UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2008.
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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 of
incorporation or organization)
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(I.R.S. Employer
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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(440) 248-7171
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES
þ
NO
o
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 definition 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
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
þ
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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
o
NO
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Common Stock, $0.01 Par Value
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7,773,823
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(Class)
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(Outstanding at February 6, 2009)
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Part I Financial Information
Item 1 Financial Statements
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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December 31,
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2008
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June 30,
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unaudited
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2008
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ASSETS
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Cash and cash equivalents:
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Cash and amounts due from depository institutions
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$
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15,962,680
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$
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7,455,720
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Interest bearing deposits
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9,212,997
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700,674
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Federal funds sold
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8,164,000
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9,648,000
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Total cash and cash equivalents
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33,339,677
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17,804,394
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Securities available for sale
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48,800
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1,890,000
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Securities held to maturity (fair values of $10,012,500 and
$7,603,907, respectively)
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10,000,000
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7,580,000
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Mortgage-backed securities held to maturity (fair values of
$0 and $53,259,867, respectively)
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55,151,069
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Mortgage-backed securities available for sale
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57,441,332
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Loans receivable held for sale, net
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4,282,728
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7,830,994
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Loans receivable, net of allowance of
$11,000,008 and $9,653,972, respectively
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722,056,090
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714,492,406
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Office properties and equipment, net
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9,037,526
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9,232,711
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Real estate owned, net
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9,501,781
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4,064,708
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Federal Home Loan Bank stock
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12,811,100
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12,640,600
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Bank owned life insurance
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23,005,748
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23,009,038
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Prepaid expenses and other assets
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21,536,220
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13,706,218
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Total Assets
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$
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903,061,002
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$
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867,402,138
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LIABILITIES AND STOCKHOLDERS EQUITY
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Liabilities
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Deposits
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$
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696,449,810
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$
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659,385,765
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Short-term advances from the Federal Home Loan Bank
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9,000,000
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Line of credit
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1,375,000
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950,000
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Long-term advances from the Federal Home Loan Bank
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35,000,000
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35,000,000
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Repurchase agreement
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50,000,000
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50,000,000
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Subordinated debentures
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20,000,000
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20,000,000
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Advances from borrowers for taxes and insurance
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10,951,144
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8,973,604
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Accrued expenses and other liabilities
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23,331,517
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15,017,435
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Total Liabilities
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837,107,471
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798,326,804
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Stockholders Equity
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Serial preferred stock, none issued
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Common stock, $0.01 par value, 15,000,000 shares authorized;
8,246,548 shares issued
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82,465
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82,465
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Additional paid-in-capital
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69,307,738
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69,155,729
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Retained earnings (accumulated deficit)
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(45,680
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)
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3,674,287
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Accumulated other comprehensive income
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446,155
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Treasury Stock, at cost 472,725 shares
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(3,837,147
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(3,837,147
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Total Stockholders Equity
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65,953,531
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69,075,334
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Total Liabilities and Stockholders Equity
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$
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903,061,002
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$
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867,402,138
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See accompanying notes to consolidated financial statements
Page 1
Part I Financial Information
Item 1 Financial Statements
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
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Six Months Ended
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December 31,
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December 31,
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2008
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2007
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2008
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2007
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Interest and dividends income
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Loans
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$
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10,928,594
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$
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13,184,062
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$
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22,340,835
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$
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27,111,567
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Mortgage-backed securities
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687,260
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313,595
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1,387,533
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632,283
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Federal Home Loan Bank stock dividends
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158,871
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217,224
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329,428
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418,932
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Securities
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162,911
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589,001
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283,970
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1,276,113
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Federal funds sold and interest bearing deposits
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25,791
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162,789
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112,584
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319,744
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Total interest and dividends income
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11,963,427
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14,466,671
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24,454,350
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29,758,639
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Interest expense
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Deposits
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6,249,819
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7,410,930
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12,192,372
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14,726,809
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Short-term borrowings
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700
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563,943
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9,799
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1,501,045
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Long-term borrowings
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912,877
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840,133
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1,823,591
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1,632,072
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Subordinated debt
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346,109
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385,787
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671,554
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775,799
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Total interest expense
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7,509,505
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9,200,793
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14,697,316
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18,635,725
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Net interest income
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4,453,922
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5,265,878
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9,757,034
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11,122,914
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Provision for loan losses
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3,641,000
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82,000
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4,332,000
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675,400
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Net interest income after provision for loan losses
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812,922
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5,183,878
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5,425,034
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10,447,514
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Noninterest income, net
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Service and other fees
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177,546
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205,717
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355,800
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428,615
