-----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, OlHURmjuagphaUS8enhx17JnnydPwxcF0DvRcmZHlMzimUk3bd8/LReh6v/kZWZJ nugnfxR2/oAh21zq3gc1Fw== 0001047469-98-014501.txt : 19980413 0001047469-98-014501.hdr.sgml : 19980413 ACCESSION NUMBER: 0001047469-98-014501 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19980410 SROS: NASD 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-K/A SEC ACT: SEC FILE NUMBER: 000-24948 FILM NUMBER: 98591387 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-K/A 1 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-K/A (Amendment No. 1) (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended June 30, 1997 / / 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 5, 1997, was $42,333,131. For purposes of this calculation, it is assumed that directors, executive officers and 5% stockholders of the registrant are affiliates. As of September 5, 1997, the registrant had 2,590,155 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Annual Report to Stockholders for the Fiscal Year Ended June 30, 1997. (Parts I, II and IV) 2. Portions of Proxy Statement for the 1997 Annual Meeting of Stockholders. (Part III) 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, 1997 and 1996 (b) Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996 and 1995 (c) Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1997, 1996 and 1995 (d) Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995 (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.
No. Description - --- ----------- 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, 1997 21 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule
____________________ * Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Year Ended June 30, 1996 (commission file number 0-24948). (b) During the last quarter of the fiscal year ended June 30, 1997, 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. 35 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. April 9, 1998 By: /s/ John R. Male ------------------------------------- John R. Male President and Chief Executive Officer EX-13 2 EXHIBIT 13 [PVF CAPITAL CORP. LOGO] ANNUAL REPORT June 30, 1997 A LOOK AT THE PAST FIVE YEARS This is our fifth Annual Report since the completion of our stock conversion on December 30, 1992. At this time, we thought it would be appropriate to provide our shareholders with a review of the performance of their investment in PVF Capital Corp. On July 30, 1997, the Board of Directors declared a 10% stock dividend to be distributed on September 1, 1997. Taking this stock dividend and all previous stock dividends and stock splits into account, for every 100 shares of stock purchased at $10.00 per share at the time of our stock conversion, the purchaser would own 299 shares with a per share market value of $16.48 at June 30, 1997. On September 1, 1997, PVF Capital Corp. common stock opened for trading at $20.25 per share. The table below fully illustrates the performance of the stock over this 4 1/2 year period. For the past five years, THE CLEVELAND PLAIN DEALER has published a complete business section on the 100 Top Performing Companies in the State of Ohio. The Board of Directors and management are very pleased to inform our shareholders that PVF Capital Corp. was on this select list in both 1997 and 1996.
At June 30, ------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------------------------------------------------------------------ Total assets $373,081,300 $331,634,081 $315,431,779 $238,245,225 $193,288,998 Stockholders' equity (net worth) $ 26,273,416 $ 22,473,658 $ 18,817,868 $ 15,742,180 $ 11,847,666 Common shares outstanding 2,555,562 2,323,338 1,404,095 936,090 850,000 Market value of common shares outstanding(1) $ 42,110,501 $ 28,268,465 $ 18,604,259 $ 14,041,350 $ 12,325,000 Tangible book value per share(2) $ 10.28 $8.79 $ 7.38 $ 6.18 $ 4.65 Market value per share(2) $16.48 $11.06 $ 7.30 $ 5.51 $ 4.84 Market value/Tangible book value 160.3% 125.8% 98.9% 89.2% 104.0%
- --------------- (1) CALCULATION IS AN ESTIMATE BASED ON COMMON SHARES OUTSTANDING MULTIPLIED BY THE BID PRICE AT THE END OF THE PERIOD. (2) PER SHARE AMOUNTS HAVE BEEN ADJUSTED FOR STOCK SPLITS AND STOCK DIVIDENDS. TABLE OF CONTENTS Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Coming Soon To Chardon, Ohio . . . . . . . . . . . . . . . . . . . . . . . 2 Financial Planning Centers . . . . . . . . . . . . . . . . . . . . . . . . 3 Selected Consolidated Financial and Other Data . . . . . . . . . . . . . . 4 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . 6 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . 15 TO OUR SHAREHOLDERS The last fiscal year was highlighted by the resolution of the Savings Association Insurance Fund ("SAIF") dilemma that had been the subject of political debate between the Administration and Congress for several years. Legislation pertaining to SAIF was finally passed and went into effect on September 30, 1996. In brief, the savings accounts held principally by the thrift industry were assessed 65.7 cents for every $100 of savings deposits in each institution. This one-time assessment brought the fund to a fully paid-up status. The SAIF legislation provides for the merger of SAIF with the Bank Insurance Fund by the end of 1999. Park View Federal's pre-tax share of the assessment was $1,708,000, or $1,127,000 after tax. This exceeded our first quarter net income by $11,000. However, the resulting future reduction of SAIF premiums by 16.7 cents per $100 of deposits will represent annual cost savings to future earnings of approximately $500,000. We are pleased to inform our shareholders and customers of some recent and upcoming events. We will be opening a new branch office in Chardon, Ohio, within the next three to four months. In addition, we are very enthusiastic about our newly formed joint venture with Money Concepts that will bring financial planning services to our bank customers. We would also like to announce that Stanley T. Jaros, a partner with Moriarty & Jaros, P.L.L., has joined the Board of Directors to replace Richard J. Moriarty who retired from the Board this year. We urge all shareholders to try to attend the Annual Meeting of the Shareholders on October 20, 1997, 10:00 a.m., at the Cleveland Marriott East in Beachwood, Ohio. As we continue to grow, we look forward to another successful year of service and dedication to the community, its members, our shareholders, and our customers. Sincerely, /s/ John R. Male John R. Male President COMING SOON TO CHARDON, OHIO [PHOTOGRAPH] On or before January 1, 1998, Park View Federal Savings Bank will open a full- service branch office in the rapidly growing city of Chardon, Ohio in Geauga County. This 2,800 square-foot facility, just west of Chardon Square on Route 6, was occupied formerly by The Medicine Shoppe. The building will be extensively remodeled and will feature ample, convenient parking, drive-in banking facilities, and a complete array of financial services for the community. Park View Federal is a community bank that serves eight counties in northeast Ohio. The Chardon office will be Park View Federal's second office in the expanding Geauga County market. The bank's Bainbridge office, located at the intersection of Washington Street and Route 306, has been serving the western part of Geauga County since February, 1995. The new addition to Park View Federal will bring the total of full-service branch office locations to ten. Each of our Branch Administrators is actively involved in the communities served. All of our branches offer convenient parking and drive-in banking facilities. The office lobby and auto teller hours are scheduled with the customer in mind, and many of the branches are open six days a week. Information on the location of each of our full-service offices and their hours of service is provided at the end of this report. Park View Federal prides itself on providing its customers superior service, flexible lending programs, and a full range of deposit accounts and services. Because your business is important to us, our loan officers and account representatives are always available to help you with any questions you may have concerning your loan or savings account. The bank's product line includes residential mortgage loans, home equity lines of credit, commercial and multi- family real estate loans, savings and checking accounts, and certificates of deposit. Park View Federal specializes in single-family, construction, and construction/permanent loan programs. Whether you are buying, building, or refinancing a home, or saving for a college education, a vacation, or retirement, Park View Federal has the right mortgage loan AND the right savings account for you. 2 FINANCIAL PLANNING CENTERS Over the last seventy-seven years, Park View Federal Savings Bank has provided the funds for hundreds of thousands of middle-income Ohioans to help them make one of the most important decisions of their lives - buying a home for the family. For many years, a debt-free home, a reasonable savings account, and Social Security with Medicare provided a satisfactory retirement for most people. That is not true today. Fifteen years ago, financial planning was limited to a relatively few high- income individuals who could afford the expensive services provided by trust departments of large financial institutions. Today, more and more middle-income Americans are faced with the prospect of losing many thousands of dollars due to poor investment strategies and the increasing complexity of financial services. Opportunities for attaining a comfortable retirement are lost by insufficient tax planning, the failure to take advantage of recently enacted government programs, and the failure to realize the long-term income potential of new innovative and safe investment products now available to the smaller investor. The Board of Directors of PVF Capital Corp. has been exploring the idea of an affiliation with a quality provider of these important