UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended June 30, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number
0-24948
PVF CAPITAL CORP.
(Exact name of registrant as specified in its charter)
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Ohio
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34-1659805
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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30000 Aurora Road, Solon, Ohio
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44139
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(440) 248-7171
Securities registered pursuant to Section 12(b) of the Act
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Title of each class
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Name of each exchange on which registered
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Common Stock (par value $.01 per share)
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The Nasdaq Stock Market, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes
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No
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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
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No
o
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 registrants 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.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
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No
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The registrants voting stock is listed on the Nasdaq Capital Market under the symbol PVFC. The
aggregate market value of voting stock held by nonaffiliates of the registrant was approximately
$72,947,403 based on the closing sale price of the registrants Common Stock as listed on the
Nasdaq Capital Market
SM
as of December 31, 2007 ($11.07 per share). Solely for purposes
of this calculation, directors and executive officers are treated as affiliates.
As of September 12, 2008, the Registrant had 7,773,823 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Proxy Statement for the 2008 Annual Meeting of Stockholders. (Part III)
PART I
Item 1. Business
General
PVF Capital Corp. (PVF or the Company) is the holding company for Park View Federal
Savings Bank (Park View Federal or the Bank). PVF owns and operates Park View Federal Savings
Bank, PVF Service Corporation (PVFSC), a real estate subsidiary, and Mid Pines Land Company
(MPLC), a real estate subsidiary. In addition, PVF owns PVF Holdings, Inc., a financial services
subsidiary, currently inactive, and two other subsidiaries chartered for future operation, but
which are also currently inactive. Park View Federal is a federal stock savings bank operating
through seventeen offices located in Cleveland and surrounding communities. PVF also created PVF
Capital Trust I and PVF Capital Trust II for the sole purpose of issuing trust preferred
securities. Park View Federal has operated continuously for 88 years, having been founded as an
Ohio chartered savings and loan association in 1920. PVF Capital Corps main office is located at
30000 Aurora Road, Solon, Ohio 44139 and its telephone number is (440) 248-7171.
The Banks principal business consists of attracting deposits from the general public and
investing these funds primarily in loans secured by first mortgages on real estate located in the
Banks market area, which consists of Portage, Lake, Geauga, Cuyahoga, Summit, Medina and Lorain
Counties in Ohio. Park View Federal emphasizes the origination of loans for the purchase or
construction of residential real estate, commercial real estate and multi-family residential
property and land loans. To a lesser extent, the Bank originates loans secured by second
mortgages, including home equity lines of credit and loans secured by savings deposits.
The Bank derives its income principally from interest earned on loans and, to a lesser extent,
loan servicing and other fees, gains on the sale of loans and interest earned on investments. The
Banks principal expenses are interest expense on deposits and borrowings and noninterest expense
such as compensation and employee benefits, office occupancy expenses and other miscellaneous
expenses. Funds for these activities are provided principally by deposits, Federal Home Loan Bank
advances and other borrowings, repayments of outstanding loans, sales of loans and operating
revenues. The business of PVF consists primarily of the business of the Bank.
Park View Federal is subject to examination and comprehensive regulation by the Office of
Thrift Supervision (the OTS) and the Banks savings deposits are insured up to applicable limits
by the Deposit Insurance Fund (the DIF), which is administered by the Federal Deposit Insurance
Corporation (the FDIC). The Bank is a member of and owns capital stock in the Federal Home Loan
Bank (the FHLB) of Cincinnati, which is one of 12 regional banks in the FHLB System. The Bank is
further subject to regulations of the Board of Governors of the Federal Reserve System (the
Federal Reserve Board) governing reserves to be maintained and certain other matters. See
Regulation of the Bank
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Market Area
The Bank conducts its business through seventeen offices located in Cuyahoga, Summit, Medina,
Lorain, Lake, Portage and Geauga Counties in Ohio, and its market area consists of Portage, Lake,
Geauga, Cuyahoga, Summit, Medina and Lorain Counties in Ohio. At June 30, 2008, over 90% of the
Banks net loan portfolio and over 90% of the Banks deposits were in the Banks market area. Park
View Federal has targeted business development efforts in suburban sectors of its market area, such
as Lake, Geauga, Medina and Summit Counties, where demographic growth has been stronger.
The economy in the Companys market area has been based on the manufacture of durable goods.
Though manufacturing continues to remain an important sector of the economy, diversification has
occurred in recent years with the growth of healthcare, education, service, financial and wholesale
and retail trade industries. In recent years healthcare has overtaken manufacturing as Clevelands
largest sector employer. The annual unemployment rate for the Cleveland Metropolitan Statistical
Area has fluctuated between 3.9% and 7.2% since 2000 and was at 7.2% at June 30, 2008. The average
unemployment rate for the state of Ohio ranged from a low of 4.0% to a high of 6.7% over the same
time period. The U.S. Department of Commerce, Bureau of Census data reports that the Cleveland
Metropolitan area has been experiencing a declining population in recent census periods.
1
Lending Activities
Loan Portfolio Composition
The Companys loans receivable and loans receivable held for sale totaled $722,323 million at
June 30, 2008, representing 83% of total assets at such date. It is the Companys policy to
concentrate its lending in its market area.
Set forth below is certain data relating to the composition of the Companys loan portfolio by
type of loan on the dates indicated. As of June 30, 2008, the Company had no concentrations of
loans exceeding 10% of total loans other than as disclosed below.
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At June 30,
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2008
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2007
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2005
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2005
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2004
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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(Dollars in thousands)
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Real estate loans receivable held for investment:
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One-to four-family residential
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$
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168,532
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23.59
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%
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$
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163,298
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22.89
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%
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$
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174,575
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23.72
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%
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$
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148,956
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22.55
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%
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$
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128,210
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20.99
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%
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Home equity line of credit
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87,876
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12.30
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85,093
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11.93
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94,450
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12.83
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97,692
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14.79
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83,505
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13.67
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Multi-family residential
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52,421
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7.34
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48,101
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6.74
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45,716
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6.21
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33,505
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5.07
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38,777
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6.35
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Commercial
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174,404
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24.41
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184,850
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25.91
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170,392
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23.15
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171,331
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25.94
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175,323
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28.71
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Commercial equity line of credit
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36,913
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5.17
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33,208
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4.66
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34,064
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4.63
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31,875
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4.83
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38,113
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6.24
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Land
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73,545
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10.29
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74,414
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10.43
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77,242
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10.49
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68,165
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10.32
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54,047
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8.85
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Construction residential
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55,442
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7.76
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63,316
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8.88
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84,146
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11.43
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75,460
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11.42
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70,833
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11.60
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Construction multi-family
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5,803
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0.81
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6,397
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0.90
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7,955
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1.08
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0
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0.00
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0
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0.00
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Construction commercial
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38,303
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5.36
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31,610
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4.43
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33,757
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4.59
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24,355
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3.69
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15,679
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2.57
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Non-real estate
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33,592
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4.70
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30,455
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4.27
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21,824
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2.96
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17,300
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2.62
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13,951
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2.29
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726,831
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101.73
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720,742
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101.04
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744,121
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101.09
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668,639
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101.23
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618,438
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101.27
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Deferred loan fees
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(2,685
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(0.38
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(2,832
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(0.40
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(3,381
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(0.46
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(3,833
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(0.58
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(3,380
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(0.55
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Allowance for loan losses
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(9,654
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(1.35
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(4,581
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(0.64
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(4,675
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(0.63
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(4,312
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(0.65
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(4,377
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(0.72
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Total other items
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(12,339
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(1.73
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(7,413
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(1.04
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(8,056
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(1.09
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(8,145
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(1.23
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(7,757
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(1.27
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Total loans receivable, net
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714,492
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100.00
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%
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$
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713,329
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100.00
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%
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$
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736,065
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100.00
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%
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$
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660,494
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100.00
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%
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$
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610,681
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100.00
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%
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Loans receivable held for sale, net
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$
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7,831
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$
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14,993
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$
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10,698
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$
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9,060
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$
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11,871
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2
The following table presents at June 30, 2008 the amounts of loan principal repayments
scheduled to be received by the Company during the periods shown based upon the time remaining
before contractual maturity. Loans with adjustable rates are reported as due in the year in which
they reprice. Demand loans, loans having no schedule of repayments and no stated maturity and
overdrafts are reported as due in one year or less. The table below does not include any estimate
of prepayments and may cause the Banks actual repayment experience to differ from that shown
below.
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Due During
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Due After One
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the Year
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Through Five
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Due Five Years
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Ending
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Years After
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or More After
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June 30,
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June 30,
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June 30,
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2009
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2008
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2008
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(In thousands)
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Real estate construction loans
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$
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99,548
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$
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$
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Non-real estate loans
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12,047
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11,162
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10,383
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Total
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$
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111,595
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$
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11,162
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$
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10,383
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All loans with maturities greater than one year have predetermined interest rates. Scheduled
contractual principal repayments of loans do not reflect the actual life of such assets. The
average life of loans may be substantially less than their contractual terms because of
prepayments.
Origination, Purchase and Sale of Loans
The Bank generally has authority to originate and purchase loans secured by real estate
located throughout the United States. Consistent with its emphasis on being a community-oriented
financial institution, the Bank concentrates its lending activities in its market area.
The Bank originates all fixed-rate, single-family mortgage loans in conformity with the
Federal Home Loan Mortgage Corporation (the FHLMC) and Federal National Mortgage Association (the
FNMA) guidelines so as to permit their being swapped with the FHLMC or the FNMA in exchange for
mortgage-backed securities secured by such loans or their sale in the secondary market. All such
loans are sold or swapped, as the case may be, with servicing retained, and are sold in furtherance
of the Banks goal of better matching the maturities and interest rate sensitivity of its assets
and liabilities. The Bank generally retains responsibility for collecting and remitting loan
payments, inspecting the properties, making certain insurance and tax payments on behalf of
borrowers and otherwise servicing the loans it sells or converts into mortgage-backed securities,
and receives a fee for performing these services. Sales of loans also provide funds for additional
lending and other purposes.
Loan Underwriting Policies
The Banks lending activities are subject to the Banks written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the Banks Board of
Directors and its management. Detailed loan applications are obtained to determine the borrowers
ability to repay, and the more significant items on these applications are verified through the use
of credit reports, financial statements and confirmations. Property valuations are generally
performed by an internal staff appraiser or by independent outside appraisers approved by the
Banks Board of Directors. The Banks Loan Underwriter has authority to approve all fixed-rate
single-family residential mortgage loans which meet FHLMC and FNMA underwriting guidelines and
those adjustable-rate single-family residential mortgage loans which meet the Banks underwriting
standards and are in amounts of less than $700,000. The Board of Directors has established a Loan
Committee comprised of the Chairman of the Board and other officers and management of the Bank.
This committee reviews all loans approved by the underwriter and has the authority to approve
single-family residential loans, construction, multi-family and commercial real estate loans up to
$2.5 million, and commercial non-real estate loans up to $1.0 million. All loans in excess of the
above amounts must be approved by the Board of Directors. All loans secured by savings deposits
can be approved by lending officers based in the Banks branch offices.
It is the Banks policy to have a mortgage creating a valid lien on real estate and to
generally obtain a title insurance policy which insures that the property is free of prior
encumbrances. When a title insurance policy is not obtained, a lien verification is received.
Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in
a flood plain as designated by the Department of Housing and Urban Development, paid flood
3
insurance policies. Most borrowers are also required to advance funds on a monthly basis together
with each payment of principal and interest to a mortgage escrow account from which the Bank makes
disbursements for items such as real estate taxes and homeowners insurance.
The Bank is permitted to lend up to 100% of the appraised value of the real property securing
a mortgage loan. The Bank will make a single-family residential mortgage loan with up to a 100%
loan-to-value ratio if the required private mortgage insurance is obtained. The Bank generally
limits the loan-to-value ratio on multi-family loans to 80% and commercial real estate mortgages to
80%.
Interest rates charged by the Bank on loans are affected principally by competitive factors,
the demand for such loans and the supply of funds available for lending purposes and, in the case
of fixed-rate single-family residential loans, rates established by the FHLMC and the FNMA. These
factors are, in turn, affected by general economic conditions, monetary policies of the federal
government, including the Federal Reserve Board, legislative tax policies and government budgetary
matters.
Residential Real Estate Lending.
The Bank historically has been and continues to be an
originator of single-family residential real estate loans in its market area. The Bank currently
originates fixed-rate residential mortgage loans in accordance with underwriting guidelines
promulgated by the FHLMC and the FNMA and adjustable-rate mortgage loans for terms of up to 30
years. In addition, in accordance with FHLMC and FNMA guidelines, the Bank offers 30-year loans
with interest rates that reset after five or seven years, at which point the rate is fixed over the
remaining 25 or 23 years of the loan, respectively. At June 30, 2008, $168.5 million, or 23.6%, of
the Banks net loan portfolio consisted of single-family conventional mortgage loans, of which
approximately $130.1 million, or 77.2%, carried adjustable interest rates. Included in this amount
are $47.7 million in second mortgage loans. In addition, the Bank had $7.8 million in loans held
for sale. These loans carry fixed rates and are loans originated by the Bank to be swapped with
the FHLMC and the FNMA in exchange for mortgage-backed securities or sold for cash in the secondary
market.
The Bank offers adjustable-rate residential mortgage loans with interest rates which adjust
based upon changes in an index based on the weekly average yield on United States Treasury
securities adjusted to a constant maturity of one year, as made available by the Federal Reserve
Board (the Treasury Rate), plus a margin of 2.50% to 3.50%. The amount of any increase or
decrease in the interest rate is usually limited to 2% per year, with a limit of 6% over the life
of the loan. The date of the first rate adjustment may range from one to ten years from the
original date of the loan.
Commercial and Multi-Family Residential Real Estate Lending.
The commercial real estate loans
originated by the Bank are primarily secured by office buildings, shopping centers, warehouses and
other income producing commercial property. The Banks multi-family residential loans are
primarily secured by apartment buildings. These loans are generally for a term of from 10 to 25
years with interest rates that adjust either annually or every three to five years based upon
changes in the Treasury Rate Index or Federal Home Loan Bank advance rate, plus a negotiated
margin. In addition, the Bank makes revolving line of credit loans secured by mortgages on
commercial and multi-family property. Said loans are adjustable-rate loans based on the prime
interest rate and are made for terms of up to two years. These loans are underwritten using the
same guidelines as for first mortgage, commercial and multi-family loans. Commercial real estate
loans, including commercial equity lines of credit, and multi-family residential real estate loans
amounted to $263.7 million, or 36.9%, of the Banks net loan portfolio at June 30, 2008.
Commercial real estate lending entails significant additional risks as compared with
residential property lending. Commercial real estate loans typically involve large loan balances
to single borrowers or groups of related borrowers. The payment experience on such loans typically
is dependent on the successful operation of the real estate project. These risks can be
significantly impacted by supply and demand conditions in the market for office and retail space,
and, as such, may be subject to a greater extent to adverse conditions in the economy. To minimize
these risks, Park View Federal generally limits itself to its market area and to borrowers with
which it has substantial experience or who are otherwise well known to the Bank. The Bank obtains
financial statements and, in most cases, the personal guarantees from all principals obtaining
commercial real estate loans.
Construction Loans.
The Bank also offers residential and commercial construction loans, with
a substantial portion of such loans originated to date being for the construction of owner-occupied
single-family dwellings in the Banks market area. Residential construction loans are offered to
selected local developers to build single-family dwellings and to individuals building their
primary or secondary residence. Generally, loans for the construction of owner-occupied,
single-family residential properties are originated in connection with the permanent loan on the
4
property and have a construction term of six to 18 months. Interest rates on residential
construction loans made to the eventual occupant are set at competitive rates, and are usually
fixed for the construction term. Interest rates on residential construction loans to builders are
set at a variable rate based on the prime rate, and adjust quarterly. Interest rates on commercial
construction loans float with a specified index, with construction terms generally not exceeding 24
months. Advances are generally paid directly to subcontractors and suppliers and are made on a
percentage of completion basis. At June 30, 2008, $99.5 million, or 13.9%, of the Banks net loan
portfolio consisted of construction loans.
Prior to making a commitment to fund a loan, the Bank requires an appraisal of the property by
an appraiser approved by the Board of Directors. The Bank also reviews and inspects each project at
the commencement of construction and prior to disbursement of funds during the term of the
construction loan.
Construction financing is generally considered to involve a higher degree of risk of loss than
long-term financing on improved, occupied real estate. Risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the propertys value at completion
of construction or development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost overruns. If the
estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds
beyond the amount originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project having a value which is insufficient to assure full repayment.
Land Loans.
The Bank originates loans to builders and developers for the acquisition and/or
development of vacant land. The proceeds of the loan are used to acquire the land and/or to make
site improvements necessary to develop the land into saleable lots. The Bank will not originate
land loans to borrowers wishing to speculate in the value of land, and limits such loans to
borrowers who expect to begin development of the property within two years of the date of the loan.
The term of the loans is generally limited to two years. Repayments are made on the loans as the
developed lots are sold.
Land development and acquisition loans involve significant additional risks when compared with
loans on existing residential properties. These loans typically involve large loan balances to
single borrowers, and the payment experience is dependent on the successful development of the land
and the sale of the lots. These risks can be significantly impacted by supply and demand
conditions. To minimize these risks, Park View Federal generally limits the loans to builders and
developers with whom it has substantial experience or who are otherwise well known to the Bank,
secures financial statements and generally obtains personal guarantees of such builders and
developers. The Bank may also require feasibility studies and market analyses to be performed with
respect to the project. The amount of the loan is limited to 80% of the appraised value. If land
is being acquired, the amount of the loan to be used for such purposes is usually limited to 80% of
the cost of the land. All of these loans originated are within the Banks market area. The Bank
had $73.5 million, or 10.3%, of its net loan portfolio in land loans at June 30, 2008.
Equity Line of Credit Loans.
The Bank originates loans secured by mortgages on residential
real estate. Such loans are for terms of 5 years with one 5-year review and renewal option on
owner occupied properties. In addition, such loans on non-owner occupied properties are for a term
of 2 years, followed by a balloon payment. The rate adjusts monthly to a rate generally ranging
from the prime lending rate minus 0.5% to prime plus 2.0%. At June 30, 2008, the Bank had $87.9
million, or 12.3% of its net loan portfolio held for investment in home equity lines of credit.
Commercial Non Real Estate Business Loans.
The Bank will make commercial business loans
secured by non-real estate assets such as accounts receivables, inventory, furniture and fixtures,
equipment and certain intangible assets. Such loans are made on a limited basis (up to 7.5% of
assets) to credit worthy customers of the Bank. The loans are made for up amounts ranging from 10%
to 80% of the collateral depending on the type of collateral provided., not to exceed $3.0 million
for terms up to 10 years. The Bank generally requires the personal guarantee of all borrowers for
such loans. At June 30, 2008, the Bank had $33.6 million, or 4.7%, of its net loan portfolio in
commercial non-real estate business loans.
Mortgage Banking Activity
In addition to interest earned on loans, Park View Federal receives fees for servicing loans
which it had sold or swapped for mortgage-backed securities. During the year ended June 30, 2008,
the Bank reported net loan servicing income of $0.5 million and at June 30, 2008 and was servicing
$826.8 million of loans for others. The Bank has been able to keep delinquencies on residential
loans serviced for others to a relatively low level of below 1% of the
5
aggregate outstanding
balance of loans serviced as a result of its policy to limit servicing to loans it originated and
subsequently sold to the FHLMC and the FNMA. Because of the success the Bank has experienced in
this area and because it has data processing equipment that will allow it to expand its portfolio
of serviced loans without incurring significant incremental expenses, the Bank intends in the
future to augment its portfolio of loans serviced by continuing to originate and either swap such
fixed-rate single-family residential mortgage loans with the FHLMC and the FNMA in exchange for
mortgage-backed securities or sell such loans for cash, while retaining servicing.
In addition to loan servicing fees, the Bank receives fees in connection with loan commitments
and originations, loan modifications, late payments and changes of property ownership and for
miscellaneous services related to its loans. Loan origination fees are calculated as a percentage
of the amount loaned. The Bank typically receives fees in connection with the origination of
fixed-rate and adjustable-rate residential mortgage loans. All loan origination fees are deferred
and accreted into income over the contractual life of the loan according to the interest method of
recognizing income. If a loan is prepaid, refinanced or sold, all remaining deferred fees with
respect to such loan are taken into income at such time.
Income from these activities varies from period to period with the volume and type of loans
originated, sold and purchased, which in turn is dependent on prevailing mortgage interest rates
and their effect on the demand for loans in the Banks market area.
At June 30, 2008 and 2007, the Bank had $7.8 million and $15.0 million, respectively, of
fixed-rate single-family mortgage loans available for sale.
Nonperforming Loans and Other Problem Assets
It is managements policy to continually monitor its loan portfolio to anticipate and address
potential and actual delinquencies. When a borrower fails to make a payment on a loan, the Bank
takes immediate steps to have the delinquency cured and the loan restored to current status. Loans
which are delinquent 15 days incur a late fee of 5% of the scheduled principal and interest
payment. As a matter of policy, the Bank will contact the borrower after the loan has been
delinquent 20 days. The Bank orders a property inspection after a loan payment becomes 45 days
past due. If a delinquency exceeds 90 days in the case of a residential mortgage loan, 60 days in
the case of a construction loan or 60 days for a loan on commercial real estate, the Bank will
institute additional measures to enforce its remedies resulting from the loans default, including,
commencing foreclosure action. Loans which are delinquent 90 days or more having a loan to value
ratio exceeding 60% generally are placed on nonaccrual status, and formal legal proceedings are
commenced to collect amounts owed. Loans may be placed on non accrual if the borrower is bankrupt
or if the loan is in foreclosure.
6
The following table sets forth information with respect to the Banks nonperforming loans and
other problem assets at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Non-accruing loans (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
22,489
|
|
|
$
|
13,653
|
|
|
$
|
15,456
|
|
|
$
|
11,750
|
|
|
$
|
10,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,489
|
|
|
$
|
13,653
|
|
|
$
|
15,456
|
|
|
$
|
11,750
|
|
|
$
|
10,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans which are contractually past
due 90 days or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
$
|
2,977
|
|
|
$
|
876
|
|
|
$
|
|
|
|
$
|
608
|
|
|
$
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,977
|
|
|
$
|
876
|
|
|
$
|
|
|
|
$
|
608
|
|
|
$
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non accrual and 90 days past due loans
|
|
$
|
25,465
|
|
|
$
|
14,529
|
|
|
$
|
15,456
|
|
|
$
|
12,358
|
|
|
$
|
11,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of non performing loans to total loans
|
|
|
3.51
|
%
|
|
|
1.99
|
%
|
|
|
2.08
|
%
|
|
|
1.85
|
%
|
|
|
1.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non performing assets (2)
|
|
$
|
4,065
|
|
|
$
|
2,622
|
|
|
$
|
817
|
|
|
$
|
1,319
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non performing assets
|
|
$
|
29.531
|
|
|
$
|
17,151
|
|
|
$
|
16,273
|
|
|
$
|
13,677
|
|
|
$
|
11,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non performing assets to total assets
|
|
|
3.40
|
%
|
|
|
1.90
|
%
|
|
|
1.80
|
%
|
|
|
1.66
|
%
|
|
|
1.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Non accrual status denotes loans on which, in the opinion of management, the collection of
additional interest is unlikely, or loans that meet the non-accrual criteria established by
regulatory authorities. Non accrual loans include all loans classified as doubtful or loss,
and all loans greater than 90-days past due with a loan-to-value ratio greater than 60%.
|
|
(2)
|
|
Other non performing assets represent property acquired by the Bank through foreclosure or
repossession.
|
Following is a schedule detailing the length of time our non-accrual loans and accruing loans
which are contractually past due 90 days have been contractually past due along with detail as to
the composition of non-accrual loans and accruing loans which are contractually past due 90 days at
June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days
|
|
|
91 to
|
|
|
More than
|
|
|
|
|
|
|
90 days
|
|
|
91 to
|
|
|
More than
|
|
|
|
|
|
|
or less
|
|
|
365 days
|
|
|
365 days
|
|
|
Total
|
|
|
or less
|
|
|
365 days
|
|
|
365 days
|
|
|
Total
|
|
One-to-four residential
|
|
$
|
|
|
|
$
|
2,426
|
|
|
$
|
2,105
|
|
|
$
|
4,531
|
|
|
$
|
|
|
|
$
|
835
|
|
|
$
|
2,611
|
|
|
$
|
3,446
|
|
Home equity line of credit
|
|
|
|
|
|
|
1,700
|
|
|
|
1,455
|
|
|
|
3,155
|
|
|
|
|
|
|
|
1,162
|
|
|
|
657
|
|
|
|
1,819
|
|
Multi-family residential
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
1,618
|
|
|
|
2,584
|
|
|
|
4,202
|
|
|
|
|
|
|
|
1,791
|
|
|
|
1,331
|
|
|
|
3,122
|
|
Land
|
|
|
|
|
|
|
2,850
|
|
|
|
1,283
|
|
|
|
4,133
|
|
|
|
|
|
|
|
388
|
|
|
|
1,077
|
|
|
|
1,465
|
|
Residential construction
|
|
|
|
|
|
|
4,990
|
|
|
|
1,952
|
|
|
|
6,942
|
|
|
|
|
|
|
|
1,331
|
|
|
|
926
|
|
|
|
2,257
|
|
Commercial construction
|
|
|
|
|
|
|
|
|
|
|
1,818
|
|
|
|
1,818
|
|
|
|
|
|
|
|
1,817
|
|
|
|
|
|
|
|
1,817
|
|
Non mortgage Total
|
|
|
|
|
|
|
468
|
|
|
|
65
|
|
|
|
533
|
|
|
|
|
|
|
|
603
|
|
|
|
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
14,204
|
|
|
$
|
11,262
|
|
|
$
|
25,466
|
|
|
$
|
|
|
|
$
|
7,927
|
|
|
$
|
6,602
|
|
|
$
|
14,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in non-accrual loans and accruing loans which are contractually past due more
than 90 days at June 30, 2008 and June 30, 2007 is attributable to poor current local and economic
conditions. Residential markets nationally and locally have been adversely impacted by a significant
increase in foreclosures as a result of the problems faced by sub-prime borrowers and the resulting
contraction of residential credit available to all but the most credit worthy borrowers.
Land development projects nationally and locally have
seen slow sales and price decreases. As a savings institution, the
Company has significant exposure to the residential market in the
greater Cleveland Ohio area. As a result, the Company has seen a
significant increase in nonperforming loans.
Increasing interest rates have also negatively impacted our borrowers ability to make
scheduled loan payments. Due to an increase in foreclosure activity in the area, the foreclosure
process in Cuyahoga County, our primary market, has become elongated. As such, loans have remained
past due for considerable periods prior to being collected, transferred to Real Estate Owned, or
charged-off.
Of the $22.5 million in non accrual loans at June 30, 2008, $16.0 million were individually
identified as impaired. All of these loans are collateralized by various forms of non-residential
real estate or residential construction loans. These loans were reviewed for the likelihood of
full collection based primarily on the value of the underlying collateral, and, to the extent we
believed collection of loan principal was in doubt, we established specific loss reserves.
7
Our evaluations of the underlying collateral include a consideration of the potential impact
of erosion in real estate values due to poor local economic conditions and a potentially long
foreclosure process. The consideration involves discounting the original appraised values of the
real estate to arrive at an estimate of the net realizable value of the collateral. Through our
evaluation of the underlying collateral, which includes an inspection of the property, we
determined that despite difficult conditions, these loans are generally well-secured. Through this
process, we established specific loss reserves related to these loans as of June 30, 2008 of $1.9
million.
The remaining non accrual loans with a balance totaling $6.5 million, represents homogeneous
one-to four- family loans. The loss allocations applied to adversely classified loans are based on
our historical loss experience, adjusted for environmental factors such as local economic
conditions and changes in interest rates. Additionally, the loss allocations consider the potential
that the value of this collateral may erode during the foreclosure process. Through this process,
we established specific reserves for these loans to the extent such losses are identifiable. At
June 30, 2008, we established specific reserves of $0.6 million related to these loans.
Impaired loans represent non accrual loans in the nonresidential real estate and residential
construction loan categories. Of the $22.5 million in non accrual loans past due at June 30, 2008,
$16.0 million were individually identified as impaired. Of these $3.0 million are commercial real
estate loans, $12.5 million are construction and land loans, $0.5 million are non mortgage loans,
and $0.2 million are multi-family loans. At June 30, 2008, foreclosure proceedings had been
initiated on loans in these categories with principal balances of $3.9 million, $5.0 million, $0.5
million and $0.2 million respectively. At June 30, 2008, impaired commercial real estate and
construction and land loans have been past due on average 602 and 395 days, respectively.
