-----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, QTH4Qgnro4oMP2kJv4ThbBWQewu1sSn+Zj0K5uATa9qy/wy+yv3DR/tm3Cdcrzc6 U+hKLdZ1K5+/Ya40tCn6ow== 0000950152-98-008791.txt : 19981113 0000950152-98-008791.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950152-98-008791 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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-Q SEC ACT: SEC FILE NUMBER: 000-24948 FILM NUMBER: 98744654 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-Q 1 PVF CAPITAL CORP. QUARTERLY REPORT FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20552 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1998. [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from___________________ to________________ Commission File Number 0-24948 ---------------------------------------------------------- PVF Capital Corp. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) United States 34-1659805 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 25350 Rockside Road, Bedford Heights, Ohio 44146 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (440) 439-2200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value 3,990,808 - ----------------------------- --------------------------------- (Class) (Outstanding at October 30, 1998) 2 PVF CAPITAL CORP. INDEX
Page Part I Financial Information Item 1 Financial Statements Consolidated Statements of Financial Condition, September 30, 1998 (unaudited) and June 30, 1998. 1 Consolidated Statements of Operations for the three months ended September 30, 1998 and 1997 (unaudited). 2 Consolidated Statements of Cash Flows for the three months ended September 30, 1998 and 1997 (unaudited). 3 Notes to Consolidated Financial Statements (unaudited). 4 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3 Quantitative and Qualitative Disclosures about Market Risk 11 Part II Other Information 11
3 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
SEPTEMBER 30, JUNE 30, ASSETS 1998 1998 ------ ----------- ---------- Cash and cash equivalents: Cash and amounts due from depository institutions $2,292,142 $2,447,631 Interest bearing deposits 444,086 394,331 Federal funds sold 12,375,000 20,375,000 ----------- ---------- Total cash and cash equivalents 15,111,228 23,216,962 Investment securities held to maturity, at cost 18,433,000 27,800,000 Loans receivable, net 379,127,164 368,998,087 Loans receivable held for sale, net 1,680,497 1,644,735 Mortgage-backed securities held to maturity, net 2,687,150 2,950,856 Office properties and equipment, net 2,200,978 2,313,546 Real estate owned, net 490,156 699,236 Real estate in development 938,071 938,071 Investment required by law Stock in the Federal Home Loan Bank of Cincinnati 3,571,625 3,507,564 Prepaid expenses and other assets 3,349,161 1,210,099 ------------- ------------ Total Assets $427,589,030 $433,279,156 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities Deposits $334,777,413 $344,228,729 Advances from the Federal Home Loan Bank of Cincinnati 51,303,438 46,324,456 Notes payable 0 1,060,000 Advances from borrowers for taxes and insurance 3,009,569 4,931,114 Accrued expenses and other liabilities 6,027,439 5,526,147 ------------- ------------ Total Liabilities 395,117,859 402,070,446 Stockholders' Equity Serial preferred stock, none issued - - Common stock, $0.01 par value, 5,000,000 shares authorized; 3,990,808 issued and outstanding 39,908 39,908 Paid in capital 14,517,140 14,517,452 Retained earnings-substantially restricted 17,914,123 16,651,350 ------------- ------------ Total Stockholders' Equity 32,471,171 31,208,710 ------------- ------------ Total Liabilities and Stockholders' Equity $427,589,030 $433,279,156 ============= ============
See accompanying notes to consolidated financial statements PAGE 1 4 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------ 1998 1997 Interest income Loans $8,267,357 $7,874,340 Mortgage-backed securities 44,492 9,773 Cash and investment securities 626,088 311,731 ---------- --------- Total interest income 8,937,937 8,195,844 ---------- --------- Interest expense Deposits 4,438,975 4,160,745 Borrowings 726,254 522,312 ---------- --------- Total interest expense 5,165,229 4,683,057 ---------- --------- Net interest income 3,772,708 3,512,787 Provisions for loan losses 0 45,000 ---------- --------- Net interest income after provision for loan losses 3,772,708 3,467,787 ---------- --------- Noninterest income, net Service and other fees 103,162 137,135 Mortgage banking activities, net 238,701 188,715 Other, net 21,658 99,586 ---------- --------- Total noninterest income, net 363,521 425,436 -------- ------- Noninterest expense Compensation and benefits 1,193,461 1,105,322 Office, occupancy, and equipment 428,839 399,217 Other 618,529 501,395 ---------- --------- Total noninterest expense 2,240,829 2,005,934 ---------- --------- Income before federal income tax provision 1,895,400 1,887,289 Federal income tax provision 632,000 626,000 ---------- --------- Net income $1,263,400 $1,261,289 =========== ========== Basic earnings per share $0.32 $0.33 ====== ===== Diluted earnings per share $0.30 $0.31 ====== =====