services to our customers for quite some time, and the decision was made to form a joint venture between the Capital Corp. and Money Concepts, a worldwide network of financial planning centers which has been a successful provider of financial planning services to small businesses and middle-income families since 1979. The CEO of this new joint venture, to be known as PVF Financial Planning, Inc., will be Gregory Shefchuk, CFP, who has a proven record in this field since 1984 serving thousands of families in northern Ohio. PVF Financial Planning will provide financial planning services to both individuals and small businesses throughout the Park View Federal branch system. The company's principal objective will be to deliver professional financial planning on an individualized basis, at NO COST to our customers. This financial planning approach can review a single issue such as Retirement Planning, or a complete, comprehensive financial plan that can include Retirement Planning; Investment Management; Pension Plan Services; Family Needs Analysis; Tax Planning; or Discount Brokerage Services, to name but a few. The key is that these services will be offered within the context of a professionally prepared financial plan with annual reviews. An important part of the company's business plan will be to offer an ongoing schedule of educational financial planning workshops and seminars as a customer service. These seminars will be conducted on an adult education basis and will be free to Park View Federal customers. Our objective is simple: PVF Financial Planning wants to become the place where customers feel comfortable having their financial planning questions answered in a friendly atmosphere from a name that they can trust. We hope to have at least two of these financial planning centers in operation by the beginning of 1998, one at our Bainbridge office and one at our La Place office, with a financial planning center to be in operation at all offices by the end of 1998. We will keep all of our customers fully informed as we progress. 3 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA FINANCIAL CONDITION DATA:
At June 30, --------------------------------------------------- 1997 1996 1995 1994 1993 --------------------------------------------------- (in thousands) Total assets . . . . . . . . . . . . . . . . . . . . . . . . $373,081 $331,634 $315,432 $238,245 $193,289 Loans receivable and mortgage-backed securities held for investment, net. . . . . . . . . . . . 341,914 278,956 250,244 206,674 156,402 Loans receivable and mortgage-backed securities available for sale, net . . . . . . . . . . . . 710 18,817 4,451 3,954 7,972 Cash and investment securities . . . . . . . . . . . . . . . 23,576 27,884 53,812 22,226 23,708 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 288,270 271,045 272,290 197,042 170,617 FHLB advances and notes payable. . . . . . . . . . . . . . . 49,715 30,191 16,800 18,160 2,560 Stockholders' equity . . . . . . . . . . . . . . . . . . . . 26,273 22,474 18,818 15,742 11,848 Number of: Real estate loans outstanding. . . . . . . . . . . . . . . 2,648 2,527 2,512 2,259 2,165 Savings accounts . . . . . . . . . . . . . . . . . . . . . 23,190 23,259 24,007 19,007 18,777 Offices. . . . . . . . . . . . . . . . . . . . . . . . . . 9 9 9 7 8
OPERATING DATA:
Year Ended June 30, ---------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------- (in thousands except for earnings per share) Interest income. . . . . . . . . . . . . . . . . . . . . . . $ 30,963 $ 27,761 $ 22,941 $ 17,050 $ 15,503 Interest expense . . . . . . . . . . . . . . . . . . . . . . 16,561 15,703 12,261 8,113 8,531 -------- -------- -------- -------- -------- Net interest income before provision for loan losses . . . . . . . . . . . . . 14,402 12,058 10,680 8,937 6,972 Provision for loan losses. . . . . . . . . . . . . . . . . . 187 417 416 0 168 -------- -------- -------- -------- -------- Net interest income after provision for loan losses. . . . . . . . . . . . . . 14,215 11,641 10,264 8,937 6,804 Non-interest income. . . . . . . . . . . . . . . . . . . . . 1,336 1,747 1,514 1,703 2,468 Non-interest expense . . . . . . . . . . . . . . . . . . . . 10,000 7,989 7,177 6,295 5,622 -------- -------- -------- -------- -------- Income before federal income tax expense and cumulative effect of a change in accounting principle. . . 5,551 5,399 4,601 4,345 3,650 Federal income taxes . . . . . . . . . . . . . . . . . . . . 1,904 1,613 1,244 1,215 1,147 Cumulative effect of a change in accounting principle. . . . . . . . . . . . . . . . . . 0 0 0 755 0 -------- -------- -------- -------- -------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,647 $ 3,786 $ 3,357 $ 3,885 $ 2,503 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Earnings per share . . . . . . . . . . . . . . . . . . . . . $ 1.33 $ 1.39 $ 1.25 $ 1.42 $ 0.91 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
4 OTHER DATA:
At or For the Year Ended June 30, ----------------------------------------------- 1997 1996 1995 1994 1993 ----------------------------------------------- (in thousands) Interest rate spread information: Average during year . . . . . . . . . . 3.84% 3.45% 3.67% 4.04% 3.58% Average end of year . . . . . . . . . . 3.90% 3.51% 3.84% 4.25% 4.14% Net interest margin at end of year . . . . 4.22% 3.90% 4.00% 4.30% 3.78% Average interest-earning assets to average interest-bearing liabilities. . 107.93% 108.83% 107.08% 106.64% 104.42% Non-accruing loans (> 90 days) and repossessed assets to total assets. . . 1.11% 0.73% 1.14% 1.45% 1.37% Stockholders' equity to total assets . . . 7.04% 6.78% 5.97% 6.61% 6.13% Return on average assets . . . . . . . . . 1.04% 1.19% 1.23% 1.78% 1.29% Return on average equity . . . . . . . . . 15.19% 18.43% 19.61% 27.53% 34.56% Ratio of average equity to average assets. . . . . . . . . . . . . 6.84% 6.47% 6.26% 6.46% 3.74% Ratio of tangible capital to adjusted total assets . . . . . . . . . 7.34% 7.25% 6.10% 6.37% 5.71% Ratio of core capital to adjusted total assets . . . . . . . . . 7.34% 7.25% 6.10% 6.37% 5.71% Ratio of total capital to risk-weighted assets. . . . . . . . . . 10.62% 11.42% 10.77% 10.37% 10.83% Dividend payout ratio. . . . . . . . . . . 0.00% 0.00% 8.37% 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 wholly-owned real estate subsidiary. 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. FORWARD-LOOKING STATEMENTS When used in this Annual Report, 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 result 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. OVERVIEW OF FINANCIAL CONDITION AT JUNE 30, 1997, 1996, AND 1995 PVF had total assets of $373.1 million, $331.6 million, and $315.4 million at the fiscal years ended June 30, 1997, 1996, and 1995 respectively. The primary source of the Bank's increase in total assets has been its loan portfolio. Net loans receivable and mortgage-backed securities totaled $342.6 million, $297.8 million, and $254.7 million at June 30, 1997, 1996, and 1995 respectively. The increase of $44.8 million in net loans and mortgage-backed securities at June 30, 1997 resulted primarily from increases in one-to-four family residential loans, commercial real estate loans and home equity line of credit loans of $19.2 million, $12.4 million, and $8.2 million respectively. The Bank's current loans-to-one-borrower limitation was approximately $4.0 million at June 30, 1997. In addition, investment securities totaled $14.0 million, $14.1 million, and $41.2 million at the fiscal years ended June 30, 1997, 1996, and 1995 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 $6.8 million, or 43.1% 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. 6 The Bank's deposits totaled $288.3 million, $271.0 million, and $272.3 million at the fiscal years ended June 30, 1997, 1996, and 1995 respectively. Advances from the FHLB of Cincinnati amounted to $47.4 million, $27.5 million, and $15.0 million at the fiscal years ended June 30, 1997, 1996, and 1995 respectively. Management's decision to borrow funds from the FHLB and aggressively compete with market savings rates resulted in an increase of $19.9 million in FHLB advances and an increase in savings deposits of $17.3 million. CAPITAL PVF's shareholders' equity totaled $26.3 million, $22.5 million, and $18.8 million at the fiscal years ended June 30, 1997, 1996, and 1995 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, 1997, the Bank was in compliance with all of the current applicable regulatory 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 $ 27,604 7.34% N/A Tangible capital $ 27,604 7.34% N/A Core capital $ 27,604 7.34% 5.00% Tier 1 risk-based capital $ 27,604 9.70% 6.00% Risk-based capital $ 30,202 10.62% 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, a three-for-two stock split effected in the form of a dividend was issued in August 1996, and a 10% stock dividend was issued in September 1997. As adjusted to reflect stock dividends and the three-for-two stock split, the Company had 2,555,562 shares of common stock outstanding and approximately 307 holders of record of the common stock at August 31, 1997. 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. An $0.11 per share cash dividend, as adjusted for stock dividends and stock splits, 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 1997 Fiscal 1996 ------------------------------------- High Bid Low Bid High Bid Low Bid ------------------ ----------------- Fourth Quarter $ 16.48 $ 15.23 $ 12.27 $ 11.06 Third Quarter 15.23 13.64 12.57 10.61 Second Quarter 13.86 13.18 10.30 8.64 First Quarter 13.18 10.91 8.64 7.16