Foreclosure proceedings for these loans are subject to external factors, such as bankruptcy and
other legal proceedings that may delay the disposition of the loan, but generally occur within a
period of time ranging from 12 to 60 months from the time they are initiated until the loan is
ultimately collected, transferred to Real Estate Owned, or charged-off.
Additionally, at June 30, 2008, we considered $8,262,249 of land and construction loans not
included in the non-accrual loans to be impaired. We established specific loss reserves of $0.9
million for these loans.
It is the Banks policy to not record into income partial interest payments. During the year
ended June 30, 2008, gross interest income of $2.4 million would have been recorded on loans
accounted for on a non accrual basis if such loans had been current throughout the period. No
interest on non accruing loans was included in income.
At June 30, 2008, non accruing loans consisted of 116 loans totaling $22.5 million, and
included 59 conventional mortgage loans aggregating $6.5 million, 13 land loans in the amount of
$3.7 million, 23 construction loans in the amount of $8.6 million, and 17 commercial loans in the
amount of $3.0 million, 3 non mortgage loans in the amount of $0.5 million, and 1 multi-family loan
in the amount of $0.2 million. Management has reviewed its non-accruing loans and believes that
the allowance for loan losses is adequate to absorb probable losses on these loans.
At June 30, 2008, the Company had no loans not disclosed, where known information about
possible credit problems of borrowers caused management to have serious doubts as to the ability of
such borrowers to comply with the present loan repayment terms and which may result in disclosure
of such loans as non-accruing loans, accruing loans contractually past due 90 days or more or
restructured loans.
Real estate acquired by the Bank as a result of foreclosure is classified as real estate owned
until such time as it is sold. At June 30, 2008, the Bank had 17 real estate owned properties
totaling $4.1 million. These properties include raw land, partially developed
land and, in some cases, partially built residences. The Company faces the possibility of
declines in value of these properties below their carrying amount. Occasionally, the Company
will finish development or construction of these projects or homes. In these cases, the Company also
faces the risk that costs to
complete construction will exceed original estimates or other execution risks.
Asset Classification and Allowance for Loan Losses.
Federal regulations require savings
institutions to review their assets on a regular basis and to classify them as substandard,
doubtful, or loss, if warranted. If an asset or portion thereof is classified loss, the
insured institution must either establish specific allowances for loan losses in the amount of 100%
of the portion of the asset classified loss, or charge off such amount. An asset which does not
currently warrant classification, but which possesses weaknesses or deficiencies deserving close
attention is required to be designated as special mention. The Bank has established an Asset
Classification Committee, which is comprised of senior employees of the Bank and two outside Board
members. The Asset Classification Committee meets quarterly to review the Banks loan portfolio
and determine which loans should be placed on a watch-list of potential problem loans which are
considered to have more than normal credit risk. Currently, general loss allowances (up to 1.25%
of risk-based assets) established to cover losses related to assets classified substandard or
doubtful may be included in determining an institutions regulatory capital, while specific
valuation allowances for loan losses do not qualify as regulatory capital. See
Regulation of the
Bank Regulatory Capital Requirements
. OTS examiners may disagree with the insured
institutions classifications and amounts reserved. If an institution does not agree with an
examiners classification of an asset, it may appeal this determination to the OTS. At June 30,
2008, total non accrual and 90 days
8
past due loans and other non performing assets were $29.5 million, all of which were classified as
substandard. For additional information, see
Non-Performing Loans and Other Problem Assets
and Note 4 of Notes to Consolidated Financial Statements.
In originating loans, the Bank recognizes that credit losses will be experienced and that the
risk of loss will vary with, among other things, the type of loan being made, the creditworthiness
of the borrower over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the security for the loan. It is managements policy to maintain an
adequate allowance for loan losses based on, among other things, the Banks and the industrys
historical loan loss experience, evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality. The Bank increases its allowance for loan losses by
charging provisions for loan losses against the Banks income.
General allowances are made pursuant to managements assessment of risk in the Banks loan
portfolio as a whole. Specific allowances are provided for individual loans when ultimate
collection is considered questionable by management after reviewing the current status of loans
which are contractually past due and considering the net realizable value of the security for the
loan. Management continues to actively monitor the Banks asset quality and to charge off loans
against the allowance for loan losses when appropriate or to provide specific loss reserves when
necessary. Although management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments may be necessary
if economic conditions differ substantially from the economic conditions in the assumptions used in
making the initial determinations.
Our analysis of the allowance for loan losses considers changes in non accrual loans and
changes in probable loan losses as economic conditions deteriorate and the underlying collateral is
subjected to an elongated foreclosure process.
The following table summarizes the activity in the allowance for loan losses for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
Balance at beginning of year
|
|
$
|
4,581
|
|
|
$
|
4,675
|
|
|
$
|
4,312
|
|
|
$
|
4,377
|
|
|
$
|
3,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
984
|
|
|
|
1,178
|
|
|
|
462
|
|
|
|
176
|
|
|
|
113
|
|
Non-real estate (1)
|
|
|
2
|
|
|
|
18
|
|
|
|
1
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
986
|
|
|
|
1,196
|
|
|
|
463
|
|
|
|
176
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Non-real estate (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
985
|
|
|
|
1,196
|
|
|
|
463
|
|
|
|
176
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to income
|
|
|
6,058
|
|
|
|
1,102
|
|
|
|
826
|
|
|
|
111
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
9,654
|
|
|
$
|
4,581
|
|
|
$
|
4,675
|
|
|
$
|
4,312
|
|
|
$
|
4,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs
during the year to average
loans outstanding during the year
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists primarily of line of credit loans.
|
9
The following table sets forth the breakdown of the allowance for loan losses by loan category
at the dates indicated. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to absorb losses in any
category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
% of Loans in
|
|
|
|
|
|
|
% of Loans in
|
|
|
|
|
|
|
% of Loans in
|
|
|
|
|
|
|
% of Loans in
|
|
|
|
|
|
|
% of Loans in
|
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
|
|
Total Loans
|
|
|
|
|
|
|
Total Loans
|
|
|
|
|
|
|
Total Loans
|
|
|
|
|
|
|
Total Loans
|
|
|
|
|
|
|
Total Loans
|
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
|
(Dollars in thousands)
|
|
Mortgage Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential (1)
|
|
|
3,797
|
|
|
|
43.65
|
%
|
|
$
|
1,200
|
|
|
|
43.05
|
|
|
$
|
2,005
|
|
|
|
47.25
|
%
|
|
$
|
1,570
|
|
|
|
47.84
|
%
|
|
$
|
1,481
|
|
|
|
45.68
|
%
|
Multi-family residential
|
|
|
304
|
|
|
|
8.15
|
|
|
|
288
|
|
|
|
7.57
|
|
|
|
271
|
|
|
|
7.22
|
|
|
|
207
|
|
|
|
5.07
|
|
|
|
195
|
|
|
|
6.27
|
|
Commercial
|
|
|
3,153
|
|
|
|
34.94
|
|
|
|
2,508
|
|
|
|
34.68
|
|
|
|
1,892
|
|
|
|
32.07
|
|
|
|
1,827
|
|
|
|
34.15
|
|
|
|
1,994
|
|
|
|
37.05
|
|
Land
|
|
|
1,716
|
|
|
|
10.29
|
|
|
|
582
|
|
|
|
10.43
|
|
|
|
436
|
|
|
|
10.50
|
|
|
|
360
|
|
|
|
10.32
|
|
|
|
474
|
|
|
|
8.74
|
|
Unallocated
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
9,159
|
|
|
|
95.30
|
|
|
|
4,578
|
|
|
|
95.73
|
|
|
|
4,604
|
|
|
|
97.04
|
|
|
|
4,128
|
|
|
|
97.38
|
|
|
|
4,144
|
|
|
|
97.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-real estate
|
|
|
495
|
|
|
|
4.70
|
|
|
|
3
|
|
|
|
4.27
|
|
|
|
71
|
|
|
|
2.96
|
|
|
|
184
|
|
|
|
2.62
|
|
|
|
233
|
|
|
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
|
9,654
|
|
|
|
|
|
|
$
|
4,581
|
|
|
|
|
|
|
$
|
4,675
|
|
|
|
|
|
|
$
|
4,312
|
|
|
|
|
|
|
$
|
4,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of one-to four-family residential and home equity lines of credit, including
owner-occupied and non-owner-occupied properties.
|
|
(2)
|
|
Construction loans are included with their respective property type. For additional
information, see Note 4 of Notes to Consolidated Financial Statements.
|
10
Investment Activities
Park View Federals investment policy currently allows for investment in various types of
liquid assets, including United States Government and United States Government Sponsored Enterprise
securities, time deposits at the FHLB of Cincinnati, certificates of deposit or bankers
acceptances at other federally insured depository institutions and mortgage-backed securities. The
general objective of Park View Federals investment policy is to maximize returns without
compromising liquidity or creating undue credit or interest rate risk. In accordance with the
investment policy, at June 30, 2008 Park View Federal had investments in preferred equity issued by
FNMA and FHLMC, notes issued by the FHLB, mortgage-backed securities and FHLB of Cincinnati stock.
The Bank reports its investments, other than marketable equity securities and securities
available for sale, at cost as adjusted for discounts and unamortized premiums. The Bank has the
intent and ability and generally holds all securities until maturity. For additional information
see Note 2 of Notes to Consolidated Financial Statements.
At present, management is not aware of any conditions or circumstances which could impair its
ability to hold its remaining securities to maturity.
The following table sets forth the carrying value of the Banks securities portfolio and FHLB
of Cincinnati stock at the dates indicated. At June 30, 2008, the fair market value of the Banks
securities portfolio was $62.8 million. All debt securities are held to maturity, but are callable
prior to maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
1,890
|
|
|
|
|
|
|
|
|
|
U. S. Government Sponsored Enterprise Securities
|
|
|
7,580
|
|
|
|
58,000
|
|
|
|
58,000
|
|
Mortgage-backed securities
|
|
|
55,151
|
|
|
|
25,880
|
|
|
|
27,578
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
64,621
|
|
|
|
83,880
|
|
|
|
85,578
|
|
FHLB of Cincinnati stock
|
|
|
12,641
|
|
|
|
12,312
|
|
|
|
11,955
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
77,262
|
|
|
$
|
96,192
|
|
|
$
|
97,533
|
|
|
|
|
|
|
|
|
|
|
|
11
The following table sets forth the scheduled maturities, carrying values, market values and average
yields for the Banks debt securities at June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008
|
|
|
|
One Year
|
|
|
One to Five
|
|
|
Five to Ten
|
|
|
More than
|
|
|
|
|
|
|
or Less
|
|
|
Years
|
|
|
Years
|
|
|
Ten Years
|
|
|
Total Securities
|
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Average
|
|
|
Carrying
|
|
|
Market
|
|
|
Average
|
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Value
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
U.S. Government Sponsored
Enterprise Securities
|
|
$
|
|
|
|
|
|
%
|
|
$
|
7,580
|
|
|
|
5.30
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
7,580
|
|
|
$
|
7,604
|
|
|
|
5.30
|
%
|
Mortgage-backed securities
|
|
$
|
316
|
|
|
|
6.91
|
%
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
54,835
|
|
|
|
5.08
|
%
|
|
$
|
55,151
|
|
|
$
|
53,260
|
|
|
|
5.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
316
|
|
|
|
6.91
|
%
|
|
$
|
7,580
|
|
|
|
5.30
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
54,835
|
|
|
|
5.08
|
%
|
|
$
|
62,731
|
|
|
$
|
60,864
|
|
|
|
5.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Deposit Activity and Other Sources of Funds
General.
Deposits are the primary source of the Banks funds for lending, investment
activities and general operational purposes. In addition to deposits, Park View Federal derives
funds from loan principal and interest repayments, maturities of securities and interest payments
thereon. Although loan repayments are a relatively stable source of funds, deposit inflows and
outflows are significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the availability of
funds, or on a longer term basis for general operational purposes.
Deposits.
The Bank attracts deposits principally from within its primary market area by
offering a variety of deposit instruments, including checking accounts, money market accounts,
regular savings accounts and certificates of deposit which generally range in maturity from seven
days to five years. Deposit terms vary according to the minimum balance required, the length of
time the funds must remain on deposit and the interest rate. Maturities, terms, service fees and
withdrawal penalties for its deposit accounts are established by the Bank on a periodic basis.
Park View Federal generally reviews its deposit mix and pricing on a weekly basis. In determining
the characteristics of its deposit accounts, Park View Federal considers the rates offered by
competing institutions, funds acquisition and liquidity requirements, growth goals and federal
regulations. The Bank has accepted brokered deposits in the current year because of favorable
rates available as compared to local market rates.
Park View Federal competes for deposits with other institutions in its market area by offering
deposit instruments that are competitively priced and providing customer service through convenient
and attractive offices, knowledgeable and efficient staff and hours of service that meet customers
needs. To provide additional convenience, Park View Federal participates in STAR and Master Money
debit card Automated Teller Machine networks at locations throughout Ohio and other participating
states, through which customers can gain access to their accounts at any time.
The Banks deposits increased by $1.3 million for the fiscal year ended June 30, 2008 as
compared to the fiscal year ended June 30, 2007. Deposit balances totaled $659.4 million, $658.1
million and $656.9 million at the fiscal years ended June 30, 2008, 2007 and 2006, respectively.
Deposits in the Bank as of June 30, 2008 were represented by the various programs described
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
Interest
|
|
|
|
Minimum
|
|
|
Balance
|
|
|
of Total
|
|
Rate
|
|
Category
|
|
Balance
|
|
|
(in thousands)
|
|
|
Deposits
|
|
2.26%
|
|
NOW accounts
|
|
$
|
50
|
|
|
$
|
42,401
|
|
|
|
6.43
|
%
|
1.01
|
|
Passbook statement accounts
|
|
|
5
|
|
|
|
27,508
|
|
|
|
4.17
|
|
2.40
|
|
Money market accounts
|
|
|
1,000
|
|
|
|
74,939
|
|
|
|
11.36
|
|
0.00
|
|
Non-interest-earning demand accounts
|
|
|
50
|
|
|
|
17,459
|
|
|
|
2.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,307
|
|
|
|
24.61
|
|
|
|
Certificates of Deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.18
|
|
3 months or less
|
|
|
500
|
|
|
|
324,062
|
|
|
|
49.15
|
|
4.36
|
|
3 - 6 months
|
|
|
500
|
|
|
|
51,550
|
|
|
|
7.82
|
|
3.77
|
|
6 - 12 months
|
|
|
500
|
|
|
|
68,232
|
|
|
|
10.35
|
|
4.29
|
|
1 - 3 years
|
|
|
500
|
|
|
|
39,183
|
|
|
|
5.94
|
|
5.02
|
|
More than three years
|
|
|
500
|
|
|
|
14,051
|
|
|
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.18
|
|
Total certificates of deposit
|
|
|
|
|
|
|
497,078
|
|
|
|
75.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.61
|
|
Total deposits
|
|
|
|
|
|
$
|
659,385
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
The following table sets forth the average balances and average interest rates based on
month-end balances for interest-bearing demand deposits and time deposits during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
Interest-
|
|
|
|
|
|
|
|
|
|
Interest-
|
|
|
|
|
|
|
|
|
|
Interest-
|
|
|
|
|
|
|
Bearing
|
|
|
|
|
|
|
|
|
|
Bearing
|
|
|
|
|
|
|
|
|
|
Bearing
|
|
|
|
|
|
|
Demand
|
|
Savings
|
|
Time
|
|
Demand
|
|
Savings
|
|
Time
|
|
Demand
|
|
Savings
|
|
Time
|
|
|
Deposits
|
|
Deposits
|
|
Deposits
|
|
Deposits
|
|
Deposits
|
|
Deposits
|
|
Deposits
|
|
Deposits
|
|
Deposits
|
|
|
(Dollars in thousands)
|
Average balance
|
|
|
114,459
|
|
|
$
|
26,806
|
|
|
$
|
501,523
|
|
|
$
|
103,068
|
|
|
$
|
31,283
|
|
|
$
|
509,230
|
|
|
$
|
71,791
|
|
|
$
|
39,857
|
|
|
$
|
485,755
|
|
Average rate paid
|
|
|
2.98
|
%
|
|
|
1.11
|
%
|
|
|
4.81
|
%
|
|
|
4.07
|
%
|
|
|
0.73
|
%
|
|
|
4.75
|
%
|
|
|
2.94
|
%
|
|
|
0.51
|
%
|
|
|
3.80
|
%
|
14
The rates currently paid on certificates maturing within one year or less are lower than the
rates currently being paid on similar certificates of deposit maturing thereafter. The Bank will
seek to retain these deposits to the extent consistent with its long-term objective of maintaining
positive interest rate spreads. Depending upon interest rates existing at the time such
certificates mature, the Banks cost of funds may be significantly affected by the rollover of
these funds. A decrease in such cost of funds, if any, may have a material impact on the Banks
operations. To the extent such deposits do not roll over, the Bank may, if necessary, use other
sources of funds, including borrowings from the FHLB of Cincinnati, to replace such deposits. See
Borrowings.
The following table indicates the amount of the Banks certificates of deposit of $100,000 or
more by time remaining until maturity as of June 30, 2008.
|
|
|
|
|
|
|
Certificates
|
|
Maturity Period
|
|
of Deposit
|
|
|
|
(In thousands)
|
|
Three months or less
|
|
$
|
42,827
|
|
Three through six months
|
|
|
59,480
|
|
Six through 12 months
|
|
|
51,879
|
|
Over 12 months
|
|
|
33,341
|
|
|
|
|
|
Total
|
|
$
|
187,527
|
|
|
|
|
|
Borrowings.
Savings deposits historically have been the primary source of funds for the
Banks lending, investments and general operating activities. The Bank is authorized, however, to
use advances from the FHLB of Cincinnati to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. The FHLB of Cincinnati functions as a central reserve bank
providing credit for savings institutions and certain other member financial institutions. As a
member of the FHLB System, Park View Federal is required to own stock in the FHLB of Cincinnati and
is authorized to apply for advances. Advances are pursuant to several different programs, each of
which has its own interest rate and range of maturities. Park View Federal has a Blanket Agreement
for advances with the FHLB under which the Bank may borrow up to 50% of assets subject to normal
collateral and underwriting requirements. The Bank currently has two commitments with the Federal
Home Loan Bank of Cincinnati for flexible lines of credit, referred to as a cash management advance
and a REPO advance, in the amounts of $30 million and $200 million respectively. The CMA advance
was drawn down $9.0 million at June 30, 2008, while the REPO was not drawn down at June 30, 2008.
Advances from the FHLB of Cincinnati are secured by the Banks stock in the FHLB of Cincinnati and
other eligible assets. For additional information please refer to Note 8 of Notes to Consolidated
Financial Statements.
The following table sets forth certain information regarding the Banks advances from the FHLB
of Cincinnati for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Amounts outstanding at end of period
|
|
$
|
44,000
|
|
|
$
|
75,000
|
|
|
$
|
95,000
|
|
Weighted average rate
|
|
|
2.83
|
%
|
|
|
5.35
|
%
|
|
|
4.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum amount outstanding at any month end
|
|
$
|
85,000
|
|
|
$
|
95,000
|
|
|
$
|
170,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate average outstanding balance
|
|
$
|
53,130
|
|
|
$
|
78,438
|
|
|
$
|
154,215
|
|
Weighted average rate
|
|
|
4.41
|
%
|
|
|
5.38
|
%
|
|
|
4.45
|
%
|
In March 2006, Park View Federal entered into a $50 million repurchase agreement
collateralized by $57.5 million in securities. In June 2004 and July 2006, PVFCC formed two
separate trusts that each issued $10.0 million of subordinated debentures. At June 30, 2008, PVFSC
had a line of credit with an outstanding balance of $1.0 million, collateralized by real estate.
See Note 9 of Notes to Consolidated Financial Statement for the terms of these borrowings.
15
Subsidiary Activities
The Bank is required to give the FDIC and the Director of OTS 30 days prior notice before
establishing or acquiring a new subsidiary or commencing a new activity through an existing
subsidiary. Both the FDIC and the Director of OTS have the authority to prohibit the initiation or
to order the termination of subsidiary activities determined to pose a risk to the safety or
soundness of the institution.
As a federally chartered savings bank, Park View Federal is permitted to invest an amount
equal to 2% of its assets in subsidiaries, with an additional investment of 1% of assets where such
investment serves primarily community, inner-city and community development purposes. Under such
limitations, as of June 30, 2008, Park View Federal was authorized to invest up to approximately
$26 million in the stock of or loans to subsidiaries, including the additional 1% investment for
community, inner-city and community development purposes. Institutions meeting their applicable
minimum regulatory capital requirements may invest up to 50% of their regulatory capital in
conforming first mortgage loans to subsidiaries in which they own 10% or more of the capital stock.
Park View Federal currently exceeds its regulatory capital requirements.
PVF has three active subsidiaries, Park View Federal, PVFSC and MPLC. PVFSC is engaged in the
activities of land acquisition and real estate investment. PVF has three nonactive subsidiaries,
PVF Community Development Corp., PVF Mortgage Corp. and PVF Holdings, Inc., which have been
chartered for future activity.
PVF Service Corporation.
At June 30, 2008, PVFSC had a $0.22 million investment in a joint
venture that owns real estate leased to the Bank for use as a branch office in Avon, Ohio. Also, at
June 30, 2008, PVFSC had a $0.19 million investment in a joint venture for a new branch office
location for our Mayfield office in Mayfield, Ohio. PVFSC also has an interest in Park View Plaza,
a joint venture, which is a strip center in Cleveland, Ohio that includes our Lakewood branch
office. PVFSC also has an interest in a joint venture containing a Title Company, PVF Title
Services, LLC. In addition, PVFSC had a $4.7 million investment in office properties used by the
Bank that includes the Corporate Center in Solon, Ohio, and branch offices in Bainbridge, Ohio and
Chardon, Ohio. In March 2006, PVFSC obtained a Line of Credit loan for $4.0 million, with a drawn
down balance at June 30, 2008 of $1.0 million, secured by its Corporate Center in Solon, Ohio.
Mid Pines Land Company.
At June 30, 2008, MPLC had an investment of $0.6 million in land
adjacent to the Companys Corporate Center in Solon, Ohio.
Competition
The Bank faces strong competition both in originating real estate and other loans and in
attracting deposits. The Bank competes for real estate and other loans principally on the basis of
interest rates and the loan fees it charges, the type of loans it originates and the quality of
services it provides to borrowers. Its competition in originating real estate loans comes
primarily from other savings institutions, commercial banks and mortgage bankers making loans
secured by real estate located in the Banks market area.
The Bank attracts all its deposits through its branch offices primarily from the communities
in which those branch offices are located. Consequently, competition for deposits is principally
from other savings institutions, commercial banks, credit unions and brokers in these communities.
Park View Federal competes for deposits and loans by offering a variety of deposit accounts at
competitive rates, a wide array of loan products, convenient business hours and branch locations, a
commitment to outstanding customer service and a well-trained staff. In addition, the Bank
believes it has developed strong relationships with local businesses, realtors, builders and the
public in general, giving it an excellent image in the community.
Employees
As of June 30, 2008, PVF and its subsidiaries had 166 full-time employees and 34 part-time
employees, none of whom was represented by a collective bargaining agreement. The Company believes
it enjoys a good relationship with its personnel.
16
Regulation of the Bank
General.
As a savings institution, Park View Federal is subject to extensive regulation by
the OTS, and its deposits are insured by the Deposit Insurance Fund, which is administered by the
FDIC. The lending activities and other investments of the Bank must comply with various federal
regulatory requirements. The OTS periodically examines the Bank for compliance with various
regulatory requirements. The FDIC also has the authority to conduct special examinations of
FDIC-insured savings institutions. The Bank must file reports with OTS describing its activities
and financial condition. The Bank is also subject to certain reserve requirements promulgated by
the Federal Reserve Board. This supervision and regulation is intended primarily for the
protection of depositors. Certain of these regulatory requirements are referred to below or
elsewhere herein. The discussion is not intended to be a complete explanation of all applicable
laws and regulations and is qualified in its entirety by reference to the actual statutes and
regulations involved.
Regulatory Capital Requirements.
Under OTS regulations, savings institutions must maintain
tangible capital equal to at least 1.5% of adjusted total assets, core (also referred to as
Tier 1) capital equal to at least 4.0% (or 3.0% if the institution is the highest rated under the
OTS examination rating system) of adjusted total assets and total capital, a combination of core
and supplementary capital, equal to at least 8.0% of risk-weighted assets. In addition, the
OTS has adopted regulations which impose certain restrictions on savings associations that have a
total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted
assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0%
(or 3.0% if the institution is the highest rated). For purposes of these regulations, Tier 1
capital has the same definition as core capital and generally consists of common stockholders
equity (including retained earnings), certain noncumulative perpetual preferred stock and related
surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card relationships. See
Prompt
Corrective Regulatory Action.
Investments in subsidiaries that are engaged as principal in
activities not permissible for national banks must also be deducted from Tier 1 capital. The Bank
was in compliance with all applicable regulatory capital requirements at June 30, 2008.
In determining compliance with the risk-based capital requirement, a savings institution
calculates its total capital, which may include both core capital and supplementary capital,
provided the amount of supplementary capital does not exceed the savings institutions core
capital. Supplementary capital is defined to include certain preferred stock issues, certain
approved subordinated debt, certain other capital instruments, a portion of the savings
institutions allowances for loan and lease losses allowances, and up to 45% of unrealized net
gains on equity securities. Total core and supplementary capital are reduced by the amount of
capital instruments held by other depository institutions pursuant to reciprocal arrangements and
equity investments other than those deducted from core and tangible capital. At June 30, 2008,
Park View Federal had no equity investments for which OTS regulations require a deduction from
total capital.
The risk-based capital requirement is measured against risk-weighted assets, which equal the
sum of each asset and the credit-equivalent amount of each off-balance sheet item after being
multiplied by an assigned risk weight. Under the OTS risk-weighting system, single-family first
mortgages not more than 90 days past due with loan-to-value ratios under 80% and multi-family
mortgages (maximum 36 dwelling units) with loan-to-value ratios under 80% and average annual
occupancy rates over 80%, are assigned a risk weight of 50%. Consumer, home equity and land loans,
residential and nonresidential construction loans and commercial real estate loans are assigned a
risk weight of 100%. Mortgage-backed securities issued, or fully guaranteed as to principal and
interest, by the FNMA or FHLMC are assigned a 20% risk weight. Cash and United States Government
securities backed by the full faith and credit of the United States Government are given a 0% risk
weight. At June 30, 2008, the Banks risk-weighted assets were $694.8 million, and its total
risk-based capital was $90.3 million, or 12.99%, of risk-weighted assets.
17
The table below presents the Banks capital position at June 30, 2008, relative to its various
minimum regulatory capital requirements.
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
Amount
|
|
|
Assets (1)
|
|
|
|
(Dollars in Thousands)
|
|
Tangible Capital
|
|
$
|
83,972
|
|
|
|
9.69
|
%
|
Tangible Capital Requirement
|
|
|
13,014
|
|
|
|
1.50
|
|
|
|
|
|
|
|
|
Excess
|
|
|
70,958
|
|
|
|
8.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1/Core Capital
|
|
$
|
83,972
|
|
|
|
9.69
|
%
|
Tier 1/Core Capital Requirement
|
|
|
34,704
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
Excess
|
|
|
49,268
|
|
|
|
5.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital
|
|
$
|
83,972
|
|
|
|
12.09
|
%
|
Tier 1 Risk-Based Capital Requirement
|
|
|
27,792
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
Excess
|
|
|
56,180
|
|
|
|
8.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-Based Capital
|
|
$
|
90,286
|
|
|
|
12.99
|
%
|
Risk-Based Capital Requirement
|
|
|
55,584
|
|
|
|
8.00
|
|
|
|
|
|
|
|
|
Excess
|
|
|
34,702
|
|
|
|
4.99
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Based upon adjusted total assets for
purposes of the tangible, core and Tier 1 capital
requirements, and risk-weighted assets for purposes of the
Tier 1 risk-based and risk-based capital requirements.
|
In addition to requiring generally applicable capital standards for savings institutions, the
Director of OTS may establish the minimum level of capital for a savings institution at such amount
or at such ratio of capital-to-assets as the Director determines to be necessary or appropriate for
such institution in light of the particular circumstances of the institution. The Director of OTS
may treat the failure of any savings institution to maintain capital at or above such level as an
unsafe or unsound practice and may issue a directive requiring any savings institution which fails
to maintain capital at or above the minimum level required by the Director to submit and adhere to
a plan for increasing capital.
Prompt Corrective Regulatory Action.
Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), the federal banking regulators are required to take prompt
corrective action if an insured depository institution fails to satisfy certain minimum capital
requirements. All institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees if the institution would thereafter fail to
satisfy any of its capital requirements. An institution that fails to meet the minimum level for
any relevant capital measure (an undercapitalized institution) is: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to submit an acceptable
capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to
obtain prior regulatory approval for acquisitions, branching and new lines of businesses. The
capital restoration plan must include a guarantee by the institutions holding company that the
institution will comply with the plan until it has been adequately capitalized on average for four
consecutive quarters, under which the holding company would be liable up to the lesser of 5% of the
institutions total assets or the amount necessary to bring the institution into capital compliance
as of the date it failed to comply with its capital restoration plan. A significantly
undercapitalized institution, as well as any undercapitalized institution that did not submit an
acceptable capital restoration plan, may be subject to regulatory demands for recapitalization,
broader application of restrictions on transactions with affiliates, limitations on interest rates
paid on deposits, asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company controlling the
institution. Any company controlling the institution could also be required to divest the
institution or the institution could be required to divest subsidiaries. The senior executive
officers of a significantly undercapitalized institution may not receive bonuses or increases in
compensation without prior approval and the institution is prohibited from making payments of
principal or interest on its subordinated debt. In their discretion, the federal banking
regulators may also impose the foregoing sanctions on an undercapitalized institution if the
regulators determine that such actions are necessary to carry out the
18
purposes of the prompt corrective action provisions. If an institutions ratio of tangible
capital to total assets falls below a critical capital level, the institution will be subject to
conservatorship or receivership within specified time periods.
Under regulations jointly adopted by the federal banking regulators, a savings institutions
capital adequacy for purposes of the FDICIA prompt corrective action rules is determined on the
basis of the institutions total risk-based capital ratio (the ratio of its total capital to
risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core capital to
risk-weighted assets) and leverage ratio (the ratio of its Tier 1 or core capital to adjusted total
assets). The following table shows the capital ratio requirements for each prompt corrective action category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately
|
|
|
|
Significantly
|
|
|
Well Capitalized
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Capitalized
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Undercapitalized
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Undercapitalized
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Total risk-based
capital ratio
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10.0% or more
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8.0% or more
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Less than 8.0%
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Less than 6.0%
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Tier 1 risk-based
capital ratio
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6.0% or more
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4.0% or more
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Less than 4.0%
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Less than 3.0%
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Leverage ratio
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5.0% or more
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4.0% or more *
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Less than 4.0% *
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Less than 3.0%
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*
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3.0% if the institution has the highest examination rating.
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A critically undercapitalized savings institution is defined as a savings institution that has a
ratio of tangible equity to total assets of less than 2.0%. Tangible equity is defined as core
capital plus cumulative preferred stock less all intangibles other than qualifying supervisory
goodwill and certain servicing rights. The OTS may reclassify a well capitalized savings
association as adequately capitalized and may require an adequately capitalized or undercapitalized
institution to comply with the supervisory actions applicable to institutions in the next lower
capital category (but may not reclassify a significantly undercapitalized institution as critically
undercapitalized) if the OTS determines, after notice and an opportunity for a hearing, that the
savings institution is in an unsafe or unsound condition or that the institution has received and
not corrected a less-than-satisfactory rating for any examination rating category. For information
regarding the position of the Bank with respect to the FDICIA prompt corrective action rules, see
Note 13 of Notes to Consolidated Financial Statements.
Safety and Soundness Standards.
Interagency Guidelines Establishing Standards for Safety and
Soundness require savings institutions to maintain internal controls and information systems and
internal audit systems that are appropriate for the size, nature and scope of the institutions
business. The guidelines also establish certain basic standards for loan documentation, credit
underwriting, interest rate risk exposure, and asset growth. The guidelines further provide that
savings institutions should maintain safeguards to prevent the payment of compensation, fees and
benefits that are excessive or that could lead to material financial loss, and should take into
account factors such as comparable compensation practices at peer institutions. If the OTS
determines that a savings institution is not in compliance with the safety and soundness
guidelines, it may require the institution to submit an acceptable plan to achieve compliance with
the guidelines. A savings institution must submit an acceptable compliance plan to the OTS within
30 days of receipt of a request for such a plan. Failure to submit or implement a compliance plan
may subject the institution to regulatory sanctions. Additionally, a savings institution should
maintain systems, commensurate with its size and the nature and scope of its operations, to
identify problem assets and prevent deterioration in those assets as well as to evaluate and
monitor earnings and ensure that earnings are sufficient to maintain adequate capital and reserves.
Federal Home Loan Bank System.
Park View Federal is a member of the FHLB System, which
consists of 12 regional FHLBs subject to supervision and regulation by the Federal Housing Finance
Board (FHFB). The FHLBs provide a central credit facility primarily for member institutions. As
a member of the FHLB System, the Bank is required to acquire and hold specified amounts of capital
stock in the FHLB of Cincinnati. The Bank was in compliance with this requirement with an
investment in FHLB of Cincinnati stock at June 30, 2008 of $12.6 million.
The FHLB of Cincinnati serves as a reserve or central bank for its member institutions within
its assigned region. It is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes advances to members in accordance with policies and
procedures established by the FHFB and the Board of Directors of the FHLB of Cincinnati. Long-term
advances may be made only for the purpose of providing funds for residential housing finance, small
business loans, small farm loans and small agri-business loans. At June 30, 2008, the
19
Bank had $44.0 million in advances outstanding from the FHLB of Cincinnati. See
Deposit
Activity and Other Sources of Funds Borrowings.
Qualified Thrift Lender Test.
A savings association that does not meet the Qualified Thrift
Lender test (QTL Test) must either convert to a bank charter or comply with the following
restrictions on its operations: (i) the institution may not engage in any new activity or make any
new investment, directly or indirectly, unless such activity or investment is permissible for a
national bank; (ii) the branching powers of the institution shall be restricted to those of a
national bank; and (iii) payment of dividends by the institution shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three years from the
date the institution ceases to be a Qualified Thrift Lender, it must cease any activity, and not
retain any investment not permissible for a national bank and savings association.
To meet the QTL test, the institution must qualify as a domestic building and loan association
under the Internal Revenue Code or the institutions Qualified Thrift Investments must total at
least 65% of portfolio assets. Under OTS regulations, portfolio assets are defined as total
assets less intangibles, property used by a savings institution in its business and liquidity
investments in an amount not exceeding 20% of assets. Qualified Thrift Investments generally
consist of (i) loans, equity positions or securities related to domestic, residential real estate
or manufactured housing, and educational, small business and credit card loans, (ii) 50% of the
dollar amount of residential mortgage loans originated and sold within 90 days of origination, and
(iii) stock in an FHLB or the FHLMC or FNMA. In addition, subject to a 20% of portfolio assets
limit, savings institutions are able to treat as Qualified Thrift Investments 200% of their
investments in loans to finance starter homes and loans for construction, development or
improvement of housing and community service facilities or for financing small businesses in
credit-needy areas. In order to maintain QTL status, the savings institution must maintain a
weekly average percentage of Qualified Thrift Investments to portfolio assets equal to 65% on a
monthly average basis in nine out of 12 months. A savings institution that fails to maintain QTL
status will be permitted to requalify once, and if it fails the QTL test a second time, it will
become immediately subject to all penalties as if all time limits on such penalties had expired.
Failure to qualify as a QTL results in a number of sanctions, including the imposition of certain
operating restrictions imposed on national banks. At June 30, 2008, the Bank qualified as a QTL.
Uniform Lending Standards.
Under OTS regulations, savings institutions must adopt and
maintain written policies that establish appropriate limits and standards for extensions of credit
that are secured by liens or interests in real estate or are made for the purpose of financing
permanent improvements to real estate. These policies must establish loan portfolio
diversification standards, prudent underwriting standards, including loan-to-value limits that are
clear and measurable, loan administration procedures and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the Interagency
Guidelines for Real Estate Lending Policies (the Interagency Guidelines) that have been adopted
by the federal bank regulators.
The Bank believes that its current lending policies conform to the Interagency Guidelines.
Insurance of Deposit Accounts.
The Banks deposits are insured up to applicable limits by the
Deposit Insurance Fund of the FDIC. The Deposit Insurance Fund is the successor to the Bank
Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006. The FDIC
amended its risk-based assessment system in 2007 to implement authority granted by the Federal
Deposit Insurance Reform Act of 2005 (Reform Act). Under the revised system, insured
institutions are assigned to one of four risk categories based on supervisory evaluations,
regulatory capital levels and certain other factors. An institutions assessment rate depends upon
the category to which it is assigned. Risk category I, which contains the least risky depository
institutions, is expected to include more than 90% of all institutions. Unlike the other
categories, Risk Category I contains further risk differentiation based on the FDICs analysis of
financial ratios, examination component ratings and other information. Assessment rates are
determined by the FDIC and currently range from five to seven basis points for the healthiest
institutions (Risk Category I) to 43 basis points of assessable deposits for the riskiest (Risk
Category IV). The FDIC may adjust rates uniformly from one quarter to the next, except that no
single adjustment can exceed three basis points. No institution may pay a dividend if in default
of the FDIC assessment.
The Reform Act also provided for a one-time credit for eligible institutions based on their
assessment base as of December 31, 1996. Subject to certain limitations with respect to
institutions that are exhibiting weaknesses, credits can be used to offset assessments until
exhausted. The Banks one-time credit approximated $402,338, which has been totally used. The
Reform Act also provided for the possibility that the FDIC may pay dividends to
20
insured institutions once the Deposit Insurance Fund reserve ratio equals or exceeds 1.35% of
estimated insured deposits.
In addition to the assessment for deposit insurance, institutions are required to make
payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a
predecessor deposit insurance fund. This payment is established quarterly and during the four
quarters ended June 30, 2008 averaged 1.4 basis points of assessable deposits.
The Reform Act provided the FDIC with authority to adjust the Deposit Insurance Fund ratio to
insured deposits within a range of 1.15% and 1.50%, in contrast to the prior statutorily fixed
ratio of 1.25%. The ratio, which is viewed by the FDIC as the level that the fund should achieve,
was established by the agency at 1.25% for 2008, which remained unchanged from 2007.
The FDIC has authority to increase insurance assessments. A significant increase in insurance
premiums would likely have an adverse effect on the operating expenses and results of operations of
the Bank. Management cannot predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations
or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation that might lead to
termination of deposit insurance.
Dividend Limitations.
Under OTS regulations, the Bank may not pay dividends on its capital
stock if its regulatory capital would thereby be reduced below the amount then required for the
liquidation account established for the benefit of certain depositors of the Bank at the time of
the Banks conversion from the mutual to stock form.
OTS regulations require that savings institutions submit notice to the OTS prior to making a
capital distribution (which includes dividends, stock repurchases and amounts paid to stockholders
of another institution in a cash merger) if (a) they would not be well capitalized after the
distribution, (b) the distribution would result in the retirement of any of the institutions
common or preferred stock or debt counted as its regulatory capital, or (c) the institution is a
subsidiary of a holding company. A savings institution must make application to the OTS to pay a
capital distribution if (x) the institution would not be adequately capitalized following the
distribution, (y) the institutions total distributions for the calendar year exceeds the
institutions net income for the calendar year to date plus its net income (less distributions) for
the preceding two years, or (z) the distribution would otherwise violate applicable law or
regulation or an agreement with or conditions imposed by the OTS. As a subsidiary of a savings and
loan holding company, Park View Federal must, at a minimum, provide prior notice to the OTS of
capital distributions. The OTS may disapprove or deny a capital distribution if in the view of the
OTS, the capital distribution would constitute an unsafe or unsound practice.
The Bank is prohibited from making any capital distributions if, after making the
distribution, it would be undercapitalized as defined in the OTS prompt corrective action
regulations.
In addition to the foregoing, earnings of the Bank appropriated to bad debt reserves and
deducted for federal income tax purposes are not available for payment of cash dividends without
payment of taxes at the then current tax rate by the Bank on the amount of earnings removed from
the reserves for such distributions. See
Taxation.
The Bank intends to make full use of this
favorable tax treatment afforded to the Bank and does not contemplate use of any earnings of the
Bank in a manner which would limit the Banks bad debt deduction or create Federal tax liabilities.
Federal Reserve System.
Pursuant to regulations of the Federal Reserve Board, a savings
institution must maintain average daily reserves equal to 3% on transaction accounts of between
$9.3 million and $43.9 million, plus 10% on the remainder. The first $9.3 million of transaction
accounts are exempt. These percentages are subject to adjustment by the Federal Reserve Board.
Because required reserves must be maintained in the form of vault cash or in a noninterest-bearing
account at a Federal Reserve Bank, the effect of the reserve requirement is to reduce the amount of
the institutions interest-earning assets. At June 30, 2008, Park View Federal met its reserve
requirements.
Interstate Branching.
OTS regulations permit federal savings institutions to branch in any
state or states of the United States and its territories. Except in supervisory cases or when
interstate branching is otherwise permitted by state law or other statutory provision, an
institution may not establish an out-of-state branch unless (i) the institution
21
qualifies as a domestic building and loan association under §7701(a)(19) of the Internal Revenue
Code or meets the QTL Test and the total assets attributable to all branches of the association in
the state would qualify such branches taken as a whole for treatment as a domestic building and
loan association or as a QTL, and (ii) such branch would not result in (a) formation of a
prohibited multi-state multiple savings and loan holding company, or (b) a violation of certain
statutory restrictions on branching by savings institution subsidiaries of bank holding companies.
Federal savings institutions generally may not establish new branches unless the institution meets
or exceeds minimum regulatory capital requirements. The OTS will also consider the institutions
record of compliance with the Community Reinvestment Act in connection with any branch application.
Loans to One Borrower Limitations.
Under federal law, loans and extensions of credit, to a
borrower may generally not exceed 15% of the unimpaired capital and surplus of the savings
institution. Loans and extensions of credit fully secured by certain readily marketable collateral
may represent an additional 10% of unimpaired capital and surplus.
Enforcement
.
The OTS has primary enforcement responsibility over savings institutions and has
the authority to bring actions against the institution and all institution-affiliated parties,
including stockholders, and any attorneys, appraisers and accountants, who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease and desist order to
removal of officers and/or directors to institution of receivership, conservatorship or termination
of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000
per day, or even $1 million per day in especially egregious cases. The FDIC has the authority to
recommend to the Director of the OTS that enforcement action to be taken with respect to a
particular savings institution. If action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances. Federal law also establishes criminal penalties for
certain violations.
Transactions with Affiliates.
Transactions between savings institutions and any affiliate are
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings institution
is any company or entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of a savings
institution (such as the Company) and any companies which are controlled by such parent holding
company are affiliates of the savings institution. Generally, Sections 23A and 23B (i) limit the
extent to which the savings institution or its subsidiaries may engage in covered transactions
with any one affiliate to an amount equal to 10% of such institutions capital stock and surplus,
and contain an aggregate limit on all such transactions with all affiliates to an amount equal to
20% of such capital stock and surplus, (ii) specify certain collateral requirements for particular
transactions with affiliates, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable, to the institution or subsidiary as those
provided to an unaffiliated customer. The term covered transaction includes the making of loans,
purchase of assets, issuance of a guarantee and similar other types of transactions. In addition
to the restrictions imposed by Sections 23A and 23B, no savings institution may (i) loan or
otherwise extend credit to an affiliate, except for any affiliate which engages only in activities
which are permissible for bank holding companies, or (ii) purchase or invest in any stocks, bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution. The Bank is also prohibited from extending credit to or
offering any other services, or fixing or varying the consideration for such extension of credit or
service, on condition that the customer obtain some additional services from the institution or
certain of its affiliates or not obtain services of a competitor of the institution, subject to
certain exceptions.
Savings institutions are also subject to the restrictions contained in Section 22(h) and
Section 22(g) of the Federal Reserve Act on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, executive officer or to a greater than 10%
stockholder of a savings institution, and certain affiliated entities of the foregoing, may not
exceed, together with all other outstanding loans to such person and affiliated entities the
institutions loan to one borrower limit (generally equal to 15% of the institutions unimpaired
capital and surplus and an additional 10% of such capital and surplus for loans fully secured by
certain readily marketable collateral). Section 22(h) also prohibits loans, above specified
amounts to directors, executive officers and greater than 10% stockholders of a savings
institution, and their respective affiliates, unless such loan is approved in advance by a majority
of the board of directors of the institution with any interested director not participating in
the voting. The specified amounts are the greater of $25,000 or 5% of capital and surplus (and any
loans aggregating to $500,000 or more). Further, loans to directors, executive officers and
principal stockholders must be made on terms substantially the same as offered in comparable
transactions to other persons. There is an exception to that requirement were such loans are made
pursuant to a benefit or compensation program that is widely available
22
to employees of the institution and the program does not give preference to directors or
executive officers over other employees.
Section 22(g) of the Federal Reserve Act requires that loans to executive officers of
depository institutions not be made on terms more favorable than those afforded to other borrowers,
requires approval for such extensions of credit by the board of directors of the institution, and
imposes reporting requirements for and additional restrictions on the type, amount and terms of
credits to such officers. Extensions of credit to executive officers, directors, and greater than
10% stockholders of a depository institution by any other institution which has a correspondent
banking relationship with the institution are prohibited, unless such extension of credit is on
substantially the same terms as those prevailing at the time for comparable transactions with other
persons and does not involve more than the normal risk of repayment or present other unfavorable
features.
Regulation of the Company
General.
The company is a savings and loan holding company as defined by the Home Owners
Loan Act. As such, the Company is registered with the OTS and is subject to OTS regulation,
examination, supervision and reporting requirements. As a subsidiary of a savings and loan holding
company, the Bank is subject to certain restrictions in its dealings with the Company and
affiliates thereof.
Activities Restrictions.
The Board of Directors of the Company presently intends to operate
the Company as a unitary savings and loan holding company. Since the Company became a unitary
savings and loan holding company before May 4, 1999, there are generally no restrictions on the
activities of the Company. However, if the Director of the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of an activity
constitutes a serious risk to the financial safety, soundness or stability of its subsidiary
savings institution, the Director of the OTS may impose such restrictions as deemed necessary to
address such risk including limiting: (i) payment of dividends by the savings institution; (ii)
transactions between the savings institution and its affiliates; and (iii) any activities of the
savings institution that might create a serious risk that the liabilities of the holding company
and its affiliates may be imposed on the savings institution. Notwithstanding the above rules as
to permissible business activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the QTL Test, then such unitary
holding company shall also presently become subject to the activities restrictions applicable to
multiple holding companies and, unless the savings institution requalifies as a QTL within one year
thereafter, register as, and become subject to the restrictions applicable to a bank holding
company. See
Regulation of the Bank Qualified Thrift Lender Test
.
If the Company were to acquire control of another savings institution to be held as a separate
subsidiary, the Company would thereupon become a multiple savings and loan holding company. Except
where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and
each subsidiary savings institution meets the QTL Test, the activities of the Company and any of
its subsidiaries (other than the Bank or other subsidiary savings institutions) would thereafter be
subject to further restrictions. Among other things, no multiple savings and loan holding company
or subsidiary thereof which is not a savings institution may commence or continue after becoming a
multiple savings and loan holding company or subsidiary thereof, any business activity, other than:
(i) furnishing or performing management services for a subsidiary savings institution; (ii)
conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets
owned by or acquired from a subsidiary savings institution; (iv) holding or managing properties
used or occupied by a subsidiary savings institution; (v) acting as trustee under deeds of trust;
(vi) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple
holding companies; or (vii) unless the Director of the OTS by regulation prohibits or limits such
activities for savings and loan holding companies, those activities authorized by the Federal
Reserve Board as permissible for bank holding companies. Those activities described in (vii) above
must be approved by the Director of the OTS prior to being engaged in by a multiple holding
company. The OTS has issued an interpretation indicating that multiple holding companies may also
engage in activities permissible for financial holding companies.
Restrictions on Acquisitions.
Savings and loan holding companies are generally prohibited
from acquiring, without prior approval of the Director of OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets thereof, or (ii)
more than 5% of the voting shares of a savings institution or holding company thereof which is not
a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of
a savings and loan holding company or person owning or controlling by proxy or otherwise more than
25% of such companys stock, may also acquire control of any savings institution, other than a
subsidiary savings institution, or of any other savings and loan holding company.
23
The Director of the OTS may only approve acquisitions resulting in the formation of a multiple
savings and loan holding company which controls savings institutions in more than one state if: (i)
the multiple savings and loan holding company involved controls a savings institution which
operated a home or branch office in the state of the institution to be acquired as of March 5,
1987; (ii) the acquirer is authorized to acquire control of the savings institution pursuant to the
emergency acquisition provisions of the Federal Deposit Insurance Act; or (iii) the statutes of the
state in which the institution to be acquired is located specifically permit institutions to be
acquired by state chartered institutions or savings and loan holding companies located in the state
where the acquiring entity is located (or by a holding company that controls such state-chartered
savings institutions).
Acquisition of the Company.
Under the Federal Change in Bank Control Act (CIBCA), a notice
must be submitted to the Office of Thrift Supervision if any person (including a company), or group
acting in concert, seeks to acquire control of a savings and loan holding company or savings
institution. Under certain circumstances, a change of control may occur, and prior notice is
required, upon the acquisition of 10% or more of the outstanding voting stock of the company or
institution, unless the OTS has found that the acquisition will not result in a change of control
of the Company. Under the CIBCA, the OTS has 60 days from the filing of a complete notice to act,
taking into consideration certain factors, including the financial and managerial resources of the
acquirer and the anti-trust effects of the acquisition. Any company that acquires control would
then be subject to regulation as a savings and loan holding company.
Taxation
General.
The Company and its subsidiaries currently file a consolidated federal income tax
return based on a fiscal year ending June 30. Consolidated returns have the effect of eliminating
intercompany distributions, including dividends, from the computation of consolidated taxable
income for the taxable year in which the distributions occur.
Federal Income Taxation.
Savings institutions are subject to the provisions of the Internal
Revenue Code of 1986, as amended (the Code) in the same general manner as other corporations.
Prior to legislation in 1996, institutions such as the Bank which met certain definitional tests
and other conditions prescribed by the Code benefited from certain favorable provisions regarding
their deductions from taxable income for annual additions to their bad debt reserve. Legislation
that is effective for tax years beginning after December 31, 1995 repealed the reserve method
available to thrifts and required institutions to recapture into taxable income over a six taxable
year period the portion of the tax loan loss reserve that exceeds the pre-1988 tax loan loss
reserve. The Bank had no such excess reserve. The Bank will no longer be allowed to use the
percentage of taxable income method for tax loan loss provisions, but was allowed to use the
experience method of accounting for bad debts as long as it was not considered a large thrift.
Beginning with June 30, 1997 taxable year, the Bank was treated the same as a small commercial
bank. Institutions with less than $500 million in assets were still permitted to make deductible
bad debt additions to reserves, using the experience method. Beginning with the June 30, 2000
taxable year, the Bank began being taxed as a large thrift and is only able to take a tax deduction
when a loan is actually charged off.
Earnings appropriated to the Banks bad debt reserve and claimed as a tax deduction are not
available for the payment of cash dividends or for distribution to stockholders (including
distributions made on dissolution or liquidation), unless the Bank includes the amount in taxable
income, along with the amount deemed necessary to pay the resulting federal income tax.
In addition to the regular income tax, corporations generally are subject to a minimum tax.
An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable
income, which is the sum of a corporations regular taxable income (with certain adjustments) and
tax preference items, less any available exemption. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is imposed to the extent it
exceeds the corporations regular income tax.
The Banks federal income tax returns through June 30, 1999 were audited by the IRS. The
years June 30, 2000 through June 30, 2007 are open to audit.
For further information regarding federal income taxes, see Note 10 of Notes to Consolidated
Financial Statements.
State Income Taxation.
The Bank is subject to an Ohio franchise tax based on its equity
capital plus certain reserve amounts. Total equity capital for this purpose is reduced by certain
exempted assets. The resulting net taxable
24
value of capital is taxed at a rate of 1.3%. The Company generally elects to be taxed as a
qualifying holding company and pay Ohio tax based on its net income only. The other subsidiaries
of the Company are taxed on the greater of a tax based on net income or net worth.
Executive Officers of the Registrant
The following sets forth information with respect to the executive officers of the Company.
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Age as of
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Name
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September 4, 2008
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Title
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John R. Male
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60
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Chairman of the Board and Chief Executive Officer
of the Company and the Bank
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C. Keith Swaney
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65
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President and Chief Operating Officer of the
Company and the Bank, Treasurer of the Company
and Chief Financial Officer of the Bank
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Jeffrey N. Male
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59
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Vice President and Secretary of the Company and
Executive Vice President and Chief Lending
Officer of the Bank
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John R. Male.
Mr. Male has been with the Bank since 1971, where he has held various positions
including branch manager, mortgage loan officer, manager of construction lending, savings
department administrator and chief lending officer. Mr. Male was named President and Chief
Executive Officer of the Bank in 1986 and was named President of the Company upon its organization
in 1994. Mr. Male was named Chairman of the Board of Directors and Chief Executive Officer of the
Company and the Bank in October 2000. Mr. Male serves in various public service and charitable
organizations. He currently serves on the Board of Trustees for Heather Hill, a long-term care
hospital in Chardon, Ohio. He has an undergraduate degree from Tufts University and holds an MBA
from Case Western Reserve University.
C. Keith Swaney.
Mr. Swaney joined the Bank in 1962 and was named Executive Vice President
and Chief Financial Officer in 1986. He was named Vice President and Treasurer of the Company upon
its organization in 1994. Mr. Swaney was named President and Chief Operating Officer of the
Company and the Bank in October 2000. He continues to serve as Treasurer of the Company and as
Chief Financial Officer of the Bank. He is responsible for all internal operations of the Company
and the Bank. Over the years, he has participated in various charitable organizations and
currently serves on the Board of Trustees for Hiram House Camp. Mr. Swaney attended Youngstown
State University and California University in Pennsylvania.
Jeffrey N. Male.
Mr. Male has been with the Bank since 1973. He has served in various
capacities, including supervisor of the construction loan department, personnel director and
manager of the collection, foreclosure and REO departments. Mr. Male was named Executive Vice
President of the Bank in 2000. In 1986 Mr. Male was named Senior Vice President in charge of
residential lending operations. He was named Vice President and Secretary of the Company upon its
organization in 1994 and continues to serve in that position. Mr. Male has served in various
capacities with public service and charitable organizations, including the Chagrin Valley Jaycees,
the Chagrin Falls Chamber of Commerce and the Neighborhood Housing Services Corporate Loan
Committee. Mr. Male is a graduate of Denison University.
Item 1A. Risk Factors
Certain interest rate movements may hurt earnings and asset value.
While these short-term market interest rates (which are used as a guide to price the Banks
deposits) have increased, longer-term market interest rates (which are used as a guide to price the
Banks longer-term loans) have not. Although this flattening of the market yield curve has not
had a negative impact on our interest rate spread and net interest margin to date, if short-term
interest rates continue to rise, and if rates on our deposits and borrowings continue to reprice
upwards faster than the rates on our loans and investments, we would experience
25
compression of our interest rate spread and net interest margin, which would have a negative
effect on our profitability. Conversely, if short-term interest rates decline and if rates on our
loans and investments reprice downward faster than our rates on deposits, then we would also
experience compression of our interest rate spread and net interest margin, which would have a
negative effect on our profitability.
Changes in interest rates also affect the value of the Banks interest-earning assets, and in
particular the Banks securities portfolio. Generally, the value of fixed-rate securities
fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities
available for sale are reported as a separate component of equity, net of tax. Decreases in the
fair value of securities available for sale resulting from increases in interest rates could have
an adverse effect on stockholders equity.
Strong competition within the Banks market area could hurt profits and slow growth.
The Bank faces intense competition both in making loans and attracting deposits. This
competition has made it more difficult for the Bank to make new loans and at times has forced the
Bank to offer higher deposit rates. Price competition for loans and deposits might result in the
Bank earning less on loans and paying more on deposits, which would reduce net interest income.
Competition also makes it more difficult to increase loans and deposits. Competition also makes it
more difficult to hire and retain experienced employees. Some of the institutions with which the
Bank competes have substantially greater resources and lending limits than the Bank has and may
offer services that the Bank does not provide. Management expects competition to increase in the
future as a result of legislative, regulatory and technological changes and the continuing trend of
consolidation in the financial services industry. The Banks profitability depends upon its
continued ability to compete successfully in its market area.
The Company and the Bank operate in a highly regulated environment and may be adversely
affected by changes in laws and regulations.
Park View Federal is subject to extensive regulation, supervision and examination by the
Office of Thrift Supervision, our primary federal regulator, and by the Federal Deposit Insurance
Corporation, as insurer of its deposits. The Company also is subject to regulation and supervision
by the Office of Thrift Supervision. Such regulation and supervision govern the activities in
which an institution and its holding company may engage, and are intended primarily for the
protection of the insurance fund and for the depositors and borrowers of the Bank. The regulation
and supervision by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation
are not intended to protect the interests of investors in Company common stock. Regulatory
authorities have extensive discretion in their supervisory and enforcement activities, including
the imposition of restrictions on our operations, the classification of our assets and
determination of the level of our allowance for loan losses. Any change in such regulation and
oversight, whether in the form of regulatory policy, regulations, legislation or supervisory
action, may have a material impact on our operations.