See accompanying notes to consolidated financial statements PAGE 2 5 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- 1998 1997 ---- ---- OPERATING ACTIVITIES Net Income $1,263,400 $1,261,289 Adjustments to reconcile net income to net cash provided by operating activities Accretion of discount on marketable securities 0 (312) Depreciation and amortization 149,830 113,880 Provision for losses on loans, net 0 45,000 Accretion of unearned discount and deferred loan origination fees, net (272,225) (207,750) Gain on loans available for sale, net (129,881) (74,994) Gain on disposal of real estate owned, net (1,514) 0 Change in accrued interest on investments, loans, and borrowings, net (8,868) (163,466) Change in other assets and other liabilities, net (3,766,880) (1,763,553) Change in loans receivable available for sale, net 94,119 (192,995) ----------- --------- Net cash used in operating activities (2,672,019) (982,901) ----------- --------- INVESTING ACTIVITIES Loan and mortgage-backed securities repayments and originations, net (9,370,457) (14,470,767) Disposals of real estate owned 209,080 0 Investment securities purchases (433,000) 0 Investment securities maturities 9,800,000 5,000,000 FHLB stock dividend, net (64,061) (53,608) Additions to office properties and equipment, net (37,262) (69,663) Change in real estate in development, net 0 (6,455) ----------- --------- Net cash provided by (used in) investing activities 104,300 (9,600,493) -------- ----------- FINANCING ACTIVITIES Net increase (decrease) in demand deposits, NOW, and passbook savings (655,295) 783,888 Net increase in time deposits (8,800,763) 25,809,741 Net increase (decrease) in FHLB advances 4,978,982 (16,519,786) Repayment of notes payable (1,060,000) (300,000) Proceeds from exercise of stock options 0 4,507 Cash paid in lieu of fractional shares (939) (2,141) ----------- --------- Net cash provided by (used in) financing activities (5,538,015) 9,776,209 ----------- --------- Net decrease in cash and cash equivalents (8,105,734) (807,185) Cash and cash equivalents at beginning of period 23,216,962 9,580,430 ----------- --------- Cash and cash equivalents at end of period $15,111,228 $8,773,245 ============ ==========
See accompanying notes to consolidated financial statements PAGE 3 6 Part I Financial Information Item 1 PVF CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) 1. The accompanying consolidated interim financial statements were prepared in accordance with regulations of the Securities and Exchange Commission for Form 10-Q. All information in the consolidated interim financial statements is unaudited except for the June 30, 1998 consolidated statement of financial condition which was derived from the Corporation's audited financial statements. Certain information required for a complete presentation in accordance with generally accepted accounting principles has been condensed or omitted. However, in the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring accruals, necessary to fairly present the interim financial information. The results of operations for the three months ended September 30, 1998 are not necessarily indicative of the results to be expected for the entire year ending June 30, 1999. The results of operations for PVF Capital Corp. ("PVF" or the "Company") for the periods being reported have been derived primarily from the results of operation of Park View Federal Savings Bank (the "Bank"). PVF Capital Corp.'s common stock is traded on the NASDAQ SMALL-CAP ISSUES under the symbol PVFC. 2. Recently Issued Accounting Standards SFAS No. 130, "Reporting Comprehensive Income" was issued in June, 1997 and is effective for fiscal years beginning after December 15, 1997. The Statement requires additional reporting of items that affect comprehensive income but not net income. Examples of these items relevant to the Company include unrealized gains and losses on securities. The Company adopted SFAS No. 130 on July 1, 1998. At this time, the Company does not have other comprehensive income to be reported. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued in June, 1997 and is effective for fiscal years beginning after December 15, 1997. The statement requires financial disclosure and descriptive information about reportable operating segments. Also required is certain information about products and services, geographic areas in which an enterprise operates, and any major customers. Management does not expect the implementation of SFAS No. 131 to have a material impact on the Company's consolidated financial position or results of operations. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998 and is effective for fiscal years beginning after June 15, 1999. This statement establishes comprehensive accounting and reporting requirements for derivative instruments and hedging activities. This statement requires entities Page 4 7 Part I Financial Information Item 1 to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for gains and losses resulting from changes in fair value of the derivative instrument depends on the use of the derivative and the type of risk being hedged. At the present time, the Bank has not fully analyzed the effect or timing of the adoption of SFAS No. 133 on the Bank's consolidated financial statements. SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" was issued in October 1998 and is effective for the first fiscal quarter beginning after December 15, 1998. This statement amends SFAS No. 65 to require that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities must classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. After the securitization of a mortgage loan held for sale, any retained mortgage-backed securities shall be classified in accordance with the provisions of SFAS No. 115. However, a mortgage banking enterprise must classify as trading any retained mortgage-backed securities that it commits to sell before or after the securitization process. At the present time, the Company has not fully analyzed the effect of the adoption of SFAS No. 134 on its consolidated financial statements. However, Management does not believe that the adoption of SFAS No. 134 will have a significant impact on the Corporation's consolidated financial statements. 3. The following table discloses Earnings Per Share pursuant to SFAS No. 128 for the three months ended September 30, 1998 and September 30, 1997.
Three months ended September 30, 1998 1997 ------------------------------------- -------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ---------- ------------ ------------ --------- BASIC EPS Income available to common stockholders $1,263,400 3,990,808 $ 0.32 $1,261,289 3,849,189 $ 0.33 EFFECT OF STOCK OPTIONS 160,368 0.02 237,339 0.02 DILUTED EPS Income available to common stockholders $1,263,400 4,151,176 $ 0.30 $1,261,289 4,086,528 $ 0.31
Page 5 8 Part I Financial Information Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The following analysis discusses changes in financial condition and results of operations at and for the three-month period ended September 30, 1998 for PVF Capital Corp. ("PVF" or the "Company") and Park View Federal Savings Bank (the "Bank"), its principal and wholly-owned subsidiary. FORWARD-LOOKING STATEMENTS When used in this Form 10-Q, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. FINANCIAL CONDITION Consolidated assets of PVF were $427.6 million as of September 30, 1998, a decrease of approximately $5.7 million or 1.3% as compared to June 30, 1998. The Bank remained in regulatory capital compliance for tangible, core, and risk-based capital on a fully phased-in basis with capital levels of 7.40%, 7.40% and 10.78% respectively at September 30, 1998. During the three months ended September 30, 1998, the Company's cash and cash equivalents, which consist of cash, interest-bearing deposits and federal funds sold, decreased $8.1 million or 34.9% as compared to June 30, 1998. The change in the Company's cash and cash equivalents consisted of a decrease in cash and interest-bearing deposits of $0.1 million and a decrease in federal funds sold of $8.0 million. Page 6 9 Part I Financial Information Item 2 FINANCIAL CONDITION CONTINUED The net $9.9 million, or 2.7%, increase in loans receivable and mortgage-backed securities during the three months ended September 30, 1998, resulted from an increase in loans receivable of $10.2 million and a decrease in mortgage-backed securities of $0.3 million. The increase of $10.2 million in loans receivable included increases of $5.5 million in land loans, $1.6 million in home equity loans, $1.9 million in construction loans, $1.0 million in multi-family loans, $0.5 million in commercial real estate loans, $0.2 million in installment loans, and a decrease of $0.5 million in single family mortgage loans. The decrease in mortgage-backed securities was the result of payments received of $0.3 million. The growth of the loan portfolio was as anticipated and resulted in no material change to the composition of the portfolio. Investments decreased by $9.4 million, or 33.7%, as a result of scheduled maturities of $9.8 million and the purchase of a $0.4 million municipal security. The increase in prepaid expenses and other assets of $2.1 million is primarily the result of adjustment to N.O.W. clearings accounts. The decrease of $0.2 million in real estate owned ("REO") is the result of the disposal of developed building lots. During the three months ended September 30, 1998, management's decision not to compete aggressively with market savings rates to retain deposits resulted in a decrease of $9.5 million, or 2.7%, in deposits. The increase of $5.0 million, or 10.7%, in advances from the Federal Home Loan Bank of Cincinnati was a result of the Bank's decision to take advantage of attractive borrowing rates. The decrease in notes payable resulted from management's decision to payoff a $1.1 million note held by the Company. The decrease in advances from borrowers for taxes and insurance of $1.9 million, or 39.0%, is due to timing differences between the collection and payment of escrow funds. The increase of $0.5 million in accrued expenses and other liabilities is primarily the result of timing differences between the provision for and actual payment of federal income tax. The increase in Federal Home Loan Bank advances of $5.0 million along with a reduction in cash and cash equivalents