(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 7 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, 1997, the Bank had commitments to originate loans totaling $31.2 million and had $35.7 million of undisbursed loans in process. Scheduled maturities of certificates of deposit during the twelve months following June 30, 1997 totaled $172.5 million. Management believes that a significant portion of the amounts maturing during fiscal 1998 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 three months 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 1997 was 7.3%, and its average short-term liquidity ratio for such period was significantly above regulatory requirements. [PIE-CHART] [PIE-CHART] ASSET/LIABILITY MANAGEMENT The Company's asset and liability committee ("ALCO"), 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 changes in net portfolio value ("NPV") and net interest income. Park View Federal's asset and liability management program is designed to minimize the impact of sudden and sustained changes in interest rates on NPV and net interest income. The Company's exposure to interest rate risk is reviewed on a quarterly basis by the Board of Directors and the ALCO. Exposure to interest rate risk is measured with the use of interest rate sensitivity analysis to determine the Company's change in NPV in the event of hypothetical changes in interest rates, while interest rate sensitivity gap analysis is used to determine the repricing characteristics of the Bank's assets and liabilities. If estimated changes to NPV and net interest income are not within the limits established by the Board, the Board may direct management to adjust its asset and liability mix to bring interest rate risk within board-approved limits. 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 8 sought to decrease the average maturity of its assets by emphasizing the origination of adjustable-rate residential mortgage loans and adjustable-rate mortgage 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. Interest rate sensitivity analysis is used to measure the Company's interest rate risk by computing estimated changes in NPV of its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. NPV represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 1 to 4 percent increase or decrease in market interest rates. The Bank's Board of Directors has adopted an interest rate risk policy which establishes maximum decreases in the NPV of 5%, 10%, 15% and 20% in the event of a sudden and sustained 1 to 4 percent increase or decrease in market interest rates. The following table presents the Bank's projected change in NPV for the various rate shock levels at June 30, 1997. All market risk sensitive instruments presented in this table are held to maturity or available for sale. The Bank has no trading securities. (in thousands)
Change in Market Value of Dollar Percentage Interest Rates Portfolio Equity Change Change -------------- ---------------- ------ ------ +400 $35,500 $(8,625) (20)% +300 38,327 (5,798) (13) +200 40,861 (3,264) (7) +100 42,859 (1,266) (3) 0 44,125 -100 44,505 380 1 -200 44,219 94 0 -300 44,396 271 1 -400 45,492 1,367 3
The above table indicates that at June 30, 1997, in the event of a sudden and sustained increase in prevailing market interest rates, the Bank's NPV would be expected to decrease, and that in the event of a sudden and sustained decrease in prevailing market interest rates, the Bank's NPV would be expected to increase. At June 30, 1997, the Bank's estimated changes in NPV were within the targets established by the Board of Directors. NPV is calculated by the OTS using information provided by the Bank. The calculation is based on the net present value of discounted cash flows utilizing market prepayment assumptions and market rates of interest provided by Bloomberg quotations and surveys performed during the quarter ended June 30, 1997, with adjustments made to reflect the shift in the Treasury yield curve between the survey date and the quarter-end date. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. Actual values may differ from those projections set forth in the table, should market conditions vary from assumptions used in the preparation of the table. Certain assets, such as adjustable-rate loans, which represent the Bank's primary loan product, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In addition, the proportion of adjustable-rate loans in the Bank's portfolio could decrease in future periods if market interest rates remain at or decrease below current levels due to refinance activity. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the table. Finally, the ability of many borrowers to repay their adjustable-rate debt may decrease in the event of an interest rate increase. In addition, the Bank uses interest rate sensitivity gap analysis to monitor the relationship between the maturity and repricing of its interest-earning assets and interest-bearing liabilities, while maintaining an acceptable interest rate spread. 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 9 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, while 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. RESULTS OF OPERATIONS GENERAL PVF Capital Corp.'s net income for the fiscal year ended June 30, 1997 was $3.6 million, or $1.33 per share, as compared to $3.8 million, or $1.39 per share for fiscal 1996, and $3.4 million, or $1.25 per share for fiscal 1995. All per share amounts have been adjusted for stock dividends and the three-for-two stock split effective with the holding company reorganization on October 31, 1994. Net income for the current year decreased by $139,000 from the prior fiscal year and exceeded net income for fiscal 1995 by $290,000. In the first quarter of fiscal 1997, the Bank recorded a one-time special assessment to recapitalize the Savings Association Insurance Fund ("SAIF") that required SAIF-insured savings institutions to pay 65.7 cents for every $100 of deposits. This assessment was charged against earnings in fiscal 1997 and had an after-tax impact of $1.1 million.
Table 1 AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES FOR THE YEAR ENDED JUNE 30, 1997 -------------------------------------------- At 6/30/97 Yield/ Average Yield/ (in thousands) Cost Balance Interest Cost - ------------------------------------------------------------------------------------------------------------ Interest-earning assets: Loans. . . . . . . . . . . . . . . . . . . . . 9.29% $317,453 $ 29,419 9.27% Mortgage-backed securities . . . . . . . . . . 7.88 3,832 285 7.44 Investment securities and other interest-earning assets. . . . . . . . . . . 5.62 19,706 1,259 6.39 -------- -------- Total interest-earning assets . . . . . . 9.07 340,991 30,963 9.08 -------- Non-interest-earning assets. . . . . . . . . . 9,773 -------- Total assets. . . . . . . . . . . . . . . $350,764 -------- -------- Interest-bearing liabilities: Deposits . . . . . . . . . . . . . . . . . . . 5.16 $272,341 $ 13,957 5.12 FHLB advances. . . . . . . . . . . . . . . . . 5.86 41,083 2,367 5.76 Notes payable. . . . . . . . . . . . . . . . . 9.13 2,510 237 9.44 -------- -------- Total interest-bearing liabilities. . . . 5.17 315,934 16,561 5.24 ---- -------- ---- Non-interest-bearing liabilities . . . . . . . 10,825 -------- Total liabilities . . . . . . . . . . . . 326,759 Stockholders' equity . . . . . . . . . . . . . . 24,005 -------- Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $350,764 -------- -------- Net interest income. . . . . . . . . . . . . . . $ 14,402 -------- -------- Interest rate spread . . . . . . . . . . . . . . 3.90% 3.84% ---- ---- ---- ---- Net yield on interest-earning assets . . . . . . 4.22% ---- ---- Ratio of average interest-earning assets to average interest-bearing liabilities. . . . 107.93% ------ ------
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES FOR THE YEAR ENDED JUNE 30, 1996 1995 ---------------------------------------------------------------------- Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost - ---------------------------------------------------------------------------------------------------------------------------- Interest-earning assets: Loans. . . . . . . . . . . . . . . . . . . . . $272,768 $ 25,572 9.38% $230,846 $ 20,624 8.93% Mortgage-backed securities . . . . . . . . . . 3,961 269 6.79 5,635 432 7.67 Investment securities and other interest-earning assets. . . . . . . . . . . 32,732 1,920 5.87 30,633 1,886 6.16 -------- -------- -------- -------- Total interest-earning assets . . . . . . 309,461 27,761 8.97 267,114 22,942 8.59 -------- -------- Non-interest-earning assets. . . . . . . . . . 7,775 6,595 -------- -------- Total assets. . . . . . . . . . . . . . . $317,236 $273,709 -------- ------- -------- ------- Interest-bearing liabilities: Deposits . . . . . . . . . . . . . . . . . . . $270,975 $ 14,889 5.49 $231,984 $ 11,462 4.94 FHLB advances. . . . . . . . . . . . . . . . . 10,638 546 5.13 16,870 740 4.39 Notes payable. . . . . . . . . . . . . . . . . 2,746 268 9.80 600 59 9.83 -------- -------- -------- -------- Total interest-bearing liabilities. . . . 284,359 15,703 5.52 249,454 12,261 4.92 -------- ---- -------- ---- 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 . . . . . . . . . . . . . . 3.45% 3.67% ---- ---- ---- ---- Net yield on interest-earning assets . . . . . . 3.90% 4.00% ---- ---- ---- ---- Ratio of average interest-earning assets to average interest-bearing liabilities. . . . 108.83% 107.08% -------- -------- -------- --------
10 NET INTEREST INCOME Net interest income amounted to $14.4 million for the fiscal year ended June 30, 1997, as compared to $12.1 million and $10.7 million for the fiscal years ended June 30, 1996 and 1995 respectively. The increase in net interest income of $2.3 million and $1.4 million from the fiscal year ended June 30, 1996 to 1997 and from the fiscal year ended June 30, 1995 to 1996, respectively, is due to changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities. Tables 1 and 2 provide information as to change in the Bank's net interest income. Table 1 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, 1997 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 2 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 favorably affected the Bank's net interest income for the fiscal year ended June 30, 1997, while unfavorably affecting the Bank's net interest income for the fiscal year ended June 30, 1996. Due to the long-term nature of the Bank's loan portfolio and short-term nature of its deposit portfolio, along with decreasing interest rates