Our emphasis on construction and commercial real estate lending and land loans may expose us
to increased lending risks.
At June 30, 2008, we had $211.3 million in loans secured by commercial real estate, $99.5
million in real estate construction loans, which included $55.4 million in residential construction
loans, $5.8 million in loans for the construction of multi-family properties and $38.3 million for
the construction of commercial properties and $73.5 million in loans secured by land. Commercial
real estate loans, construction loans and land loans represented 29.6%, 13.9% and 10.3%,
respectively, of our net loan portfolio. While commercial real estate, construction and land
loans are generally more interest rate sensitive and carry higher yields than do residential
mortgage loans, these types of loans generally expose a lender to greater risk of non-payment and
loss than single-family residential mortgage loans because repayment of the loans often depends on
the successful operation of the property, the income stream of the borrowers and, for construction
loans, the accuracy of the estimate of the propertys value at completion of construction and the
estimated cost of construction. Such loans typically involve larger loan balances to single
borrowers or groups of related borrowers compared to single-family residential mortgage loans.
The Companys financial condition and results of operations are dependant on the economy in
the Banks market area.
The Banks market area consists of Portage, Lake, Geauga, Cuyahoga, Summit, Medina and Lorain
Counties in Ohio. As of June 30, 2008, management estimates that more than 90% of deposits and 90%
of loans
26
came from its market area. Because of the Banks concentration of business activities in its
market area, the Companys financial condition and results of operations depend upon economic
conditions in its market area. Adverse economic conditions in our market area could reduce our
growth rate, affect the ability of our customers to repay their loans and generally affect our
financial condition and results of operations. Conditions such as inflation, recession,
unemployment, high interest rates, short money supply, scarce natural resources, international
disorders, terrorism and other factors beyond our control may adversely affect our profitability.
We are less able than a larger institution to spread the risks of unfavorable local economic
conditions across a large number of diversified economies. Any sustained period of increased
payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in
the State of Ohio could adversely affect the value of our assets, revenues, results of operations
and financial condition. Moreover, we cannot give any assurance we will benefit from any market
growth or favorable economic conditions in our primary market areas if they do occur.
Provisions in the Companys certificate of incorporation and bylaws and statutory provisions
could discourage a hostile acquisition of control.
The Companys Certificate of Incorporation and Bylaws contain certain provisions that could
discourage nonnegotiated takeover attempts that certain stockholders might deem to be in their
interests or through which stockholders might otherwise receive a premium for their shares over the
then current market price and that may tend to perpetuate existing management. These provisions
include: the classification of the terms of the members of the Board of Directors; supermajority
provisions for the approval of certain business combinations; elimination of cumulative voting by
stockholders in the election of directors; certain provisions relating to meetings of stockholders;
and provisions allowing the Board of Directors to consider nonmonetary factors in evaluating a
business combination or a tender or exchange offer. The provisions in the Companys Certificate of
Incorporation requiring a supermajority vote for the approval of certain business combinations and
containing restrictions on acquisitions of the Companys equity securities provide that the
supermajority voting requirements or acquisition restrictions do not apply to business combinations
or acquisitions meeting specified Board of Directors approval requirements. The Certificate of
Incorporation also authorizes the issuance of 1,000,000 shares of preferred stock as well as
additional shares of Common Stock up to a total of 15,000,000 outstanding shares. These shares
could be issued without stockholder approval on terms or in circumstances that could deter a future
takeover attempt.
In addition, Ohio law provides for certain restrictions an acquisition of the Company, and
federal banking laws contain various restrictions on acquisitions of control of savings
associations and their holding companies.
The Certificate of Incorporation, Bylaw and statutory provisions, as well as certain other
provisions of state and federal law and certain provisions in the Companys and the Banks employee
benefit plans are employment agreements and change in control severance agreements, may have the
effect of discouraging or preventing a future takeover attempt in which stockholders of the Company
otherwise might receive a substantial premium for their shares over then current market prices.
The Company may have to record a charge to earnings representing other-than-temporary
impairment with respect to its holdings of U.S. government-sponsored enterprise preferred stock.
The Company holds U.S. government-sponsored enterprise securities consisting of floating rate
preferred stock issued by the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal
National Mortgage Association (FNMA) in its available-for-sale securities portfolio which, at
June 30, 2008, had a cost basis of $1,890,000 and a market value of $1,890,000.
The Companys equity securities consist of floating rate preferred stock issued by FHLMC and
FNMA. For the year ended June 30, 2008, the Company recognized a $195,000 pre-tax charge for the
other-than-temporary decline in fair value. As required by SFAS 115, when a decline in fair value
below cost is deemed to be other-than-temporary, the unrealized loss must be recognized as a charge
to earnings. The Companys holding of this preferred stock has declined substantially in value
since the June 30, 2008 balance sheet date. Management evaluated this decline in value and decided
its initial determination that the Companys holdings were only temporarily impaired should be
reassessed. Ultimately, the Companys holdings of these shares were deemed to be
other-than-temporarily impaired as of June 30, 2008 and a charge to earnings of $195,000 was
recorded as of that date.
27
More recently, on September 7, 2008, the Federal Housing Finance Agency announced that it was
placing FHLMC and FNMA under conservatorship. The United States Department of the Treasury is also
taking other actions with respect to FHLMC and FNMA, including purchasing preferred stock that
would have a rank senior to that of the preferred stock owned by the Company. In addition, the
payments of dividends on the preferred securities of the types owned by the Company have been
suspended. If, by September 30, 2008, the value of the Companys holdings of this stock does not
recover most of the decline that has occurred since June 30, 2008, the Company will probably record
another charge to earnings for other-than-temporary impairment of
this stock. As of the close of business on September 12, 2008, the
fair value of the Companys holdings of these shares was approximately $200,000.
The unrealized loss on the Companys holdings as of that date
was $1,690,000. At June 30, 2008, no
U.S. government-sponsored enterprise securities were in an
unrecognized loss.
Item 1B. Unresolved Staff Comments
Not Applicable.
Item 2. Properties
The following table sets forth the location and certain additional information regarding the
Companys offices at June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
Net Book
|
|
Owned or
|
|
Approximate
|
|
|
Opened/
|
|
Total
|
|
Value at
|
|
Leased/
|
|
Square
|
Location
|
|
Acquired
|
|
Deposits
|
|
June 30, 2008
|
|
Expiration
|
|
Footage
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Main Office:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30000 Aurora Road
Solon, Ohio
|
|
|
2000
|
|
|
$
|
59,197
|
|
|
$
|
5,061
|
|
|
Owned
|
|
|
51,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branch Offices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2111 Richmond Road
Beachwood, Ohio
|
|
|
1967
|
|
|
|
71,433
|
|
|
|
0
|
|
|
Lease
12/31/19
|
|
|
2,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
413 Northfield Road
Bedford, Ohio
|
|
|
2002
|
|
|
|
43,665
|
|
|
|
155
|
|
|
Lease
10/31/12
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11010 Clifton Boulevard
Cleveland, Ohio
|
|
|
1974
|
|
|
|
23,654
|
|
|
|
0
|
|
|
Lease
10/21/11
|
|
|
1,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13901 Ridge Road
North Royalton, Ohio
|
|
|
1999
|
|
|
|
58,774
|
|
|
|
0
|
|
|
Lease
8/31/09
|
|
|
3,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6990 Heisley Road
Mentor, Ohio
|
|
|
1994
|
|
|
|
42,145
|
|
|
|
0
|
|
|
Lease
10/25/08
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1244 SOM Center Road
Mayfield Heights, Ohio
|
|
|
2004
|
|
|
|
44,055
|
|
|
|
89
|
|
|
Lease
6/30/14
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
497 East Aurora Road
Macedonia, Ohio
|
|
|
1994
|
|
|
|
51,099
|
|
|
|
3
|
|
|
Lease
9/30/09
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8500 Washington Street
Chagrin Falls, Ohio
|
|
|
1995
|
|
|
|
44,592
|
|
|
|
5
|
|
|
Owned
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408 Water Street
Chardon, Ohio
|
|
|
1998
|
|
|
|
31,075
|
|
|
|
457
|
|
|
Owned
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3613 Medina Road
Medina, Ohio
|
|
|
2000
|
|
|
|
27,720
|
|
|
|
0
|
|
|
Lease
2/28/13
|
|
|
2,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34400 Aurora Road
Solon, Ohio
|
|
|
2000
|
|
|
|
25,558
|
|
|
|
21
|
|
|
Lease
4/30/10
|
|
|
3,000
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
Net Book
|
|
Owned or
|
|
Approximate
|
|
|
Opened/
|
|
Total
|
|
Value at
|
|
Leased/
|
|
Square
|
Location
|
|
Acquired
|
|
Deposits
|
|
June 30, 2008
|
|
Expiration
|
|
Footage
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
16909 Chagrin Boulevard
Shaker Heights, Ohio
|
|
|
2000
|
|
|
|
27,605
|
|
|
|
36
|
|
|
Lease
6/30/10
|
|
|
2,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36311 Detroit Road
Avon, Ohio
|
|
|
2002
|
|
|
|
39,487
|
|
|
|
123
|
|
|
Lease
10/02/12
|
|
|
3,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17780 Pearl Road
Strongsville, Ohio
|
|
|
2002
|
|
|
|
39,741
|
|
|
|
78
|
|
|
Lease
8/31/12
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9305 Market Square Drive
Streetsboro, Ohio
|
|
|
2003
|
|
|
|
12,995
|
|
|
|
984
|
|
|
Owned
|
|
|
3,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215 West Garfield Road
Aurora, Ohio
|
|
|
2005
|
|
|
|
16,591
|
|
|
|
30
|
|
|
Lease
8/31/10
|
|
|
4,700
|
|
At June 30, 2008, the net book value of the Companys premises, furniture, fixtures and
equipment was $9.2 million. See Note 6 of Notes to Consolidated Financial Statements for further
information.
The Company also owns real estate in Solon, Ohio. See
Item 1. Business Subsidiary
Activities
for further information.
Item 3. Legal Proceedings
From time to time, the Company and/or the Bank is a party to various legal proceedings
incident to its business. There are no material legal proceedings to which the Bank or PVF is a
party or to which any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the
fiscal year ended June 30, 2008.
29
PART II
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Securities
The Companys common stock trades under the symbol PVFC on the Nasdaq Capital Market. The
Company had 7,773,823 shares of common stock outstanding and approximately 161 holders of record of
the common stock at September 11, 2008. 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 Banks capital below minimum regulatory requirements.
The Companys stock repurchase program was renewed for a 12-month period in July 2007 and
authorizes the purchase of an additional 265,602 shares of the Companys common stock. At June 30,
2008, as adjusted to reflect all stock dividends, the Company had acquired a total of 472,725
shares, or 5.8%, of the Companys common stock. The stock repurchase program is dependent on
market conditions with no guarantee as to the exact number of shares to be repurchased. The cash
dividend policy remains dependent upon the Companys financial condition, earnings, capital needs,
regulatory requirements and economic conditions. A quarterly cash dividend of $.074 per share was
paid on the Companys outstanding common stock in fiscal 2008 and fiscal 2007.
The following table sets forth certain information as to the range of the high and low bid
prices for the Companys common stock for the calendar quarters indicated.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
Fiscal 2008
|
|
|
High Sales
|
|
Low Sales
|
|
High Sales
|
|
Low Sales
|
Fourth Quarter
|
|
$
|
13.82
|
|
|
$
|
12.35
|
|
|
$
|
10.81
|
|
|
$
|
7.26
|
|
Third Quarter
|
|
|
12.73
|
|
|
|
9.97
|
|
|
|
12.08
|
|
|
|
7.00
|
|
Second Quarter
|
|
|
10.89
|
|
|
|
9.33
|
|
|
|
15.80
|
|
|
|
10.53
|
|
First Quarter
|
|
|
10.48
|
|
|
|
9.00
|
|
|
|
16.03
|
|
|
|
9.00
|
|
|
|
|
(1)
|
|
Quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may
not represent actual transactions.
|
The Company did not repurchase any of its equity securities registered under the Securities
Exchange Act of 1934, as amended, during the fourth quarter of the
fiscal year ended June 30, 2008.
30
Item 6. Selected Financial Data
Selected Consolidated Financial and Other Data
Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
|
(Dollars in Thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
867,402
|
|
|
$
|
900,816
|
|
|
$
|
906,081
|
|
|
$
|
823,899
|
|
|
$
|
755,687
|
|
|
|
|
|
Loans receivable, net
|
|
|
714,492
|
|
|
|
713,329
|
|
|
|
736,065
|
|
|
|
660,494
|
|
|
|
610,681
|
|
|
|
|
|
Loans receivable held for sale, net
|
|
|
7,831
|
|
|
|
14,993
|
|
|
|
10,698
|
|
|
|
9,060
|
|
|
|
11,871
|
|
|
|
|
|
Mortgage-backed securities held to maturity
|
|
|
55,151
|
|
|
|
25,880
|
|
|
|
27,578
|
|
|
|
31,720
|
|
|
|
36,779
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
17,804
|
|
|
|
28,458
|
|
|
|
19,738
|
|
|
|
11,090
|
|
|
|
17,470
|
|
|
|
|
|
Securities held to maturity
|
|
|
7,580
|
|
|
|
58,000
|
|
|
|
58,000
|
|
|
|
57,500
|
|
|
|
27,500
|
|
|
|
|
|
Securities available for sale
|
|
|
1,890
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
Deposits
|
|
|
659,386
|
|
|
|
658,053
|
|
|
|
656,864
|
|
|
|
591,226
|
|
|
|
526,493
|
|
|
|
|
|
Borrowings
|
|
|
114,950
|
|
|
|
146,260
|
|
|
|
156,773
|
|
|
|
146,413
|
|
|
|
147,526
|
|
|
|
|
|
Stockholders equity
|
|
|
69,075
|
|
|
|
71,490
|
|
|
|
68,973
|
|
|
|
66,453
|
|
|
|
63,361
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
(Dollars in thousands except for earnings per share)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Interest income
|
|
$
|
56,485
|
|
|
$
|
62,020
|
|
|
$
|
55,651
|
|
|
$
|
43,963
|
|
|
$
|
39,429
|
|
Interest expense
|
|
|
34,275
|
|
|
|
36,705
|
|
|
|
28,408
|
|
|
|
19,801
|
|
|
|
16,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before provision for loan losses
|
|
|
22,210
|
|
|
|
25,315
|
|
|
|
27,243
|
|
|
|
24,162
|
|
|
|
22,690
|
|
Provision for loan losses
|
|
|
6,058
|
|
|
|
1,103
|
|
|
|
826
|
|
|
|
111
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
16,152
|
|
|
|
24,212
|
|
|
|
26,417
|
|
|
|
24,051
|
|
|
|
22,093
|
|
Non-interest income
|
|
|
2,458
|
|
|
|
3,376
|
|
|
|
2,028
|
|
|
|
3,006
|
|
|
|
5,810
|
|
Non-interest expense
|
|
|
20,806
|
|
|
|
21,634
|
|
|
|
21,549
|
|
|
|
18,942
|
|
|
|
17,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
(2,196
|
)
|
|
|
5,954
|
|
|
|
6,896
|
|
|
|
8,115
|
|
|
|
10,332
|
|
Federal income taxes
|
|
|
(1,095
|
)
|
|
|
1,720
|
|
|
|
2,053
|
|
|
|
2,531
|
|
|
|
3,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,101
|
)
|
|
$
|
4,234
|
|
|
$
|
4,843
|
|
|
$
|
5,584
|
|
|
$
|
6,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
(1)
|
|
$
|
(0.14
|
)
|
|
$
|
0.55
|
|
|
$
|
0.63
|
|
|
$
|
0.72
|
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
(1)
|
|
$
|
(0.14
|
)
|
|
$
|
0.54
|
|
|
$
|
0.62
|
|
|
$
|
0.71
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Adjusted for stock dividends.
|
31
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Year Ended June 30,
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Return on average assets
|
|
|
(0.13
|
)%
|
|
|
0.47
|
%
|
|
|
0.56
|
%
|
|
|
0.70
|
%
|
|
|
0.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity
|
|
|
(1.55
|
)%
|
|
|
6.00
|
%
|
|
|
7.15
|
%
|
|
|
8.62
|
%
|
|
|
11.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
2.48
|
%
|
|
|
2.77
|
%
|
|
|
3.15
|
%
|
|
|
3.12
|
%
|
|
|
3.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
2.70
|
%
|
|
|
2.98
|
%
|
|
|
3.34
|
%
|
|
|
3.24
|
%
|
|
|
3.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average
interest-bearing liabilities
|
|
|
105.33
|
%
|
|
|
104.84
|
%
|
|
|
105.38
|
%
|
|
|
104.81
|
%
|
|
|
107.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruing loans and repossessed assets
to total assets
|
|
|
3.06
|
%
|
|
|
1.81
|
%
|
|
|
1.80
|
%
|
|
|
1.59
|
%
|
|
|
1.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity to total assets
|
|
|
7.96
|
%
|
|
|
7.94
|
%
|
|
|
7.61
|
%
|
|
|
8.07
|
%
|
|
|
8.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average equity to average assets
|
|
|
8.09
|
%
|
|
|
7.76
|
%
|
|
|
7.78
|
%
|
|
|
8.16
|
%
|
|
|
8.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio (cash dividends declared
divided by net income (loss))
|
|
|
(208.82
|
)%
|
|
|
54.04
|
%
|
|
|
47.13
|
%
|
|
|
37.37
|
%
|
|
|
33.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Regulatory Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of tangible capital to adjusted total assets
|
|
|
9.69
|
%
|
|
|
9.72
|
%
|
|
|
8.33
|
%
|
|
|
8.77
|
%
|
|
|
7.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Tier-1 core capital to adjusted total assets
|
|
|
9.69
|
%
|
|
|
9.72
|
%
|
|
|
8.33
|
%
|
|
|
8.77
|
%
|
|
|
7.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Tier-1 risk-based capital to risk-weighted assets
|
|
|
12.09
|
%
|
|
|
12.56
|
%
|
|
|
9.72
|
%
|
|
|
10.41
|
%
|
|
|
9.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total risk-based capital to risk-weighted assets
|
|
|
12.99
|
%
|
|
|
13.08
|
%
|
|
|
10.28
|
%
|
|
|
10.97
|
%
|
|
|
10.19
|
%
|
32
Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
General
The Company is the holding company for Park View Federal, its principal and wholly owned
subsidiary and a federally chartered savings bank headquartered in Solon, Ohio. Park View Federal
has 17 branch offices located in Cleveland and surrounding communities. The Banks 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 Cuyahoga, Lake, Geauga, Portage, Summit, 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, commercial real estate loans and multi-family
residential real estate loans. In addition, the Bank originates loans secured by second mortgages,
including equity line of credit loans and non real estate loans. 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 on Form 10-K, 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 Companys market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the Companys 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 Companys financial
performance and could cause the Companys 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, 2008, 2007 and 2006
PVF had total assets of $867.4 million, $900.8 million, and $906.1 million at June 30, 2008,
2007 and 2006, respectively. The primary source of the Banks total assets has been its loan
portfolio. Net loans receivable, loans receivable held for sale and mortgage-backed securities
totaled $777.5 million, $754.2 million, and $774.3 million at June 30, 2008, 2007 and 2006,
respectively.
33
The following table provides a breakdown of the composition of loans receivable, loans
receivable held for sale and mortgage-backed securities for these periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
One-to four-family residential
|
|
$
|
168,532
|
|
|
$
|
163,298
|
|
|
$
|
174,575
|
|
Home equity line of credit
|
|
|
87,876
|
|
|
|
85,093
|
|
|
|
94,450
|
|
Multi-family residential
|
|
|
52,421
|
|
|
|
48,101
|
|
|
|
45,716
|
|
Commercial
|
|
|
174,404
|
|
|
|
184,850
|
|
|
|
170,392
|
|
Commercial equity line of credit
|
|
|
36,913
|
|
|
|
33,208
|
|
|
|
34,064
|
|
Land
|
|
|
73,545
|
|
|
|
74,414
|
|
|
|
77,242
|
|
Construction
residential
|
|
|
55,442
|
|
|
|
63,316
|
|
|
|
84,146
|
|
Construction
multi-family
|
|
|
5,803
|
|
|
|
6,397
|
|
|
|
7,956
|
|
Construction
commercial
|
|
|
38,303
|
|
|
|
31,610
|
|
|
|
33,756
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgages
|
|
|
693,239
|
|
|
|
690,286
|
|
|
|
722,297
|
|
Non-real estate mortgages
|
|
|
33,593
|
|
|
|
30,455
|
|
|
|
21,824
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
726,832
|
|
|
|
720,741
|
|
|
|
744,121
|
|
Net deferred loan origination fees
|
|
|
(2,686
|
)
|
|
|
(2,832
|
)
|
|
|
(3,382
|
)
|
Allowance for loan losses
|
|
|
(9,654
|
)
|
|
|
(4,581
|
)
|
|
|
(4,675
|
)
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable, net
|
|
$
|
714,492
|
|
|
$
|
713,329
|
|
|
$
|
736,065
|
|
Loans receivable held for sale, net
|
|
$
|
7,831
|
|
|
$
|
14,993
|
|
|
$
|
10,698
|
|
Mortgage-backed securities held to maturity
|
|
$
|
55,151
|
|
|
$
|
25,880
|
|
|
$
|
27,578
|
|
The increase in mortgage-backed securities in 2008 resulted from the purchase of $32.6 million
in mortgage-backed securities, less payments received of $3.3 million. The $1.9 million in
securities available for sale in 2008 resulted from the Banks purchase of $2.1 million in FHLMC
and FNMA preferred stock less a market valuation allowance of $0.2 million. Securities held to
maturity totaled $7.6 million, $58.0 million and $58.0 million, and cash and cash equivalents
totaled $17.8 million, $28.5 million and $19.7 million at June 30, 2008, 2007 and 2006,
respectively.
The securities portfolio has been and will continue to be used primarily to meet the liquidity
requirements of the Bank in its deposit taking and lending activities. These securities are pledged
as collateral to secure the Banks repurchase agreement.
The Banks policy permits investment only in U.S. government and U.S. government-sponsored
enterprises securities or Triple-A-rated securities. The Bank invests primarily in securities
having a final maturity of five years or less, federal funds sold and deposits at the Federal Home
Loan Bank (FHLB) of Cincinnati. The entire portfolio matures within five years or less, and the
Bank has no plans to change the short-term nature of its securities portfolio. The Banks deposit
liabilities totaled $659.4 million, $658.1 million and $656.9 million at June 30, 2008, 2007 and
2006, respectively. Managements decision to utilize brokered deposits and to continue to pay
attractive money market savings rates and promote the growth of core accounts resulted in an
increase in savings deposits of $1.3 million for the year ended June 30, 2008. Following is a
breakdown of deposits by category for these periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Now accounts
|
|
$
|
42,402
|
|
|
$
|
40,780
|
|
|
$
|
39,565
|
|
Passbook savings
|
|
|
27,508
|
|
|
|
30,045
|
|
|
|
35,194
|
|
Money market accounts
|
|
|
74,939
|
|
|
|
70,518
|
|
|
|
60,900
|
|
Non-interest-bearing
|
|
|
17,459
|
|
|
|
21,845
|
|
|
|
17,069
|
|
Certificates of deposit
|
|
|
497,078
|
|
|
|
494,865
|
|
|
|
504,316
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
659,386
|
|
|
$
|
658,053
|
|
|
$
|
656,864
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances and other borrowings amounted to $115.0 million, $146.3 million and $156.8
million at June 30, 2008, 2007 and 2006, respectively. The Bank borrowed a total of $35.0 million
in FHLB putable fixed-rate advances with a put option held by the FHLB after a specified lockout
period. These new borrowing were used for the repayment of short-term advances. In 2007, the
Company formed a trust that issued $10 million of trust preferred securities. The Company issued
subordinated debentures to the trust in exchange for the proceeds of the issuance of these
securities. In March 2006, the Bank entered into a $50 million repurchase agreement with another
institution. The proceeds were used to repay FHLB advances.
34
Capital
PVFs stockholders equity totaled $69.1 million, $71.5 million and $69.0 million at the years
ended June 30, 2008, 2007 and 2006, respectively. The changes were the result of the retention of
net earnings, net loss, less cash dividends paid.
The Banks 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 institutions 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, 2008, 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
|
(dollars in thousands)
|
|
Capital
|
|
Assets
(1)
|
|
Institution
|
|
|
|
Tangible capital
|
|
$
|
83,972
|
|
|
|
9.69
|
%
|
|
|
N/A
|
|
Tier-1 core capital
|
|
$
|
83,972
|
|
|
|
9.69
|
|
|
|
5.00
|
%
|
Tier-1 risk-based capital
|
|
$
|
83,972
|
|
|
|
12.09
|
|
|
|
6.00
|
|
Total risk-based capital
|
|
$
|
90,286
|
|
|
|
12.99
|
|
|
|
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.
|
Liquidity and Capital Resources
The Companys liquidity measures its ability to fund loans and meet withdrawals of deposits
and other cash outflows in a cost-effective manner. The Companys 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, proceeds from maturing securities, and advances from
the FHLB of Cincinnati. While loan and mortgage-backed securities payments and maturing securities
are relatively stable sources of funds, deposit flows and loan and mortgage-backed securities
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
existing and continuing loan commitments, fund maturing certificates of deposit and deposit
withdrawals, repay borrowings, maintain its liquidity and meet operating expenses. At June 30,
2008, the Bank had commitments to originate loans totaling $23.2 million, of which $16.8 million is
intended to be sold, commitments to fund equity lines of credit totaling $91.8 million, and $46.4
million of undisbursed loans in process. Scheduled maturities of certificates of deposit during the
12 months following June 30, 2008 total $443.8 million. Management believes that a significant
portion of the amounts maturing during fiscal 2008 will be reinvested with the Bank because they
are retail deposits, however, no assurances can be made that this will occur.
35
Park View Federal maintains liquid assets sufficient to meet operational needs. The Banks
most liquid assets are cash and cash equivalents, which are short-term, highly-liquid investments
that are readily convertible to known amounts of cash. The levels of such assets are dependent upon
the Banks 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.
Commitments, Contingencies and Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk including
commitments to originate new loans, commitments to extend credit under existing lines of credit and
commitments to sell loans. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated balance sheet.
Off-balance sheet financial instruments are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
(dollars in thousands)
|
|
2008
|
|
2007
|
Commitments to originate:
|
|
|
|
|
|
|
|
|
Mortgage loans intended for sale
|
|
$
|
16,755
|
|
|
$
|
29,312
|
|
Mortgage loans held for investment
|
|
|
6,412
|
|
|
|
12,627
|
|
Unfunded home equity and commercial real estate lines of
credit
|
|
|
91,781
|
|
|
|
99,257
|
|
Undisbursed portion of loan proceeds
|
|
|
46,367
|
|
|
|
60,795
|
|
Commitments to sell loans held for sale
|
|
|
10,218
|
|
|
|
20,105
|
|
Standby letters of credit
|
|
|
2,486
|
|
|
|
4,051
|
|
Commitments to originate new loans or to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract. Loan commitments
generally expire within 30 to 60 days. Most home equity line of credit commitments are for a term
of five years and commercial real estate lines of credit are generally renewable every two years.
Commitments generally have fixed expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash requirements. The Company
evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based on managements
credit evaluation of the borrower.
Commitments to sell loans intended for sale are agreements to sell loans to a third party at
an agreed-upon price. The fair value of commitments to originate mortgage loans intended for sale
at June 30, 2008 was $8,000, and commitments to sell loans intended for sale was $75,000. The
Companys net mortgage banking derivatives was $83,000 at June 30, 2008.
36
The following table presents as of June 30, 2008, PVF Capital Corp.s significant fixed and
determinable contractual obligations by payment date. The payment amounts represent those amounts
contractually due to the recipient and do not include any unamortized premiums or discounts or
other similar carrying value adjustments. Further discussion of the nature of each obligation is
included in the referenced note to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
|
|
|
|
|
Note
|
|
Within
|
|
1-3
|
|
3-5
|
|
Than 5
|
|
|
(Dollars in thousands)
|
|
Reference
|
|
1 Year
|
|
Years
|
|
Years
|
|
Years
|
|
Total
|
|
Deposits without a stated maturity
|
|
|
|
|
|
$
|
162,308
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
162,308
|
|
Certificates of deposit
|
|
|
7
|
|
|
|
443,844
|
|
|
|
39,183
|
|
|
|
14,051
|
|
|
|
|
|
|
|
497,078
|
|
Long-term advances from
the FHLB of Cincinnati
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
35,000
|
|
Repurchase agreement
|
|
|
9
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Subordinated debt
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
20,000
|
|
Operating leases
|
|
|
11
|
|
|
|
893
|
|
|
|
1,136
|
|
|
|
556
|
|
|
|
80
|
|
|
|
2,665
|
|
Results
of Operations
General
PVF Capital Corp.s net loss for the year ended June 30, 2008 was $1.1 million, or $0.14 basic
loss per share and $0.14 diluted loss per share as compared to $4.2 million, or $0.55 basic
earnings per share and $0.54 diluted earnings per share for fiscal 2007 and $4.8 million, and $0.63
basic earnings per share and $0.62 diluted earnings per share for fiscal 2006.
