,604 6,643,369 6,643,369 Interest bearing deposits 244,612 244,612 650,211 650,211 Federal funds sold 6,875,000 6,875,000 5,325,000 5,325,000 Investment securities 14,094,100 14,003,836 41,193,894 41,274,700 Mortgage-backed securities Held to maturity, net 637,022 648,170 3,764,087 3,836,715 Available for sale, net 7,613,365 7,613,365 - - Loans receivable held for Long-term investment, net 278,318,945 278,990,000 246,480,233 249,342,000 Sale, net 11,203,705 11,203,705 4,451,156 4,652,495 Stock in the Federal Home Loan Bank of Cincinnati 1,880,000 1,880,000 1,756,135 1,756,135 Liabilities Demand deposits 57,218,149 51,718,000 52,085,920 47,884,000 Time deposits 213,826,936 217,193,000 220,204,522 222,996,000 Advances from the Federal Home Loan Bank of Cincinnati 27,481,651 27,135,000 15,000,000 14,902,000 Notes payable 2,710,000 2,710,000 1,800,000 1,800,000
CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS, INTEREST BEARING DEPOSITS, AND FEDERAL FUNDS SOLD. The carrying amount is a reasonable estimate of fair value because of the short maturity of these instruments. INVESTMENT AND MORTGAGE-BACKED SECURITIES. Estimated fair value for investment and mortgage-backed securities is based on quoted market prices. LOANS RECEIVABLE HELD FOR INVESTMENT AND HELD FOR SALE. For loans receivable held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. For performing loans receivable held for investment, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. For other loans, cash flows and maturities are estimated based on contractual interest rates and historical experience and are discounted using secondary market rates adjusted for differences in servicing and credit costs. Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. STOCK IN THE FEDERAL HOME LOAN BANK OF CINCINNATI. This item is valued at cost, which represents redemption value and approximate fair value. (Continued) 37 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements DEMAND DEPOSITS AND TIME DEPOSITS. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flows and rates currently offered for deposits of similar remaining maturities. ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI. The fair value of the Bank's FHLB debt is estimated based on the current rates offered to the Bank for debt of the same remaining maturities. NOTES PAYABLE. The carrying value of the Company's fixed rate note payable is a reasonable estimate of fair value based on the current incremental borrowing rate for similar types of borrowing arrangements. For the variable rate note payable, the carrying amount is a reasonable estimate of fair value. OFF-BALANCE SHEET INSTRUMENTS. The fair value of commitments is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of undisbursed lines of credit is based on fees currently charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The carrying amount and fair value of off-balance sheet instruments is not significant as of June 30, 1996 and 1995. (Continued) 38 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited consolidated quarterly results of operations for 1996 and 1995 (in thousands of dollars, except per share data):
Quarters for the Year Ended June 30, 1996(1) ----------------------------------------- First Second Third Fourth ----- ------ ----- ------ Interest income $ 6,862 6,912 6,770 7,217 Interest expense 4,129 3,970 3,810 3,793 ----- ----- ----- ----- Net interest income 2,733 2,942 2,960 3,424 Provision for losses on loans 20 374 23 - Noninterest income 319 584 382 461 Noninterest expense 1,965 1,813 1,928 2,282 ----- ----- ----- ----- Income before taxes 1,067 1,339 1,391 1,603 Federal income taxes 316 420 458 420 ----- ----- ----- ----- Net income $ 751 919 933 1,183 ----- ----- ----- ----- ----- ----- ----- ----- Earnings per share (2) $ 0.30 0.37 0.38 0.48 ----- ----- ----- ----- ----- ----- ----- ----- Quarters for the Year Ended June 30, 1995(1) ----------------------------------------- First Second Third Fourth ----- ------ ----- ------ Interest income $ 5,057 5,432 5,780 6,672 Interest expense 2,473 2,827 3,127 3,834 ----- ----- ----- ----- Net interest income 2,584 2,605 2,653 2,838 Provision for losses on loans 80 20 125 191 Noninterest income 271 189 567 487 Noninterest expense 1,689 1,697 1,824 1,967 ----- ----- ----- ----- Income before taxes 1,086 1,077 1,271 1,167 Federal income taxes 346 244 389 265 ----- ----- ----- ----- Net income $ 740 833 882 902 ----- ----- ----- ----- Earnings per share (2) $ 0.30 0.34 0.36 0.37 ----- ----- ----- ----- ----- ----- ----- -----