Table 2 YEAR ENDED JUNE 30, ---------------------------------------------------- 1997 vs. 1996 ---------------------------------------------------- Increase (Decrease) Due to ---------------------------------------------------- Rate/ (in thousands) Volume Rate Volume Total ---------------------------------------------------- Interest income: Loans. . . . . . . . . . . . . . . . . . . . . $ 4,190 $ (295) $ (48) $ 3,847 Mortgage-backed securities . . . . . . . . . . (9) 26 (1) 16 Investment securities and other interest-earning assets. . . . . . . . (764) 170 (67) (661) ------- ------- ------- ------- Total interest-earning assets. . . . . . . 3,417 (99) (116) 3,202 ------- ------- ------- ------- Interest expense: Savings deposits . . . . . . . . . . . . . . . 75 (1,001) (5) (931) FHLB advances. . . . . . . . . . . . . . . . . 1,561 67 193 1,821 Other borrowings . . . . . . . . . . . . . . . (23) (10) 1 (32) ------- ------- ------- ------- Total interest-bearing liabilities. . . . . . . . . . . . . . . 1,613 (944) 189 858 ------- ------- ------- ------- ------- ------- ------- ------- Net interest income. . . . . . . . . . . . . . . $ 1,804 $ 845 $ (305) $ 2,344 ------- ------- ------- ------- ------- ------- ------- -------
YEAR ENDED JUNE 30, ---------------------------------------------------- 1996 vs. 1995 ---------------------------------------------------- Increase (Decrease) Due to ---------------------------------------------------- Rate/ (in thousands) Volume Rate Volume Total ---------------------------------------------------- Interest income: Loans. . . . . . . . . . . . . . . . . . . . . $ 3,746 $ 1,017 $ 185 $ 4,948 Mortgage-backed securities . . . . . . . . . . (128) (50) 15 (163) Investment securities and other interest-earning assets. . . . . . . . 129 (89) (6) 34 ------- ------- ------- ------- Total interest-earning assets. . . . . . . 3,747 878 194 4,819 ------- ------- ------- ------- Interest expense: Savings deposits . . . . . . . . . . . . . . . 1,925 1,285 216 3,426 FHLB advances. . . . . . . . . . . . . . . . . (274) 125 (46) (195) Other borrowings . . . . . . . . . . . . . . . 210 0 1 211 ------- ------- ------- ------- Total interest-bearing liabilities. . . . . . . . . . . . . . . 1,861 1,410 171 3,442 ------- ------- ------- ------- Net interest income. . . . . . . . . . . . . . . $ 1,886 $ (532) $ 23 $ 1,377 ------- ------- ------- ------- ------- ------- ------- -------
11 and a relatively flat yield curve during much of the fiscal year ended June 30, 1997, the Bank experienced an increase of 39 basis points in its interest rate spread to 3.84% for fiscal 1997 from 3.45% for fiscal 1996, while during fiscal 1996 its interest rate spread decreased 22 basis points from 3.67% for fiscal 1995. These changes in average interest rate spread resulted in an increase in net interest income for the year ended June 30, 1997 of $845,000 due to interest rate changes and a decrease of $532,000 for the year ended June 30, 1996. Net interest income was favorably affected by volume changes during the two years ended June 30, 1997 and 1996. Accordingly, net interest income grew by $1.8 million and $1.9 million due to volume changes for the fiscal years ended June 30, 1997 and 1996 respectively. Changes attributable to both rate and volume impacted net interest income negatively during the fiscal year ended June 30, 1997 and positively during the fiscal year ended June 30, 1996, with an increase in average interest rate spread and average volume during the fiscal year ended June 30, 1997 and the reduction in average interest rate spread being offset by an increase in average volume during the fiscal year ended June 30, 1996. 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. 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 $2.4 million at June 30, 1995 to $2.6 million at June 30, 1996 and to $2.7 million at June 30, 1997. At June 30, 1997, the [CHART] allowance for loan losses represented 58.0% of total non-performing loans, compared to 104.8% and 51.8% of total non-performing loans at June 30, 1996 and 1995 respectively. Non-performing loans consist of all non-accrual loans and all loans 90 days or more past due. For the fiscal years ended June 30, 1997, 1996 and 1995, the Bank recorded provisions for loan losses of $187,000, $417,000, and $416,000 respectively. 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 $77,000, $254,000, and $89,000 for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. At June 30, 1997, the allowance for loan losses represented 0.8% of net loans and mortgage-backed securities. NON-INTEREST INCOME Non-interest income amounted to $1.3 million, $1.7 million, and $1.5 million for the fiscal years ended June 30, 1997, 1996, and 1995 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 $663,000, $925,000, and $906,000 for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. The reduction in income from mortgage banking activities of $262,000 from the fiscal year ended June 30, 1996 to 1997 is primarily due to a decrease in net profit realized on the sale of loans and mortgage-backed securities. Other non-interest income amounted to $673,000, $822,000, and $607,000 for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. Changes in other non-interest income are the result of service and other miscellaneous fee income, income realized on the sale of assets and investments, and the disposal of real estate owned properties. NON-INTEREST EXPENSE Non-interest expense amounted to $10.0 million, $8.0 million, and $7.2 million for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. The principal component of non-interest expense is compensation and related benefits which amounted to $4.4 million, $4.1 million, and $3.7 million for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. The increase in compensation for the fiscal years ended June 30, 1997 and 1996 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 $1.6 million, $1.4 million, and $1.2 million for the fiscal years ended June 30, 1997, 1996, and 1995 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 $4.0 million, $2.4 million, and $2.2 million for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. The increase in other non-interest expense of $1.6 million from the fiscal year ended June 30, 1996 to 1997 is attributable to the previously mentioned SAIF assessment. Changes in other non-interest expense are the result of advertising, professional and legal services, regulatory and insurance expenses, and franchise tax expense. FEDERAL INCOME TAXES The Bank's federal income tax expense was $1.9 million, $1.6 million, and $1.2 million for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. Due to the availability of statutory bad debt deductions for the fiscal years ended June 30, 1996 and 1995, 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 34%, 30%, and 27% for the fiscal years ended June 30, 1997, 1996, and 1995 respectively. 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 EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, which supersedes Accounting Principles Board ("APB") No. 15, Earnings per Share, and replaces the presentation of primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS No. 128 was issued to simplify the computation of earnings per share and make the U.S. standard more compatible with the earnings per share standards of other countries and that of the International Accounting Standards Committee ("IASC"). SFAS No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted, however, pro forma earnings per share is permitted for periods prior to required adoption. The following table discloses pro forma earnings per share pursuant to SFAS No. 128 for the fiscal years ended June 30, 1997 and June 30, 1996.
FISCAL YEAR ENDED JUNE 30, -------------------------------------------------------------------------------------- 1997 1996 ---------------------------------------- ----------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ---------------------------------------- ----------------------------------------- Basic Earnings Per Share Income available to common stockholders $3,646,839 2,555,562 $ 1.43 $3,786,156 2,555,562 $ 1.48 Effect of Dilutive Securities Stock options 184,880 $ 0.10 162,173 $ 0.09 Diluted Earnings Per Share Income available to common stockholders $3,646,839 2,740,442 $ 1.33 $3,786,156 2,717,735 $ 1.39
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires public business enterprises to report certain information about operating segments. Also required is certain information about products and services, geographic areas in which an enterprise operates, and any major customers. SFAS No. 131 is effective after December 15, 1997. 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. 14 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997, 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. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, in 1997; No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, in 1996; and No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURES, in 1995. /s/ KPMG Peat Marwick LLP Cleveland, Ohio July 23, 1997 15 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Financial Condition June 30, 1997 and 1996
