-----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, RXiXCrsnem6J+JAmxCsVPjPnd843ML8wmtE4aImHsYLjskmwQ8Kk852IjzlJK8iL tZpJ8Kn9gIQ/PhamYoLByg== 0001047469-98-019979.txt : 19980515 0001047469-98-019979.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-019979 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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-Q SEC ACT: SEC FILE NUMBER: 000-24948 FILM NUMBER: 98619393 BUSINESS ADDRESS: STREET 1: 2618 N MORELAND BLVD CITY: CLEVELAND HEIGHTS STATE: OH ZIP: 44120 BUSINESS PHONE: 2164396790 MAIL ADDRESS: STREET 1: 25350 ROCKSIDE ROAD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20552 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998. [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________________ to _____________________ Commission File Number 0-24948 -------------------------------------------------------- PVF Capital Corp. - ------------------------------------------------------------------------------- ( Exact name of registrant as specified in its charter) United States 34-1659805 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 25350 Rockside Road, Bedford Heights, Ohio 44146 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (440) 439-2200 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value 2,659,827 - ----------------------------- ----------------------------------- (Class) (Outstanding at April 30, 1998) PVF CAPITAL CORP. INDEX
Page Part I Financial Information Item 1 Financial Statements Consolidated Statements of Financial Condition, March 31, 1998 (unaudited) and June 30, 1997. 1 Consolidated Statements of Operations for the three and nine months ended March 31, 1998 and 1997 (unaudited). 2 Consolidated Statements of Cash Flows for the nine months ended March 31, 1998 and 1997 (unaudited). 3 Notes to Consolidated Financial Statements (unaudited). 4 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3 Quantitative and Qualitative Disclosures about Market Risk 12 Part II Other Information 12
PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
MARCH 31, JUNE 30, ASSETS 1998 1997 ------------ ------------ Cash and cash equivalents: Cash and amounts due from depository institutions $7,444,750 $7,760,029 Interest bearing deposits 366,003 445,401 Federal funds sold 14,375,000 1,375,000 ------------ ------------ Total cash and cash equivalents 22,185,753 9,580,430 Investment securities held to maturity, at cost 13,000,000 13,995,350 Loans receivable, net 368,102,695 341,402,566 Loans receivable held for sale, net 1,509,945 709,604 Mortgage-backed securities held to maturity, net 3,250,439 511,530 Office properties and equipment, net 2,356,181 1,882,390 Real estate owned, net 874,637 0 Real estate in development 938,071 909,758 Investment required by law Stock in the Federal Home Loan Bank of Cincinnati 3,445,634 2,762,314 Prepaid expenses and other assets 3,264,569 1,327,358 ------------ ------------ Total Assets $418,927,924 $373,081,300 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $331,806,117 $288,269,674 Advances from the Federal Home Loan Bank of Cincinnati 46,345,158 47,405,424 Notes payable 1,560,000 2,310,000 Advances from borrowers for taxes and insurance 2,794,798 4,511,595 Accrued expenses and other liabilities 6,247,254 4,311,191 ------------ ------------ Total Liabilities 388,753,327 346,807,884 Stockholders' Equity Serial preferred stock, none issued 0 0 Common stock 26,598 25,556 Paid in capital 14,527,945 14,522,275 Retained earnings-substantially restricted 15,620,054 11,725,585 ------------ ------------ Total Stockholders' Equity 30,174,597 26,273,416 ------------ ------------ Total Liabilities and Stockholders' Equity $418,927,924 $373,081,300 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements PAGE 1 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ---------------------------- ---------------------------- 1998 1997 1998 1997 Interest income Loans $8,280,263 $7,412,874 $24,382,174 $21,715,444 Mortgage-backed securities 52,476 9,837 105,905 275,304 Cash and investment securities 380,368 310,403 