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Mortgage banking activities, net
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420,478
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325,987
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878,177
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726,368
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Increase (decrease) in cash surrender value of bank owned life insurance
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(56,215
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)
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214,405
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(3,289
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)
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467,621
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Impairment of securities
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(102,400
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)
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0
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(1,841,200
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)
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0
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Gain on the sale of securities
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665,929
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0
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665,929
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0
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Other, net
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74,218
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87,882
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82,775
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9,664
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Total noninterest income, net
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1,179,556
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833,991
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138,192
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1,632,268
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Noninterest expense
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|
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Compensation and benefits
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3,015,544
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2,629,842
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5,573,559
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5,594,273
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Office occupancy and equipment
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|
698,928
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813,118
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1,405,678
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1,614,971
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Other
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2,300,543
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1,582,147
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3,971,395
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3,102,110
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Total noninterest expense
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|
6,015,015
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|
|
5,025,107
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10,950,632
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10,311,354
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Income (loss) before federal income tax provision
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(4,022,537
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)
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992,762
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(5,387,406
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)
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|
1,768,428
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Federal income tax provision (benefit)
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(1,301,000
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)
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|
261,000
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(1,764,612
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)
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|
425,600
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|
|
|
|
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|
|
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Net income (loss)
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($2,721,537
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)
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|
$
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731,762
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($3,622,794
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)
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|
$
|
1,342,828
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|
|
|
|
|
|
|
|
|
|
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Basic earnings (loss) per share
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($0.35
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)
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$
|
0.09
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($0.47
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)
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|
$
|
0.17
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|
|
|
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|
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|
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Diluted earnings (loss) per share
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|
($0.35
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)
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|
$
|
0.09
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|
|
|
($0.47
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)
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Dividends declared per common share
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$
|
0.000
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|
$
|
0.074
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|
|
$
|
0.010
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|
|
$
|
0.148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
Page 2
Part I Financial Information
Item 1 Financial Statements
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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|
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Six Months Ended
|
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|
|
December 31,
|
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|
|
2008
|
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|
2007
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
|
($3,622,794
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)
|
|
$
|
1,342,828
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Adjustments to reconcile net income to net cash from operating activities
|
|
|
|
|
|
|
|
|
Amortization of premium on mortgage-backed securities
|
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|
16,497
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|
|
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11,471
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|
Depreciation and amortization
|
|
|
606,009
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|
|
|
796,333
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|
Provision for loan losses
|
|
|
4,332,000
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|
|
|
675,400
|
|
Impairment
of securities
|
|
|
1,841,200
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|
|
|
0
|
|
Accretion of deferred loan origination fees, net
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|
(307,506
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)
|
|
|
(449,290
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)
|
(Gain) loss on sale of loans receivable held for sale, net
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|
|
(171,878
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)
|
|
|
(228,959
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)
|
(Gain) loss on sale of mortgage-backed securities held for sale, net
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|
|
(665,929
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)
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|
|
0
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|
Loss on disposal of real estate owned, net
|
|
|
322,486
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|
|
|
194,178
|
|
Market adjustment for loans held for sale
|
|
|
(160,320
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)
|
|
|
(50,400
|
)
|
Change in fair value of mortgage banking derivatives
|
|
|
(237,995
|
)
|
|
|
(122,700
|
)
|
Stock compensation
|
|
|
152,009
|
|
|
|
60,228
|
|
Federal Home Loan Bank stock dividends
|
|
|
(170,500
|
)
|
|
|
0
|
|
Change in accrued interest on securities, loans, and borrowings, net
|
|
|
1,052,708
|
|
|
|
(43,720
|
)
|
Origination of loans receivable held for sale, net
|
|
|
(20,265,561
|
)
|
|
|
(44,555,348
|
)
|
Sale of loans receivable held for sale, net
|
|
|
23,901,504
|
|
|
|
49,295,091
|
|
Increase in cash surrender value of bank owned life insurance
|
|
|
3,289
|
|
|
|
(467,621
|
)
|
Net change in other assets and other liabilities
|
|
|
1,670,591
|
|
|
|
(2,121,544
|
)
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
8,295,810
|
|
|
|
4,335,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Loan repayments and originations, net
|
|
|
(22,381,391
|
)
|
|
|
1,034,200
|
|
Principal repayments on mortgage-backed securities held to maturity
|
|
|
1,912,965
|
|
|
|
1,137,777
|
|
Purchase of mortgage-backed securities available for sale
|
|
|
(67,967,811
|
)
|
|
|
0
|
|
Sale of Mortgage-backed securities
|
|
|
65,090,007
|
|
|
|
|
|
Purchase of securities available for sale
|
|
|
0
|
|
|
|
(1,019,140
|
)
|
Purchase of securities held to maturity
|
|
|
(10,000,000
|
)
|
|
|
(32,580,000
|
)
|
Maturities of securities held to maturity
|
|
|
7,580,000
|
|
|
|
52,500,000
|
|
Proceeds from sale of real estate owned
|
|
|
5,033,654
|
|
|
|
1,400,073
|
|
Additions to office properties and equipment, net
|
|
|
(410,824
|
)
|
|
|
(55,417
|
)
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(21,143,400
|
)
|
|
|
22,417,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Net increase (decrease) in demand deposits, NOW, and passbook savings
|
|
|
(3,708,706
|
)
|
|
|
(955,340
|
)
|
Net increase (decrease) in time deposits
|
|
|
40,763,751
|
|
|
|
21,223,145
|
|
Net increase (decrease) in short-term Federal Home Loan Bank advances
|
|
|
(9,000,000
|
)
|
|
|
(45,000,000
|
)
|
Net proceeds from (repayment of) line of credit
|
|
|
425,000
|
|
|
|
1,955,000
|
|
Proceeds from exercise of stock options
|
|
|
0
|
|
|
|
336,171
|
|
Stock repurchased and retired
|
|
|
0
|
|
|
|
(96,427
|
)
|
Cash dividend paid
|
|
|
(97,173
|
)
|
|
|
(1,147,846
|
)
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
28,382,872
|
|
|
|
(23,685,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
15,535,282
|
|
|
|
3,068,143
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
17,804,394
|
|
|
|
28,457,579
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
33,339,676
|
|
|
$
|
31,525,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash payments of interest expense
|
|
$
|
13,767,342
|
|
|
$
|
18,638,311
|
|
Cash payments of income taxes
|
|
$
|
0
|
|
|
$
|
576,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash investing activity:
|
|
|
|
|
|
|
|
|
Transfer of loans to real estate owned
|
|
$
|
10,793,213
|
|
|
$
|
3,100,590
|
|
See accompanying notes to consolidated financial statements
Page 3
Part I Financial Information
Item 1
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended
December 31, 2008 and 2007
(Unaudited)
1. The accompanying consolidated interim financial statements were prepared in accordance with
regulations of the Securities and Exchange Commission for Form 10-Q. All information in the
consolidated interim financial statements is unaudited except for the June 30, 2008 consolidated
statement of financial condition, which was derived from the Corporations audited financial
statements. Certain information required for a complete presentation in accordance with U.S.
generally accepted accounting principles has been condensed or omitted. However, in the opinion of
management, these interim financial statements contain all adjustments, consisting only of normal
recurring accruals, necessary to fairly present the interim financial information. The results of
operations for the three and six months ended December 31, 2008 are not necessarily indicative of
the results to be expected for the entire year ending June 30, 2009. The results of operations for
PVF Capital Corp. (PVF or the Company) for the periods being reported have been derived
primarily from the results of operations of Park View Federal Savings Bank (the Bank). PVF
Capital Corp.s common stock is traded on the NASDAQ CAPITAL MARKET under the symbol PVFC.
2. Securities: The Companys securities available-for-sale consists of floating rate preferred
stock issued by Federal National Mortgage Association (FNMA). For the three and six months ended
December 31, 2008, the Company recognized a $102,400 and $1,841,200 pre-tax charge for the
other-than-temporary decline in fair value of this stock.
On September 7, 2008, the U.S. Treasury Department and the Federal Housing Finance Agency announced
that FNMA and the Federal Home Loan Mortgage Corp (FHLMC) had been placed into conservatorship.
Dividends on the preferred shares of the entities have been suspended.
The fair value of the Companys holdings of these securities was $48,800 at December 31, 2008.
In December 2008, the Company sold mortgage-backed securities with an amortized cost of $49,742,728
held at that time as held-to-maturity. The Companys intent with respect to these securities
changed due to the bond markets reaction to the announcement by the Federal Reserve that they
intended to take unprecedented action to acquire certain mortgage-backed securities. Proceeds from
this sale were $50,263,387 and the Company realized a gain on this transaction of $520,659.
Subsequent to this sale, the Company reclassified its remaining mortgage-backed securities
held-to-maturity to available-for-sale. The amortized cost of these securities at the time of the
transfer was $56,765,340 and the related unrealized gain on these securities was $675,992. The
unrealized gain was recognized in other comprehensive income at the time of the transfer.
In December 2008, the Company sold another mortgage-backed security with an amortized cost of
$14,881,350. The Company realized a gain of $145,270 on this sale.
The income tax provision related to gains on these sales was $226,400.