ASSETS 1997 1996 ---- ---- Cash and amounts due from depository institutions $ 7,760,029 6,670,604 Interest bearing deposits 445,401 244,612 Federal funds sold 1,375,000 6,875,000 Investment securities held to maturity (market values of $13,899,370 and $13,893,836, respectively) 13,995,350 14,094,100 Mortgage-backed securities held to maturity, net (market values of $516,579 and $648,170, respectively) 511,530 637,022 Mortgage-backed securities available for sale, net - 7,613,365 Loans receivable held for long-term investment, net of allowance for loan losses of $2,674,537 and $2,564,720, respectively 341,402,566 278,318,945 Loans receivable held for sale, net 709,604 11,203,705 Office properties and equipment, net 1,882,390 2,571,566 Real estate in development 909,758 854,891 Investment required by law Stock in the Federal Home Loan Bank of Cincinnati 2,762,314 1,880,000 Prepaid expenses and other assets 1,327,358 670,271 ----------- ----------- Total assets $ 373,081,300 331,634,081 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 288,269,674 271,045,085 Advances from the Federal Home Loan Bank of Cincinnati 47,405,424 27,481,651 Notes payable 2,310,000 2,710,000 Advances from borrowers for taxes and insurance 4,511,595 4,205,151 Accrued expenses and other liabilities 4,311,191 3,718,536 ----------- ----------- Total liabilities 346,807,884 309,160,423 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; 2,323,338 and 2,555,562 shares issued and outstanding, respectively 25,556 23,235 Additional paid-in capital 14,522,275 9,995,916 Retained earnings (substantially restricted) 11,725,585 12,608,775 Net unrealized securities losses - (154,268) ----------- ----------- Total stockholders' equity 26,273,416 22,473,658 Commitments Total liabilities and stockholders' equity $ 373,081,300 331,634,081 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 16 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Operations Years ended June 30, 1997, 1996, and 1995
1997 1996 1995 ---- ---- ---- Interest income Loans $ 29,418,869 25,572,082 20,623,768 Mortgage-backed securities 285,246 268,604 432,016 Cash and investment securities 1,258,732 1,920,620 1,885,677 ---------- ---------- ---------- Total interest income 30,962,847 27,761,306 22,941,461 Interest expense Deposits 13,957,543 14,888,819 11,462,392 Short-term borrowings 1,182,874 327,751 798,518 Long-term borrowings 1,420,346 486,609 - ---------- ---------- ---------- Total interest expense 16,560,763 15,703,179 12,260,910 ---------- ---------- ---------- Net interest income 14,402,084 12,058,127 10,680,551 Provision for loan losses 187,000 417,000 416,000 ---------- ---------- ---------- Net interest income after provision for loan losses 14,215,084 11,641,127 10,264,551 ---------- ---------- ---------- Noninterest income, net Service and other fees 519,512 462,985 434,150 Mortgage banking activities, net 663,002 924,657 906,347 Gain on sale of investment securities, net - 74,721 - Other, net 153,253 284,505 172,934 ---------- ---------- ---------- Total noninterest income, net 1,335,767 1,746,868 1,513,431 Noninterest expense Compensation and benefits 4,423,470 4,136,243 3,693,088 Office, occupancy, and equipment 1,603,583 1,433,037 1,233,111 Insurance 445,804 737,845 593,836 Special SAIF assessment 1,707,867 - - Professional and legal 208,164 167,689 248,697 Other 1,611,475 1,513,650 1,408,135 ---------- ---------- ---------- Total noninterest expense 10,000,363 7,988,464 7,176,867 ---------- ---------- ---------- Income before federal income taxes 5,550,488 5,399,531 4,601,115 Federal income taxes Current 1,975,742 1,280,375 1,097,800 Deferred (72,093) 333,000 146,200 ---------- ---------- ---------- 1,903,649 1,613,375 1,244,000 ---------- ---------- ---------- Net income $ 3,646,839 3,786,156 3,357,115 ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share $ 1.33 1.39 1.25 ---- ---- ---- ---- ---- ----
See accompanying notes to consolidated financial statements. 17 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended June 30, 1997, 1996, and 1995
Net Additional Unrealized Common Paid-In Retained Securities Stock Capital Earnings Losses Total -------- ---------- ---------- ---------- ---------- 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 Net income - - 3,646,839 - 3,646,839 Stock dividend issued, 232,224 shares 2,321 4,526,359 (4,528,680) - - Cash paid in-lieu of fractional shares - - (1,349) - (1,349) Net change in unrealized securities losses, net of taxes of $79,471 - - - 154,268 154,268 ------- ---------- ---------- ---------- ---------- Balance at June 30, 1997 $25,556 14,522,275 11,725,585 - 26,273,416 ------- ---------- ---------- ---------- ---------- ------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. 18 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 1997, 1996, and 1995
1997 1996 1995 ---- ---- ---- Operating activities Net income $ 3,646,839 3,786,156 3,357,115 Adjustments required to reconcile net income to net cash used in operating activities Accretion of discount on securities (1,250) (25,475) (42,767) Depreciation and amortization 468,296 477,946 359,450 Provision for loan losses 187,000 417,000 416,000 Accretion of unearned discount and deferred loan origination fees, net (1,660,399) (1,554,098) (1,245,139) Deferred income tax provision 72,093 (333,000) (146,200) Gain on sale of investment securities, net - (74,721) - Proceeds from loans held for sale 46,020,308 36,564,603 14,623,166 Originations of loans held for sale (53,500,828) (51,350,242) (23,526,731) Mortgage banking operations, excluding mortgage loan servicing fees and amortization of MSRs (250,757) (382,898) (345,978) Net change in other assets and other liabilities (62,112) 1,461,043 (204,158) ------------- ------------ ------------ Net cash used in operating activities (5,080,810) (11,013,686) (6,755,242) ------------- ------------ ------------ Investing activities Loans originated (136,862,188) (105,097,698) (102,130,657) Principal repayments on loans 87,823,393 76,464,071 60,937,038 Loans purchased - (13,161,755) (11,169,245) Loans sold - 10,976,057 13,422,886 Proceeds from sales of mortgage-backed securities available for sale 12,598,136 894,443 8,205,393 Principal repayments on mortgage-backed securities available for sale 241,974 195,177 - Purchase of mortgage-backed securities held to maturity - - (4,829,371) Principal repayments on mortgage-backed securities held to maturity 123,716 2,246,171 1,095,219 Proceeds from sales of investment securities available for sale - 10,007,188 - Purchase of investment securities held to maturity - (24,298,789) (53,000,000) Maturities of investment securities held to maturity 100,000 41,491,590 20,200,000 Federal Home Loan Bank (FHLB) stock purchased, net (882,314) (123,865) (423,805) (Additions) disposal to office properties and equipment 220,880 (322,935) (1,361,726) Disposals of real estate owned 508,837 826,080 373,337 Disposals of real estate in development, net (54,867) 30,859 123,162 ------------- ------------ ------------ Net cash (used in) provided by investing activities (36,182,433) 126,594 (68,557,769) ------------- ------------ ------------
See accompanying notes to consolidated financial statements. (Continued) 19 PVF CAPITAL AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 1997, 1996, and 1995
1997 1996 1995 ---- ---- ---- Financing activities Payments on FHLB advances $ (72,576,227) (25,018,349) (28,560,000) Proceeds from FHLB advances 92,500,000 37,500,000 26,000,000 Proceeds from notes payable - 1,200,000 1,800,000 Repayment of notes payable (400,000) (290,000) (600,000) Net increase (decrease) in NOW and passbook savings (48,405) 5,132,229 (5,785,818) Proceeds from issuance of certificates of deposit 58,655,161 45,556,108 106,109,678 Payments on maturing certificates of deposit (41,382,167) (51,933,694) (25,074,965) Other 305,095 (87,566) 167,388 ------------- ----------- ----------- Net cash provided by financing activities 37,053,457 12,058,728 74,056,283 ------------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (4,209,786) 1,171,636 (1,256,728) Cash and cash equivalents at beginning of year 13,790,216 12,618,580 13,875,308 ------------- ----------- ----------- Cash and cash equivalents at end of year $9,580,430 13,790,216 12,618,580 ------------- ----------- ----------- ------------- ----------- ----------- Supplemental disclosures of cash flow information Cash payments of interest expense $ 16,416,368 15,611,439 12,254,542 Cash payments of income taxes 1,580,000 1,165,000 1,297,000 ------------- ----------- ----------- ------------- ----------- ----------- Supplemental schedule of noncash investing and financing activities Loans exchanged for mortgage-backed securities $ 5,376,484 8,052,331 8,812,249 Transfers from real estate owned (481,567) (706,538) (342,867) Transfers to real estate owned 428,982 759,122 322,867 ------------- ----------- ----------- ------------- ----------- -----------
See accompanying notes to consolidated financial statements. 20 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1997, 1996, and 1995 (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. 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 the loan is determined to be performing in accordance with the applicable loan terms in which case the loan is returned to accrual status. 21 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statments 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. Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which supersedes SFAS No. 122 and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. As a result of the adoption, the Company recognizes an asset for mortgage servicing rights based on allocation of total loan cost using relative fair values, or a liability for mortgage servicing rights based on fair value, if the benefits of servicing are not expected to adequately compensate the servicer. 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. INVESTMENT AND MORTGAGE-BACKED SECURITIES Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, 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). 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. (Continued) 22 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statments 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, or recognizes the net fees as mortgage banking income when the loans are sold. 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 1997, 1996, and 1995 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; the three-for-two stock issuance declared July 1996; and the 10 percent stock dividend declared July 1997. The weighted average number of shares of common stock and common stocks equivalents outstanding during the years ended June 30, 1997, 1996, and 1995 were 2,740,442, 2,717,735, and 2,691,552, respectively. Fully diluted earnings per share is not materially different than primary earnings per share. RECLASSIFICATION Certain reclassifications have been made to 1996 and 1995 amounts to conform to the 1997 presentation. (2) INVESTMENT SECURITIES Investment securities, held to maturity, at June 30, 1997 and 1996, are summarized as follows:
1997 ----------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- ---------- United States Government and agency securities $13,995,350 - (95,980) 13,899,370 ---------- --------- ------ ---------- ---------- --------- ------ ---------- Due after one year through five years $13,995,350 - (95,980) 13,899,370 ---------- --------- ------ ---------- $13,995,350 - (95,980) 13,899,370 ---------- --------- ------ ---------- ---------- --------- ------ ----------
(Continued) 23 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements
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 ------------ ---------- --------- ---------- ------------ ---------- --------- ----------
Realized gains on sales of investment securities were $-0-, $100,658, and $-0- for the years ended June 30, 1997, 1996, and 1995, respectively, and realized losses for the years ended June 30, 1997, 1996, and 1995 were $-0-, $25,937, and $-0-, respectively. 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 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 were recognized. (3) MORTGAGE-BACKED SECURITIES Mortgage-backed securities at June 30, 1997 and 1996, are summarized as follows:
1997 ------------------------------------------------------ Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Loss Gain Value --------- ---------- ---------- --------- Held to maturity FHLMC mortgage-backed securities $ 504,903 5,049 - 509,952 Accrued interest receivable 6,627 - - 6,627 ------- ----- ------- ------- $ 511,530 5,049 - 516,579 ------- ----- ------- ------- ------- ----- ------- ------- Due after ten years $ 511,530 5,049 - 516,579 ------- ----- ------- ------- ------- ----- ------- -------
(Continued) 24 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements
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 ----------- ------ -------- --------- ----------- ------ -------- ---------
(4) LOANS RECEIVABLE HELD FOR LONG-TERM INVESTMENT Loans receivable held for long-term investment at June 30, 1997 and 1996, consist of the following:
1997 1996 ---- ---- Real estate mortgages One-to-four family residential $ 128,186,837 98,437,543 Home equity line of credit 16,941,154 8,748,668 Multifamily residential 31,090,035 30,607,353 Commercial 84,940,296 72,542,642 Land 32,045,277 30,685,999 Construction 82,610,430 76,725,176 ----------- ----------- Total real estate mortgages 375,814,029 317,747,381 Consumer 3,595,550 2,356,776 ----------- ----------- 379,409,579 320,104,157 Accrued interest receivable 2,086,288 1,615,633 Deferred loan origination fees (1,717,859) (2,021,580) Unearned discount (47,715) (165,295) Undisbursed portion of loan proceeds (35,653,190) (38,649,250) Allowance for loan losses (2,674,537) (2,564,720) ----------- ----------- $ 341,402,566 278,318,945 ----------- ----------- ----------- -----------
(Continued) 25 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of the changes in the allowance for loan losses for the years ended June 30, 1997, 1996, and 1995, is as follows (write-offs include transfers to real estate owned): Balance at June 30, 1994 $ 2,074,553 Provision charged to operations 416,000 Write-offs (94,455) Recoveries 6,000 --------- Balance at June 30, 1995 2,402,098 Provision charged to operations 417,000 Write-offs (265,361) Recoveries 10,983 --------- Balance at June 30, 1996 2,564,720 Provision charged to operations 187,000 Write-offs (197,875) Recoveries 120,692 --------- Balance at June 30, 1997 $ 2,674,537 --------- ---------
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:
1997 1996 ---- ---- Loans on nonaccrual status Real estate mortgages One-to-four family residential $ 918,000 1,500,000 Construction and land 3,179,000 612,000 Commercial - 160,000 Consumer 40,000 80,000 --------- --------- Total loans on nonaccrual status 4,137,000 2,352,000 --------- --------- Past due loans on accrual status Real estate mortgages Construction and land 476,000 95,000 --------- --------- Total past due loans on accrual status 476,000 95,000 --------- --------- Total past due loans $ 4,613,000 2,447,000 --------- --------- --------- ---------
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, 1997 and 1996, gross interest income of $310,162 and $331,395, 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, 1997 and 1996, 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 $4,137,000 and $2,352,000, respectively. Included in the impaired amount at June 30, 1997 and 1996, is $159,863 and $480,840, respectively, related to loans with a corresponding valuation allowance of $68,763 and $393,730, respectively. The Company recognized no interest on impaired loans in 1997, 1996, and 1995 (during the portion of the respective years that they were impaired). (Continued) 26 PVF CAPITAL CORP. AND SUBDIARIES Notes to Consolidated Financial Statements Average impaired loans for the years ended June 30, 1997, 1996, and 1995 amounted to $3,245,000, $2,979,000, and $3,515,000, respectively. (5) LOANS RECEIVABLE HELD FOR SALE Loans receivable held for sale at June 30, 1997 and 1996, consist of the following:
1997 ----------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gain Loss Value ----------- ---------- ---------- --------- Real estate mortgages $ 721,502 14,286 - 735,788 Deferred loan origination fees (11,898) - - (11,898) ------- ------ ------- ------- $ 709,604 14,286 - 723,890 ------- ------ ------- ------- ------- ------ ------- ------- 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 ---------- -------- ------ ---------- ---------- -------- ------ ----------
Mortgage banking activities, net, for each of the years in the three-year period ended June 30, 1997, consist of the following:
1997 1996 1995 ---- ---- ---- Mortgage loan servicing fees $ 580,328 541,759 560,379 Amortization of mortgage servicing rights (168,083) - - Amortization of deferred premiums - - (35,685) Gross realized Gains on sales of loans 975,826 831,283 144,827 Losses on sales of loans (578,053) (347,142) (27,742) Gains on sales of mortgage-backed securities 16,673 21,386 - Losses on sales of mortgage-backed securities (81,759) (40,625) (606,856) Market valuation provision for losses on loans held for sale (176,514) (82,004) (115,000) Market valuation recoveries 94,584 - 986,434 ------- ------- ------- $ 663,002 924,657 906,357 ------- ------- ------- ------- ------- -------
(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, 1997, 1996, and 1995 is as follows:
1997 1996 1995 ---- ---- ---- Balance at beginning of year $ 13,314 - 871,434 Market valuation provision for losses on loans held for sale 176,514 82,004 115,000 Market valuation loss on loans and mortgage - backed securities sold (95,244) - - Recoveries (94,584) - (986,434) Discount on loans transferred to held for investment - (68,690) - ------- ------ ------- Balance at end of year $ - 13,314 - ------- ------ ------- ------- ------ -------
At June 30, 1997, 1996, and 1995, the Bank was servicing whole and participation mortgage loans for others aggregating approximately $195,250,000; $171,043,000; and $156,423,000, respectively. The Bank had $2,186,100 and $2,431,750 at June 30, 1997 and 1996, 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 and amortized during the years ended June 30, 1997 and 1996, as a result of the adoption of Statement of Financial Accounting Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, and No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, were as follows:
1997 1996 ---- ---- Beginning balance $ 241,000 - Originated 378,000 241,000 Amortized (168,000) - ------- ------- Ending balance 451,000 241,000 ------- ------- ------- ------- Estimated fair value $ 865,481 241,000 ------- ------- ------- -------
No valuation allowance has been established for mortgage servicing rights as there has been no impairment on their rights. (6) OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment at cost, less accumulated depreciation and amortization at June 30, 1997 and 1996, are summarized as follows:
1997 1996 ---- ---- Land and land improvements $ 207,092 520,402 Building and building improvements 1,059,793 1,479,913 Leasehold improvements 1,457,711 1,334,532 Furniture and equipment 2,961,682 3,040,041 --------- --------- 5,686,278 6,374,888 Less accumulated depreciation and amortization (3,803,888) (3,803,322) --------- --------- $ 1,882,390 2,571,566 --------- --------- --------- ---------
(Continued) 28 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) DEPOSITS Deposit balances at June 30, 1997 and 1996, are summarized by interest rate as follows:
1997 1996 ------------------ ------------------ Amount % Amount % ------ -- ------ -- NOW and money market accounts Noninterest bearing $ 5,619,988 1.9% 5,528,238 2.0% 2.00 - 5.00% 19,963,938 6.9 19,807,255 7.3 ----------- ----- ----------- ----- 25,583,926 8.8 25,335,493 9.3 Passbook savings 3.00 - 5.00% 31,585,818 11.0 31,882,656 11.8 Certificates of deposit 2.50 - 2.99% 456,618 .2 7,455 - 3.00 - 3.99 - - - - 4.00 - 4.99 12,352,923 4.2 23,125,606 8.5 5.00 - 5.99 119,613,292 41.5 124,808,178 46.1 6.00 - 6.99 82,592,866 28.7 46,387,193 17.1 7.00 - 7.99 15,906,866 5.5 19,333,358 7.1 8.00 - 8.99 170,361 .1 157,173 0.1 9.00 - 9.99 7,004 - 7,973 - ----------- ----- ----------- ----- 231,099,930 80.2 213,826,936 78.9 ----------- ----- ----------- ----- $288,269,674 100.0% 271,045,085 100.0% ----------- ----- ----------- ----- ----------- ----- ----------- ----- Weighted average rate on deposits 5.22% 5.06% ---- ---- ---- ---- 1997 1996 ------------------ ------------------ Amount % Amount % ------ -- ------ -- Remaining term to maturity of certificates of deposit 12 months or less $172,492,046 74.6% 166,412,661 77.8% 13 to 24 months 32,592,344 14.1 15,023,122 7.0 25 to 36 months 20,728,309 9.0 10,722,530 5.0 Over 36 months 5,287,231 2.3 21,668,623 10.2 ----------- ----- ----------- ----- $231,099,930 100.0% 213,826,936 100.0% ----------- ----- ----------- ----- ----------- ----- ----------- ----- Weighted average rate on certificates of deposit 5.90% 5.76% ---- ---- ---- ----