990,292 941,006 ---------- ---------- ----------- ----------- Total interest income 8,713,107 7,733,114 25,478,371 22,931,754 ---------- ---------- ----------- ----------- Interest expense Deposits 4,167,891 3,472,768 12,513,402 10,458,590 Borrowings 692,790 660,824 1,812,711 1,790,062 ---------- ---------- ----------- ----------- Total interest expense 4,860,681 4,133,592 14,326,113 12,248,652 ---------- ---------- ----------- ----------- Net interest income 3,852,426 3,599,522 11,152,258 10,683,102 Provisions for loan losses 106,000 107,000 201,000 107,000 ---------- ---------- ----------- ----------- Net interest income after provision for loan losses 3,746,426 3,492,522 10,951,258 10,576,102 ---------- ---------- ----------- ----------- Noninterest income, net Service and other fees 150,361 114,441 414,909 356,033 Mortgage banking activities, net 283,071 313,666 670,327 501,979 Other, net 27,189 36,138 167,846 135,078 ---------- ---------- ----------- ----------- Total noninterest income, net 460,621 464,245 1,253,082 993,090 ---------- ---------- ----------- ----------- Noninterest expense Compensation and benefits 1,165,832 1,119,916 3,418,264 3,286,005 Office, occupancy, and equipment 412,234 411,508 1,199,779 1,202,793 Federal deposit insurance special assessment 0 0 0 1,707,867 Other 595,542 565,524 1,665,253 1,723,369 ---------- ---------- ----------- ----------- Total noninterest expense 2,173,608 2,096,948 6,283,296 7,920,034 ---------- ---------- ----------- ----------- Income before federal income tax provision 2,033,439 1,859,819 5,921,044 3,649,158 Federal income tax provision 699,745 637,949 2,024,745 1,256,949 ---------- ---------- ----------- ----------- Net income $1,333,694 $1,221,870 $3,896,299 $2,392,209 Basic earnings per share $0.50 $0.48 $1.49 $0.94 ----- ----- ----- ----- ----- ----- ----- ----- Diluted earnings per share $0.48 $0.45 $1.43 $0.88 ----- ----- ----- ----- ----- ----- ----- -----
See accompanying notes to consolidated financial statements PAGE 2 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MARCH 31ST, -------------------------------- 1998 1997 ---- ---- OPERATING ACTIVITIES Net Income $3,896,299 $2,392,209 Adjustments to reconcile net income to net cash provided by operating activities Accretion of discount on securities (4,650) (937) Depreciation and amortization 361,091 353,947 Provision for losses on loans 201,000 107,000 Provision for lower of cost or market adjustment on loans held for sale 0 81,930 Accretion of unearned discount and deferred loan origination fees, net (925,914) (1,111,012) Change in loans receivable held for sale, net (421,289) 9,997,799 Gain on sale of loans, net (379,052) (347,241) Loss on mortgage-backed securities available for sale, net 0 65,086 Gain on disposal of real estate owned, net (17,841) 0 Change in accrued interest on investments, loans, and borrowings, net (66,190) (235,753) Change in other assets and other liabilities, net (2,184,470) (2,242,551) ----------- ----------- Net cash provided by operating activities 458,984 9,060,477 ----------- ----------- INVESTING ACTIVITIES Loan and mortgage-backed securities repayments and originations, net (26,502,364) (54,030,566) Proceeds from mortgage-backed securities available for sale 0 12,738,470 Mortgage-backed securities held to maturity purchases, net (3,017,178) 0 Investment securities held to maturity purchases (13,000,000) 0 Investment securities maturities 14,000,000 100,000 Disposal of real estate owned properties 484,366 0 FHLB stock purchases dividends, net (683,320) (603,790) Office properties and equipment (purchases) sales, net (834,882) 275,070 Change in real estate in development, net (28,313) (49,894) ----------- ----------- Net cash used in investing activities (29,581,691) (41,570,710) ----------- ----------- FINANCING ACTIVITIES Net increase (decrease) in demand deposits, NOW, and passbook savings 2,229,338 (1,183,665) Net increase in time deposits 41,304,076 3,673,996 Net increase (decrease) in FHLB advances (1,060,266) 21,443,263 Repayment of notes payable (750,000) (300,000) Proceeds