Page 4
Part I Financial Information
Item 1
As of December 31, 2008, the fair value of mortgage-backed securities available for sale and the
related gross unrealized gains and losses recognized in accumulated other comprehensive income
(loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
FNMA mortgage-backed securities
|
|
$
|
8,625,438
|
|
|
$
|
35,837
|
|
|
|
|
|
FHLMC mortgage-backed securities
|
|
|
9,350,961
|
|
|
|
14,882
|
|
|
|
|
|
GNMA mortgage-backed securities
|
|
|
39,464,933
|
|
|
|
625,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
57,441,332
|
|
|
$
|
675,992
|
|
|
|
|
|
The carrying amount, unrecognized gains and losses, and fair value of mortgage-backed securities
held to maturity at June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
FNMA mortgage-backed securities
|
|
$
|
54,835,052
|
|
|
$
|
6,562
|
|
|
$
|
(1,900,089
|
)
|
|
$
|
52,941,555
|
|
FHLMC mortgage-backed
securities
|
|
|
316,017
|
|
|
|
2,548
|
|
|
|
(223
|
)
|
|
|
318,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,151,069
|
|
|
$
|
9,110
|
|
|
$
|
(1,900,312
|
)
|
|
$
|
53,259,867
|
|
3. Allowance for loan losses: A summary of the changes in the allowance for loan losses for the
three and six months ended December 31, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Three months
|
|
|
Six months
|
|
|
Six months
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
Dec. 31, 2008
|
|
|
Dec. 31, 2007
|
|
|
Dec. 31. 2008
|
|
|
Dec. 31. 2007
|
|
Beginning
balance
|
|
$
|
8,843,278
|
|
|
$
|
4,799,927
|
|
|
$
|
9,653,972
|
|
|
$
|
4,580,549
|
|
Provision for
loan losses
|
|
|
3,641,000
|
|
|
|
82,000
|
|
|
|
4,332,000
|
|
|
|
675,400
|
|
Charge-offs
|
|
|
(1,484,270
|
)
|
|
|
(63,270
|
)
|
|
|
(2,985,964
|
)
|
|
|
(437,292
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
11,000,008
|
|
|
$
|
4,818,657
|
|
|
$
|
11,000,008
|
|
|
$
|
4,818,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and June 30, 2008, the recorded investment in loans, which have individually
been identified as being impaired, totaled $23,092,062 and $24,298,587, respectively. Included in
the impaired amount at December 31, 2008 and June 30, 2008 is $12,118,340 and $13,956,806,
respectively, related to loans with a corresponding valuation allowance of $2,240,722 and
$2,792,048, respectively. At December 31, 2008 and June 30, 2008, $10,973,722 and $10,341,781 of
impaired loans had no allowance for loan losses allocated.
Page 5
Part I Financial Information
Item 1
4. Mortgage Banking Activities:
Loans held for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
Loans held for sale
|
|
$
|
4,282,728
|
|
|
$
|
7,872,155
|
|
Less: Allowance to adjust to lower of cost or market
|
|
|
|
|
|
|
(41,161
|
)
|
|
|
|
|
|
|
|
Loans held for sale, net
|
|
$
|
4,282,728
|
|
|
$
|
7,830,994
|
|
The Company adopted the fair value option for accounting for its loans held for sale effective July
1, 2008. Since loans held for sale were carried at fair value as of June 30, 2008, there was no
impact on the financial statements of this election.
The Company services real estate loans for investors that are not included in the accompanying
consolidated financial statements. Mortgage servicing rights are established based on the fair
value of servicing rights retained on loans originated by the Bank and subsequently sold in the
secondary market. Mortgage servicing rights are included in the consolidated statements of
financial condition under the caption Prepaid expenses and other assets.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Servicing rights:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
4,398,783
|
|
|
$
|
4,426,296
|
|
Additions
|
|
|
244,521
|
|
|
|
530,702
|
|
Amortized to expense
|
|
|
(712,478
|
)
|
|
|
(673,298
|
)
|
|
|
|
|
|
|
|
End of period
|
|
$
|
3,930,826
|
|
|
$
|
4,283,700
|
|
|
|
|
|
|
|
|
Mortgage banking activities, net as presented in the consolidated statements of operations consist
of the following. These amounts do not include noninterest expense related to mortgage banking
activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Mortgage loan servicing fees
|
|
$
|
507,783
|
|
|
$
|
495,603
|
|
|
$
|
1,020,463
|
|
|
$
|
997,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and impairment of
mortgage loan servicing rights
|
|
|
(352,056
|
)
|
|
|
(342,854
|
)
|
|
|
(712,479
|
)
|
|
|
(673,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market adjustments for loans
held for sale
|
|
|
92,988
|
|
|
|
|
|
|
|
160,320
|
|
|
|
50,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
mortgage banking derivatives
|
|
|
126,377
|
|
|
|
126,400
|
|
|
|
237,995
|
|
|
|
122,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (losses) on sales of loans
|
|
|
45,386
|
|
|
|
46,838
|
|
|
|
171,878
|
|
|
|
228,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking activities,
net
|
|
$
|
420,478
|
|
|
$
|
325,987
|
|
|
$
|
878,177
|
|
|
$
|
726,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Stock Compensation: Employee compensation expense under stock options 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
Page 6
Part I Financial Information
Item 1
using the modified prospective method. Under this method, compensation expense is being recognized
for the unvested portion of previously issued awards that remained outstanding as of July 1, 2005
and for any granted since that date. Prior interim periods and fiscal year results were not
restated. For the quarters ended December 31, 2008 and 2007, compensation expense of $125,739 and
$28,192, respectively, was recognized in the income statement related to the vesting of previously
issued awards plus vesting of new awards. For the six months ended December 31, 2008 and 2007,
compensation expense of $152,009 and $60,228, respectively, was recognized in the income statement
related to the vesting of previously issued awards plus vesting of new awards. For the six months
ended December 31, 2008 and 2007 income tax benefits of $21,954 and $0, respectively, were
recognized related to these expenses.
As of December 31, 2008, there was $287,863 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 2.5 years.
The Company can issue incentive stock options and nonqualified stock options under the 1996 Plan
and the 2000 Plan. Generally, for incentive stock options, one-fifth of the options awarded become
exercisable on the date of grant and on each of the first four anniversaries of the date of grant.
The option period expires ten years from the date of grant, except for awards to individuals who
own more than 10% of the Companys outstanding stock. Awards to these individuals expire after five
years from the date of grant and are exercisable at 110 percent of the market price at the date of
grant.
Nonqualified stock options are granted to directors and 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.
The aggregate intrinsic value of all options outstanding at December 31, 2008 was $0. The aggregate
intrinsic value of all options that were exercisable at December 31, 2008 was $0.
A summary of the activity in the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
December 31, 2008
|
|
|
|
Total options outstanding
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
Options outstanding, beginning of period
|
|
|
533,426
|
|
|
$
|
9.32
|
|
Forfeited
|
|
|
(14,481
|
)
|
|
|
8.85
|
|
Expired
|
|
|
(23,383
|
)
|
|
|
5.77
|
|
Exercised
|
|
|
|
|
|
|
|
|
Granted
|
|
|
94,200
|
|
|
|
4.07
|
|
|
|
|
|
|
|
|
Options outstanding, end of period
|
|
|
589,762
|
|
|
$
|
8.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
473,702
|
|
|
$
|
8.60
|
|
The weighted average remaining contractual life of options outstanding as of December 31, 2008 was
5.0 years. The weighted average remaining contractual life of vested options outstanding as of
December 31, 2008 was 4.5 years.
Page 7
Part I Financial Information
Item 1
Proceeds, related tax benefits realized from options exercised and intrinsic value of options
exercised were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Proceeds from options
exercised
|
|
$
|
|
|
|
$
|
82,917
|
|
|
$
|
|
|
|
$
|
336,171
|
|
Related tax benefit
recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of
options exercised
|
|
$
|
|
|
|
$
|
104,645
|
|
|
$
|
|
|
|
$
|
388,042
|
|
The fair value for stock options granted during the six months ended December 31, 2008, which
consisted of multiple grants in November 2008, was determined at the date of grant using a
Black-Scholes options-pricing model and the following assumptions:
|
|
|
|
|
|
|
2008
|
Expected average risk-free interest rate
|
|
|
3.82
|
%
|
Expected average life (in years)
|
|
|
9.42
|
|
Expected volatility
|
|
|
28.61
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
The weighted average fair value of these grants was $1.84. The expected average risk-free rate is
based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding
with the life of the option. The expected average life represents the weighted average period of
time that options granted are expected to be outstanding giving consideration to vesting schedules,
historical exercise and forfeiture patterns. Expected volatility is based on historical
volatilities of the Companys common stock. The expected dividend yield is based on historical
information.