Time deposits in amounts of $100,000 or more totaled $48,907,331 and $36,771,491 at June 30, 1997 and 1996, respectively. Interest expense on deposits is summarized as follows:
1997 1996 1995 ---- ---- ---- NOW accounts $ 529,889 414,869 362,059 Passbook accounts 867,687 865,170 910,723 Certificates of deposit 12,559,967 13,608,780 10,189,610 ---------- ---------- ---------- $ 13,957,543 14,888,819 11,462,392 ---------- ---------- ---------- ---------- ---------- ----------
(Continued) 29 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (8) 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, 1997 and 1996, were as follows:
Maturity Interest Rate 1997 1996 -------- ------------- ---- ---- December 1996 5.25 $ - 16,000,000 March 1998 5.50 5,000,000 5,000,000 March 2001 5.93 5,000,000 5,000,000 February 2003 6.00 500,000 500,000 February 2006 6.05 905,424 981,651 September 1997 set daily (1) 26,000,000 - March 1999 6.50 10,000,000 - ---------- ---------- $ 47,405,424 27,481,651 ---------- ---------- ---------- ---------- Weighted average interest rate 6.39% 5.46% ---- ---- ---- ----
(1) The rate as of June 30, 1997 was 6.63% The Bank maintains two lines of credit, totaling $70,000,000, with the Federal Home Loan Bank of Cincinnati (FHLB). The $40,000,000 repurchase line matures in September 1997. The Bank has chosen to take daily advances from this line, with the interest rate set daily. The $30,000,000 cash management line matures in December 1997. Serving as collateral for such advances, the Bank has pledged mortgage loans with unpaid principal balances aggregating approximately $71,108,136 and $41,222,000 at June 30, 1997 and 1996, 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, 1997 and 1996, the Bank had the capacity to borrow an additional $46,000,000 and $55,000,000, respectively, in FHLB advances. (9) NOTES PAYABLE Notes payable consist of the following at June 30, 1997 and 1996:
Maturity Interest Rate 1997 1996 -------- ------------- ---- ---- Promissory note September 2000 9.50% $ 600,000 1,000,000 Mortgage note July 2000 9.00% 1,710,000 1,710,000 --------- --------- $ 2,310,000 2,710,000 --------- --------- --------- ---------
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. 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. (Continued) 30 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (10) FEDERAL INCOME TAXES AND RETAINED EARNINGS 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 rate to income before federal income taxes. These differences are reconciled as follows:
1997 1996 1995 ------------------------- ------------------------- ------------------------- Percent Percent Percent Amount of Pretax Amount of Pretax Amount of Pretax ------ Income ------ Income ------ Income ------ ------ ------ Computed expected tax $ 1,942,671 35.0 % 1,889,836 35.0% 1,610,390 35.0% Decrease in tax resulting from Book under tax bad debt deduction - - - - (108,893) (2.4) Benefit of graduated rates (55,505) (1.0) (53,995) (1.0) (46,011) (1.0) Other, net 16,483 (0.3) (222,466) (4.1) (211,486) (4.6) --------- ----- --------- ----- --------- ---- $ 1,903,649 34.3% 1,613,375 29.9% 1,244,000 27.0% --------- ----- --------- ----- --------- ---- --------- ----- --------- ----- --------- ----
The net tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 1997 and 1996, are:
1997 1996 ---- ---- Deferred tax assets Loan loss and other reserves $ 883,466 815,639 Other 66,170 38,954 ------- ------- Total gross deferred tax assets 949,636 854,593 ------- ------- Deferred tax liabilities Deferred loan fees 218,165 162,162 FHLB stock dividend 442,226 389,759 Unrealized gains on loan sales, net 3,140 199,325 Originated mortgage servicing asset 153,423 81,997 Bad debt reserves over base year reserves 55,433 - Other 115,033 131,227 ------- ------- Total gross deferred tax liabilities 987,420 964,470 ------- ------- Net deferred tax asset (liability) $ (37,784) (109,877) ------- ------- ------- -------
Of the deferred tax liability at June 30, 1997 and June 30, 1996, a deferred tax liability of $-0- and $79,471, respectively, 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, 1997 or 1996. Retained earnings at June 30, 1997 includes approximately $4,516,000 for which no provision for federal income tax has been made. This amount represents allocations of income during years prior to 1988 to bad debt deductions for tax purposes only. These qualifying and nonqualifying base year reserves and supplemental reserves will be recaptured into income in the event of certain distributions and redemptions. Such recapture would create income for tax purposes only, which would be subject to the then current corporate income tax rate. Recapture would not occur upon the reorganization, (Continued) 31 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements merger, or acquisition of the Bank, nor if the Bank is merged or liquidated tax-free into a bank or undergoes a charter change. If the Bank fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into income. The favorable reserve method previously afforded to thrifts was 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, such as the Bank, must switch to the reserve method of section 585 (the method used by small commercial banks). In general, a thrift is required to recapture the amount of its qualifying and nonqualifying reserves in excess of its qualifying and nonqualifying 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 nonqualifying base year reserves or the contracted base year reserves. The Bank has no such excess reserves to recapture. 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 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. (11) 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, 1997:
Year Ending June 30, -------------------- 1998 $ 323,430 1999 268,674 2000 198,614 2001 192,245 2002 192,245 Thereafter 308,213 --------- Total minimum lease payments $1,483,421 --------- ---------
During the years ended June 30, 1997, 1996, and 1995, rental expense is as follows:
1997 1996 1995 ---- ---- ---- Net rental expense $ 374,420 331,941 295,145 ------- ------- ------- ------- ------- -------
(12) 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 (Continued) 32 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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, 1997 and 1996, the Bank had the following commitments:
1997 1996 ---- ---- Commitments to sell mortgage loans in the secondary market $ 773,000 1,169,000 Commitments to fund variable mortgage loans 29,098,000 21,945,000 Commitments to fund fixed mortgage loans 2,103,000 2,951,000
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. (13) REGULATORY CAPITAL Office of Thrift Supervision (OTS) regulations require savings institutions to maintain certain minimum levels of regulatory capital. An institution that fails to comply with its regulatory capital requirements must obtain OTS approval of a capital plan and can be subject to a capital directive and certain restrictions on its operations. At June 30, 1997, the minimum regulatory capital regulations require institutions to have tangible capital equal to 1.5 percent of adjusted total assets, a 3 percent leverage capital ratio, and an 8 percent risk-based capital ratio. At June 30, 1997, the Bank exceeded all of the aforementioned regulatory capital requirements. 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. 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, 1997, the most recent notification from the OTS categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. (Continued) 33 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements At June 30, 1997 and 1996, 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, 1997 GAAP capital $ 27,604 27,604 27,604 27,604 27,604 General loan valuation allowances - - - 2,598 ------- -------- -------- ------- Regulatory capital 27,604 27,604 27,604 30,202 Total assets 375,915 ------- Adjusted total assets 375,915 375,915 ------- ------- Risk-weighted assets 284,483 284,483 -------- -------- Capital ratio 7.34% 7.34% 7.34% 9.70% 10.62% 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, 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%
(Continued) 34 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (14) STOCK OPTIONS The Bank offered stock options to the directors and officers of the bank in 1994 and 1996. Under the 1994 plan, 83,500 options were originally granted (prior to adjustment for stock splits and dividends), which are exercisable for a ten-year period and can be exercised at any time. In 1996, 20,200 options were granted which are exercisable for a ten-year period, with 20 percent of the options vesting each year. Options were granted at fair market value and, accordingly, no charges were reflected in the salaries and employee benefits expense due to the granting of stock options. The excess of the option price over the par value of the shares purchased through the exercise of stock options is credited to additional capital. There were no options exercised during the year. An analysis of the stock option plans as of June 30, 1997 follows:
Plan year 1996 1994 --------- ---- ---- Options outstanding: Total 22,220 242,576 Vested 4,444 242,576 Exercise price $ 13.64 3.34