The Companys results for the current year decreased by $5.3 million from the prior fiscal
year and $5.9 million from fiscal 2006. The Companys results for 2008 are attributable to a
decline in net interest income, a significant increase in the provision for loan losses, and a slight decrease
in non-interest income, partially offset by a decrease in non-interest expense. The decrease to net
interest income was primarily attributable to an increase in non-performing loans along with
balance sheet decreases in both interest-earning assets and interest-bearing liabilities. The
provision for loan loses increased as a result of the increase in non-performing loans and
estimated losses associated with specifically identified loans. Non-interest income decreased as a
result of losses on the sale of real estate owned and a decrease in the cash surrender value of
Bank-Owned Life Insurance (BOLI), partially offset by an increase in income from mortgage-banking
activities and increases in service charges and other fees, The decrease in non-interest expense is
attributable to decreases in compensation and benefits, office occupancy and equipment and
advertising expense.
Net Interest Income
Net interest income amounted to $22.2 million for the year ended June 30, 2008 as compared to
$25.3 million and $27.2 million for the years ended June 30, 2007 and 2006, respectively. Changes
in the level of net interest income reflect changes in interest rates and changes in volume of
interest-earning assets and interest-bearing liabilities. Tables 1 and 2 provide information as to
changes in the Companys net interest income.
Table 1 sets forth certain information relating to the Companys average interest-earning
assets (loans and securities) 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-accruing loans are included in the loan category.
37
Table 1 also presents information for the periods indicated 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 institutions net
interest income is its net interest margin or net yield on interest-earning assets, which is
its net interest income divided by the average balance of net interest-earning assets. Net interest
income is affected by the interest rate spread and by the relative amounts of interest-earning
assets and interest-bearing liabilities.
|
|
|
|
|
Table 1
|
|
Average Balances, Interest, and Average Yields and Costs
|
|
|
|
|
For the Year Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
(dollars in thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
726,034
|
|
|
$
|
51,655
|
|
|
|
7.11
|
%
|
|
$
|
741,723
|
|
|
$
|
56,760
|
|
|
|
7.65
|
%
|
|
$
|
709,789
|
|
|
$
|
50,986
|
|
|
|
7.18
|
%
|
Mortgage-backed securities
|
|
|
33,825
|
|
|
|
1,686
|
|
|
|
4.98
|
|
|
|
26,879
|
|
|
|
1,321
|
|
|
|
4.91
|
|
|
|
29,013
|
|
|
|
1,386
|
|
|
|
4.78
|
|
Securities and other interest-earning assets
|
|
|
63,807
|
|
|
|
3,144
|
|
|
|
4.93
|
|
|
|
80,876
|
|
|
|
3,939
|
|
|
|
4.87
|
|
|
|
77,989
|
|
|
|
3,279
|
|
|
|
4.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
823,666
|
|
|
|
56,485
|
|
|
|
6.86
|
|
|
|
849,478
|
|
|
|
62,020
|
|
|
|
7.30
|
|
|
|
816,791
|
|
|
|
56,651
|
|
|
|
6.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
56,649
|
|
|
|
|
|
|
|
|
|
|
|
59,012
|
|
|
|
|
|
|
|
|
|
|
|
53,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
880,315
|
|
|
|
|
|
|
|
|
|
|
$
|
908,490
|
|
|
|
|
|
|
|
|
|
|
$
|
870,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
657,189
|
|
|
$
|
27,829
|
|
|
|
4.23
|
|
|
$
|
661,410
|
|
|
$
|
28,600
|
|
|
|
4.32
|
%
|
|
$
|
609,685
|
|
|
$
|
20,777
|
|
|
|
3.41
|
%
|
Borrowings
|
|
|
124,827
|
|
|
|
6,446
|
|
|
|
5.16
|
|
|
|
148,822
|
|
|
|
8,105
|
|
|
|
5.45
|
|
|
|
165,441
|
|
|
|
7,631
|
|
|
|
4.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
782,016
|
|
|
|
34,275
|
|
|
|
4.38
|
|
|
|
810,232
|
|
|
|
36,705
|
|
|
|
4.53
|
|
|
|
775,126
|
|
|
|
28,408
|
|
|
|
3.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
27,095
|
|
|
|
|
|
|
|
|
|
|
|
27,724
|
|
|
|
|
|
|
|
|
|
|
|
27,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
809,111
|
|
|
|
|
|
|
|
|
|
|
|
837,956
|
|
|
|
|
|
|
|
|
|
|
|
802,422
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
71,204
|
|
|
|
|
|
|
|
|
|
|
|
70,534
|
|
|
|
|
|
|
|
|
|
|
|
67,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
880,315
|
|
|
|
|
|
|
|
|
|
|
$
|
908,490
|
|
|
|
|
|
|
|
|
|
|
$
|
870,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
22,210
|
|
|
|
|
|
|
|
|
|
|
$
|
25,315
|
|
|
|
|
|
|
|
|
|
|
$
|
27,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.48
|
%
|
|
|
|
|
|
|
|
|
|
|
2.77
|
%
|
|
|
|
|
|
|
|
|
|
|
3.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
2.70
|
%
|
|
|
|
|
|
|
|
|
|
|
2.98
|
%
|
|
|
|
|
|
|
|
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets
to average interest-bearing liabilities
|
|
|
|
|
|
|
105.33
|
%
|
|
|
|
|
|
|
|
|
|
|
104.84
|
%
|
|
|
|
|
|
|
|
|
|
|
105.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
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 Banks 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) and changes relating
to rate (changes in average rate multiplied by average old volume). Changes not solely attributable
to volume or rate have been allocated in proportion to the changes due to volume and rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 2
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
vs.
|
|
|
2007
|
|
|
2007
|
|
|
vs.
|
|
|
2006
|
|
|
|
Increase (Decrease)
|
|
|
Increase (Decrease)
|
|
|
|
Due to
|
|
|
Due to
|
|
(dollars in thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(1,181
|
)
|
|
$
|
(3,924
|
)
|
|
$
|
(5,105
|
)
|
|
$
|
2,355
|
|
|
$
|
3,419
|
|
|
$
|
5,774
|
|
Mortgage-backed securities
|
|
|
346
|
|
|
|
19
|
|
|
|
365
|
|
|
|
(106
|
)
|
|
|
41
|
|
|
|
(65
|
)
|
Securities and other interest-earning assets
|
|
|
(840
|
)
|
|
|
45
|
|
|
|
(795
|
)
|
|
|
126
|
|
|
|
534
|
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
(1,675
|
)
|
|
|
(3,860
|
)
|
|
|
(5,535
|
)
|
|
|
2,375
|
|
|
|
3,994
|
|
|
|
6,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
(182
|
)
|
|
|
(589
|
)
|
|
|
(771
|
)
|
|
|
1,875
|
|
|
|
5,948
|
|
|
|
7,823
|
|
Borrowings
|
|
|
(1,173
|
)
|
|
|
(486
|
)
|
|
|
(1,659
|
)
|
|
|
(538
|
)
|
|
|
1,012
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(1,355
|
)
|
|
|
(1,075
|
)
|
|
|
(2,430
|
)
|
|
|
1,337
|
|
|
|
6,960
|
|
|
|
8,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(320
|
)
|
|
$
|
(2,785
|
)
|
|
$
|
(3,105
|
)
|
|
$
|
1,038
|
|
|
$
|
(2,966
|
)
|
|
$
|
(1,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As is evidenced by these tables, interest rate changes had a negative effect on the Banks net
interest income for the year ended June 30, 2008. Due to the repricing characteristics of the
Banks loan portfolio and short-term nature of its deposit portfolio, along with changing interest
rates during the years ended June 30, 2008 and 2007, the Banks interest rate spread was 2.48
percent for fiscal year 2008, 2.77 percent for fiscal year 2007, and 3.15 percent for fiscal 2006.
The decline in the Banks interest rate spread in fiscal year 2008 is attributable to margin
compression and an increase in non-performing loans. Non-performing loans increased from $13.7
million at June 30, 2007 to $22.5 million at June 30, 2008, while interest reserved on those loans
increased by $1.1 million from the prior year.
Net interest income was unfavorably affected by volume changes during the year ended June 30,
2008 and favorably affected by volume changes during the years ended June 30, 2007. Accordingly,
net interest income declined by $0.3 million and grew by $1.0 million due to volume changes for the
years ended June 30, 2008 and 2007, respectively.
The rate/volume analysis illustrates the effect that volatile interest rate environments can
have on a financial institution.
Provision for Loan Losses
The Bank carefully monitors its loan portfolio and establishes levels of general and specific
reserves for loan losses. Provisions for loan losses are charged to earnings to bring the total
allowance for loan losses to a level considered adequate by management to provide for probable
incurred loan losses inherent in the loan portfolio as of each balance sheet date, based on prior
loss experience, volume and type of lending conducted by the Bank, industry standards and past due
loans in the Banks loan portfolio.
The Bank uses a systematic approach in determining the adequacy of its loan loss allowance and
the necessary provision for loan losses, whereby the loan portfolio is reviewed generally and
delinquent loan accounts are analyzed individually on a monthly basis. Consideration is given
primarily to the types of loans in the portfolio and the overall risk inherent in the portfolio as
well as, with respect to individual loans, account status, payment history, ability to repay and
probability of repayment, and loan-to-value percentages. After reviewing current economic
conditions, changes in delinquency status and actual loan losses incurred by the Bank, 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 with
respect to the allowance for loan losses, recognizing that future adjustments may be necessary
depending upon a change in economic conditions.
The Banks 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 loss of principal is probable. 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 general allowances based upon
the establishment of a risk category for each type of loan in the Banks portfolio.
39
For the year ended June 30, 2008, a provision for loan losses of $6,058,400 was recorded,
while a provision for loan losses of $1,102,500 was recorded in the prior year comparable period.
The provision for loan losses for the year ended June 30, 2008 reflects managements judgments
about the additional inherent risk in many of our portfolios as a result of negative trends in
delinquent and non-performing loans, the continued deterioration of national and local residential
markets, and negative local population and economic indicators. The current period provision for
loan losses also reflects an increase in specific loss reserves established for loans individually
identified as impaired.
The following table provides statistical measures of non-performing assets:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
(dollars in thousands)
|
|
2008
|
|
|
2007
|
|
Loans on non-accruing status
(1)
|
|
|
|
|
|
|
|
|
Real estate mortgages:
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
6,453
|
|
|
$
|
5,265
|
|
Commercial
|
|
|
3,001
|
|
|
|
3,122
|
|
Multi-family residential
|
|
|
152
|
|
|
|
|
|
Construction and land
|
|
|
12,350
|
|
|
|
4,663
|
|
Non real estate
|
|
|
533
|
|
|
|
603
|
|
|
|
|
|
|
|
|
Total loans on nonaccrual status
|
|
$
|
22,489
|
|
|
$
|
13,653
|
|
|
|
|
|
|
|
|
Ratio of nonperforming loans total loans
|
|
|
3.09
|
%
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
Other nonperforming assets
(2)
|
|
$
|
4,065
|
|
|
$
|
2,622
|
|
|
|
|
|
|
|
|
Total nonperforming assets
(3)
|
|
$
|
26,554
|
|
|
$
|
16,275
|
|
|
|
|
|
|
|
|
Total nonperforming assets to total assets
|
|
|
3.06
|
%
|
|
|
1.81
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Nonaccrual status denotes loans on which, in the opinion of management, the collection of
additional interest is unlikely, or loans that meet the nonaccrual criteria established by
regulatory authorities. Nonaccrual loans include all loans classified as doubtful or loss, and
loans greater than 90 days past due for which interest accrual has been discontinued. Payments
received on a nonaccrual loan are either applied to the outstanding principal balance or
recorded as interest income, depending on an assessment of the collectibility of the principal
balance of the loan.
|
|
(2)
|
|
Other nonperforming assets represent property acquired by the Bank through foreclosure or
repossession.
|
|
(3)
|
|
Excludes loans past due more than 90 days, still on accrual status.
|
40
The levels of non-accruing loans at June 30, 2007 and June 30, 2008 are attributable to poor
current local and economic conditions. Increasing interest rates have also negatively impacted our
borrowers ability to make scheduled loan payments. Due to an increase in foreclosure activity in
the area, the foreclosure process in Cuyahoga County, our primary market, has become elongated. As
such, loans have remained past due for considerable periods prior to being collected, transferred
to real estate owned, or charged off.
Of the $22.5 million and $13.7 million of non-accruing loans at June 30, 2008 and June 30,
2007, $16.0 million and $8.4 million, respectively were individually identified as impaired. All of
these loans are collateralized by various forms of non-residential real estate or residential
construction. These loans were reviewed for the likelihood of full collection based primarily on
the value of the underlying collateral, and, to the extent we believed collection of loan principal
was in doubt, we established specific loss reserves. Additionally, we determined $5.1 of land
development loans not included in non-accruing loans were also impaired as of June 30, 2008. Our
evaluation of the underlying collateral included a consideration of the potential impact of erosion
in real estate values due to poor local economic conditions and a potentially long foreclosure
process. This consideration involves obtaining an updated valuation of the underlying real estate
collateral and estimating carrying and disposition costs to arrive at an estimate of the net
realizable value of the collateral. Through our evaluation of the underlying collateral, we
determined that despite difficult conditions, these loans are generally well secured. Through this
process, we established specific loss reserves related to these loans outstanding at June 30, 2008
and June 30, 2007 of $1.9 million and $0.7 million, respectively.
Additionally, at June 30, 2008, we considered $8,262,249 of land and construction loans not
included in the non-accrual loans to be impaired. We established specific loss reserves of $0.9
million for these loans.
The remaining balance of non-performing loans represents homogeneous one-to-four family loans.
These loans are also subject to the rigorous process for evaluating and accruing for specific loan
loss situations described above. Through this process, we established specific loan loss reserves
of $0.6 million and $0.2 million for these loans as of June 30, 2008 and June 30, 2007.
During 2008, the Bank experienced an increase in the loan portfolio of $1.2 million, or 0.2
percent, while substantially maintaining the composition of the loan portfolio. The level of
classified assets increased from $21.7 million in 2007 to $43.5 million in 2008. The level of
non-accruing loans increased from $13.7 million in 2007 to $22.5 million in 2008. Net charge-offs
remained approximately the same at $1.1 million in 2007 and 2008. Therefore, taking into
consideration local economic conditions, the level of classified assets, as well as net charge-offs
and the overall performance of the loan portfolio, the Bank provided $6.2 million of additional
provision to bring the allowance to a level deemed appropriate of $9.7 million.
During 2007, the Bank experienced a decrease in the loan portfolio of $22.7 million, or 3.1
percent, while substantially maintaining the composition of the loan portfolio. The level of
classified assets increased from $15.2 million in 2006 to $21.7 million in 2007. The level of
non-accruing loans decreased from $15.5 million in 2006 to $13.7 million in 2007. Net charge-offs
increased from $0.5 million in 2006 to $1.2 million in 2007. Therefore, taking into consideration
the level of classified assets, as well as net charge-offs and the overall performance of the loan
portfolio, the Bank provided $1,102,500 of additional provision to bring the allowance to a level
deemed appropriate of $4.6 million.
Non-interest
Income
Non-interest income amounted to $2.5 million, $3.4 million and $2.0 million for the years
ended June 30, 2008, 2007 and 2006, respectively. The fluctuations in non-interest income are due
primarily to fluctuations in income derived from mortgage banking activities, fee income on deposit
accounts, gains and losses on the sale of real estate owned and the increase in the cash surrender
value of BOLI. Income attributable to mortgage banking activities consists of net loan servicing
income, gains and losses on the sale of loans, and market valuation provisions and recoveries.
Income from mortgage banking activities amounted to $1.5 million, $1.3 million and $0.8 million for
the years ended June 30, 2008, 2007 and 2006, respectively. The increase in income from mortgage
banking activities is primarily due to gains recorded on loans sold in 2008. Other components of
non-interest income amounted to $1.0 million, $2.1 million and $1.2 million for the years ended
June 30, 2008, 2007 and 2006, respectively. The decrease in other non-interest income of $0.9
million from the year ended June 30, 2007 to June 30, 2008 is attributable primarily to losses
recognized on the sale or direct write-down of real estate owned in 2008.
41
As required by SFAS 115, when a decline in fair value below cost is deemed to be
other-than-temporary, the unrealized loss must be recognized as a charge to earnings. The Companys
holding of this preferred stock has declined substantially in value since the June 30, 2008 balance
sheet date. Management evaluated this decline in value and decided its initial determination that
the Companys holdings were only temporarily impaired should be reassessed. Ultimately, the
Companys holdings of these shares were deemed to be other-than-temporarily impaired as of June 30,
2008 and a charge to earnings of $195,000 was recorded as of that date.
Non-interest Expense
Non-interest expense amounted to $20.8 million, $21.6 million and $21.5 million for the years
ended June 30, 2008, 2007 and 2006, respectively. The principal component of non-interest expense
is compensation and related benefits which amounted to $10.5 million, $12.1 million and $12.1
million for the years ended June 30, 2008, 2007 and 2006, respectively. The decrease in
compensation for the year ended June 30, 2008 is due primarily to decreased staffing. Office
occupancy totaled $3.1 million, $3.4 million and $3.8 million for the years ended June 30, 2008,
2007 and 2006, respectively. Other components of non-interest expense totaled $7.2 million, $6.1
million and $5.7 million for the years ended June 30, 2008, 2007 and 2006, respectively. Changes in
other non-interest expense are primarily the result of real estate owned expense and merger related
expenses.
Federal Income Taxes
The Companys federal income tax expense (benefit) was ($1.1) million, $1.7 million and $2.1
million for the years ended June 30, 2008, 2007 and 2006, respectively. Due to the availability of
tax credits for the years ended June 30, 2008, 2007 and 2006, the tax-advantaged treatment of BOLI
and other miscellaneous deductions, the Companys effective federal income tax rate was below the
expected tax rate of 35 percent with an effective rate of negative 50 percent for the year ended
June 30, 2008, an effective rate of 29 percent for the year ended June 30, 2007, and 30 percent for
the year ended June 30, 2006.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have been prepared in
accordance with U.S. generally accepted accounting principles, which require 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 Company are monetary
in nature. As a result, interest rates have a more significant impact on the Companys 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 Company, see
Market Risk Management.
Critical Accounting Policies and Estimates
The accounting and reporting policies of PVF Capital Corp. are in accordance with U.S.
generally accepted accounting principles and conform to general practices within the banking
industry. Application of these principles requires management to make estimates, assumptions and
judgments that affect the amounts reported in the financial statements and accompanying notes.
These estimates, assumptions and judgments are based on information available as of the date of the
financial statements. Accordingly, as this information changes, the financial statements could
reflect different estimates, assumptions and judgments.
The most significant accounting policies followed by PVF Capital Corp. are presented in Note 1
to the consolidated financial statements. Accounting and reporting policies for the allowance for
loan losses and mortgage servicing rights are deemed critical since they involve the use of
estimates and require significant management judgments. The allowance for loan losses is
established using percentages applied to each loan category based upon the Companys historical
losses and trends established for non-accruing and delinquent loans, residential foreclosures, and
changes to the local population and economy. PVF Capital Corp. provides further detail on the
methodology and reporting of the allowance for loan losses in Note 4 and mortgage servicing rights
in Note 5. Mortgage servicing rights are valued by an independent service provider.
42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
Market risk is the risk of loss arising from adverse changes in the fair value of financial
instruments due to changes in interest rates, exchange rates and equity prices. The Banks market
risk is composed of interest rate risk.
Asset/Liability Management: The Banks asset and liability committee (ALCO), which includes
senior management representatives and two outside directors, 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 Federals 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 Banks exposure to interest rate risk is reviewed on a quarterly basis by the ALCO and the
Board of Directors. Exposure to interest rate risk is measured with the use of interest rate
sensitivity analysis to determine the Banks 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 Banks 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 Bank has developed
strategies to manage its liquidity, shorten the effective maturity and increase the interest rate
sensitivity of its asset base. Management has sought to decrease the average maturity of its
assets by emphasizing the origination of adjustable-rate residential mortgage loans and
adjustable-rate 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) which are
then sold directly for cash in the secondary market.
Interest rate sensitivity analysis is used to measure the Banks 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 an immediate and sustained 1 and 2%
increase or decrease in market interest rates. The Banks Board of Directors has adopted an
interest rate risk policy which establishes maximum decreases in the NPV ratio (ratio of market
value of portfolio equity to the market value of portfolio assets) of 0.5 and 1.0% in the event of
an immediate and sustained 1 and 2% increase or decrease in market interest rates.
The following table presents the Banks projected change in NPV for the various rate shock
levels at June 30, 2007 and 2008. All market risk sensitive instruments presented in this table are
held to maturity or held for sale. The Bank has no trading securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2008
|
|
June 30, 2007
|
Change in
|
|
Market Value of
|
|
Dollar
|
|
NPV
|
|
Market Value of
|
|
Dollar
|
|
NPV
|
Interest Rates
|
|
Portfolio Equity
|
|
Change
|
|
Ratio
|
|
Portfolio Equity
|
|
Change
|
|
Ratio
|
+2%
|
|
$
|
93,478
|
|
|
$
|
(3,800
|
)
|
|
|
10.68
|
%
|
|
$
|
99,263
|
|
|
$
|
(7,290
|
)
|
|
|
10.99
|
%
|
+1%
|
|
|
96,001
|
|
|
|
(1,277
|
)
|
|
|
10.88
|
|
|
|
103,233
|
|
|
|
(3,320
|
)
|
|
|
11.33
|
|
0
|
|
|
97,278
|
|
|
|
|
|
|
|
10.94
|
|
|
|
106,553
|
|
|
|
|
|
|
|
11.59
|
|
-1%
|
|
|
97,328
|
|
|
|
50
|
|
|
|
10.88
|
|
|
|
108,404
|
|
|
|
1,851
|
|
|
|
11.71
|
|
-2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,908
|
|
|
|
1,355
|
|
|
|
11.60
|
|
The table illustrates that for June 30, 2008, in the event of an immediate and sustained
increase in prevailing market interest rates, the Banks NPV ratio would be expected to decrease,
while in the event of an immediate and sustained decrease in market interest rates, the Banks NPV
ratio would be expected to increase or stay flat. The Bank carefully monitors the maturity and
repricing of its interest-earning assets and interest-bearing liabilities to
43
minimize the effect of changing interest rates on its NPV. At June 30, 2008, the Banks estimated
changes in the NPV ratio were within the targets established by the Board of Directors in the event
of an immediate and sustained increase and decrease in prevailing market interest rates. The
Banks interest rate risk position is the result of the repricing characteristics of assets and
liabilities. The balance sheet is primarily comprised of interest-earning assets having a maturity
and repricing period of one month to five years. These assets were funded primarily utilizing
interest-bearing liabilities having a final maturity of two years or less and a repurchase
agreement. Management carefully monitors its interest rate risk position and will make the
necessary adjustments to its asset and liability mix to bring the Banks NPV ratio to within target
levels 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 quarters
ended June 30, 2008 and 2007, 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 Banks 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 Banks 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.
The Company 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 same
time period. A gap is considered positive when the amount of interest-rate-sensitive assets
exceeds the amount of interest-rate-sensitive liabilities and is considered negative when the
amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets.
Generally, during a period of rising interest rates, a negative gap would adversely affect net
interest income, while a positive gap would result in an increase in net interest income.
Conversely, during a period of falling interest rates, a negative gap would result in an increase
in net interest income, while a positive gap would negatively affect net interest income.
Managements goal is to maintain a reasonable balance between exposure to interest rate
fluctuations and earnings.
The following table summarizes the Companys interest rate sensitivity gap analysis at June
30, 2008. The table indicates that the Companys one year and under ratio of cumulative gap to
total assets is negative 6.1%, one-to-three year ratio of cumulative gap to total assets is
negative 13.1%, and three-to-five year ratio of cumulative gap to total assets is negative 4.6%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
1-3
|
|
3-5
|
|
>5
|
|
|
(dollars in thousands)
|
|
1 Year
|
|
Years
|
|
Years
|
|
Years
|
|
Total
|
|
Total interest rate-sensitive assets
|
|
$
|
363,844
|
|
|
$
|
159,385
|
|
|
$
|
129,731
|
|
|
$
|
167,342
|
|
|
$
|
820,302
|
|
Total interest rate-sensitive liabilities
|
|
|
416,656
|
|
|
|
220,586
|
|
|
|
55,595
|
|
|
|
64,040
|
|
|
|
756,877
|
|
Periodic GAP
|
|
|
(52,812
|
)
|
|
|
(61,201
|
)
|
|
|
74,136
|
|
|
|
103,302
|
|
|
|
63,425
|
|
Cumulative GAP
|
|
|
(52,812
|
)
|
|
|
(114,013
|
)
|
|
|
(39,876
|
)
|
|
|
63,425
|
|
|
|
|
|
Ratio of cumulative GAP to total assets
|
|
|
(6.1
|
)%
|
|
|
(13.1
|
)%
|
|
|
(4.6
|
)%
|
|
|
7.3
|
%
|
|
|
|
|
44
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Shareholders
PVF Capital Corp.
Solon, Ohio
We have audited the accompanying consolidated statements of financial condition of PVF Capital
Corp. (Company) as of June 30, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders equity and cash flows
for each of the three years in the period ended June 30, 2008. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 the Company as of June 30, 2008 and 2007, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 2008, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of PVF Capital Corp.s internal control over financial reporting as of June 30, 2008, based on criteria
established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report
dated September 15, 2008 expressed an unqualified opinion thereon.