from exercise of stock options 7,023 0 Cash paid in lieu of fractional shares (2,141) (1,349) ----------- ----------- Net cash provided by financing activities 41,728,030 23,632,245 ----------- ----------- Net increase (decrease) in cash and cash equivalents 12,605,323 (8,877,988) Cash and cash equivalents at beginning of period 9,580,430 13,790,216 ----------- ----------- Cash and cash equivalents at end of period $22,185,753 $4,912,228 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements PAGE 3 Part I Financial Information Item 1 PVF CAPITAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 (UNAUDITED) 1. The accompanying consolidated interim financial statements were prepared in accordance with regulations of the Securities and Exchange Commission for Form 10-Q. All information in the consolidated interim financial statements is unaudited except for the June 30, 1997 consolidated statement of financial condition which was derived from the Corporation's audited financial statements. Certain information required for a complete presentation in accordance with generally accepted accounting principles has been condensed or omitted. However, in the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring accruals, necessary to fairly present the interim financial information. The results of operations for the three and nine months ended March 31, 1998 are not necessarily indicative of the results to be expected for the entire year ending June 30, 1998. The results of operations for PVF Capital Corp. ("PVF" or the "Company") for the periods being reported have been derived primarily from the results of operation of Park View Federal Savings Bank (the "Bank"). PVF Capital Corp.'s common stock is traded on the NASDAQ SMALL-CAP ISSUES under the symbol PVFC. 2. Legislation was signed into law on September 30, 1996 to recapitalize the Savings Association Insurance Fund ("SAIF") that required SAIF-insured savings institutions to pay a one-time special assessment of 65.7 cents for every $100 of deposits. This assessment was charged against earnings for the quarter ended September 30, 1996 and resulted in a pre-tax charge to the Company of approximately $1,708,000 and is reflected in the Statement of Operation for the nine-month period ended March 31, 1997. 3. PVF Holdings Inc., a newly formed subsidiary of PVF Capital Corp., made a $301,000 investment in two companies that will combine to provide professional financial planning and investment services to both individuals and small businesses throughout the Park View Federal branch system. 4. Recently Issued Accounting Standards SFAS No. 130, "Reporting Comprehensive Income" was issued in June, 1997 and is effective for fiscal years beginning after December 15, 1997. The Statement requires additional reporting of items that affect comprehensive income but not net income. Examples of these items relevant to the Company include unrealized gains and losses on securities. At this time, the Company does not have other comprehensive income to be reported. PAGE 4 Part I Financial Information Item 1 SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued in June, 1997 and is effective for fiscal years beginning after December 15, 1997. The statement requires financial disclosure and descriptive information about reportable operating segments. Upon its adoption, this statement will result in additional financial statement disclosures. 5. In February 1997, the FASB issued SFAS No. 128, Earnings per Share which supersedes Accounting Principles Board (APB) No. 15, Earnings per Share and replaces the presentation of primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS No. 128 was issued to simplify the computation of earnings per share and make the U.S. standard more compatible with the earnings per share standards of other countries and that of the International Accounting Standards Committee (IASC). SFAS No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. The following table discloses EPS pursuant to SFAS No. 128 for the three and nine months ended March 31, 1998 and March 31, 1997.