6. The following table discloses earnings (loss) per Share for the three and six months ended
December 31, 2008 and December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
2008
|
|
2007
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
(loss)
|
|
Shares
|
|
Per Share
|
|
(loss)
|
|
Shares
|
|
Per Share
|
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
Basic EPS
Net Income
(loss)
|
|
|
($2,721,538
|
)
|
|
|
7,773,823
|
|
|
|
($0.35
|
)
|
|
$
|
731,762
|
|
|
|
7,771,248
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
Stock Options
|
|
|
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
170,417
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
Net Income
(loss)
|
|
|
($2,721,538
|
)
|
|
|
7,773,823
|
|
|
|
($0.35
|
)
|
|
$
|
731,762
|
|
|
|
7,941,665
|
|
|
$
|
0.09
|
|
Page 8
Part I Financial Information
Item 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31,
|
|
|
2008
|
|
2007
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
(loss)
|
|
Shares
|
|
Per Share
|
|
(loss)
|
|
Shares
|
|
Per Share
|
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
Basic EPS
Net Income
(loss)
|
|
|
($3,622,794
|
)
|
|
|
7,773,823
|
|
|
|
($0.47
|
)
|
|
$
|
1,342,828
|
|
|
|
7,758,886
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
Stock Options
|
|
|
|
|
|
|
0
|
|
|
|
0.00
|
|
|
|
|
|
|
|
185,270
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
Net Income
(loss)
|
|
|
($3,622,794
|
)
|
|
|
7,773,823
|
|
|
|
($0.47
|
)
|
|
$
|
1,342,828
|
|
|
|
7,944,156
|
|
|
$
|
0.17
|
|
There were 589,762 options not considered in the diluted Earnings per Share calculation for the
three- and six-month periods ended December 31, 2008, because they were not dilutive. There were no
options not considered in the diluted Earnings per Share calculation for the three- and six-month
period ended December 31, 2007.
7. Fair Value: FASB Statement No. 157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Statement 157 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, quoted market prices in markets that are not
active, and other inputs that are observable or can be corroborated by observable market
data.
Level 3: Significant unobservable inputs that reflect a companys own assumptions about the
assumptions that market participants would use to price an asset or liability.
The Company used the following methods and significant assumptions to estimate fair value.
Securities: The fair values of securities available for sale are determined by obtaining quoted
market prices on nationally recognized securities exchanges (Level 1 inputs). The fair values of
mortgage-backed securities are determined through matrix pricing. This is a mathematical technique
widely used in the industry to value debt securities without relying exclusively on quoted prices
for the specific securities but rather by relying on the securities relationship to other
benchmark quoted securities (Level 2 inputs).
Loans held for sale: The fair value of loans held for sale is determined using quoted secondary
market prices.
Page 9
Part I Financial Information
Item 1
Mortgage banking pipeline derivatives: The fair value of loan commitments is measured using
current market rates for the associated mortgage loans. The fair value of mandatory forward sales
contracts is measured using secondary market pricing.
Assets and liabilities measured at fair value on a recurring basis at December 31, 2008 are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
Significant
|
|
|
|
|
|
|
|
|
for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
2008
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available
for sale
|
|
$
|
48,800
|
|
|
$
|
48,800
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
4,282,728
|
|
|
|
|
|
|
$
|
4,282,728
|
|
|
|
|
|
Mortgage-backed
securities
available for
sale
|
|
$
|
57,441,332
|
|
|
|
|
|
|
$
|
57,441,332
|
|
|
|
|
|
Mortgage-banking
pipeline derivatives
|
|
$
|
320,521
|
|
|
|
|
|
|
$
|
320,521
|
|
|
|
|
|
Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2008 are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
Significant
|
|
|
|
|
|
|
|
|
for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
2008
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
12,118,340
|
|
|
|
|
|
|
|
|
|
|
$
|
12,118,340
|
|
Impaired loans, which are usually measured for impairment using the fair value of the collateral,
had a carrying amount of $23.1 million. Of these, $9.9 million were carried at fair value as a
result of a specific valuation allowance of $2.2 million. The fair value of collateral is usually
estimated by third-party or internal appraisals of the collateral. The present value of estimated
cash flows is based on internal models of expected borrower activity. The provision for loan losses
related to changes in the fair value of impaired loans increased by $3.1 million during the six
months ended December 31, 2008.
8. Participation in the Treasury Capital Purchase Program: On October 3, 2008, Congress passed the
Emergency Economic Stabilization Act of 2008 (EESA), which provides the U. S. Secretary of the
Treasury with broad authority to implement certain actions to help restore stability and liquidity
to U.S. markets.
One of the provisions resulting from the Act is the Treasury Capital Purchase Program (CPP), which
provides direct equity investment of perpetual preferred stock by the Treasury in qualified
financial institutions.
The program is voluntary and requires an institution to comply with a number of restrictions and
provisions, including limits on executive compensation, stock
redemptions and declaration of
dividends. Applications had to be submitted by
Page 10
Part I Financial Information
Item 1
November 14, 2008 and are subject to approval by the Treasury. The CPP provides for a minimum
investment of 1% of Risk-Weighted Assets, with a maximum investment equal to the lesser of 3% of
Total Risk-Weighted Assets or $25 billion. The perpetual preferred stock investment will have a
dividend rate of 5% per year, until the fifth anniversary of the Treasury investment, and a
dividend of 9%, thereafter. The CPP also requires the Treasury to receive warrants for common stock
equal to 15% of the capital invested by the Treasury. The Company has applied for participation in
the CPP and is awaiting a response from the Treasury. Participation in the program is not automatic
and subject to approval by the Treasury.
9. PVF Capital Corp. (the Company)has elected to defer the payment of dividends on $10.0 million
of variable-rate Subordinated Deferrable Interest Debentures due June 29, 2034 and $10,000,000 of
fixed-rate Subordinated Deferrable Interest Debentures due July 6, 2036 (the Debentures). The
Company issued the Debentures to two special purpose entities, PVF Capital Trust I and PVF Capital
Trust II (the Trusts), in exchange for the proceeds of the offering by the Trusts of trust
preferred securities. Pursuant to the terms of the Debentures, interest on the Debentures may be
deferred at any time or from time to time for a period not exceeding 20 consecutive quarterly
payments (five years), provided there is no event of default. While the Company will defer the
payment of interest on the Debentures, it will continue to accrue expense for interest owed on the
Debentures at a compounded rate. Under the terms of the Debentures, if the Company has elected to
defer the payment of interest on the Debentures, the Company generally may not declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock. Accordingly, the Company will discontinue the payment of cash
dividends on its common stock.
10. Adoption of New Accounting Standards: 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.
SFAS No. 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The adoption of this standard did not have a material impact on the Companys
financial statements other than additional disclosures.