/s/
Crowe Horwath LLP
Cleveland, Ohio
September 15, 2008
45
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Years ended June 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and amounts due from depository institutions
|
|
$
|
7,455,720
|
|
|
$
|
20,293,042
|
|
Interest bearing deposits
|
|
|
700,674
|
|
|
|
622,537
|
|
Federal funds sold
|
|
|
9,648,000
|
|
|
|
7,542,000
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
17,804,394
|
|
|
|
28,457,579
|
|
Securities available for sale
|
|
|
1,890,000
|
|
|
|
|
|
Securities held to maturity (fair values of $7,603,907 and
$58,068,865, respectively)
|
|
|
7,580,000
|
|
|
|
58,000,000
|
|
Mortgage-backed securities held to maturity (fair values
of $53,259,867 and $24,302,048, respectively)
|
|
|
55,151,069
|
|
|
|
25,879,520
|
|
Loans receivable held for sale, net
|
|
|
7,830,994
|
|
|
|
14,993,380
|
|
Loans receivable, net of allowance of
$9,653,972 and $4,580,549
|
|
|
714,492,406
|
|
|
|
713,328,818
|
|
Office properties and equipment, net
|
|
|
9,232,711
|
|
|
|
10,588,375
|
|
Real estate owned
|
|
|
4,064,708
|
|
|
|
2,621,555
|
|
Federal Home Loan Bank stock
|
|
|
12,640,600
|
|
|
|
12,311,600
|
|
Bank-owned life insurance
|
|
|
23,009,038
|
|
|
|
22,210,217
|
|
Prepaid expenses and other assets
|
|
|
13,706,218
|
|
|
|
12,425,315
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
867,402,138
|
|
|
$
|
900,816,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
659,385,765
|
|
|
$
|
658,052,649
|
|
Short-term advances from the FHLB
|
|
|
9,000,000
|
|
|
|
65,000,000
|
|
Line of credit
|
|
|
950,000
|
|
|
|
1,260,000
|
|
Long-term advances from the FHLB
|
|
|
35,000,000
|
|
|
|
10,000,000
|
|
Repurchase agreement
|
|
|
50,000,000
|
|
|
|
50,000,000
|
|
Subordinated debentures
|
|
|
20,000,000
|
|
|
|
20,000,000
|
|
Advances from borrowers for taxes and insurance
|
|
|
8,973,604
|
|
|
|
8,546,669
|
|
Accrued expenses and other liabilities
|
|
|
15,017,435
|
|
|
|
16,467,200
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
798,326,804
|
|
|
|
829,326,518
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value,
|
|
|
|
|
|
|
|
|
15,000,000 shares authorized;
8,246,548 and 8,204,536 shares issued, respectively
|
|
|
82,465
|
|
|
|
82,045
|
|
Additional paid-in capital
|
|
|
69,155,729
|
|
|
|
68,743,626
|
|
Retained earnings
|
|
|
3,674,287
|
|
|
|
6,501,317
|
|
Treasury stock at cost, 472,725 shares, respectively
|
|
|
(3,837,147
|
)
|
|
|
(3,837,147
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
69,075,334
|
|
|
|
71,489,841
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
867,402,138
|
|
|
$
|
900,816,359
|
|
|
|
|
|
|
|
|
46
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years ended June 30, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Interest and dividends income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
51,654,829
|
|
|
$
|
56,759,624
|
|
|
$
|
50,985,531
|
|
Mortgage-backed securities
|
|
|
1,686,115
|
|
|
|
1,321,132
|
|
|
|
1,385,572
|
|
Federal Home Loan Bank stock dividends
|
|
|
747,998
|
|
|
|
749,727
|
|
|
|
638,807
|
|
Securities
|
|
|
1,736,182
|
|
|
|
2,612,547
|
|
|
|
2,273,566
|
|
Fed funds sold and interest-bearing deposits
|
|
|
660,275
|
|
|
|
576,882
|
|
|
|
367,080
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
56,485,399
|
|
|
|
62,019,912
|
|
|
|
55,650,556
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
27,829,011
|
|
|
|
28,599,492
|
|
|
|
20,776,397
|
|
Short-term borrowings
|
|
|
1,552,673
|
|
|
|
3,165,122
|
|
|
|
2,816,260
|
|
Long-term borrowings
|
|
|
3,430,015
|
|
|
|
3,390,503
|
|
|
|
4,121,641
|
|
Subordinated debt
|
|
|
1,463,602
|
|
|
|
1,549,920
|
|
|
|
693,292
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
34,275,301
|
|
|
|
36,705,037
|
|
|
|
28,407,590
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
22,210,098
|
|
|
|
25,314,875
|
|
|
|
27,242,966
|
|
Provision for loan losses
|
|
|
6,058,400
|
|
|
|
1,102,500
|
|
|
|
826,300
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses
|
|
|
16,151,698
|
|
|
|
24,212,375
|
|
|
|
26,416,666
|
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and other fees
|
|
|
823,251
|
|
|
|
815,395
|
|
|
|
609,040
|
|
Mortgage banking activities, net
|
|
|
1,461,249
|
|
|
|
1,270,998
|
|
|
|
834,471
|
|
Gain (loss) on disposal and write downs of real estate
owned
|
|
|
(762,961
|
)
|
|
|
259,537
|
|
|
|
(35,330
|
)
|
Other than temporary impairment of securities
|
|
|
(195,140
|
)
|
|
|
|
|
|
|
|
|
Increase in cash surrender value of
bank-owned life insurance
|
|
|
798,821
|
|
|
|
870,832
|
|
|
|
597,447
|
|
Other, net
|
|
|
333,131
|
|
|
|
159,340
|
|
|
|
22,606
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
2,458,351
|
|
|
|
3,376,102
|
|
|
|
2,028,234
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation, benefits and directors fees
|
|
|
10,530,464
|
|
|
|
12,149,480
|
|
|
|
12,060,345
|
|
Office, occupancy, and equipment
|
|
|
3,120,566
|
|
|
|
3,387,369
|
|
|
|
3,815,592
|
|
Insurance
|
|
|
587,639
|
|
|
|
278,324
|
|
|
|
295,724
|
|
Professional and legal
|
|
|
808,000
|
|
|
|
569,000
|
|
|
|
492,061
|
|
Advertising
|
|
|
384,071
|
|
|
|
688,878
|
|
|
|
572,477
|
|
Outside services
|
|
|
1,408,177
|
|
|
|
1,445,038
|
|
|
|
1,430,915
|
|
Franchise tax
|
|
|
1,069,911
|
|
|
|
982,737
|
|
|
|
881,691
|
|
Real estate owned expense
|
|
|
996,113
|
|
|
|
306,783
|
|
|
|
187,824
|
|
Other
|
|
|
1,900,630
|
|
|
|
1,826,272
|
|
|
|
1,812,771
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
20,805,571
|
|
|
|
21,633,881
|
|
|
|
21,549,400
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes
|
|
|
(2,195,522
|
)
|
|
|
5,954,596
|
|
|
|
6,895,500
|
|
Federal income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
598,656
|
|
|
|
2,219,821
|
|
|
|
2,323,692
|
|
Deferred
|
|
|
(1,693,521
|
)
|
|
|
(499,549
|
)
|
|
|
(271,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,094,865
|
)
|
|
|
1,720,272
|
|
|
|
2,052,499
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,100,657
|
)
|
|
$
|
4,234,324
|
|
|
$
|
4,843,001
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.14
|
)
|
|
$
|
0.55
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.14
|
)
|
|
$
|
0.54
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
47
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years ended June 30, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
|
|
|
|
stock
|
|
|
capital
|
|
|
earnings
|
|
|
stock
|
|
|
Total
|
|
Balance at July 1, 2005
|
|
$
|
81,758
|
|
|
$
|
68,288,834
|
|
|
$
|
1,663,992
|
|
|
$
|
(3,581,405
|
)
|
|
$
|
66,453,179
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,843,001
|
|
|
|
|
|
|
|
4,843,001
|
|
Stock options exercised,
26,038 shares
|
|
|
260
|
|
|
|
144,477
|
|
|
|
|
|
|
|
|
|
|
|
144,737
|
|
Stock purchased and retired,
12,950 shares
|
|
|
(129
|
)
|
|
|
(140,975
|
)
|
|
|
|
|
|
|
|
|
|
|
(141,104
|
)
|
Cash paid in lieu of fractional shares
|
|
|
|
|
|
|
|
|
|
|
(3,022
|
)
|
|
|
|
|
|
|
(3,022
|
)
|
Cash dividend, $0.296 per share
|
|
|
|
|
|
|
|
|
|
|
(2,282,670
|
)
|
|
|
|
|
|
|
(2,282,670
|
)
|
Purchase of 21,637 shares
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255,742
|
)
|
|
|
(255,742
|
)
|
Paid in capital related to stock
based compensation
|
|
|
|
|
|
|
214,761
|
|
|
|
|
|
|
|
|
|
|
|
214,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
$
|
81,889
|
|
|
$
|
68,507,097
|
|
|
$
|
4,221,301
|
|
|
$
|
(3,837,147
|
)
|
|
$
|
68,973,140
|
|
Cumulative adjustment related to
SAB 108 adoption
|
|
|
|
|
|
|
|
|
|
|
334,074
|
|
|
|
|
|
|
|
334,074
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,234,324
|
|
|
|
|
|
|
|
4,234,324
|
|
Stock options exercised, including
income tax benefits, 43,099 shares
|
|
|
431
|
|
|
|
311,105
|
|
|
|
|
|
|
|
|
|
|
|
311,536
|
|
Stock purchased and retired,
27,430 shares
|
|
|
(275
|
)
|
|
|
(293,266
|
)
|
|
|
|
|
|
|
|
|
|
|
(293,541
|
)
|
Cash dividend, $0.296 per share
|
|
|
|
|
|
|
|
|
|
|
(2,288,382
|
)
|
|
|
|
|
|
|
(2,288,382
|
)
|
Paid in capital related to stock
based compensation
|
|
|
|
|
|
|
218,690
|
|
|
|
|
|
|
|
|
|
|
|
218,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
$
|
82,045
|
|
|
$
|
68,743,626
|
|
|
$
|
6,501,317
|
|
|
$
|
(3,837,147
|
)
|
|
$
|
71,489,841
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
(1,100,657
|
)
|
|
|
|
|
|
|
(1,100,657
|
)
|
Stock options exercised, including
income tax benefits, 48,424 share
|
|
|
484
|
|
|
|
395,697
|
|
|
|
|
|
|
|
|
|
|
|
396,181
|
|
Stock purchased and retired,
6,412 shares
|
|
|
(64
|
)
|
|
|
(96,362
|
)
|
|
|
|
|
|
|
|
|
|
|
(96,426
|
)
|
Cash dividend, $0.222 per share
|
|
|
|
|
|
|
|
|
|
|
(1,726,373
|
)
|
|
|
|
|
|
|
(1,726,373
|
)
|
Paid in capital related to stock
based compensation
|
|
|
|
|
|
|
112,768
|
|
|
|
|
|
|
|
|
|
|
|
112,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
82,465
|
|
|
$
|
69,155,729
|
|
|
$
|
3,674,287
|
|
|
$
|
(3,837,147
|
)
|
|
$
|
69,075,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,100,657
|
)
|
|
$
|
4,234,324
|
|
|
$
|
4,843,001
|
|
Adjustments required to reconcile net
income (loss) to net cash from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization of premium (accretion of
Discount) on mortgage-backed securities
|
|
|
20,394
|
|
|
|
27,414
|
|
|
|
46,883
|
|
Depreciation
|
|
|
1,480,069
|
|
|
|
1,733,005
|
|
|
|
1,816,028
|
|
Provision for loan losses
|
|
|
6,058,400
|
|
|
|
1,102,500
|
|
|
|
826,300
|
|
Other than temporary impairment of
securities
|
|
|
195,140
|
|
|
|
|
|
|
|
|
|
Change in deferred loan
origination fees, net
|
|
|
(146,585
|
)
|
|
|
(43,662
|
)
|
|
|
(450,748
|
)
|
(Gain)/loss on disposal of real estate owned
|
|
|
762,961
|
|
|
|
(259,537
|
)
|
|
|
35,330
|
|
Market adjustments for loans held for sale
|
|
|
(9,239
|
)
|
|
|
(105,600
|
)
|
|
|
156,000
|
|
Change in fair value of mortgage
banking derivatives
|
|
|
(205,226
|
)
|
|
|
(131,300
|
)
|
|
|
239,000
|
|
Stock compensation
|
|
|
112,768
|
|
|
|
218,690
|
|
|
|
214,761
|
|
FHLB stock dividends
|
|
|
(329,000
|
)
|
|
|
(356,600
|
)
|
|
|
(638,600
|
)
|
Deferred income tax provision
|
|
|
(1,693,521
|
)
|
|
|
(499,549
|
)
|
|
|
(271,193
|
)
|
Proceeds from loans held for sale
|
|
|
137,120,839
|
|
|
|
92,325,628
|
|
|
|
104,648,344
|
|
Originations of loans held for sale
|
|
|
(130,667,228
|
)
|
|
|
(97,071,408
|
)
|
|
|
(107,212,344
|
)
|
Gain on the sale of loans, net
|
|
|
(779,821
|
)
|
|
|
(376,533
|
)
|
|
|
(633,782
|
)
|
Increase in cash surrender value of
bank-owned life insurance
|
|
|
(798,821
|
)
|
|
|
(870,832
|
)
|
|
|
(597,447
|
)
|
Net change in other assets
and other liabilities
|
|
|
1,237,914
|
|
|
|
2,920,034
|
|
|
|
348,671
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
11,258,387
|
|
|
|
2,846,574
|
|
|
|
2,672,854
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans originated
|
|
|
(112,293,235
|
)
|
|
|
(159,977,902
|
)
|
|
|
(243,702,577
|
)
|
Principal repayments on loans
|
|
|
99,373,837
|
|
|
|
178,384,902
|
|
|
|
166,437,367
|
|
Principal repayments on mortgage-
backed securities held to maturity
|
|
|
3,264,230
|
|
|
|
3,248,086
|
|
|
|
5,201,834
|
|
Purchase of mortgage-backed securities
held to maturity
|
|
|
(32,556,173
|
)
|
|
|
(1,577,097
|
)
|
|
|
(1,106,607
|
)
|
Purchase of securities held to maturity
|
|
|
(48,580,000
|
)
|
|
|
|
|
|
|
(500,000
|
)
|
Maturities and calls of securities held
to maturity
|
|
|
99,000,000
|
|
|
|
|
|
|
|
|
|
Purchase of securities available for sale
|
|
|
(2,085,140
|
)
|
|
|
|
|
|
|
|
|
Additions to office properties and
Equipment
|
|
|
(124,405
|
)
|
|
|
(288,688
|
)
|
|
|
(435,489
|
)
|
Acquisition of bank-owned life insurance
|
|
|
|
|
|
|
(5,000,000
|
)
|
|
|
|
|
Proceeds from disposals of real estate owned
|
|
|
3,637,881
|
|
|
|
2,231,674
|
|
|
|
1,785,449
|
|
Investments in nonconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
(131,750
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
9,636,995
|
|
|
|
17,020,975
|
|
|
|
(72,451,773
|
)
|
|
|
|
|
|
|
|
|
|
|
49
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term FHLB advances
|
|
|
35,000,000
|
|
|
|
|
|
|
|
|
|
Payments on long-term FHLB advances
|
|
|
(10,000,000
|
)
|
|
|
(10,000,000
|
)
|
|
|
(100,012,018
|
)
|
Net change in short-term FHLB advances
|
|
|
(56,000,000
|
)
|
|
|
(10,000,000
|
)
|
|
|
60,000,000
|
|
Proceeds from repurchase agreement
|
|
|
|
|
|
|
|
|
|
|
50,000,000
|
|
Net change in line of credit
|
|
|
(310,000
|
)
|
|
|
(512,871
|
)
|
|
|
1,772,871
|
|
Repayment of note payable
|
|
|
|
|
|
|
|
|
|
|
(1,400,780
|
)
|
Net change in NOW and passbook savings
|
|
|
(880,007
|
)
|
|
|
10,459,030
|
|
|
|
31,083,809
|
|
Proceeds from issuance of certificates
of deposit
|
|
|
152,309,566
|
|
|
|
87,367,516
|
|
|
|
130,717,293
|
|
Payments on maturing certificates of deposit
|
|
|
(150,096,443
|
)
|
|
|
(96,638,098
|
)
|
|
|
(96,163,379
|
)
|
Proceeds from issuance of subordinated
Debentures
|
|
|
|
|
|
|
10,000,000
|
|
|
|
|
|
Net increase (decrease) in advances
from borrowers
|
|
|
426,935
|
|
|
|
444,571
|
|
|
|
4,917,117
|
|
Payment of cash dividend
|
|
|
(2,298,373
|
)
|
|
|
(2,286,382
|
)
|
|
|
(2,235,692
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(255,742
|
)
|
Proceeds from exercise of stock options
|
|
|
336,170
|
|
|
|
308,272
|
|
|
|
144,737
|
|
Income tax benefit from exercise of stock options
|
|
|
60,011
|
|
|
|
3,264
|
|
|
|
|
|
Stock repurchased and retired
|
|
|
(96,426
|
)
|
|
|
(293,541
|
)
|
|
|
(141,104
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(31,548,567
|
)
|
|
|
(11,148,239
|
)
|
|
|
78,427,112
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(10,653,185
|
)
|
|
|
8,719,310
|
|
|
|
8,648,193
|
|
Cash and cash equivalents at beginning
of year
|
|
|
28,457,579
|
|
|
|
19,738,269
|
|
|
|
11,090,076
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
17,804,394
|
|
|
$
|
28,457,579
|
|
|
$
|
19,738,269
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments of interest
|
|
$
|
34,275,694
|
|
|
$
|
36,659,064
|
|
|
$
|
28,546,235
|
|
Cash payments of income taxes
|
|
|
954,000
|
|
|
|
2,483,000
|
|
|
|
2,316,000
|
|
Supplemental schedule of noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to real estate owned
|
|
$
|
5,843,995
|
|
|
$
|
3,776,413
|
|
|
$
|
1,318,807
|
|
50
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
The accounting and reporting policies of PVF Capital Corp. and its subsidiaries (Company) conform
to U.S. generally accepted accounting principles and general industry practice. The Companys
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, Lake, Medina, Lorain and Portage
Counties, Ohio. The deposit accounts of the Bank are insured up to applicable limits under 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,
PVF Service Corporation (PVFSC), PVF Holdings, Inc., and Mid-Pines Land Co. PVFSC owns some Bank
premises and leases them to the Bank. PVF Holdings, Inc. and Mid-Pines Land Co. did not have any
significant assets or activity as of or for the years ended June 30, 2008, 2007, or 2006. All
significant intercompany transactions and balances are eliminated in consolidation.
PVFSC and the Bank have entered into various nonconsolidated joint ventures that own real estate
including properties leased to the Bank. The Bank has created a limited liability company, Crock,
LLC that has taken title to property acquired through or in lieu of foreclosure.
PVF Capital Trust I and PVF Capital Trust II (collectively Trusts) were created for the sole
purpose of issuing trust preferred securities. The Trusts are not consolidated into the financial
statements.
Use of Estimates
: The preparation of financial statements in conformity with U.S.
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. The
allowance for loan losses, valuation of mortgage servicing rights, fair value of mortgage banking
derivatives, valuation of loans held for sale, fair value of securities, valuation of real estate
owned and the Companys supplemental employee retirement plan accrual are particularly subject to
change.
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. Net cash
flows are reported for NOW and passbook savings accounts, short-term borrowings, and advances from
borrowers.
Interest-bearing Deposits:
Interest-bearing deposits in other financial institutions
mature within one year and are carried at cost.
Securities
: Securities held to maturity are limited to debt securities that the Company
has the positive intent and the ability to hold to maturity; these securities are reported at
amortized cost. Debt securities that could be sold in the future because of changes in interest
rates or other factors are not to be classified as held to maturity. Equity securities with readily
determinable fair values are classified as available for sale. Securities available for sale are
carried at fair value, with unrealized holding gains and losses reported in other comprehensive
income, net of tax.
Interest income includes amortization of purchase premium or accretion of purchase discount.
Premiums and discounts are amortized or accreted over the life of the related security as an
adjustment to yield. Prepayment is assumed for mortgage-backed securities.
51
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(Continued)
A decline in fair value of any security below cost that is deemed other than temporary is charged
to earnings resulting in establishment of a new cost basis for the security. Managements
consideration as to whether a decline in fair value is other-than-temporary is based on the length
of time and extent that fair value has been less than cost, the financial condition of the issuer,
and the Companys ability and intent to hold the security for a period sufficient to allow for any
anticipated recovery in fair value.
Mortgage Banking Activities
: Mortgage loans originated and intended for sale in the
secondary market include deferred origination fees and costs and are carried at the lower of cost
or fair value, determined on an aggregate basis. The fair value of mortgage loans held for sale is
based on market prices and yields at period end in normal market outlets used by the Company. Net
unrealized losses, if any, are recorded as valuation allowance and charged to earnings.
The Company sells the loans on either a servicing retained or servicing released basis. For sales
of mortgage loans prior to July 1, 2007, a portion of the cost of the loan was allocated to the
servicing right based on relative fair values. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 156 on July 1, 2007, and for sales of mortgage loans beginning in
fiscal 2008, servicing rights are initially recorded at fair value with the income statement effect
recorded in gains on sales of loans. There was no impact on the
financial statements at the time of adoption as the Company continues to measure servicing assets using the
amortization method. Fair value is based on market prices for comparable mortgage
servicing contracts, when available, or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. Loan servicing rights is
amortized in proportion to and over the period of estimated net future servicing revenue. The
expected period of the estimated net servicing income is based in part on the expected prepayment
of the underlying mortgages. The amortized balance of mortgage servicing rights is included in
prepaid expenses and other assets on the Consolidated Statement of Financial Condition.
Mortgage servicing rights are periodically evaluated for impairment. Impairment represents the
excess of amortized cost over its estimated fair value. Fair value is determined using prices for
similar assets with similar characteristics, when available, or based upon discounted cash flows
using market-based assumptions. Impairment is determined by stratifying rights into tranches based
on predominant risk characteristics, such as interest rate and original time to maturity. Any
impairment is reported as a valuation allowance for an individual tranche. If the Company later
determines that all or a portion of the impairment no longer exists for a particular grouping, a
reduction of the allowance will be recorded as an increase to income.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
contractual percentage of outstanding principal and are recorded as income when earned. The
amortization of mortgage servicing rights is netted against loan servicing fee income. Late fees
and ancillary fees related to loan servicing are not material.
The Company is exposed to interest rate risk on loans held for sale and rate-locked loan
commitments. As market interest rates increase or decrease, the fair value of loans held for sale
and rate-lock commitments will decline or increase. The Company enters into derivative transactions
principally to protect against the risk of adverse interest movements affecting the value of the
Companys committed loan sales pipeline. In order to mitigate the risk that a change in interest
rates will result in a decline in value of the Companys interest rate lock commitments (IRLCs)
in the committed mortgage pipeline or its loans held for sale, the Company enters into mandatory
forward loan sales contracts with secondary market participants.
Mandatory forward sales contracts and committed loans intended to be held for sale are considered
free-standing derivative instruments and changes in fair value are recorded in current period
earnings. For committed loans, fair value is measured using current market rates for the associated
mortgage loans. For mandatory forward sales contracts, fair value is measured using secondary
market pricing.
52
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS (
Continued)
On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments
Recorded at Fair Value through Earnings (SAB 109). Previously, SAB 105, Application of Accounting
Principles to Loan ccommitments, stated that in measuring the fair value of a derivative loan
commitment, a company should not incorporate the expected net future cash flows related to the
associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net
future cash flows related to the associated servicing of the loan should be included in measuring
fair value for all written loan commitments that are accounted for at fair value through earnings.
SAB 105 also indicated that internally-developed intangible assets should not be recorded as part
of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 became
effective for the Company for derivative loan commitments issued or modified after January 1, 2008.
As a result of adoption of this standard, the Company recorded additional mortgage banking income
in the consolidated statement of operations of $247,577.
Loans Receivable
: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal balance outstanding,
net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued
on the unpaid principal balance and includes amortization of net deferred loan fees and costs over
the loan term.
Interest income accrued on loans is discontinued at the time the loan is 90 days delinquent unless
the loan is well-secured and in the process of collection. In all cases, loans are placed on
non-accrual or charged-off at an earlier date if collection of principal or interest is considered
doubtful. 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. Past due status is based on the contractual terms of the loan.
Allowance for Loan Losses
: The allowance for loan losses is maintained at a level to
absorb probable incurred losses in the portfolio as of the balance sheet date. The adequacy of the
allowance for loan losses is periodically evaluated by the Bank based upon the overall portfolio
composition and general market conditions as well as information about specific borrower situations
and estimated collateral values. 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. The allowance consists of
specific and general components. The specific component relates to loans that are individually
classified as impaired. The general component covers loans not individually classified as impaired
and is based on historical loss experience adjusted for current factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available for any loan that,
in managements judgment, should be charged off. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance for loan losses.
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 Banks loans are primarily collateral
dependent, measurement of impairment is based on the fair value of the collateral. Large groups of
smaller balance homogeneous loans are collectively evaluated for impairment and accordingly, they
are not separately identified for impairment disclosures.
The Banks loan portfolio is primarily secured by real estate. Collection of real estate secured
loans in the portfolio is dependent on court proceedings, and as a result, loans may remain past
due for an extended period before being collected, transferred to real estate owned, or charged
off. Charge-offs are recorded after the foreclosure process is complete for any deficiency between
the Banks recorded investment in the loan and the fair value of the real estate acquired or sold,
to the extent that such a deficiency exists.
53
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS (
Continued)
Transfers of Financial Assets
: Transfers of financial assets are accounted for as sales,
when control over the assets has been relinquished. Control over transferred assets is deemed to be
surrendered when the assets have been isolated from
the Company, the transferee obtains the right (free of conditions to constrain it from taking that
right) to pledge or exchange the transferred assets, and the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them before their maturity.
Office Properties and Equipment
: Land is carried at cost. Buildings and equipment are
stated at cost less accumulated depreciation. 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.
Estimated lives for buildings are 40 years. Estimated lives for equipment range from 1 to 10 years.
Real Estate Owned
: Assets acquired through or instead of loan foreclosure are initially
recorded at fair value less estimated selling costs, establishing a new cost basis. If fair value
declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating
costs after acquisition are expensed.
Federal Home Loan Bank (FHLB) Stock
: The Bank is a member of the FHLB system. Members are
required to own a certain amount of stock based on the level of borrowings and other factors, and
may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted
security, and periodically evaluated for impairment based on ultimate recovery of par value. Both
cash and stock dividends are reported as income.
Long-Term Assets
: Office properties and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair value.
Bank-Owned Life Insurance
: The Company has purchased life insurance policies on certain key
executives. Upon adoption of Emerging Issues Task Force (EITF) No. 06-5, which is discussed
further below, Bank-owned life insurance is recorded at the amount that can be realized under the
insurance contract at the balance sheet date, which is the cash surrender value, adjusted for other
charges or other amounts due that are probable at settlement.
In September 2006, the FASB finalized EITF No. 06-5,
Accounting for Purchases of Life Insurance
Determining the Amount That Can Be Realized in Accordance with FASB Technical Bulletin No. 85-4
(Accounting for Purchases of Life Insurance).
EITF No. 06-5 requires that a policyholder consider
contractual terms of a life insurance policy in determining the amount that could be realized under
the insurance contract. It also requires that if the contract provides for a greater surrender
value if all individual policies in a group are surrendered at the same time, that the surrender
value be determined based on the assumption that policies will be surrendered on an individual
basis. Lastly, EITF No. 06-5 requires disclosure when there are contractual restrictions on the
Companys ability to surrender a policy. The adoption of EIFT No. 06-5 on July 1, 2007 had no
impact on the Companys financial condition or results of operation.
Income Taxes
: Income tax expense is the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
The Company adopted FASB Interpretation 48,
Accounting for Uncertainty in Income Taxes
(FIN 48),
as of July 1, 2007. A tax position is recognized as a benefit only if it is more likely than not
that the tax position would be sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the more likely than
not test, no tax benefit is recorded. The adoption had no affect on the Companys financial
statements.
54
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS (
Continued)
The Company recognizes interest and/or penalties related to income tax matters in income tax
expense. The company is no longer subject to examination by taxing authorities for years before 2003.
Stock Compensation
:
Employee compensation expense under stock option plans is reported
using the fair value recognition provisions under FASB Statement 123 (revised 2004) (FAS 123R),
Share Based Payment. The Company has adopted FAS 123R using the modified prospective method.
Under this method, compensation expense has been recognized for the unvested portion of previously
issued awards that remained outstanding as of July 1, 2005 and for any awards granted since that
date.
Comprehensive Income
: Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on securities available for
sale. The Company had no other comprehensive
income in 2007, or 2006; therefore comprehensive income was equal to net income.
Earnings Per Share
:
Basic earnings per share is calculated by dividing net income for the
period by the weighted average number of shares of common stock outstanding during the period. The
additional potential common shares issuable under stock options are included in the calculation of
diluted earnings per share.
Loss Contingencies
:
Loss contingencies, including claims and legal actions arising in the
ordinary course of business, are recorded as liabilities when the likelihood of loss is probable
and an amount or range of loss can be reasonably estimated. Management does not believe there now
are such matters that will have a material effect on the financial statements.
Loan Commitments and Related Financial Instruments
: Financial instruments include
off-balance-sheet credit instruments, such as commitments to make loans issued to meet customer
financing needs. The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay. Such financial instruments are recorded when
they are funded.
Restrictions on Cash
: Cash on deposit with another institution of $1,473,000 and $323,000
was required to meet regulatory reserve requirements at June 30, 2008 and 2007 respectively. These
balances do not earn interest.
Stockholders Equity
: Stock dividends in excess of 20% are reported by transferring the
par value of the stock issued from retained earnings to common stock. Stock dividends for 20% or
less are reported by transferring the fair value, as of the ex-dividend date, of the stock issued
from retained earnings to common stock and additional paid in capital. Fractional share amounts are
paid in cash with a reduction in retained earnings.
Dividend Restriction
: Banking regulations require maintaining certain capital levels and
may limit the dividend paid by the Bank to the Company or by the Company to shareholders. See Note
13 for more specific disclosure related to federal savings banks.
Fair Value of Financial Instruments
: Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully disclosed in a separate
note. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular items. Changes in assumptions or in market conditions could significantly
affect the estimates.
55
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS (
Continued)
Operating Segments
: While the Companys chief decision-makers monitor the revenue
streams of the various Company products and services, the identifiable segments are not material
and operations are managed and financial performance is evaluated on a Company-wide basis.
Accordingly, all of the Companys financial service operations are considered by management to be
aggregated in one reportable operating segment.