Three months ended March 31, 1998 1997 ---------------------------------------- ---------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- BASIC EPS Income available to common stockholders $1,333,694 2,659,640 $ 0.50 $1,221,870 2,555,562 $ 0.48 EFFECT OF DILUTIVE SECURITIES Stock options 101,331 0.02 176,279 0.03 DILUTED EPS Income available to common stockholders $1,333,694 2,760,971 $ 0.48 $1,221,870 2,731,841 $ 0.45 Nine months ended March 31, 1998 1997 ---------------------------------------- ---------------------------------------- Income Shares Per-Share Income Shares Per-share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- BASIC EPS Income available to common stockholders $3,896,299 2,615,239 $ 1.49 $2,392,209 2,555,562 $ 0.94 EFFECT OF DILUTIVE SECURITIES Stock options 101,331 0.06 176,279 0.06 DILUTED EPS Income available to common stockholders $3,896,299 2,716,570 $ 1.43 $2,392,209 2,731,841 $ 0.88
PAGE 5 Part I Financial Information Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis discusses changes in financial condition and results of operations at and for the three-month and nine-month periods ended March 31, 1998 for PVF Capital Corp. ("PVF" or the "Company") and Park View Federal Savings Bank (the "Bank"), its principal and wholly-owned subsidiary. FORWARD-LOOKING STATEMENTS When used in this Form 10-Q, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. FINANCIAL CONDITION Consolidated assets of PVF were $418.9 million as of March 31, 1998, an increase of approximately $45.8 million or 12.3% as compared to June 30, 1997. The Bank remained in regulatory capital compliance for tangible, core, and risk-based capital on a fully phased-in basis with capital levels of 7.21%, 7.21% and 10.68% respectively at March 31, 1998. During the nine months ended March 31, 1998, the Company's cash and cash equivalents, which consist of cash, interest-bearing deposits and federal funds sold, increased $12.6 million or 131.6% as compared to June 30, 1997. The change in the Company's cash and cash equivalents consisted of a decrease in cash and interest-bearing deposits of $0.4 million and an increase in federal funds sold of $13.0 million. PAGE 6 Part I Financial Information Item 2 FINANCIAL CONDITION CONTINUED The net $30.2 million, or 8.8%, increase in loans receivable and mortgage-backed securities during the nine months ended March 31, 1998, resulted from an increase in loans receivable of $27.5 million and an increase in mortgage-backed securities of $2.7 million. The increase of $27.5 million in loans receivable included increases of $15.6 million in single-family mortgage loans, $10.0 million in commercial real estate loans, $2.3 million in construction loans, $1.3 million in home equity loans, $0.3 million in land loans, $0.2 million in installment loans, and a decrease of $2.2 million in multi-family mortgage loans. The increase in mortgage-backed securities of $2.7 million was the result of the purchase of a $3.0 million security less payments received of $0.3 million. The growth of the loan portfolio was as anticipated and resulted in no material change to the composition of the portfolio. The increase in office properties and equipment of $0.5 million was primarily the result of the opening of a new branch office in Chardon, Ohio. The increase in Federal Home Loan Bank of Cincinnati stock of $0.7 million is the result of the purchase of $0.5 million in additional stock and stock dividend payments received of $0.2 million. The increase in prepaid expenses and other assets of $1.9 million is primarily the result of the Bank's commitment to invest $1.3 million in a low-income affordable housing partnership on an installment basis through the year 2005 along with an increase in prepaid maintenance agreements of $0.3 million. The increase of $0.9 million in real estate owned ("REO") is the result of the foreclosure on two loans made to one borrower and the subsequent acquisition into REO of the fully developed building lots securing these loans. During the nine months ended March 31, 1998, the opening of a new branch office along with management's decision to compete aggressively with market savings rates for additional deposits resulted in an increase of $43.5 million, or 15.1%, in deposits. The decrease in notes payable resulted from management's decision to prepay $0.7 million, or 32.5%, in notes held by the Company. The decrease in advances from borrowers for taxes and insurance of $1.7 million, or 38.0%, is due to timing differences between the collection and payment of escrow funds. The increase of $1.9 million in accrued expenses and other liabilities is primarily the result of the Bank's obligation to make future installment payments on its investment in the low-income affordable housing limited partnership. The increase in savings deposits of $43.5 million was used to fund the increase in loans receivable of $27.5 million, purchase a mortgage-backed security of $3.0 million, repay $1.0 million in Federal Home Loan Bank advances, and support the increase in cash and cash equivalents of $12.6 million. PAGE 7 Part I Financial Information Item 2 RESULTS OF OPERATIONS Three months ended March 31, 1998 Compared to the three months ended March 31, 1997. PVF's net income is dependent primarily on its net interest income, which is the difference between interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net interest income also includes amortization of loan origination fees, net of origination costs. PVF's net income is also affected by the generation of non-interest income, which primarily consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans and mortgage-backed securities available for sale. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest-rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, net income is affected by the level of operating expenses and loan loss provisions. The Company's net income for the three months ended March 31, 1998 was $1,333,694. This represents a 9.1% increase when compared with the prior year comparable period. Net interest income for the three months ended March 31, 1998 increased by $252,900, or 7.0%, as compared to the prior year comparable period, primarily due to an increase of $980,000, or 12.7%, in interest income that resulted from an increase of $42.0 million in the average balance of the loan and mortgage-backed securities portfolios and an increase in the average balance of the investment portfolio of $5.3 million. This increased balance was partially offset by a 10 basis point decrease in the return on interest-earning assets from the prior year comparable period. The average balance on deposits and advances increased by $46.2 million from the prior year comparable period. This increased balance in addition to a 16 basis point increase in the average cost of funds for the current period resulted in an overall increase in interest expense of $727,100, or 17.6%. The Company's net interest income increased despite a decrease of 26 basis points in the Company's interest-rate spread during the current period as compared to the prior year comparable period because of balance sheet growth in both interest-earning assets and interest-bearing liabilities. For the three months ended March 31, 1998 and 1997, provisions for loan losses of $106,000 and $107,000, respectively, were recorded. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis, with respect to payment history, ability to repay, probability of repayment, and loan-to-value percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the PAGE 8 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses. During the three months ended March 31, 1998, the Company experienced decreases in the levels of impaired loans and classified assets of $0.7 million and $0.5 million, respectively. Despite these decreases, growth in the loan portfolio of $4.1 million and net charge-offs of $105,000 made it necessary to record a provision for loan losses of $106,000 in the current period. For the three months ended March 31, 1997, the Company experienced increases in the levels of impaired loans and classified assets of $1.3 million and $0.6 million, respectively. The increase in impaired loans and classified assets along with growth in the loan portfolio of $9.4 million and net charge-offs of $38,000 made it necessary to record a provision for loan losses of $107,000 in the period. At March 31, 1998, the allowance for loan losses was $2.7 million, which represented 130.2% of nonperforming loans and 0.7% of net loans. For the three months ended March 31, 1998, noninterest income decreased $3,600, or 0.8%, from the prior year comparable period. This resulted from a decrease of $30,600, or 9.8%, in income from mortgage-banking activities that resulted from a decrease in net servicing income of $32,100 in the current period attributable to the amortization of the servicing asset. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. Loan and other fees increased by $35,900, or 31.4%, from the prior year comparable period, primarily due to increases in NOW account fee income. Other noninterest income, net, decreased by $8,900, or 24.8%, from the previous year's comparable period, primarily due to a gain recognized on the sale of real estate in the prior period. Noninterest expense for the three months ended March 31, 1998 increased by $76,700, or 3.7%, from the prior year comparable period. This was primarily the result of a $45,900, or 4.1%, increase in compensation and benefits attributable to increased staffing, employee 401K benefits, incentive bonuses paid, and salary and wage adjustments. In addition, other noninterest expense increased by $30,000, or 5.3%, primarily attributable to increased advertising expenses in the current period. PAGE 9 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED The federal income tax provision for the three month period ended March 31, 1998 increased to an effective rate of 34.4% for the current period from an effective rate of 34.3% for the prior year comparable period. RESULTS OF OPERATIONS Nine months ended March 31, 1998 Compared to the nine months ended March 31, 1997. The Company's net income for the nine months ended March 31, 1998 was $3,896,300. This represents a 62.9% increase when compared with the prior year comparable period. The increase for the current period is primarily due to a one-time charge of approximately $1,708,000, or $1,127,000 after tax, representing a special assessment of 65.7 basis points on the Bank's deposits held as of March 31, 1995, as a result of the legislation enacted to recapitalize the Savings Association Insurance Fund. The Company's operating income excluding this assessment for the nine-month period ended March 31, 1997 was $3,519,200. Comparing this amount to earnings from operations for the nine-month period ended March 31, 1998 resulted in an increase of $377,100, or 10.7%, for the current year comparable period. Net interest income for the nine months ended March 31, 1998 increased