On October 10, 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset
When the Market for that Asset is Not Active. This FSP does not change existing GAAP, but seeks to
clarify how to consider various inputs in determining fair value under current market conditions
consistent with the principles of FAS 157. The FSP provides one example on how to calculate fair
value when there is not an active market for that financial asset. Key concepts addressed include
distressed sales, the use of third party pricing information, use of internal assumptions, and
others. The FSP was effective upon issuance and therefore it applies to the financial statements
for the three- and six-month periods ended December 31, 2008.
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 for fiscal years beginning after November 15, 2007. The Company
adopted the fair value option for its loans held for sale in order to mitigate volatility in
reported earnings that would otherwise result from accounting for the mortgage banking pipeline at
fair value and continuing to account for its loans held for sale under the traditional
lower-of-cost-or-market model. There was not an impact on the financial statements upon adoption.
FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20, issued January 12,
2009 (the FSP), is effective for the Company for the interim period ended December 31, 2008.
The FSP was issued to address concerns that U.S. GAAP had two different models for determining
whether the impairment of a debt security is other-than-temporary. EITF 99-20, pre-FSP, required
management to consider future expected cash flows from the perspective of a market participant.
Under this prior view, it was generally determined, that in situations where fair value for
purchased beneficial interests in securitized financial assets that are not of high quality at
acquisition was
Page 11
Part I Financial Information
Item 1
below cost, that a market participant would automatically conclude there had been an adverse change
in cash flows, thus prompting the need to recognize an other-than- temporary impairment. The new
impairment model for these purchased beneficial interests does not necessarily mean that
other-than-temporary impairment will not be present in these types of instruments. In instances
when impairment exists, management must support its estimate that it is probable that all estimated
or contractual cash flows will be collected. If it is not probable that all contractual cash flows
will be collected it is likely that other-than-temporary impairment exists.
Management does not expect an impact on the Companys financial statements as a result of the
adoption of the FSP as the Company owns no purchased beneficial interests in securitized financial
assets that are not of high quality at acquisition.
Effect of Newly Issued but not yet Effective Accounting Standards
FSP FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities, requires public entities to provide
additional disclosures about transfers of financial assets. It also amends FIN 46(R) to require
public enterprises, including sponsors that have a variable interest in a variable interest entity
and nontransferor servicers that have a significant variable interest in a QSPE, to provide
additional disclosures about their involvement with variable interest entities and QSPEs. This FSP,
which focuses on disclosures only, was issued as an intermediary step until the FASB issues their
amendments to Statement 140 and FIN 46(R) which are primarily expected to eliminate the scope
exceptions for non-consolidation of QSPEs.
The new disclosure requirements of this FSP apply primarily to entities that securitize financial
assets and enter into asset-backed financing arrangements, and therefore are not expected to have
an impact on the financial statements of the Company as we have not engaged in a securitization of
loans or other financial assets.
Page 12
Part I Financial Information
Item 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis discusses changes in financial condition and results of operations at and
for the six-month period ended December 31, 2008 for PVF Capital Corp. (PVF or the Company),
Park View Federal Savings Bank (the Bank), its principal and wholly-owned subsidiary, PVF Service
Corporation (PVFSC), a wholly-owned real estate subsidiary, Mid Pines Land Co., a wholly-owned
real estate subsidiary, PVF Holdings, Inc., PVF Community Development and PVF Mortgage Corporation,
three wholly-owned and currently inactive subsidiaries.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases will likely result, are expected to, will
continue, is anticipated, estimate, project, or similar expressions are intended to identify
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are subject to certain risks and uncertainties including changes in economic
conditions in the 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
results of any revisions, which may be made to any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
FINANCIAL CONDITION
The Company generally seeks to fund loan activity and liquidity by generating deposits through its
branch network and through the use of various borrowing facilities. During the period, the Company
used increases in deposits to repay short-term advances and to increase cash and cash equivalents
in order to improve the Banks liquidity position.
In addition, the Company continued the origination of fixed-rate single-family loans for sale in
the secondary market. The origination and sale of fixed-rate loans has historically generated gains
on sale and allowed the Company to increase its investment in loans serviced. Consolidated assets
of PVF were $903.1 million as of December 31, 2008, an increase of approximately $35.7 million, or
4.1%, as compared to June 30, 2008. The Bank remained well-capitalized under regulatory
guidelines for tier one core capital, tier one risk-based capital, and total risk-based capital
with capital levels of 8.98%, 11.51% and 12.61%, respectively, at December 31, 2008.
Page 13
Part I Financial Information
Item 2
FINANCIAL CONDITION continued
During the six months ended December 31, 2008, the Companys cash and cash equivalents, which
consist of cash, interest-bearing deposits and federal funds sold, increased $15.5 million, or
87.3%, as compared to June 30, 2008. The change in the Companys cash, cash equivalents and federal
funds sold consisted of increases in interest-bearing deposits and cash of $17.0 million and a
decrease in federal funds sold of $1.5 million. The increase in cash resulted from the maturity of
$7.6 million in securities prior to the end of the period as well as the Banks decision to
maintain higher cash balances in order to bolster the Companys liquidity.
Loans receivable, net, increased by $7.6 million, or 1.1%, during the six months ended December 31,
2008. The increase in loans receivable included increases to commercial, multifamily, and equity
line of credit loans, partially offset by decreases to land, one-to-four family, and construction
loans.
Following is a breakdown of loans receivable at December 31, 2008 and June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
Real estate mortgages:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
163,063,396
|
|
|
$
|
168,532,008
|
|
Home equity line of credit
|
|
|
90,295,243
|
|
|
|
87,876,182
|
|
Multi-family residential
|
|
|
60,077,201
|
|
|
|
52,420,774
|
|
Commercial
|
|
|
195,142,037
|
|
|
|
174,403,925
|
|
Commercial equity line of credit
|
|
|
40,993,539
|
|
|
|
36,913,491
|
|
Land
|
|
|
70,524,085
|
|
|
|
73,544,594
|
|
Construction residential
|
|
|
53,063,858
|
|
|
|
55,442,114
|
|
Construction multi-family
|
|
|
5,393,315
|
|
|
|
5,802,842
|
|
Construction commercial
|
|
|
24,487,804
|
|
|
|
38,303,228
|
|
|
|
|
|
|
|
|
Total real estate mortgages
|
|
|
703,040,478
|
|
|
|
693,239,158
|
|
Non-real estate loans
|
|
|
32,491,517
|
|
|
|
33,592,529
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
735,531,995
|
|
|
|
726,831,687
|
|
Net deferred loan origination fees
|
|
|
(2,475,897
|
)
|
|
|
(2,685,309
|
)
|
Allowance for loan losses
|
|
|
(11,000,008
|
)
|
|
|
(9,653,972
|
)
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
722,056,090
|
|
|
$
|
714,492,406
|
|
|
|
|
|
|
|
|
Park View Federal Savings Bank does not originate sub-prime loans and only originates Alt A loans
for sale, without recourse, in the secondary market. All one-to-four family loans are underwritten
according to agency underwriting standards. Exceptions, if any, are submitted to the loan committee
for approval. Any exposure the Bank may have to these types of loans is immaterial and
insignificant.