of $8.1 million and investment securities of $9.4 million were used to fund the net increase in loans receivable and mortgage-backed securities of $9.9 million, the reduction in deposits of $9.5 million, the reduction in advances from borrowers for taxes and insurance of $1.9 million, and repay the note payable of $1.1 million. Page 7 10 Part I Financial Information Item 2 RESULTS OF OPERATIONS Three months ended September 30, 1998 Compared to the three months ended September 30, 1997. PVF's net income is dependent primarily on its net interest income, which is the difference between interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net interest income also includes amortization of loan origination fees, net of origination costs. PVF's net income is also affected by the generation of non-interest income, which primarily consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans and mortgage-backed securities available for sale. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest-rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, net income is affected by the level of operating expenses and loan loss provisions. The Company's net income for the three months ended September 30, 1998 was $1,263,400. This represents a $2,111, or 0.2%, increase when compared with the prior year comparable period. Net interest income for the three months ended September 30, 1998 increased by $259,900, or 7.4%, as compared to the prior year comparable period, primarily due to an increase of $742,100, or 9.0%, in interest income that resulted from an increase of $27.1 million in the average balance of the loan and mortgage-backed securities portfolios and an increase in the average balance of the investment portfolio of $20.6 million. This increased balance was partially offset by a 30 basis point decrease in the return on interest-earning assets from the prior year comparable period. The average balance on deposits and advances increased by $43.5 million from the prior year comparable period. This increased balance was partially offset by an 8 basis point decrease in the average cost of funds for the current period and resulted in an overall increase in interest expense of $482,200, or 10.3%. The Company's net interest income increased despite a decrease of 22 basis points in the Company's interest-rate spread during the current period as compared to the prior year comparable period because of balance sheet growth in both interest-earning assets and interest-bearing liabilities. For the three months ended September 30, 1998 no provision for loan losses was recorded as compared to a $45,000 provision that was recorded in the prior year comparable period. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis, with respect to payment history, ability to repay, probability of repayment, and loan-to-value Page 8 11 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses. During the three months ended September 30, 1998, the Company experienced an increase in the level of impaired loans of $44,000 and an increase of $3.1 million in classified assets. Despite the increase in classified assets and growth in the loan portfolio of $10.2 million it was not necessary to record a provision for loan losses due to lower charge-offs in the current period. For the three months ended September 30, 1997, the Company experienced decreases in the levels of impaired loans and classified assets of $1.7 million and $1.1 million, respectively. The decrease in impaired loans and classified assets was offset by growth in the loan portfolio of $13.6 million and net charge-offs of $12,000 made it necessary to record a provision for loan losses of $45,000 in the period. At September 30, 1998, the allowance for loan losses was $2.7 million, which represented 79.0% of nonperforming loans and 0.7% of net loans. For the three months ended September 30, 1998, noninterest income decreased $61,900, or 14.5%, from the prior year comparable period. This resulted from an increase of $50,000, or 26.5%, in income from mortgage-banking activities that resulted from an increase in profit on loan sales in the current period. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. Loan and other fees decreased by $34,000, or 24.8%, from the prior year comparable period, primarily due to decreases in NOW account fee income. Other noninterest income, net, decreased by $77,900, or 78.2%, from the previous year's comparable period, primarily due to a decline in rental income of $60,000 in the current period. Noninterest expense for the three months ended September 30, 1998 increased by $234,900, or 11.7%, from the prior year comparable period. This was primarily the result of an $88,200, or 8.0%, increase in compensation and benefits attributable to increased staffing, employee 401K benefits, incentive bonuses paid, and salary and wage adjustments. In addition, office, occupancy and equipment increased by $29,600, or 7.4%, due to the opening of a new branch office. Other noninterest expense increased by $117,100, Page 9 12 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED or 23.4%, primarily attributable to an increase in legal expenses of $45,000, the write-off