Reclassifications
: Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
Effect of Newly Issued But Not Yet Effective Accounting Standards
: In July 2006, the
Emerging Issues Task Force (EITF) of FASB issued a draft abstract for EITF Issue No. 06-04,
Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangement. This draft abstract from EITF reached a consensus that
for an endorsement split-dollar life insurance arrangement within the scope of this Issue, an
employer should recognize a liability for future benefits in accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. The Task Force concluded
that a liability for the benefit obligation under SFAS No. 106 has not been settled through the
purchase of an endorsement type life insurance policy. In September 2006, FASB agreed to ratify the
consensus reached in EITF Issue No. 06-04. This new accounting standard will be effective for
fiscal years beginning after December 15, 2007. The adoption of EITF Issue No. 06-04 will not have
a material effect on the financial statements as the Company has no endorsement split dollar
arrangements.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. This statement establishes a fair value
hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and
the effect of a restriction on the sale or use of an asset. SFAS No. 157 is effective for financial
statements issued by the Company beginning July 1, 2008. The adoption of this standard will not
have a material impact on the Companys financial statements as of the date of adoption.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 gives entities the option to measure eligible financial assets
and financial liabilities at fair value on an instrument by instrument basis that are otherwise not
permitted to be accounted for at fair value under other accounting standards. The election to use
the fair value option is available when an entity first recognizes a financial asset or financial
liability. Subsequent changes in fair value must be reported in earnings. SFAS No. 159 is effective
for financial statements issued by the Company beginning July 1, 2008. Management expects to adopt
the fair value option for the Companys loans held for sale. The impact of adoption is not expected
to be material.
56
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 2 SECURITIES
Securities available for sale at June 30, 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
Equity securities
|
|
$
|
1,890,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,890,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity at June 30, 2008 and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
U.S.
government-sponsored
enterprise securities
|
|
$
|
7,580,000
|
|
|
$
|
23,907
|
|
|
$
|
|
|
|
$
|
7,603,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity are represented by one security callable after December 12, 2008 with a
maturity date of December 12, 2014.
57
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 2 SECURITIES
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
U.S. government-sponsored enterprise
securities
|
|
$
|
58,000,000
|
|
|
$
|
194,376
|
|
|
$
|
(125,511
|
)
|
|
$
|
58,068,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one year through five years
|
|
$
|
58,000,000
|
|
|
$
|
194,376
|
|
|
$
|
(125,511
|
)
|
|
$
|
58,068,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of securities for the years ended June 30, 2008, 2007 or 2006.
At year end 2008, the Company held $7,580,000 of unsecured debentures of the FHLB. At year end
2007, the Company held $43,000,000 respectively, of unsecured debentures of the FHLB, $10,000,000
of unsecured debentures of the Federal Home Loan Mortgage Corporation (FHLMC), and $5,000,000 of
unsecured debentures of the Federal National Mortgage Association (FNMA).
No securities were in an unrealized loss position at June 30, 2008. Securities with continuous
unrecognized losses at year-end 2007 not recognized in income aggregated by length of time that
individual securities have been in a continuous unrealized loss position are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Less than 12 Months
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
Unrecognized
|
|
Description of Securities
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
U.S. government-sponsored
enterprise
securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,374,489
|
|
|
$
|
(125,511
|
)
|
|
$
|
15,374,489
|
|
|
$
|
(125,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys equity securities consist of floating rate preferred stock issued by FHLMC and FNMA.
For the year ended June 30, 2008, the Company recognized a $195,000 pre-tax charge for the
other-than-temporary decline in fair value.
On September 7, 2008, the U.S. Treasury Department and the Federal Housing Finance Agency announced
that FNMA and FHLMC had been placed into conservatorship. Dividends on the preferred shares of the
entities have been suspended. In the first quarter of the Companys fiscal year ended June 30,
2009, the Company will recognize additional other-than-temporary impairment of its holdings of
these shares for the difference between the Companys new cost basis of $1,890,000 and the fair
value of these shares as of September 30, 2008. As of the close of
business on September 12, 2008, the fair value of the Companys holdings of
these shares was approximately $200,000.
The unrealized loss on the Companys holdings as of that date was $1,690,000.
58
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 3 MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity at June 30, 2008 and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair Value
|
|
FNMA mortgage-backed securities
|
|
$
|
54,835,052
|
|
|
$
|
6,562
|
|
|
$
|
(1,900,089
|
)
|
|
|
52,941,525
|
|
FHLMC mortgage-backed securities
|
|
|
316,017
|
|
|
|
2,548
|
|
|
|
(223
|
)
|
|
|
318,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,151,069
|
|
|
$
|
9,110
|
|
|
$
|
(1,900,312
|
)
|
|
$
|
53,259,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair Value
|
|
FNMA mortgage-backed securities
|
|
$
|
25,368,425
|
|
|
$
|
|
|
|
$
|
(1,582,196
|
)
|
|
|
23,786,229
|
|
FHLMC mortgage-backed securities
|
|
|
511,095
|
|
|
|
4,724
|
|
|
|
|
|
|
|
515,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,879,520
|
|
|
$
|
4,724
|
|
|
$
|
(1,582,196
|
)
|
|
$
|
24,302,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of mortgage-backed securities for the years ended June 30, 2008, 2007 or 2006.
59
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 3 MORTGAGE-BACKED SECURITIES
(Continued)
Mortgage-backed securities with unrecognized losses at year end 2008 and 2007 not recognized in
income aggregated by the length of time that the individual securities have been in a continuous
unrealized loss position are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Less than 12 Months
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
Unrecognized
|
|
Description of Mortgage-backed Securities
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
FHLMC mortgage-backed
securities
|
|
$
|
37,810
|
|
|
$
|
(223
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
37,810
|
|
|
$
|
(223
|
)
|
FNMA mortgage-backed
securities
|
|
|
29,334,236
|
|
|
|
(950,413
|
)
|
|
|
19,624,061
|
|
|
|
(949,676
|
)
|
|
|
48,958,297
|
|
|
|
(1,900,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,399,856
|
|
|
$
|
(950,636
|
)
|
|
$
|
19,624,061
|
|
|
$
|
(949,676
|
)
|
|
$
|
48,996,330
|
|
|
$
|
(1,900,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Less than 12 Months
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
Unrecognized
|
|
Description of Mortgage-backed Securities
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
FNMA
mortgage-backed
securities
|
|
$
|
1,496,409
|
|
|
$
|
(45,478
|
)
|
|
$
|
22,289,820
|
|
|
$
|
(1,536,718
|
)
|
|
$
|
23,786,229
|
|
|
$
|
(1,582,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, a FNMA mortgage-backed security with a carrying amount of $19,693,135 was in a
continuous unrecognized loss for more than one year. The unrecognized loss for this security was
$916,449 as of June 30, 2008. Management considered whether this unrecognized loss represented
other-than-temporary impairment of this security. Management determined that the security was
backed by performing assets and that timely repayment of principal and interest is guaranteed by
FNMA. The decline in fair value is largely driven by increases in market interest rates. As such,
management concluded that the unrecognized loss did not represent other-than-temporary impairment
of the security as of June 30, 2008. Other unrealized losses on securities in a continuous
unrealized loss position for more than one year were not material.
60
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 4 LOANS RECEIVABLE
Loans receivable at June 30, 2008 and 2007, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Real estate mortgages:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
168,532,008
|
|
|
$
|
163,297,830
|
|
Home equity line of credit
|
|
|
87,876,182
|
|
|
|
85,092,530
|
|
Multi-family residential
|
|
|
52,420,774
|
|
|
|
48,100,726
|
|
Commercial
|
|
|
174,403,925
|
|
|
|
184,849,852
|
|
Commercial equity line of credit
|
|
|
36,913,491
|
|
|
|
33,207,626
|
|
Land
|
|
|
73,544,594
|
|
|
|
74,414,426
|
|
Construction residential
|
|
|
55,442,114
|
|
|
|
63,315,868
|
|
Construction commercial
|
|
|
44,106,070
|
|
|
|
38,007,505
|
|
|
|
|
|
|
|
|
Total real estate mortgages
|
|
|
693,239,158
|
|
|
|
690,286,363
|
|
Non real estate loans
|
|
|
33,592,529
|
|
|
|
30,454,898
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
726,831,687
|
|
|
|
720,741,261
|
|
Net deferred loan origination fees
|
|
|
(2,685,309
|
)
|
|
|
(2,831,894
|
)
|
Allowance for loan losses
|
|
|
(9,653,972
|
)
|
|
|
(4,580,549
|
)
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
714,492,406
|
|
|
$
|
713,328,818
|
|
|
|
|
|
|
|
|
A summary of the changes in the allowance for loan losses for the years ended June 30, 2008, 2007,
and 2006, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Beginning balance
|
|
$
|
4,580,549
|
|
|
$
|
4,674,681
|
|
|
$
|
4,312,274
|
|
Provision for loan losses
|
|
|
6,058,400
|
|
|
|
1,102,500
|
|
|
|
826,300
|
|
Charge-offs
|
|
|
(985,756
|
)
|
|
|
(1,196,632
|
)
|
|
|
(463,893
|
)
|
Recoveries
|
|
|
779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,653,972
|
|
|
$
|
4,580,549
|
|
|
$
|
4,674,681
|
|
|
|
|
|
|
|
|
|
|
|
61
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 4 LOANS RECEIVABLE
(Continued)
The following is a summary of the principal balances of nonperforming loans at June 30:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Loans on non-accrual status:
|
|
|
|
|
|
|
|
|
Real estate mortgages:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
6,452,812
|
|
|
$
|
5,265,002
|
|
Commercial
|
|
|
3,001,192
|
|
|
|
3,121,632
|
|
Multi-family residential
|
|
|
152,187
|
|
|
|
|
|
Construction and land
|
|
|
12,349,846
|
|
|
|
4,663,095
|
|
Non real estate loans
|
|
|
533,113
|
|
|
|
603,072
|
|
|
|
|
|
|
|
|
Total loans on non-accrual status
|
|
|
22,489,150
|
|
|
|
13,652,801
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days, still on accrual status:
|
|
|
|
|
|
|
|
|
Real estate mortgages:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
1,233,058
|
|
|
|
|
|
Commercial
|
|
|
1,200,894
|
|
|
|
|
|
Construction and land
|
|
|
542,699
|
|
|
|
875,593
|
|
|
|
|
|
|
|
|
Total non-accrual and past due loans
|
|
$
|
25,465,801
|
|
|
$
|
14,528,394
|
|
|
|
|
|
|
|
|
At June 30, 2008 and 2007, the recorded investment in loans, which have individually been
identified as being impaired, totaled $24,298,587 and $8,387,799, respectively. Included in the
impaired amount at June 30, 2008 and 2007, is $13,956,806 and $3,659,747, respectively, related to
loans with a corresponding valuation allowance of $2,792,048 and $627,220, respectively. At June
30, 2008 and 2007, $5,259,155 and $4,728,052 of impaired loans had no allowance for loan losses
allocated.
Average impaired loans for the years ended June 30, 2008, 2007 and 2006 amounted to $14,534,727,
$8,477,996 and $5,675,718, respectively. Interest recognized on impaired loans while considered
impaired in 2008, 2007 and 2006 was not material.
62
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 5 MORTGAGE BANKING ACTIVITIES
Loans held for sale at year end are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Loans held for sale
|
|
$
|
7,872,155
|
|
|
$
|
15,043,780
|
|
Less: Allowance to adjust to lower of cost or market
|
|
|
(41,161
|
)
|
|
|
(50,400
|
)
|
|
|
|
|
|
|
|
Loans held for sale, net
|
|
$
|
7,830,994
|
|
|
$
|
14,993,380
|
|
|
|
|
|
|
|
|
Mortgage banking activities, net, including gains and losses on sales of loans, for each of the
years in the three-year period ended June 30, 2008, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Mortgage loan servicing fees
|
|
$
|
1,992,311
|
|
|
$
|
1,970,702
|
|
|
$
|
1,954,692
|
|
Amortization of mortgage servicing rights
|
|
|
(1,525,348
|
)
|
|
|
(1,313,137
|
)
|
|
|
(1,359,003
|
)
|
Market adjustment for loans held for sale
|
|
|
9,239
|
|
|
|
105,600
|
|
|
|
(156,000
|
)
|
Change in fair value of mortgage banking derivatives
|
|
|
205,226
|
|
|
|
131,300
|
|
|
|
(239,000
|
)
|
Gross realized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sales of loans
|
|
|
2,251,791
|
|
|
|
1,448,206
|
|
|
|
1,830,073
|
|
Losses on sales of loans
|
|
|
(1,471,970
|
)
|
|
|
(1,071,673
|
)
|
|
|
(1,196,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,461,249
|
|
|
$
|
1,270,998
|
|
|
$
|
834,471
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008 and 2007, the Company was servicing whole and participation mortgage loans for
others aggregating $826,817,792, and $793,080,175, respectively. These loans are not reported as
assets. The Company had $10,621,361, and $8,022,305, at June 30, 2008 and 2007, respectively, of
funds collected on mortgage loans serviced for others which are included in accrued expenses and
other liabilities.
Originated mortgage servicing rights capitalized and amortized during the years ended June 30,
2008, 2007, and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Beginning balance
|
|
$
|
4,426,296
|
|
|
$
|
4,806,836
|
|
|
$
|
5,001,474
|
|
Originated
|
|
|
1,497,835
|
|
|
|
932,597
|
|
|
|
1,164,365
|
|
Amortized
|
|
|
(1,525,348
|
)
|
|
|
(1,313,137
|
)
|
|
|
(1,359,003
|
)
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,398,783
|
|
|
$
|
4,426,296
|
|
|
$
|
4,806,836
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of capitalized mortgage servicing rights was $9,177,677 and $8,961,806 at June 30,
2008 and 2007. Fair value was determined using discount rates ranging from 9.0% to 11.0% and
prepayment speeds ranging from 6.9% to 57.6%, depending on the stratification of the specific
rights. The fair value of the preponderance of the servicing rights was determined using prepayment
speeds ranging from 6.3% to 20.7%. At June 30, 2008 and 2007, no tranche of the Companys mortgage servicing assets were considered to be impaired.
63
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 6 OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at cost, less accumulated depreciation and amortization at June 30,
2008 and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Land and land improvements
|
|
$
|
1,034,892
|
|
|
$
|
1,034,892
|
|
Building and building improvements
|
|
|
5,553,076
|
|
|
|
5,553,076
|
|
Leasehold improvements
|
|
|
5,949,232
|
|
|
|
5,949,232
|
|
Furniture and equipment
|
|
|
12,532,524
|
|
|
|
12,408,119
|
|
|
|
|
|
|
|
|
|
|
|
25,069,724
|
|
|
|
24,945,319
|
|
Less accumulated depreciation and amortization
|
|
|
(15,837,013
|
)
|
|
|
(14,356,944
|
)
|
|
|
|
|
|
|
|
|
|
$
|
9,232,711
|
|
|
$
|
10,588,375
|
|
|
|
|
|
|
|
|
NOTE 7 DEPOSITS
Scheduled maturities of time deposits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
12 months or less
|
|
$
|
443,844,021
|
|
|
|
89.3
|
%
|
|
$
|
443,536,475
|
|
|
|
89.6
|
%
|
13 to 24 months
|
|
|
30,125,497
|
|
|
|
6.1
|
|
|
|
26,314,568
|
|
|
|
5.3
|
|
25 to 36 months
|
|
|
9,058,070
|
|
|
|
1.8
|
|
|
|
13,578,346
|
|
|
|
2.8
|
|
37 to 48 months
|
|
|
14,050,761
|
|
|
|
2.8
|
|
|
|
11,435,837
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
497,078,349
|
|
|
|
100.0
|
%
|
|
$
|
494,865,226
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average rate on certificates
of deposit
|
|
|
|
|
|
|
4.18
|
%
|
|
|
|
|
|
|
5.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits in amounts of $100,000 or more totaled approximately $187,526,922 and $166,736,808 at
June 30, 2008 and 2007, respectively.
Deposits of related parties totaled $1,643,499 and $2,196,914 at June 30, 2008 and June 30, 2007.
In 2008, the Company obtained deposits totaling $34,000,000 from brokers. These certificates of
deposit bear a weighted average cost of 4.22% and have maturities of 12 months or less.
64
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 8 ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI
Short-Term Advances
: The Bank maintains two lines of credit totaling $230,000,000 with the
FHLB. The $200,000,000 repurchase line matures on February 13, 2009. No borrowings were
outstanding on the repurchase line of credit as of June 30, 2008. At June 30, 2007 $65,000,000 was
drawn on the repurchase line of credit. The Bank has chosen to take daily advances from this line,
with the interest rate set daily. The interest rate on this line as of June 30, 2007 was 5.31%. The
$30,000,000 cash management line matures on October 3, 2008. Borrowings of $9,000,000 were
outstanding on the cash management line as of June 30, 2008. No borrowings were outstanding on the
cash management line as of June 30, 2007. The interest rate on this line as of June 30, 2008 was
2.38%.
In order to secure these advances, the Bank has pledged mortgage loans with unpaid principal
balances aggregating approximately $141,881,000 and $337,758,000 at June 30, 2008 and 2007,
respectively, and mortgage-backed securities aggregating approximately $25,879,520 at June 30,
2007, respectively, plus FHLB stock.
Long-Term Advances
: Long-term advances from the Federal Home Loan Bank of Cincinnati
(FHLB), with maturities and interest rates thereon at June 30, 2008 and 2007, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
Interest rate
|
|
|
2008
|
|
|
2007
|
|
March 2008
|
|
|
5.64
|
%
|
|
|
|
|
|
|
10,000,000
|
|
January 2015
|
|
|
2.82
|
%
|
|
|
15,000,000
|
|
|
|
|
|
January 2015
|
|
|
3.04
|
%
|
|
|
15,000,000
|
|
|
|
|
|
April 2018
|
|
|
3.17
|
%
|
|
|
5,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,000,000
|
|
|
$
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate
|
|
|
|
|
|
|
2.96
|
%
|
|
|
5.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The advances outstanding at June 30, 2008 are putable fixed-rate advances. They can be terminated
at the option of the FHLB after a stated lockout period. If the option is exercised, the Bank could
repay this advance without a prepayment penalty.
In 2007, the FHLB exercised their option to convert an advance with a maturity date in 2008 to
LIBOR. The Bank repaid the advances at the time of conversion without penalty.
65
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 9 SUBORDINATED DEBENTURES, NOTES PAYABLE AND OTHER BORROWINGS
Line of Credit
: On February 23, 2006, one of the Companys subsidiaries obtained a $4.0
million dollar line of credit from another financial institution with a drawn principal balance of
$950,000 and $1,260,000 as of June 30, 2008 and 2007. The line is collateralized by the Companys
Solon headquarters building. The note carries a variable interest rate that adjusts to The Wall
Street Journal published prime lending rate minus 75 basis points. The loan is due on demand. At
June 30, 2008, the interest rate was 4.25% and at June 30, 2007 it was 7.50%.
Subordinated Debt
: In June 2004, the Company formed a special purpose entity, PVF Capital
Trust I (Trust), for the sole purpose of issuing $10,000,000 of variable-rate trust preferred
securities. The Company issued Subordinated Deferrable Interest Debentures (subordinated
debentures) to the Trust in exchange for the proceeds of the offering of the trust preferred
securities. The trust preferred security carries a variable interest rate that adjusts to the three
month LIBOR rate plus 260 basis points. At June 30, 2008 and 2007 the interest rate was 5.52% and
7.96%.
The subordinated debentures are the sole asset of the trust. The trust preferred securities will
mature June 29, 2034 but may be redeemed by the Trust at par, at its option, starting June 29,
2009.
In July 2006, the Company formed a special purpose entity, PVF Capital Trust II (Trust), for the
sole purpose of issuing $10,000,000 of fixed-rate trust preferred securities. The Company issued
Subordinated Deferrable Interest Debentures (subordinated debentures) to the Trust in exchange
for the proceeds of the offering of the trust preferred securities. The trust preferred security
carries a fixed interest rate of 7.462% through September 15, 2011. The interest rate will then
change to a variable interest rate that adjusts quarterly to the three month LIBOR rate plus 175
basis points.
The subordinated debentures are the sole asset of the trust. The trust preferred securities will
mature July 6, 2036 but may be redeemed by the Trust at par, at its option, starting September 15,
2011.
Repurchase Agreement
: In March 2006, the Bank entered into a $50 million repurchase
agreement (Repo) with another institution (Citigroup) collateralized by $51.5 million in
mortgage-backed securities and $7.6 million in securities. The Repo is for a five year term.
Interest was adjustable quarterly during the first year based on the three month LIBOR rate minus
100 basis points. After year one, the rate adjusted to 4.99% and the Repo became callable quarterly
at the option of the issuer.
66
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 10 FEDERAL INCOME TAXES
The provision for federal income taxes differs 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Computed expected tax
|
|
$
|
(768,433
|
)
|
|
|
(35.0
|
%)
|
|
$
|
2,084,109
|
|
|
|
35.0
|
%
|
|
$
|
2,413,425
|
|
|
|
35.0
|
%
|
Increase (decrease) in tax
resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit of graduated rates
|
|
|
21,955
|
|
|
|
1.0
|
|
|
|
(59,546
|
)
|
|
|
(1.0
|
)
|
|
|
(68,955
|
)
|
|
|
(1.0
|
)
|
Affordable housing tax credit
|
|
|
(81,758
|
)
|
|
|
(3.7
|
)
|
|
|
(111,645
|
)
|
|
|
(1.9
|
)
|
|
|
(111,645
|
)
|
|
|
(1.6
|
)
|
Bank-owned life insurance
|
|
|
(271,599
|
)
|
|
|
(12.4
|
)
|
|
|
(296,083
|
)
|
|
|
(5.0
|
)
|
|
|
(203,132
|
)
|
|
|
(2.9
|
)
|
Stock compensation
|
|
|
38,341
|
|
|
|
1.7
|
|
|
|
57,076
|
|
|
|
1.0
|
|
|
|
51,757
|
|
|
|
0.8
|
|
Other, net
|
|
|
(33,371
|
)
|
|
|
(1.5
|
)
|
|
|
46,361
|
|
|
|
0.8
|
|
|
|
(28,951
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,094,865
|
)
|
|
|
(49.9
|
%)
|
|
$
|
1,720,272
|
|
|
|
28.9
|
%
|
|
$
|
2,052,499
|
|
|
|
29.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net tax effects of temporary differences that give rise to significant portions of the deferred
tax assets and liabilities at June 30, 2008 and 2007 are:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loan loss reserves
|
|
$
|
2,283,673
|
|
|
$
|
1,317,348
|
|
Deferred compensation
|
|
|
1,279,844
|
|
|
|
1,081,068
|
|
Deferred loan fees, net
|
|
|
131,806
|
|
|
|
|
|
Other
|
|
|
167,251
|
|
|
|
227,637
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
3,862,574
|
|
|
|
2,626,053
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred loan costs
|
|
|
|
|
|
|
(304,861
|
)
|
FHLB stock dividend
|
|
|
(1,983,373
|
)
|
|
|
(1,871,513
|
)
|
Originated mortgage servicing asset
|
|
|
(1,495,586
|
)
|
|
|
(1,504,941
|
)
|
Fixed assets
|
|
|
(607,216
|
)
|
|
|
(848,122
|
)
|
Prepaid franchise tax
|
|
|
(189,663
|
)
|
|
|
(171,972
|
)
|
Unrealized losses on loans held for sale
|
|
|
(26,426
|
)
|
|
|
(440
|
)
|
Other
|
|
|
(109,482
|
)
|
|
|
(100,549
|
)
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
(4,411,746
|
)
|
|
|
(4,802,398
|
)
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(549,172
|
)
|
|
$
|
(2,176,345
|
)
|
|
|
|
|
|
|
|
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 managements 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, 2008 or 2007.
67
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 10 FEDERAL INCOME TAXES
(Continued)
Retained earnings at June 30, 2008 and 2007 include approximately $4,516,000 for which no provision
for federal income tax has been made. The related unrealized deferred tax liability was
approximately $1,535,000 at June 30, 2007 and 2007. This amount represents allocations of income
during years prior to 1988 to bad debt deductions for tax purposes only. These qualifying and
non-qualifying base year reserves and supplemental reserves will be recaptured into income in the
event of certain distributions and redemptions. Such recapture would create income expense for tax
purposes only, which would be subject to the then current corporate income tax rate. Recapture
would not occur upon the reorganization, 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.
NOTE 11 LEASES
The Company leases certain premises from unrelated and related parties. Future minimum payments
under noncancelable operating leases with initial or remaining terms of one year or more consisted
of the following at June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases With
|
|
|
Leases With
|
|
|
|
|
|
|
Unrelated
|
|
|
Related
|
|
|
Total
|
|
Year ending June 30,
|
|
Parties
|
|
|
Parties
|
|
|
Leases
|
|
2009
|
|
$
|
671,427
|
|
|
$
|
222,268
|
|
|
$
|
893,695
|
|
2010
|
|
|
471,111
|
|
|
|
222,268
|
|
|
|
693,379
|
|
2011
|
|
|
265,827
|
|
|
|
176,676
|
|
|
|
442,503
|
|
2012
|
|
|
220,002
|
|
|
|
153,880
|
|
|
|
373,882
|
|
2013
|
|
|
77,396
|
|
|
|
104,320
|
|
|
|
181,716
|
|
Thereafter
|
|
|
|
|
|
|
79,540
|
|
|
|
79,540
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
1,705,763
|
|
|
$
|
958,952
|
|
|
$
|
2,664,715
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended June 30, 2008, 2007, and 2006, rental expense was $914,752, $901,695, and
$898,448, respectively. Rental expense related to related party leases was $222,268, $213,973, and
$204,031, for the years ended June 30, 2008, 2007, and 2006, respectively.
NOTE 12 LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
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 Banks 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.
68
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
12 LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
(Continued)
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates of
60 to 120 days or other termination clauses and may require payment of a fee. Since some of the
commitments may expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
The Bank evaluates each customers creditworthiness on a case-by-case basis. The amount of
collateral obtained by the Bank upon extension of credit is based on managements credit evaluation
of the applicant. Collateral held is generally residential and commercial real estate.
The Banks 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, 2008 and 2007, the Bank had the following commitments to originate loans intended to be
held in the portfolio:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
Commitments to fund variable-rate mortgage loans
|
|
$
|
6,412,000
|
|
|
$
|
12,626,900
|
|
Commitments to fund equity lines of credit
|
|
|
91,781,000
|
|
|
|
99,257,000
|
|
Undisbursed portion of loan proceeds
|
|
|
46,367,000
|
|
|
|
60,795,479
|
|
Standby letters of credit
|
|
|
2,486,000
|
|
|
|
4,051,000
|
|
At June 30, 2008 and 2007, the Bank had interest rate-lock commitments on $16,755,000 and
$29,312,000 of loans intended for sale in the secondary market. These commitments are considered to
be free-standing derivatives and the change in fair value is recorded in the financial statements.
The fair value of these commitments as of June 30, 2008 and 2007 was estimated to be $8,000 and
($367,000), respectively. To mitigate the interest rate risk represented by these interest
rate-lock commitments the Bank entered into contracts to sell mortgage loans of $10,218,000 and
$20,105,000 as of June 30, 2008 and 2007. These contracts are also considered to be free-standing
derivatives and the change in fair value also is recorded in the financial statements. The fair
value of these contracts at June 30, 2008 and 2007 was estimated to be $75,000 and $244,000 and,
respectively.
69
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
13 REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by the Office of Thrift
Supervision (OTS). Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Companys financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Banks assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital
amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
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, 2008, the adjusted total minimum regulatory capital regulations
require institutions to have tangible capital to adjusted total assets of 1.5%; a minimum leverage
ratio of core (Tier 1) capital to adjusted total assets of 4.0%; a minimum rate of core (Tier 1)
capital to risk-weighted assets of 4.0%; and a minimum ratio of total capital to risk weighted
assets of 8.0%. At June 30, 2008 and 2007, the Bank exceeded all of the aforementioned regulatory
capital requirements.
Regulations limit capital distributions by savings institutions. Generally, capital distributions
are limited to undistributed net income for the current and prior two years. At June 30, 2008, this
limitation was $4,408,868.
The most recent notification from the OTS categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum Total risk-based and Tier 1 risk-based ratios as set forth in the table.
There are no conditions or events since that notification that management believes have changed the
institutions category.