The decrease of $3.5 million in loans receivable held for sale is the result of timing differences
between the origination and the sale of loans. Previously, the Companys mortgage-backed securities
were classified as held-to-maturity and were carried at amortized cost. During the second quarter
of the current fiscal year, management transferred these to available-for-sale and these securities
are now carried at fair value. The Company sold $49.7 million of these securities previously
held-to-maturity, acquired $68 million of new securities, and subsequently sold $14.7 million of
the new securities. Market conditions were extraordinary during the period due to the announcement
of the Federal Reserves unprecedented actions to bolster the mortgage-backed security market.
Page 14
Part I Financial Information
Item 2
FINANCIAL CONDITION continued
The increase of $5.4 million in real estate owned is the result of the addition of 33 single-family
properties, 5 parcels of land, and 3 commercial properties totaling approximately $10.8 million
offset by the disposal of 27 single-family properties, two parcels of land, and 2 commercial
properties totaling $5.4 million. At December 31, 2008 the Bank had 28 properties totaling $9.5
million in real estate owned. The real estate owned included 19 single-family properties, 6 parcels
of land, and 2 commercial properties.
Deposits increased by $37.1 million, or 5.6%, as the result of managements decision to obtain
three brokered deposits totaling $64.0 million in order to take advantage of attractive rates
available as well as to improve the Banks liquidity in a tight credit market. Advances decreased
by $9.0 million as a result of the repayment of $9.0 million in short-term borrowings. The increase
in advances from borrowers for taxes and insurance of $2.0 million is attributable to timing
differences between the collection and payment of taxes and insurance. The increase in prepaid
expenses and other assets and accrued expenses and other liabilities is primarily the result of the
sale and purchase of $10.4 million and $10.3 million, respectively, of mortgage-backed securities
in December 2008 with a January 2009 settlement.
|
|
|
RESULTS OF OPERATIONS
|
|
Three months ended December 31, 2008,
compared to three months ended
December 31, 2007.
|
PVFs net income is dependent primarily on its net interest income, which is the difference between
interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net
interest income is determined by (i) the difference between yields earned on interest-earning
assets and rates paid on interest-bearing liabilities (interest-rate spread) and (ii) the
relative amounts of interest-earning assets and interest-bearing liabilities. The Companys
interest-rate spread is affected by regulatory, economic and competitive factors that influence
interest rates, loan demand, the collectibility of loans, and deposit flows. Net interest income
also includes amortization of loan origination fees, net of origination costs.
PVFs net income is also affected by the generation of non-interest income, which primarily
consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans
held for sale. In addition, net income is affected by the level of operating expenses, loan loss
provisions and costs associated with the acquisition, maintenance and disposal of real estate.
During the three and six months ended December 31, 2008, the Company reported a net loss due to
elevated levels of loan loss provisions and other-than-temporary impairment charges on its holdings
of FNMA preferred stock.
The Companys net loss for the three months ended December 31, 2008 was $2,721,500 as compared to
net income of $731,800 for the prior year comparable period. This represents a decrease of
$3,453,300 when compared with the prior year comparable period.
Net interest income for the three months ended December 31, 2008 decreased by $812,000, or 15.4%,
as compared to the prior year comparable period. This resulted from a decrease of $2,503,300, or
17.3%, in interest income partially offset by a
Page 15
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
decrease of $1,691,300, or 18.4%, in interest expense. The decrease in net interest income was
attributable to a decline of 28 basis points in the interest-rate spread for the quarter ended
December 31, 2008 as compared to the prior year comparable period. The decrease in interest-rate
spread resulted from margin compression attributable to declining rates on adjustable-rate loans,
resulting from a decrease in short-term market rates not reflected in local market deposit pricing,
along with an increase in non-performing loans.
The following table presents comparative information for the three months ended December 31, 2008
and 2007 about average balances and average yields and costs for interest-earning assets and
interest-bearing liabilities (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
727,166
|
|
|
$
|
10,929
|
|
|
|
6.01
|
%
|
|
$
|
726,626
|
|
|
$
|
13,184
|
|
|
|
7.26
|
%
|
Mortgage-backed securities
|
|
|
57,190
|
|
|
|
687
|
|
|
|
4.81
|
%
|
|
|
25,043
|
|
|
|
314
|
|
|
|
5.01
|
%
|
Investments and other
|
|
|
51,277
|
|
|
|
347
|
|
|
|
2.71
|
%
|
|
|
78,123
|
|
|
|
969
|
|
|
|
4.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
|
835,633
|
|
|
|
11,963
|
|
|
|
5.73
|
%
|
|
|
829,792
|
|
|
|
14,467
|
|
|
|
6.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
68,513
|
|
|
|
|
|
|
|
|
|
|
|
60,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
904,146
|
|
|
|
|
|
|
|
|
|
|
$
|
890,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
697,093
|
|
|
$
|
6,249
|
|
|
|
3.59
|
%
|
|
$
|
655,425
|
|
|
$
|
7,411
|
|
|
|
4.52
|
%
|
Borrowings
|
|
|
83,855
|
|
|
|
913
|
|
|
|
4.36
|
%
|
|
|
105,365
|
|
|
|
1,404
|
|
|
|
5.33
|
%
|
Subordinated debt
|
|
|
20,000
|
|
|
|
347
|
|
|
|
6.94
|
%
|
|
|
20,000
|
|
|
|
386
|
|
|
|
7.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities
|
|
|
800,948
|
|
|
|
7,509
|
|
|
|
3.75
|
%
|
|
|
780,790
|
|
|
|
9,201
|
|
|
|
4.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
liabilities
|
|
|
36,199
|
|
|
|
|
|
|
|
|
|
|
|
37,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
837,147
|
|
|
|
|
|
|
|
|
|
|
$
|
818,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
66,999
|
|
|
|
|
|
|
|
|
|
|
|
71,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and R.E.
|
|
$
|
904,146
|
|
|
|
|
|
|
|
|
|
|
$
|
890,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
4,454
|
|
|
|
|
|
|
|
|
|
|
$
|
5,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate spread
|
|
|
|
|
|
|
|
|
|
|
1.98
|
%
|
|
|
|
|
|
|
|
|
|
|
2.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
2.13
|
%
|
|
|
|
|
|
|
|
|
|
|
2.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets to
interest-bearing
liabilities
|
|
|
104.33
|
%
|
|
|
|
|
|
|
|
|
|
|
106.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Non-accruing loans are included in the average loan balances for the periods presented.
|
Page 16
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
For the three months ended December 31, 2008, a provision for loan losses of $3,641,000 was
recorded, while a provision for loan losses of $82,000 was recorded in the prior year comparable
period. The provision for loan losses for the current period reflects managements judgments about
the credit quality of the Banks loan portfolio. The allowance for loan losses consists of a
specific component and a general component.
Following is a breakdown of our valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
June 30, 2008
|
|
General valuation allowance
|
|
$
|
7,763,433
|
|
|
$
|
6,315,252
|
|
Specific valuation allowance
|
|
|
3,236,575
|
|
|
|
3,338,720
|
|
|
|
|
|
|
|
|
Total valuation allowance
|
|
$
|
11,000,008
|
|
|
$
|
9,653,972
|
|
|
|
|
|
|
|
|
Managements approach includes establishing a specific valuation allowance by evaluating individual
non-performing loans for probable losses based on a systematic approach involving estimating the
realizable value of the underlying collateral. Additionally, management established a general
valuation allowance for pools of performing loans segregated by collateral type. For the general
valuation allowance, management is applying a prudent loss factor based on our historical loss
experience, trends based on changes to non-performing loans and foreclosure activity, and our
subjective evaluation of the local population and economic environment. The loan portfolio is
segregated into categories based on collateral type and a loss factor is applied to each category.