-------------------- (1) The total of the four quarterly amounts may not equal the full year amount due to rounding. (2) After giving effect to three-for-two stock split effected in the form of a stock dividend, declared on July 17, 1996 and distributed on August 16, 1996. (Continued) 39 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (18) PARENT COMPANY On October 31, 1994, PVF Capital Corp. became a savings and loan holding company and the sole shareholder of Park View Federal Savings Bank. The holding company structure was created pursuant to a plan of reorganization which had been approved by the Bank's shareholders on October 26, 1994 and by regulatory authorities on September 22, 1994. Under the agreement, three shares of PVF Capital Corp. common stock were issued and exchanged for two shares of Park View Federal Savings Bank common stock outstanding as of October 31, 1994. Condensed parent company only financial information as of and for the years ended June 30, 1996 and 1995, follows:
Condensed Statements of Financial Condition 1996 1995 ------------------------------------------- ---- ---- Cash and amounts due from depository institutions $ 110,989 186,143 Prepaid expenses and other assets 292,159 21,708 Investment in subsidiaries, at equity in underlying value of net assets 23,313,310 18,610,000 ---------- ---------- Total assets $ 23,539,458 18,817,851 ---------- ---------- ---------- ---------- Notes payable $ 1,000,000 - Accrued expenses and other liabilities 65,800 (17) ---------- ---------- 1,065,800 (17) Stockholders' equity 22,473,658 18,817,868 ---------- ---------- Total liabilities and stockholders' equity $ 23,539,458 18,817,851 ---------- ---------- ---------- ---------- Condensed Statements of Operations ---------------------------------- Income Mortgage banking activities $ 488,814 - Expenses Interest expense 92,513 - General and administrative 234,063 - ---------- ---------- 326,576 - ---------- ---------- Income before federal income taxes and equity in undistributed net income of subsidiaries 162,238 - Federal income taxes 55,160 10,937 ---------- ---------- Income (loss) before equity in undistributed net income of subsidiaries 107,078 (10,937) Equity in undistributed net income of subsidiaries 3,679,078 3,368,052 ---------- ---------- Net income $ 3,786,156 3,357,115 ---------- ---------- ---------- ----------
(Continued) 40 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements
Condensed Statements of Cash Flows 1996 1995 ---------------------------------- ---- ---- Operating activities Net income $ 3,786,156 3,357,115 Equity in undistributed net income of subsidiaries (3,679,078) (3,368,052) Other, net (206,135) 249,257 --------- --------- Net cash provided (used) by operating activities (99,057) 238,320 --------- --------- Investing activities Acquisition of PVF Service Corp. - (919,649) Purchase of servicing portfolio from bank (2,154,535) - --------- --------- Net cash used by investing activities (2,154,535) (919,649) Financing activities Proceeds from notes payable 1,200,000 - Repayment on note payable (200,000) - Proceeds from exercise of stock options 25,000 - Cash dividend (1,098) (281,427) Dividends received from subsidiaries 1,154,535 1,148,899 --------- --------- Net cash provided by financing activities 2,178,437 867,472 --------- --------- Net increase (decrease) in cash and cash equivalents (75,155) 186,143 Cash and cash equivalents at beginning of year 186,144 - --------- --------- Cash and cash equivalents at end of year $ 110,989 186,143 --------- --------- --------- ---------
(19) 401(K) SAVINGS PLAN Employees who have reached age 18 and have completed one year of eligibility service are eligible to participate in the Company's 401(k) Savings Plan. The plan allows eligible employees to contribute up to 7 percent of their compensation, with the Company matching up to 50 percent of the first 4 percent contributed by the employee, as determined by the Company for the contribution period. The plan also permits the Company to make a profit sharing contribution at its discretion up to 4 percent of the employees compensation. Participants vest in the Company's contributions as follows: Years of Service Percent Vested ---------------- -------------- Less than 2 0% 2 but less than 3 20 3 but less than 4 40 4 but less than 5 60 5 but less than 6 80 6 or more 100 The total of the Company's matching and profit sharing contribution cost related to the plan for the years ended June 30, 1996, 1995, and 1994 was $68,100; $102,100; and $40,900, respectively. 