of $24,000 in the current period attributable to the Bank's participation as a limited partner in an affordable housing partnership, and an increase in charitable contributions of $19,000 in the current period. The increase in legal expenses is the result of costs incurred in defending lawsuits filed against the Bank and two other entities, PVF Financial Planning Inc. and Emissary Financial Group, Inc., which are majority-owned subsidiaries of the Company's wholly owned subsidiary, PVF Holdings, Inc. Information pertaining to these lawsuits is set forth in Item 3 of Form 10-K for the year ended June 30, 1998. There have been no significant changes to these lawsuits for the three month period ended September 30, 1998. The federal income tax provision for the three month period ended September 30, 1998 increased to an effective rate of 33.3% for the current period from an effective rate of 33.2% for the prior year comparable period. YEAR 2000 The Company has assembled a project team to review the effects the century change has on current systems and to assess the potential risks that it presents. A formal plan of action was developed to address and correct this issue and has been approved by the Bank's Board of Directors with the full support of senior management. A plan is in place to educate our staff personnel and to inform our customer base of the year 2000 issue. An inventory of internal systems, both computer and non-computer related, was completed in this process. Relationships with third-party vendors were also analyzed. Potential weaknesses were then documented and prioritized as to their effect on critical business functions. Our major software supplier has dedicated tremendous resources to help in addressing this issue. They recently released the remediated version of the system that has undergone extensive beta testing. All user departments are involved in the testing process in-house to assure validation of the changes. Our software supplier has advised us that this testing is expected to reveal any potential problems well in advance of the impending deadline. At the same time, testing will take place of those external relationships with which the Bank exchanges information. Additional testing is also expected to take place on all mission-critical information systems. It is believed that this preparation will increase the likelihood of uninterrupted operation of Bank functions. In addressing this issue, the Bank has used its current internal staffing with little reliance on outside resources. Major vendors have provided remediated software at no expense to the Bank. No major system had to be replaced and none is expected to be replaced in the coming years. As a result, expenses were approximately $5,000 for fiscal year 1997 and $20,000 for fiscal year 1998, with anticipated expenses of $5,000 for fiscal year 1999. These Page 10 13 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED expenditures are in the areas of customer awareness and additional software tools for testing. Rapid and accurate data processing is essential to Company operations. If testing reveals that any system critical to continued business operation should fail, all internal and external resources available will be directed toward correcting these systems. System delays, mistakes, or failures could have an adverse impact on the Company. We are currently under contract with an external consulting service should a system failure occur. End-user contingencies are also being developed. It is expected that these plans will be in place during the fourth quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES The Bank is required by federal regulations to maintain specific levels of "liquid" assets consisting of cash and other eligible investments. The current level of liquidity required by the Office of Thrift Supervision is 4% of the sum of net withdrawable savings and borrowings due within one year. The Bank's liquidity at September 30, 1998 was 9.0%. Management believes the Bank has sufficient liquidity to meet its operational needs. Part I Financial Information Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no significant changes to the Company's interest rate risk position or any changes to how the Company manages its Asset/Liability position since June 30, 1998. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) PVF did not file any reports on Form 8-K during the quarter ended September 30, 1998. Page 11 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PVF Capital Corp. ----------------- (Registrant) Date: November 10, 1998 /s/ C. Keith Swaney ------------------- -------------------- C. Keith Swaney Vice President and Treasurer EX-27 2 EXHIBIT 27
9 This schedule contains summary financial information extracted from the Statement of Condition and the Statement of Operation for the period ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 2,292 444 12,375 0 0 18,433 18,487 380,808 2,687 427,589 334,777 10,000 9,038 41,303 0 0 40 32,431 427,589 8,312 626 0 8,938 4,439 5,165 3,773 0 0 2,241 1,895 1,895 0 0 1,263 $0.32 $0.30 3.240 3,413 0 0 0 2,687 6 6 2,687 2,687 0 2,604
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