The initial basis for each loss factor is the Companys loss experience for each category.
Historical loss percentages are calculated and adjusted by taking charge-offs in each risk category
during the past 12 months and dividing the total by the average balance of each category. The
Banks historical charge-offs, prior to fiscal 2008, are limited and the application of historical
charge-offs per our formula resulted in extremely small historical loss factors at June 30, 2008
and September 30, 2008. In the quarter ended December 31, 2008, since charge-off activity has
increased, the historical loss factors were revised to reflect the most current twelve month
rolling average. Presently, we are updating our historical loss percentages on a monthly basis
using a 12 month rolling average.
A provision for loan losses is recorded when necessary to bring the allowance to a level consistent
with this analysis. Management believes it uses the best information available to make a
determination as to the adequacy of the allowance for loan losses. The current period provision for
loan losses reflects the impact on the loss factors applied to pools of performing loans due to the
recent increase in the Companys historical loss experience.
Page 17
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
The following table provides statistical measures of non-performing assets:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
Loans on non-accruing status (1):
|
|
|
|
|
|
|
|
|
Real estate mortgages:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
9,728
|
|
|
$
|
6,453
|
|
Commercial
|
|
|
4,616
|
|
|
|
3,001
|
|
Multi-family residential
|
|
|
291
|
|
|
|
152
|
|
Construction and land
|
|
|
17,057
|
|
|
|
12,350
|
|
Non real estate
|
|
|
1,128
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans on non-accrual status:
|
|
$
|
32,820
|
|
|
$
|
22,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of non-performing loans to total loans
|
|
|
4.52
|
%
|
|
|
3.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-performing assets (2)
|
|
$
|
9,502
|
|
|
$
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
42,322
|
|
|
$
|
26,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets to total assets
|
|
|
4.69
|
%
|
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
|
|
(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. Payments received on a non-accrual loan are either applied to the
outstanding principal balance or recorded as interest income, depending on an assessment of
the collectibility of the principal balance of the loan.
|
|
(2)
|
|
Other non-performing assets represent property acquired by the Bank through foreclosure or
repossession.
|
The levels of non-accruing loans at June 30, 2008 and December 31, 2008 are 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. 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 non-performing
loans. 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 $32.8 million and $22.5 million in non-accruing loans at December 31, 2008 and June 30,
2008, $23.1 million and $16.0 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. 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
Page 18
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
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 December 31, 2008 and June 30, 2008 of $2,154,026 and
$2,792,048, respectively. At June 30, 2008 certain land and construction loans not included in
non-accrual loans were considered to be impaired. Since June 30, these loans were designated as
non-accrual. For this reason, the dollar amount of impaired loans did not change significantly from
June 30 to December 30, despite the increase in non-accrual loans identified as impaired. Certain
impaired loans were charged-off in six month period ended December 31, 2008. Loans newly
identified as impaired were generally determined to be adequately collateralized.
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 $917,907 and $453,470 for these loans as of December 31, 2008 and June 30, 2008, respectively.
There are $2.7 million and $3.0 million in performing loans for which we have established specific
loan loss reserves as of December 31, 2008 and June 30, 2008. These loans are collateralized by
various forms of one-to-four family real estate, non-residential real estate or residential
construction. 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 $164,642 and $93,202 for these loans as of December 31, 2008 and June 30, 2008,
respectively.
For the three months ended December 31, 2008, non-interest income increased by $345,600, or 41.4%,
from the prior year comparable period. This resulted primarily from a gain on the sale of
mortgage-backed securities of $665,900 and an increase in income from mortgage-banking activities
of $94,500. As described earlier, during the current period the Company reclassified is
mortgage-backed securities portfolio from held-to-maturity to available-for-sale and sold some
securities, resulting in realized gains during the period. These increases were partially offset by
decreases in earnings on bank-owned life insurance (BOLI) of $270,600, service and other fees of
$28,200, an impairment charge of $102,400 from the markdown in value of preferred stock issued by
the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association
(FNMA), and in other, net of $13,600.
The gain on the sale of mortgage-backed securities is the result of sharply declining market rates
that resulted in an opportunity for the Bank to sell mortgage-backed securities at an attractive
market premium.
The increase of $94,500 in mortgage banking activities is primarily the result of a fair value
adjustment recorded to income for the Companys loans held for sale. the Company elected to account
for these at fair value beginning July 1, 2008. During these periods, the Company pursued a
strategy of originating long-term fixed-rate loans pursuant to FHLMC and FNMA guidelines and
selling such loans to the FHLMC or the FNMA, while retaining the servicing.
The decline in earnings on BOLI is the result of the Bank transferring the balances held in
separate accounts from investment in mortgage-backed securities to money market accounts because of
market volatility. The earnings of the money market account were insufficient to offset the cost of
the insurance.
Page 19
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
Non-interest expense for the three months ended December 31, 2008 increased by $989,900, or 19.7%,
from the prior year comparable period. This resulted from an increase in compensation and benefits
of $385,700, and an increase in other non-interest expense of $718,400, partially offset by a
decrease in office occupancy and equipment of $114,200.
The increase in compensation and benefits is due to a severance accrual and other employee costs.
The increase in other non-interest expense was primarily the result of increases in the cost of
FDIC insurance due to higher assessment rates charged on deposits, real estate owned expenses
attributable to the maintenance of properties acquired through foreclosure, and outside services.
The federal income tax provision for the three-month period ended December 31, 2008 represented an
effective rate of a negative 32.3% for the current period compared to an effective rate of 26.3%
for the prior year comparable period. The effective rate in the prior period was reduced due to the
increased proportion of pre-tax income consisting of an increase in the cash surrender value of
BOLI.
|
|
|
RESULTS OF OPERATIONS
|
|
Six months ended December 31, 2008,
compared to six months ended
December 31, 2007.
|
The Companys net loss for the six months ended December 31, 2008 was $3,622,800 as compared to net
income of $1,342,800 for the prior year comparable period. This represents a decrease of $4,965,600
when compared with the prior year comparable period.
Net interest income for the six months ended December 31, 2008 decreased by $1,365,900, or 12.3%,
as compared to the prior year comparable period. This resulted from a decrease of $5,304,300, or
17.8%, in interest income partially offset by a decrease of $3,938,400, or 21.1%, in interest
expense. The decrease in net interest income was attributable to a decline of 22 basis points in
the interest-rate spread for the six month period ended December 31, 2008 as compared to the prior
year comparable period. The decrease in interest-rate spread resulted from margin compression
attributable to declining rates on adjustable-rate loans, resulting from a decrease in short-term
market rates not reflected in local market deposit pricing, along with an increase in
non-performing loans.