Pursuant to the terms of the plans, share information and exercise prices have been adjusted to reflect the impact of stock splits and dividends subsequent to the granting dates of the options. In 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which defines a fair value method of accounting for stock options and similar equity instruments. Pursuant to SFAS No. 123, companies who elect not to adopt the fair value method of accounting for employee stock-based transactions are required to disclose in the footnotes to the financial statements pro forma net earnings and pro forma earnings per share as if the company had adopted the new method of accounting. The bank has elected not to adopt SFAS No. 123 as this new method of accounting did not have a material effect on either earnings or earnings per share. Therefore, pro forma disclosures are not presented. (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) 35 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements
June 30, 1997 June 30, 1996 ------------------------- --------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------- ---------- ------- ----------- Assets Cash and amounts due from depository institutions $ 7,760,029 7,760,029 6,670,604 6,670,604 Interest bearing deposits 445,401 445,401 244,612 244,612 Federal funds sold 1,375,000 1,375,000 6,875,000 6,875,000 Investment securities 13,995,350 13,899,370 14,094,100 13,893,836 Mortgage-backed securities Held to maturity, net 511,530 516,579 637,022 648,170 Available for sale, net - - 7,613,365 7,613,365 Loans receivable held for Long-term investment, net 341,402,566 348,162,337 278,318,945 278,990,000 Sale, net 709,604 723,890 11,203,705 11,203,705 Stock in the Federal Home Loan Bank of Cincinnati 2,762,314 2,762,314 1,880,000 1,880,000 Liabilities Demand deposits 57,169,744 56,586,613 57,218,149 51,718,000 Time deposits 231,099,930 226,477,931 213,826,936 217,193,000 Advances from the Federal Home Loan Bank of Cincinnati 47,405,424 47,072,000 27,481,651 27,135,000 Notes payable 2,310,000 2,310,000 2,710,000 2,710,000
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. 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- (Continued) 36 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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, 1997 and 1996. (16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited consolidated quarterly results of operations for 1997 and 1996 (in thousands of dollars, except per share data):
Quarters for the Year Ended June 30, 1997 (1) ---------------------------------------------------- First Second Third Fourth ----- ------ ----- ------ Interest income $ 7,536 7,662 7,733 8,032 Interest expense 4,015 4,099 4,133 4,314 ------- ------ ------ ----- Net interest income 3,521 3,563 3,600 3,718 Provision for losses on loans - - 107 80 Noninterest income 234 295 464 343 Noninterest expense 3,756 2,068 2,097 2,079 ------- ------ ------ ----- Income before taxes (1) 1,790 1,860 1,902 Federal income taxes (10) 609 638 647 ------- ------ ------ ----- Net income $ (11) 1,181 1,222 1,255 ------- ------ ------ ----- ------- ------ ------ ----- Earnings per share (2) $ 0.00 0.43 0.45 0.46 ------- ------ ------ ----- ------- ------ ------ -----
- --------------------------------- (1) The total of the four quarterly amounts may not equal the full year amount due to rounding. (2) After giving effect to a ten percent stock dividend, declared on July 30, 1997 and distributed on September 1, 1997. (Continued) 37 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements
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) $ 0.27 0.34 0.34 0.43 ----- ------ ----- ------ ----- ------ ----- ------
- --------------------- (1) The total of the four quarterly amounts may not equal the full year amount due to rounding. (2) After giving effect to a ten percent stock dividend, declared on July 30, 1997 and distributed on September 1, 1997. (17) 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, 1997 and 1996, follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION 1997 1996 ---- ---- Cash and amounts due from depository institutions $ 51,541 110,989 Prepaid expenses and other assets 364,730 292,159 Investment in subsidiaries, at equity in underlying value of net assets 26,527,063 23,136,310 ---------- ---------- Total assets $ 26,943,334 23,539,458 ---------- ---------- ---------- ---------- Notes payable $ 600,000 1,000,000 Accrued expenses and other liabilities 69,918 65,800 ---------- ---------- 669,918 1,065,800 Stockholders' equity 26,273,416 22,473,658 ---------- ---------- Total liabilities and stockholders' equity $ 26,943,334 23,539,458 ---------- ---------- ---------- ----------
(Continued) 38 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements
CONDENSED STATEMENTS OF OPERATIONS 1997 1996 1995 ---------- --------- --------- Income Mortgage banking activities $ 493,440 488,814 - Expenses Interest expense 70,136 92,513 - General and administrative 255,804 234,063 - ---------- --------- --------- 325,940 326,576 - ---------- --------- --------- Income before federal income taxes and equity in undistributed net income of subsidiaries 167,500 162,238 - Federal income taxes 57,146 55,160 10,937 ---------- --------- --------- Income (loss) before equity in undistributed net income of subsidiaries 110,354 107,078 (10,937) Equity in undistributed net income of subsidiaries 3,536,485 3,679,078 3,368,052 ---------- --------- --------- Net income $3,646,839 3,786,156 3,357,115 ---------- --------- --------- ---------- --------- --------- CONDENSED STATEMENTS OF CASH FLOWS Operating activities Net income $3,646,839 3,786,156 3,357,115 Equity in undistributed net income of subsidiaries (3,536,839) (3,679,078) (3,368,052) Other, net 50,797 (206,134) 249,257 ---------- --------- --------- Net cash provided (used) by operating activities 160,797 (99,056) 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 (400,000) (200,000) - Proceeds from exercise of stock options - 25,000 - Cash dividend (1,349) (1,098) (281,427) Dividends received from subsidiaries 300,000 1,154,535 1,148,899 ---------- --------- --------- Net cash provided by financing activities (101,349) 2,178,437 867,472 ---------- --------- --------- Net increase (decrease) in cash and cash equivalents (59,448) (75,154) 186,143 Cash and cash equivalents at beginning of year 110,989 186,143 - ---------- --------- --------- Cash and cash equivalents at end of year $ 51,541 110,989 186,143 ---------- --------- --------- ---------- --------- ---------
(Continued) 39 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements (18) 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, 1997, 1996, and 1995 was $76,300; $68,100; and $102,100, respectively. 40 NOTES PARK VIEW FEDERAL SAVINGS BANK OFFICE LOCATIONS AND HOURS MAIN OFFICE LOBBY PARMA OFFICE 2618 N. Moreland Blvd. Mon., Tue., Thurs.. . . . . . 9:00 a.m. - 4:30 p.m. 7448 Ridge Road Cleveland, Ohio 44120 Fri.. . . . . . . . . . . . . 9:00 a.m. - 5:00 p.m. Parma, Ohio 44129 (216) 991-9600 Sat.. . . . . . . . . . . . . 9:00 a.m. - 1:00 p.m. (440) 845-5300 Closed Wednesday DRIVE-UP WINDOW Mon., Tue., Thurs., Fri . . . 9:00 a.m. - 5:00 p.m. Sat.. . . . . . . . . . . . . 9:00 a.m. - 1:00 p.m. LA PLACE OFFICE LOBBY LAKEWOOD-CLEVELAND OFFICE 2111 Richmond Road Mon., Tue., Thurs.. . . . . . 9:00 a.m. - 4:30 p.m. 11010 Clifton Blvd. Beachwood, Ohio 44122 Fri.. . . . . . . . . . . . . 9:00 a.m. - 5:30 p.m. Cleveland, Ohio 44102 (216) 831-6373 Sat.. . . . . . . . . . . . . 9:00 a.m. - 1:00 p.m. (216) 631-8900 Closed Wednesday DRIVE-UP WINDOW Mon., Tue., Thurs.. . . . . . 9:00 a.m. - 5:00 p.m. Fri.. . . . . . . . . . . . . 9:00 a.m. - 6:00 p.m. Sat.. . . . . . . . . . . . . 9:00 a.m. - 1:00 p.m. BAINBRIDGE OFFICE LOBBY MACEDONIA OFFICE 8500 Washington Street Mon., Tue., Wed., Thurs.. . . 9:00 a.m. - 4:30 p.m. 497 East Aurora Road Chagrin Falls, Ohio 44023 Fri.. . . . . . . . . . . . . 9:00 a.m. - 5:30 p.m. Macedonia, Ohio 44056 (440) 543-8889 Sat.. . . . . . . . . . . . . 9:00 a.m. - 1:00 p.m. (330) 468-0055 DRIVE-UP WINDOW BEDFORD HEIGHTS OFFICE Mon., Tue., Wed., Thurs.. . . 9:00 a.m. - 5:00 p.m. MAYFIELD HEIGHTS OFFICE 25350 Rockside Road Fri.. . . . . . . . . . . . . 9:00 a.m. - 6:00 p.m. 1456 SOM Center Road Bedford Hts., Ohio 44146 Sat.. . . . . . . . . . . . . 9:00 a.m. - 1:00 p.m. Mayfield Hts., Ohio 44124 (440) 439-2200 (440) 449-8597 MENTOR OFFICE 6990 Heisley Road Mentor, Ohio 44060 (440) 944-0276 ADMINISTRATIVE OFFICER 25350 Rockside Road OPENING IN 1998 Bedford Hts., Ohio 44146 CHARDON OFFICE (440) 439-6790 400 Water Street Monday - Friday Chardon, Ohio 44024 9:00 a.m. - 5:00 p.m.
PVF CAPITAL CORP. BOARD OF DIRECTORS James W. Male Chairman of the Board John R. Male President and Chief Executive Officer Robert K. Healey Retired Stanley T. Jaros Partner Moriarty & Jaros, P.L.L. Creighton E. Miller Partner Miller, Stillman & Bartel Stuart D. Neidus Executive Vice President and Chief Financial Officer ESSEF Corporation Robert F. Urban Retired EXECUTIVE OFFICERS James W. Male Chairman of the Board John R. Male President and Chief Executive Officer C. Keith Swaney Vice President and Treasurer Jeffrey N. Male Vice President and Corporate Secretary PARK VIEW FEDERAL SAVINGS BANK EXECUTIVE OFFICERS John R. Male President and Chief Executive Officer C. Keith Swaney Executive Vice President and Chief Financial Officer Jeffrey N. Male Senior Vice President Carol S. Porter Corporate Secretary Edward B. Debevec Treasurer OTHER OFFICERS Anne M. Johnson Vice President Adeline Novak Vice President Robert J. Papa Vice President John E. Schimmelmann Vice President Robert D. Toth Vice President GENERAL INFORMATION INDEPENDENT CERTIFIED ACCOUNTANTS KPMG Peat Marwick LLP 1500 National City Center 1900 East Ninth Street Cleveland, Ohio 44114 GENERAL COUNSEL Moriarty & Jaros, P.L.L. 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 1997 Annual Meeting of Stockholders will be held on October 20, 1997 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, 1997 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 -----END PRIVACY-ENHANCED MESSAGE-----