70
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
13 REGULATORY CAPITAL
(Continued)
At June 30, 2008 and 2007, the Bank was in compliance with regulatory capital requirements as set
forth below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
Required
|
|
Capitalized Under
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
Prompt Corrective
|
|
|
Actual
|
|
Adequacy Purposes
|
|
Action Regulations
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk weighted assets
|
|
|
90,286
|
|
|
|
12.99
|
%
|
|
|
55,584
|
|
|
|
8.00
|
%
|
|
|
69,480
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
83,972
|
|
|
|
12.09
|
%
|
|
|
27,792
|
|
|
|
4.00
|
%
|
|
|
41,688
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to adjusted total assets
|
|
|
83,972
|
|
|
|
9.69
|
%
|
|
|
34,704
|
|
|
|
4.00
|
%
|
|
|
43,380
|
|
|
|
5.00
|
%
|
Tangible Capital to adjusted total assets
|
|
|
83,972
|
|
|
|
9.69
|
%
|
|
|
13,014
|
|
|
|
1.50
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
Required
|
|
Capitalized Under
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
Prompt Corrective
|
|
|
Actual
|
|
Adequacy Purposes
|
|
Action Regulations
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to risk weighted assets
|
|
|
91,323
|
|
|
|
13.08
|
%
|
|
|
55,838
|
|
|
|
8.00
|
%
|
|
|
69,798
|
|
|
|
10.00
|
%
|
Tier 1 (Core) Capital to risk weighted assets
|
|
|
87,636
|
|
|
|
12.56
|
%
|
|
|
27,919
|
|
|
|
4.00
|
%
|
|
|
41,879
|
|
|
|
6.00
|
%
|
Tier 1 (Core) Capital to adjusted total assets
|
|
|
87,636
|
|
|
|
9.72
|
%
|
|
|
36,073
|
|
|
|
4.00
|
%
|
|
|
45,091
|
|
|
|
5.00
|
%
|
Tangible Capital to adjusted total assets
|
|
|
87,636
|
|
|
|
9.72
|
%
|
|
|
13,527
|
|
|
|
1.50
|
%
|
|
|
NA
|
|
|
|
NA
|
|
71
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
14 RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in 2008 were as follows.
|
|
|
|
|
Beginning balance
|
|
|
$ 7,579,327
|
|
New Loans
|
|
|
|
|
Repayments
|
|
|
(2,350,539
|
)
|
|
|
|
|
|
Ending balance
|
|
|
$ 5,228,788
|
|
|
|
|
|
|
NOTE
15 STOCK OPTIONS
The Company offered stock options to the directors and officers of the Bank under various option
plans.
All of the options authorized under the 1992 plan have been granted and exercised. The options
granted under the 1996 plan are exercisable over a ten-year period, with vesting ranging from zero
to five years as stated in the individual option agreements. Incentive stock options granted under
the 2000 plan are exercisable over a ten-year period, with vesting ranging from four to nine years
as stated in the individual option agreements.
Nonqualified stock options are granted to directors and typically vest immediately. The option
period expires ten years from the date of grant and the exercise price is the market price at the
date of grant.
Options outstanding at June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
Exercise
|
|
Price
|
|
|
|
|
|
Number
|
|
|
Life
|
|
|
Number
|
|
|
Price
|
|
$5.49
|
|
|
|
|
$
|
6.10
|
|
|
|
87,635
|
|
|
|
1.64
|
|
|
|
87,635
|
|
|
$
|
5.72
|
|
$6.75
|
|
|
|
|
$
|
7.76
|
|
|
|
121,778
|
|
|
|
2.22
|
|
|
|
121,778
|
|
|
$
|
7.34
|
|
$8.32
|
|
|
|
|
$
|
13.64
|
|
|
|
324,013
|
|
|
|
6.09
|
|
|
|
211,944
|
|
|
$
|
10.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
533,426
|
|
|
|
4.48
|
|
|
|
421,357
|
|
|
$
|
8.83
|
|
There were 116,166 shares available for future issuance under existing stock option plans.
72
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
15 STOCK OPTIONS
(Continued)
A summary of the activity in the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
Outstanding beginning of year
|
|
|
582,150
|
|
|
$
|
9.12
|
|
Forfeited
|
|
|
(300
|
)
|
|
|
10.64
|
|
Exercised
|
|
|
(48,424
|
)
|
|
|
6.94
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of year
|
|
|
533,426
|
|
|
$
|
9.32
|
|
|
|
|
|
|
|
|
Exercisable end of year
|
|
|
421,357
|
|
|
$
|
8.83
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual life of options outstanding was 4.48 years.
For the years ended June 30, 2008, 2007, and 2006 compensation expense of $112,768, $218,691, and
$214,761 was recognized in the income statement related to the vesting of awards. An income tax
benefit of $17,787 and $21,262 was recognized related to this expense in 2007 and 2006.
As of June 30, 2008, there was $266,976 of compensation expense related to unvested awards not yet
recognized in the financial statements. The weighted-average period over which this expense is to
be recognized is 2.7 years. All outstanding and unvested options are expected to vest.
The aggregate intrinsic value of all options outstanding at June 30, 2008 was $157,175. The
aggregate intrinsic value of all options that were exercisable at June 30, 2008 was $157,175. The
intrinsic value of options exercised in 2008, 2007, and 2006 was $388,042, $156,042, and $137,946.
The fair value of each option award is estimated on the date of grant using a closed form option
valuation (Black Scholes) model that uses the assumptions noted in the table below. Expected
volatilities are based on historical volatilities of the Companys common stock. All options are
expected to vest based on the Companys experience. The expected term of options granted is based
on historical data represents the period of time that options granted are expected to be
outstanding, which takes into account that the options are not transferable. The risk-free
interest rate for the expected term of the option is based on the U.S. Treasury yield curve in
effect at the time of the grant.
The following weighted-average assumptions were used for grants in each of the respective years.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Risk-free interest rate
|
|
|
4.56
|
%
|
|
|
4.57
|
%
|
Dividend yield
|
|
|
2.74
|
%
|
|
|
2.67
|
%
|
Expected volatility
|
|
|
24.95
|
%
|
|
|
31.56
|
|
Expected life in years
|
|
|
9.14
|
|
|
|
9.72
|
|
The weighted average fair value of options granted in 2007 was $2.83 and in 2006 was $3.69.
73
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
16 EARNINGS (LOSS) PER SHARE
The following is a reconciliation of basic earnings (loss) per share to diluted earnings (loss) per
share for the years ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-Share
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
(1,100,657
|
)
|
|
|
7,765,780
|
|
|
$
|
(0.14
|
)
|
Dilutive effect of assumed exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
(1,100,657
|
)
|
|
|
7,765,780
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-Share
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
4,234,324
|
|
|
|
7,724,436
|
|
|
$
|
0.55
|
|
Dilutive effect of assumed exercises of stock options
|
|
|
|
|
|
|
98,571
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share::
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
4,234,324
|
|
|
|
7,823,007
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per-Share
|
|
|
|
Net Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
4,843,001
|
|
|
|
7,716,770
|
|
|
$
|
0.63
|
|
Dilutive effect of assumed exercises of stock options
|
|
|
|
|
|
|
129,199
|
|
|
|
(0.01
|
)
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common shareholders
|
|
$
|
4,843,001
|
|
|
|
7,845,969
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
There were 533,426, 51,590, and 205,236 options not considered in the diluted earnings (loss) per
share calculation for the years ended June 30, 2008, 2007, and 2006, respectively because they were
not dilutive.
74
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
17 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of financial instruments at year end were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
Carrying
|
|
Estimated Fair
|
|
Carrying
|
|
Estimated Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
(in thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and amounts due from
depository institutions
|
|
$
|
7,456
|
|
|
$
|
7,456
|
|
|
$
|
20,293
|
|
|
$
|
20,293
|
|
Interest-bearing deposits
|
|
|
701
|
|
|
|
701
|
|
|
|
622
|
|
|
|
622
|
|
Federal funds sold
|
|
|
9,648
|
|
|
|
9,648
|
|
|
|
7,542
|
|
|
|
7,542
|
|
Securities held to maturity
|
|
|
7,580
|
|
|
|
7,604
|
|
|
|
58,000
|
|
|
|
58,069
|
|
Equity securities
|
|
|
1,890
|
|
|
|
1,890
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities held to
maturity
|
|
|
55,151
|
|
|
|
53,259
|
|
|
|
25,880
|
|
|
|
24,557
|
|
Loans receivable
|
|
|
714,492
|
|
|
|
716,047
|
|
|
|
713,329
|
|
|
|
719,711
|
|
Loans receivable held for sale, net
|
|
|
7,831
|
|
|
|
7,831
|
|
|
|
14,993
|
|
|
|
14,993
|
|
Federal Home Loan Bank stock
|
|
|
12,641
|
|
|
NA
|
|
|
|
12,312
|
|
|
NA
|
|
Accrued interest receivable
|
|
|
4,345
|
|
|
|
4,345
|
|
|
|
4,197
|
|
|
|
4,197
|
|
Mandatory forward sales contracts
|
|
|
75
|
|
|
|
75
|
|
|
|
244
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits and passbook
savings
|
|
|
(162,307
|
)
|
|
|
(162,307
|
)
|
|
|
(163,187
|
)
|
|
|
(163,187
|
)
|
Time deposits
|
|
|
(497,078
|
)
|
|
|
(503,694
|
)
|
|
|
(494,865
|
)
|
|
|
(495,641
|
)
|
Line of credit
|
|
|
(950
|
)
|
|
|
(950
|
)
|
|
|
(1,260
|
)
|
|
|
(1,260
|
)
|
Advances from the Federal Home
Loan Bank of Cincinnati
|
|
|
(44,000
|
)
|
|
|
(43,998
|
)
|
|
|
(75,000
|
)
|
|
|
(75,019
|
)
|
Repurchase agreement
|
|
|
(50,000
|
)
|
|
|
(51,455
|
)
|
|
|
(50,000
|
)
|
|
|
(49,096
|
)
|
Subordinated debentures
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
Accrued interest payable
|
|
|
(444
|
)
|
|
|
(444
|
)
|
|
|
(444
|
)
|
|
|
(444
|
)
|
Commitments to make loans
intended to be sold
|
|
|
8
|
|
|
|
8
|
|
|
|
(367
|
)
|
|
|
(367
|
)
|
The estimated fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable judgment is necessary to
interpret market data to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company 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.
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.
Securities and mortgage-backed securities.
Estimated fair value for securities and mortgage-backed
securities is based on quoted market prices.
75
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
17 FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Loans receivable and loans receivable held for sale
. For loans receivable held for sale, fair value
is estimated using the quoted market prices for similar loans, adjusted for differences in loan
characteristics. For performing loans receivable, 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.
Fair value for significant nonperforming loans is based on recent external appraisals of underlying
collateral. 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.
Federal Home Loan Bank stock.
It was not practical to determine fair value of FHLB stock due to
restrictions placed on its transferability.
Mandatory forward sales contracts.
These contracts are valued by reference to secondary market
indicators of pair-off fees receivable or payable to terminate the contracts.
Demand deposits and time deposits.
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using discounted cash flows and rates currently
offered for deposits of similar remaining maturities.
Line of credit.
The carrying amount is a reasonable estimate of the fair value.
Advances from the Federal Home Loan Bank of Cincinnati
. The fair value of the Banks FHLB debt is
estimated based on the current rates offered to the Bank for debt of the same remaining maturities.
Notes payable and subordinated debentures
. The carrying value of the Companys variable-rate note
payable is a reasonable estimate of fair value based on the current incremental borrowing rate for
similar types of borrowing arrangements.
Accrued interest receivable and accrued interest payable
. The carrying amount is a reasonable
estimate of the fair value.
Commitments to make loans intended for sale
. These commitments are valued according to changes in
secondary market pricing for similar loans with similar delivery dates from the date of interest
rate lock until the balance sheet date.
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, 2008 and 2007.
76
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
18 PARENT COMPANY
The following are condensed statements of financial condition as of June 30, 2008 and 2007 and
related condensed statements of operations and cash flows for the years ended June 30, 2008, 2007
and 2006 for PVF Capital Corp.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Cash and amounts due from depository institutions
|
|
$
|
10,944
|
|
|
$
|
30,368
|
|
Prepaid expenses and other assets
|
|
|
2,690,787
|
|
|
|
2,028,039
|
|
Investment in Bank subsidiary
|
|
|
83,971,772
|
|
|
|
87,635,883
|
|
Investment in non-Bank subsidiaries
|
|
|
3,293,222
|
|
|
|
3,122,905
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
89,966,725
|
|
|
$
|
92,817,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
891,391
|
|
|
$
|
1,327,354
|
|
Subordinated debentures
|
|
|
20,000,000
|
|
|
|
20,000,000
|
|
Stockholders equity
|
|
|
69,075,334
|
|
|
|
71,489,841
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
89,966,725
|
|
|
$
|
92,817,195
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking activities
|
|
$
|
9,521
|
|
|
$
|
24,572
|
|
|
$
|
9,055
|
|
Dividends from Bank subsidiary
|
|
|
4,000,000
|
|
|
|
|
|
|
|
2,400,000
|
|
Interest Income
|
|
|
26
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,009,547
|
|
|
|
24,610
|
|
|
|
2,409,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,463,602
|
|
|
|
1,549,920
|
|
|
|
693,292
|
|
General and administrative
|
|
|
718,800
|
|
|
|
374,487
|
|
|
|
213,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,182,402
|
|
|
|
1,924,407
|
|
|
|
906,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before federal income taxes and
equity in undistributed net income of subsidiaries
|
|
|
1,827,145
|
|
|
|
(1,899,797
|
)
|
|
|
1,502,728
|
|
Federal income tax benefit
|
|
|
738,771
|
|
|
|
645,931
|
|
|
|
304,956
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in undistributed
net income of subsidiaries
|
|
|
2,565,916
|
|
|
|
(1,253,866
|
)
|
|
|
1,807,684
|
|
Equity in undistributed net income of subsidiaries
|
|
|
(3,666,573
|
)
|
|
|
5,488,190
|
|
|
|
3,035,317
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,100,657
|
)
|
|
$
|
4,234,324
|
|
|
$
|
4,843,001
|
|
|
|
|
|
|
|
|
|
|
|
77
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE
18 PARENT COMPANY
(Continued)
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,100,657
|
)
|
|
$
|
4,234,324
|
|
|
$
|
4,843,001
|
|
Equity in undistributed net income of subsidiaries
|
|
|
3,666,573
|
|
|
|
(5,488,190
|
)
|
|
|
(3,035,317
|
)
|
Other, net
|
|
|
(818,722
|
)
|
|
|
(450,283
|
)
|
|
|
(285,743
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) operating activities
|
|
|
1,747,194
|
|
|
|
(1,704,149
|
)
|
|
|
1,521,941
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance to subsidiary
|
|
|
232,000
|
|
|
|
(52,500
|
)
|
|
|
800,000
|
|
Investment in subsidiary
|
|
|
|
|
|
|
(6,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash from investing activities
|
|
|
232,000
|
|
|
|
(6,052,500
|
)
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment on note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from subordinated debentures
|
|
|
|
|
|
|
10,000,000
|
|
|
|
|
|
Proceeds and income tax benefit from exercise
of stock options
|
|
|
396,181
|
|
|
|
311,536
|
|
|
|
144,737
|
|
Stock purchased and retired
|
|
|
(96,426
|
)
|
|
|
(293,541
|
)
|
|
|
(141,104
|
)
|
Dividends paid
|
|
|
(2,298,373
|
)
|
|
|
(2,286,382
|
)
|
|
|
(2,235,692
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(255,742
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) financing activities
|
|
|
(1,998,618
|
)
|
|
|
7,731,613
|
|
|
|
(2,487,801
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash-equivalents
|
|
|
(19,424
|
)
|
|
|
(25,036
|
)
|
|
|
(165,859
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
30,368
|
|
|
|
55,404
|
|
|
|
221,263
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
10,944
|
|
|
$
|
30,368
|
|
|
$
|
55,404
|
|
|
|
|
|
|
|
|
|
|
|
78
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2008, 2007 and 2006
NOTE 19 EMPLOYEE BENEFIT PLANS
401(k) Savings Plan
: Employees who have reached age 18 and have completed one year of
eligibility service are eligible to participate in the Companys 401(k) Savings Plan. The plan
allows eligible employees to contribute up to 50% of their compensation with the Company matching
up to 50% of the first 4% 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% of the employees compensation. Participants vest in the Companys
contributions ratably over six years.
The total of the Companys matching and profit sharing contribution cost related to the plan for
the years ended June 30, 2008, 2007, and 2006 was $111,459, $100,041, and $127,093, respectively.
Supplemental Executive Retirement Plan
: During fiscal year 2000, the Company established a
Supplemental Executive Retirement Plan (SERP) to provide additional retirement benefits to
participating executive officers. The SERP was adopted in order to provide benefits to such
executives whose benefits are reduced under the Companys tax-qualified benefit plans pursuant to
limitations under the Internal Revenue Code. The SERP is subject to certain vesting provisions, and
provides that the executives shall receive a supplemental retirement benefit if the executives
employment is terminated after reaching the normal retirement. For the years ended June 30, 2008,
2007, and 2006, the Company recognized expense under the SERP of $584,634, $558,783, and $450,000,
respectively. The accrued SERP liability at June 30, 2008 and 2007 included in accrued expenses and
other liabilities totaled $3,650,892 and $3,066,258.
79
NOTE 20 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results of operations for 2008
and 2007 (in thousands of dollars, except per share data):
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters for the year ended June 30, 2008
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Interest income
|
|
$
|
15,292
|
|
|
$
|
14,467
|
|
|
$
|
13,573
|
|
|
$
|
13,154
|
|
Interest expense
|
|
|
9,435
|
|
|
|
9,201
|
|
|
|
8,382
|
|
|
|
7,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
5,857
|
|
|
|
5,266
|
|
|
|
5,191
|
|
|
|
5,897
|
|
Provision for loan losses
(2)
|
|
|
593
|
|
|
|
82
|
|
|
|
819
|
|
|
|
4,564
|
|
Non-interest income
|
|
|
798
|
|
|
|
834
|
|
|
|
1,214
|
|
|
|
388
|
|
Non-interest expense
|
|
|
5,286
|
|
|
|
5,025
|
|
|
|
5,193
|
|
|
|
5,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Federal income taxes
|
|
|
776
|
|
|
|
993
|
|
|
|
393
|
|
|
|
(4,357
|
)
|
Federal income taxes
|
|
|
165
|
|
|
|
261
|
|
|
|
92
|
|
|
|
(1,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
611
|
|
|
$
|
732
|
|
|
$
|
301
|
|
|
$
|
(2,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters for the year ended June 30, 2007
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Interest income
|
|
$
|
15,710
|
|
|
$
|
15,659
|
|
|
$
|
15,196
|
|
|
$
|
15,455
|
|
Interest expense
|
|
|
8,917
|
|
|
|
9,227
|
|
|
|
9,101
|
|
|
|
9,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
6,793
|
|
|
|
6,432
|
|
|
|
6,095
|
|
|
|
5,994
|
|
Provision for loan losses
|
|
|
(160
|
)
|
|
|
252
|
|
|
|
(1
|
)
|
|
|
1,012
|
|
Non-interest income
|
|
|
795
|
|
|
|
938
|
|
|
|
853
|
|
|
|
790
|
|
Non-interest expense
|
|
|
5,471
|
|
|
|
5,484
|
|
|
|
5,302
|
|
|
|
5,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Federal income taxes
|
|
|
2,277
|
|
|
|
1,634
|
|
|
|
1,647
|
|
|
|
396
|
|
Federal income taxes
|
|
|
714
|
|
|
|
497
|
|
|
|
470
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,563
|
|
|
$
|
1,137
|
|
|
$
|
1,177
|
|
|
$
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The total of the four quarterly amounts may not equal the full year amount due to
rounding.
|
|
(2)
|
|
In the fourth quarter of the fiscal year ended June 30, 2008, the Company provided
$4,731,000 for loan losses. This provision was based on managements judgment about credit
risk in the loan portfolio and additional specific reserves established for impaired loans.
|
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Companys reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions
rules and forms, and that such information is accumulated and
communicated to the Companys management, including the Companys principal executive officer
and principal accounting officer, as appropriate to allow timely decisions regarding
required disclosure. As of the end of the period covered by this report, the Company carried
out an evaluation, with the participation of management, including its principal executive officer
and principal accounting officer, of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to the Exchange Act Rule 13a-15. Based upon, and as of the date of
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of June 30, 2008.
80
Managements Annual Report on Internal Control Over Financial Reporting
The management of PVF Capital Corp. is responsible for establishing and maintaining adequate
internal control over financial reporting. PVF Capital Corp.s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with
United States generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an
effective system of internal control over financial reporting will provide only reasonable
assurance with respect to financial statement preparation.
With the supervision and participation of our Chief Executive Officer and Chief Financial
Officer, management assessed the effectiveness of the Companys internal control over financial
reporting as of June 30, 2008. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on managements assessment and those criteria, management
believes that PVF Capital Corp. maintained effective internal control over financial reporting as
of June 30, 2008.
The Companys independent registered public accounting firm, Crowe Horwath LLP, has issued
their report on managements assessment of the Companys internal control over financial reporting.
That report is included in this Annual Report.
|
|
|
|
/s/ John R. Male
|
|
/s/ C. Keith Swaney
|
|
|
|
|
|
Chairman of the Board
|
|
President, Chief Operating Officer
|
|
and Chief Executive Officer
|
|
and Treasurer
|
|
81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
PVF Capital Corp.
Solon, Ohio
We have audited PVF Capital Corp.s internal control over financial reporting as of June 30, 2008,
based on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). PVF Capital Corp.s management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, PVF Capital Corp. maintained, in all material respects, effective internal control
over financial reporting as of June 30, 2008, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated statements of condition of PVF Capital Corp. as of June 30,
2008 and 2007, and the related consolidated statements of operations, changes in stockholders
equity, and cash flows for each of the three years in the period ended June 30, 2008, and our
report dated September 15, 2008 expressed an unqualified opinion on those consolidated financial
statements.
/s/
Crowe Horwath LLP
Cleveland,
Ohio
September 15, 2008
82
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during
the Companys last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The information relating to the directors of the Company is incorporated herein by reference
to the section captioned
Proposal I Election of Directors
in the Proxy Statement for the
Companys 2008 Annual Meeting of Stockholders (the Proxy Statement).
Executive Officers
See Part I, Item 1,
Description of Business Executive Officers of the Company
of this
Annual Report on Form 10-K.
Corporate Governance
Information regarding the Companys Audit Committee and Audit Committee financial expert is
incorporated herein by reference to the section captioned
Corporate GovernanceMeetings and
Committees of the Board of DirectorsAudit Committee
in the Proxy Statement.
Compliance with Section 16(a) of the Exchange Act
Information regarding compliance with Section 16(a) of the Exchange Act, the cover page to
this Annual Report on Form 10-K and the section captioned
Section
16(a)
Beneficial Ownership
Reporting Compliance
in the Proxy Statement are incorporated herein by reference.
Code of Ethics
The Company has adopted a Code of Ethics that applies to the Companys directors, officers and
employees.
Item 11. Executive Compensation
The information contained under the section captioned
Executive Compensation
and
Director
Compensation
in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
|
|
(a) and (b)
|
|
The information required by this item is incorporated herein by reference to the
sections captioned
Proposal I Election of Directors
and
Voting Securities and Principal
Holders Thereof
of the Proxy Statement.
|
|
|
|
(c)
|
|
Management knows of no arrangements, including any pledge by any person of securities of the
Bank, the operation of which may at a subsequent date result in a change in control of the
registrant.
|
|
|
|
(d)
|
|
The following table sets forth certain information with respect to the Companys equity
compensation plans as of June 30, 2008.
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of securities remaining
|
|
|
|
(a)
|
|
|
(b)
|
|
|
available for future issuance
|
|
|
|
Number of securities to be issued
|
|
|
Weighted-average exercise
|
|
|
under equity compensation
|
|
|
|
upon exercise of outstanding
|
|
|
price of outstanding
|
|
|
plans (excluding securities
|
|
|
|
options, warrants & rights (1)
|
|
|
options, warrants and rights
|
|
|
reflected in column (a))(1)
|
|
Equity compensation plans
approved by security holders
|
|
|
533,426
|
|
|
$
|
9.32
|
|
|
|
116,166
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
533,426
|
|
|
|
9.32
|
|
|
|
116,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Adjusted for a 10% stock dividend paid on the Common Stock on September 1, 1997, a 50% stock
dividend paid on the Common Stock on August 17, 1998, a 10% stock dividend paid on the Common
Stock on September 7, 1999, a 10% stock dividend paid on the Companys Common Stock on
September 1, 2000, a 10% stock dividend paid on the Common Stock on August 31, 2001, a 10%
stock dividend paid on the Common Stock on August 30, 2002, a 10% dividend paid on the Common
Stock on August 29, 2003, a 10% dividend paid on the Common Stock on August 31, 2004 and a 10%
dividend paid on the Common Stock on August 31, 2005.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference to the section
captioned
Proposal 1 Election of Directors
of the Proxy Statement.
Corporate Governance
The information required by this item is incorporated herein by reference to the section
captioned
Other Information Relating to Directors and Executive Officers
in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information required by this item is incorporated herein by reference to the section captioned
Independent Registered Public Accounting Firm
in the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
|
1.
|
|
Report of Independent Registered Public Accounting Firm (incorporated by reference
to Item 8 of this Annual Report).
|
|
|
|
|
Consolidated Financial Statements (incorporated by reference to Item 8 of this
Annual Report).
|
|
(a)
|
|
Consolidated Statements of Financial Condition, at June 30,
2008 and 2007
|
|
|
(b)
|
|
Consolidated Statements of Operations for the Years Ended June
30, 2008, 2007 and 2006
|
|
|
(c)
|
|
Consolidated Statements of Stockholders Equity for the Years
Ended June 30, 2008, 2007 and 2006
|
|
|
(d)
|
|
Consolidated Statements of Cash Flows for the Years Ended June
30, 2008, 2007 and 2006
|
84
|
(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
|
|
Articles of Incorporation, as amended and restated
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
3.2
|
|
Code of Regulations, as amended and restated
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
3.3
|
|
Bylaws, as amended and restated
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
4
|
|
Specimen Common Stock Certificate
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.1
|
|
Park View Federal Savings Bank Conversion Stock Option Plan
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.2
|
|
PVF Capital Corp. 1996 Incentive Stock Option Plan
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
10.3
|
|
Severance Agreements between PVF Capital Corporation and
each of John R. Male, C. Keith Swaney and Jeffrey N. Male
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
10.4
|
|
Park View Federal Savings Bank Supplemental Executive Retirement Plan as
amended and restated
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
10.5
|
|
PVF Capital Corp. 2000 Incentive Stock Option Plan and Deferred Compensation
Plan
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
10.6
|
|
Management Incentive Compensation Plan
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
14
|
|
Code of Ethics
|
|
|
(4
|
)
|
|
|
|
|
|
|
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21
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|
Subsidiaries of the Registrant
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|
|
|
|
|
|
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|
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23.1
|
|
Consent of Crowe Horwath LLP
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Rule 13a-14(a) Certification of Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
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31.2
|
|
Rule 13a-14(a) Certification of Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Section 1350 Certifications
|
|
|
|
|
|
|
|
(1)
|
|
Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 30, 1996 (Commission File No. 0-24948).
|
|
(2)
|
|
Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 30, 2002 (Commission File No. 0-24948).
|
|
(3)
|
|
Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 30, 2003 (Commission File No. 0-24948).
|
|
(4)
|
|
Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 30, 2004 (Commission File No. 0-24948).
|
|
(5)
|
|
Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 30, 2005 (Commission File No. 0-24948).
|
|
(6)
|
|
Incorporated by reference to the Registrants Current Report on Form 8-K filed on February 6,
2008 (Commission File No. 0-24948).
|
|
(7)
|
|
Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2008 (Commission File No. 0-24948).
|
|
(8)
|
|
Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 30, 2006 (Commission File No. 0-24948).
|
|
(9)
|
|
Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended
June 30, 2007 (Commission File No. 0-24948).
|
|
|
|
Management contract or compensatory plan or arrangement.
|
|
(b)
|
|
Exhibits
.
The exhibits required by Item 601 of Regulation S-K are either filed as
part of this Annual Report on Form 10-K or incorporated herein by reference.
|
|
(c)
|
|
Financial Statements and Schedules Excluded from Annual Report
.
There are no other
financial statements and financial statement schedules which were excluded from the Annual
Report to Stockholders pursuant to Rule 14a-3(b) which are required to be included herein.
|
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
PVF CAPITAL CORP.
|
|
September 11, 2008
|
By:
|
/s/
John R. Male
|
|
|
|
John R. Male
|
|
|
|
Chairman of the Board of Directors
and
Chief Executive Officer
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
/s/ John R. Male
John R. Male
|
|
September 11, 2008
|
Chairman of the Board of Directors and
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
/s/ C. Keith Swaney
C. Keith Swaney
|
|
September 11, 2008
|
President, Chief Operating Officer and
|
|
|
Treasurer
|
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
/s/ Robert K. Healey
Robert K. Healey
|
|
September 11, 2008
|
Director
|
|
|
|
|
|
/s/ Stanley T. Jaros
Stanley T. Jaros
|
|
September 11, 2008
|
Director
|
|
|
|
|
|
/s/ Stuart D. Neidus
Stuart D. Neidus
|
|
September 11, 2008
|
Director
|
|
|
|
|
|
/s/ Gerald A. Fallon
Gerald A. Fallon
|
|
September 11, 2008
|
Director
|
|
|
|
|
|
/s/ Raymond J. Negrelli
Raymond J. Negrelli
|
|
September 11, 2008
|
Director
|
|
|
|
|
|
/s/ Ronald D. Holman, II
Ronald D. Holman, II
|
|
September 11, 2008
|
Director
|
|
|
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