41 PVF Capital Corp. BOARD OF DIRECTORS JAMES W. MALE CREIGHTON E. MILLER STUART D. NEIDUS Chairman of the Board Partner Executive Vice President and Miller, Stillman & Bartel Chief Financial Officer JOHN R. MALE ESSEF Corporation President and RICHARD J. MORIARTY Chief Executive Officer Partner ROBERT F. URBAN Moriarty & Jaros Retired ROBERT K. HEALEY Retired EXECUTIVE OFFICERS JAMES W. MALE C. KEITH SWANEY Chairman of the Board Vice President and Treasurer JOHN R. MALE JEFFREY N. MALE President and Vice President and Chief Executive Officer Corporate Secretary [LOGO] "A Proud Cleveland Tradition . . . Building a Better Community" PARK VIEW FEDERAL SAVINGS BANK EXECUTIVE OFFICERS JOHN R. MALE JEFFREY N. MALE EDWARD B. DEBEVEC President and Senior Vice President Treasurer Chief Executive Officer Carol S. Porter C. Keith Swaney Corporate Secretary Executive Vice President and Chief Financial Officer OTHER OFFICERS MICHAEL G. HEALEY ADELINE NOVAK JOHN E. SCHIMMELMANN Vice President Vice President Vice President Commercial Lending Human Resources Savings Administration ANNE M. JOHNSON ROBERT J. PAPA ROBERT D. TOTH Vice President Vice President Vice President Mortgage Loan Servicing Construction Lending Data Processing OFFICE LOCATIONS MAIN OFFICE ADMINISTRATIVE OFFICES 2618 N. Moreland Blvd. 25350 Rockside Road Cleveland, Ohio 44120 Bedford Heights, Ohio 44146 (216) 991-9600 (216) 439-6790 BRANCH OFFICES 2111 Richmond Road 7448 Ridge Road 497 East Aurora Road Beachwood, Ohio 44122 Parma, Ohio 44129 Macedonia, Ohio 44056 (216) 831-6373 (216) 845-5300 (216) 468-0055 25350 Rockside Road 6990 Heisley Road 8500 Washington Street Bedford Heights, Ohio 44146 Mentor, Ohio 44060 Chagrin Falls, Ohio 44023 (216) 439-2200 (216) 944-0276 (216) 543-8889 11010 Clifton Blvd. 1456 SOM Center Road Cleveland, Ohio 44102 Mayfield Heights, Ohio 44124 (216) 631-8900 (216) 449-8597 [LOGO] GENERAL INFORMATION INDEPENDENT CERTIFIED ACCOUNTANTS KPMG Peat Marwick LLP 1500 National City Center 1900 East Ninth Street Cleveland, Ohio 44114 GENERAL COUNSEL Moriarty & Jaros 30195 Chagrin Boulevard Suite 110 North Pepper Pike, Ohio 44124 TRANSFER AGENT AND REGISTRAR Fifth Third Bank Fifth Third Center 38 Fountain Square Cincinnati, Ohio 45263 SPECIAL COUNSEL Housley Kantarian & Bronstein, P.C. 1220 19th Street, N.W., Suite 700 Washington, D.C. 20036 ANNUAL MEETING The 1996 Annual Meeting of Stockholders will be held on October 21, 1996 at 10:00 a.m. at the Cleveland Marriott East, 3663 Park East Drive, Beachwood, Ohio. ANNUAL REPORT ON FORM 10-K A copy of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 as filed with the Securities and Exchange Commission will be furnished without charge to stockholders upon written request to the Corporate Secretary, PVF Capital Corp., 2618 N. Moreland Boulevard, Cleveland, Ohio 44120. [LOGO] 2618 North Moreland Blvd., Cleveland, Ohio 44120, (216) 991-9600 EX-21. 9 EX 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Parent - ------ PVF Capital Corp. State or Other Jurisdiction of Percentage Subsidiaries (1) Incorporation Ownership - ------------------ -------------- --------- Park View Federal Savings Bank Ohio 100% PVF Service Corporation Ohio 100% PVF Mortgage Corp. Ohio 100% PVF Community Development Corp. Ohio 100% Mid Pines Land Co. Ohio 100% - ------------------------ (1) The assets, liabilities and operations of the subsidiaries are included in the consolidated financial statements contained in the Annual Report to Stockholders attached hereto as an exhibit. EX-23. 10 EX 23 The Board of Directors PVF Capital Corp. We consent to incorporation by reference in the registration statements (No. 33-97450 and No. 33-86116) on Forms S-8 of PVF Capital Corp. of our report dated July 17, 1996, relating to the consolidated statements of financial condition of PVF Capital Corp. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1996 which report appears in the June 30, 1996 annual report on Form 10-K of PVF Capital Corp. /s/ KPMG Peat Marwick LLP Cleveland, Ohio September 25, 1996 EX-27 11 EX 27
9 YEAR JUN-30-1996 JUN-30-1996 6,670 245 6,875 0 18,817 14,094 13,894 289,522 2,565 331,634 271,045 16,000 7,924 14,192 0 0 23 22,451 331,634 25,572 2,189 0 27,761 14,889 15,703 12,058 417 75 7,988 5,400 5,400 0 0 3,786 1.63 1.53 3.45 2,352 95 0 386 2,402 265 11 2,565 2,565 0 2,228
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