by $469,100, or 4.4%, resulting from an increase of $2,546,600, or 11.1%, in interest income that resulted from an increase of $43.7 million in the average balance of the loan and mortgage-backed securities portfolios along with an increase in the average balance of the investment portfolio of $1.7 million. This increased balance was partially offset by a 20 basis point decrease in the return on interest-earning assets from the prior year comparable period. The average balance on deposits and advances increased by $42.2 million from the prior year comparable period. This increased balance, in addition to a 17 basis point increase in the average cost of funds for the current period, resulted in an overall increase in interest expense of $2,077,500, or 17.0%. Despite a decrease of 37 basis points in the Bank's interest-rate spread during the current period, as compared to the prior year comparable period, the Bank's net interest income increased due to balance sheet growth in both interest-earning assets and interest-bearing liabilities. For the nine months ended March 31, 1998 and 1997, provisions for loan losses of $201,000 and $107,000, respectively, were recorded. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis, with respect to payment history, ability to repay, probability of repayment, and loan-to-value percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in PAGE 10 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses. During the nine months ended March 31, 1998, the Company experienced decreases in the levels of impaired loans and classified assets of $2.2 million and $0.9 million, respectively. Despite these decreases, growth in the loan portfolio of $27.5 million and net charge-offs of $115,000 made it necessary to record a provision for loan losses of $201,000 in the current period. For the nine months ended March 31, 1997, the Company experienced an increase in the level of impaired loans of $0.8 million, while classified assets remained approximately the same. The increase in impaired loans along with growth in the loan portfolio of $40.7 million and net charge-offs of $43,000 made it necessary to record a provision for loan losses of $107,000 in the period. At March 31, 1998, the allowance for loan losses was $2.7 million, which represented 130.2% of nonperforming loans and 0.7% of net loans. For the nine months ended March 31, 1998, noninterest income increased $260,000, or 26.2%, from the prior year comparable period. This was primarily attributable to an increase of $168,300, or 33.5%, in income from mortgage-banking activities that resulted from an increase in gains on the sale of loans available for sale and mortgage-backed securities available for sale of $178,800 from the prior year comparable period, and a decrease in net servicing income of $10,500 in the current period attributable to the amortization of the servicing asset. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. Loan and other fees increased by $58,900, or 16.5%, from the prior year comparable period primarily due to increases in NOW account fee income. Other noninterest income, net, increased by $32,800, or 24.3%, from the previous year's comparable period, primarily due to an increase in rental income in the current period. Noninterest expense for the nine months ended March 31, 1998 decreased by $1.6 million, or 20.7%, from the prior year comparable period. This was primarily the result of the previously noted federal deposit insurance special assessment of $1,708,000. In addition, a $132,200, or 4.0%, increase in compensation and benefits was attributable to increased staffing, employee 401K benefits, incentive bonuses paid, and salary and wage adjustments. PAGE 11 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED The federal income tax provision for the nine-month period ended March 31, 1998 decreased to an effective rate of 34.2% for the current period from an effective rate of 34.4% for the prior year comparable period. LIQUIDITY AND CAPITAL RESOURCES The Bank is required by federal regulations to maintain specific levels of "liquid" assets consisting of cash and other eligible investments. The current level of liquidity required by the Office of Thrift Supervision is 4% of the sum of net withdrawable savings and borrowings due within one year. The Bank's liquidity at March 31, 1998 was 9.6%. Management believes the Bank has sufficient liquidity to meet its operational needs. Part I Financial Information Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no significant changes to the Company's interest rate risk position or any changes to how the Company manages its Asset/Liability position since June 30, 1997. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) PVF did not file any reports on Form 8-K during the quarter ended March 31, 1998. PAGE 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PVF Capital Corp. ----------------- (Registrant) Date: May 12, 1998 /s/ C. Keith Swaney --------------- ------------------------------- C. Keith Swaney Vice President and Treasurer EX-27 2 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF CONDITION AND THE STATEMENT OF OPERATION FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 7,745 366 14,375 0 0 13,000 12,933 368,613 2,640 418,928 331,806 10,000 9,042 37,905 0 0 27 30,148 418,928 24,488 990 0 25,478 12,513 14,326 11,152 201 0 6,283 5,921 0 0 0 3,896 $1.49 $1.43 3.490 1,967 60 0 0 2,682 125 10 2,768 2,768 0 2,451
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