The following table presents comparative information for the six months ended December 31, 2008 and
2007 about average balances and average yields and costs for
Page 20
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
interest-earning assets and interest-bearing liabilities. Net interest income is affected by the
interest-rate spread and by the relative amounts of interest-earning assets and interest-bearing
liabilities (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
724,424
|
|
|
$
|
22,341
|
|
|
|
6.17
|
%
|
|
$
|
726,092
|
|
|
$
|
27,112
|
|
|
|
7.47
|
%
|
Mortgage-backed securities
|
|
|
56,092
|
|
|
|
1,387
|
|
|
|
4.95
|
%
|
|
|
25,328
|
|
|
|
632
|
|
|
|
4.99
|
%
|
Investments and other
|
|
|
45,217
|
|
|
|
726
|
|
|
|
3.21
|
%
|
|
|
80,131
|
|
|
|
2,015
|
|
|
|
5.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
|
825,733
|
|
|
|
24,454
|
|
|
|
5.92
|
%
|
|
|
831,551
|
|
|
|
29,759
|
|
|
|
7.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
66,165
|
|
|
|
|
|
|
|
|
|
|
|
56,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
891,898
|
|
|
|
|
|
|
|
|
|
|
$
|
888,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
686,640
|
|
|
$
|
12,192
|
|
|
|
3.55
|
%
|
|
$
|
649,341
|
|
|
$
|
14,727
|
|
|
|
4.54
|
%
|
Borrowings
|
|
|
85,704
|
|
|
|
1,833
|
|
|
|
4.28
|
%
|
|
|
119,223
|
|
|
|
3,133
|
|
|
|
5.26
|
%
|
Subordinated debt
|
|
|
20,000
|
|
|
|
672
|
|
|
|
6.72
|
%
|
|
|
20,000
|
|
|
|
776
|
|
|
|
7.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities
|
|
|
792,344
|
|
|
|
14,697
|
|
|
|
3.71
|
%
|
|
|
788,564
|
|
|
|
18,636
|
|
|
|
4.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
liabilities
|
|
|
31,863
|
|
|
|
|
|
|
|
|
|
|
|
27,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
824,207
|
|
|
|
|
|
|
|
|
|
|
$
|
816,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
67,691
|
|
|
|
|
|
|
|
|
|
|
|
71,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and R.E.
|
|
$
|
891,898
|
|
|
|
|
|
|
|
|
|
|
$
|
888,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
9,757
|
|
|
|
|
|
|
|
|
|
|
$
|
11,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate spread
|
|
|
|
|
|
|
|
|
|
|
2.21
|
%
|
|
|
|
|
|
|
|
|
|
|
2.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yield on interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
2.36
|
%
|
|
|
|
|
|
|
|
|
|
|
2.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets to
interest-bearing
liabilities
|
|
|
104.21
|
%
|
|
|
|
|
|
|
|
|
|
|
105.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Non-accruing loans are included in the average loan balances for the periods presented.
|
For the six months ended December 31, 2008, a provision for loan losses of $4,332,000 was recorded,
while a provision for loan losses of $675,400 was recorded in the prior year comparable period. The
current period provision for loan losses reflects increases to specific loan loss reserves, changes
to the overall volume and composition of the loan portfolio, and adjustments to historical loan
loss
Page 21
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
percentages based upon the methodology described previously. For the six-month period ended
December 31, 2008, the Bank increased loss factors by collateral type in order to reflect recent
increases in historical losses.
For the six months ended December 31, 2008, non-interest income decreased by $1,494,100, or 91.5%,
from the prior year comparable period. This resulted primarily from an impairment charge of
$1,841,200 from the markdown in value of preferred stock issued by the FHLMC and the FNMA. In
addition, earnings on BOLI decreased by $470,900 and service and other fees decreased by $72,800.
These decreases were partially offset by a gain on the sale of mortgage-backed securities of
$665,900, increases to other, net of $73,100, and income from mortgage banking activities of
$151,800.
The gain on the sale of mortgage-backed securities is the result of sharply declining market rates
that resulted in an opportunity for the Bank to sell mortgage-backed securities at an attractive
market premium. During the current period the Bank reclassified its mortgage-backed securities
portfolio from held to maturity to available for sale.
The increase of $151,800 in mortgage banking activities is primarily the result of a change in the
accounting for the Companys loans held for sale, now carried at fair value, and a change in
accounting for the Companys mortgage banking derivatives, which are valued using different
attributes than used in the prior period due to the Companys adoption of SEC Staff Accounting
Bulletin N. 109. During these periods, the Company pursued a strategy of originating long-term
fixed-rate loans pursuant to FHLMC and FNMA guidelines and selling such loans to the FHLMC or the
FNMA, while retaining the servicing.
The decline in earnings on BOLI is the result of the Bank transferring the balances held in
separate accounts from investment in mortgage-backed securities to money market accounts because of
market volatility. The earnings of the money market account were insufficient to offset the cost of
the insurance.
Non-interest expense for the six months ended December 31, 2008 increased by $639,300, or 6.2%,
from the prior year comparable period. This resulted from an increase in other non-interest expense
of $869,300, partially offset by a decrease in office occupancy and equipment of $209,300 and
compensation and benefits of $20,700. The increase in other non-interest expense was primarily the
result of increases in the cost of FDIC insurance due to higher assessment rates charged on
deposits, real estate owned expenses attributable to the maintenance of properties acquired through
foreclosure, and outside services.
The federal income tax provision for the six-month period ended December 31, 2008 represented an
effective rate of a negative 32.8% for the current period compared to an effective rate of 24.1%
for the prior year comparable period. The effective rate in the prior period was reduced due to the
increased proportion of pre-tax income consisting of an increase in the cash surrender value of
BOLI.
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 December 31, 2008
Page 22
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
and June 30, 2008, the Banks capital exceeded the current applicable regulatory capital
measurements to meet the definition of a well-capitalized institution, as demonstrated in the
following table:
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Park View
|
|
|
|
|
|
Requirement for
|
|
|
Federal
|
|
Percent of
|
|
Well-Capitalized
|
(dollars in thousands)
|
|
Capital
|
|
Assets
(1)
|
|
Institution
|
Tangible capital
|
|
$
|
80,906
|
|
|
|
8.98
|
%
|
|
|
N/A
|
|
Tier-1 core capital
|
|
$
|
80,906
|
|
|
|
8.98
|
|
|
|
5.00
|
%
|
Tier-1 risk-based capital
|
|
$
|
80,906
|
|
|
|
11.51
|
|
|
|
6.00
|
|
Total risk-based capital
|
|
$
|
89,347
|
|
|
|
12.61
|
|
|
|
10.00
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Park View
|
|
|
|
|
|
Requirement for
|
|
|
Federal
|
|
Percent of
|
|
Well-Capitalized
|
(dollars in thousands)
|
|
Capital
|
|
Assets
(1)
|
|
Institution
|
Tangible capital
|
|
$
|
83,972
|
|
|
|
9.68
|
%
|
|
|
N/A
|
|
Tier-1 core capital
|
|
$
|
83,972
|
|
|
|
9.68
|
|
|
|
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 generate adequate amounts of funds to meet its cash
needs. Adequate liquidity guarantees that sufficient funds are available to meet deposit
withdrawals, fund loan commitments, purchase securities, maintain adequate reserve requirements,
pay operating expenses, provide funds for debt service, pay dividends to stockholders and meet
other general commitments in a cost-effective manner. Our primary sources of funds are deposits,
principal and interest payments on loans, proceeds from the sale of loans, repurchase agreements,
and advances from the FHLB. While maturities and scheduled amortization of loans are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and local competition. Our most liquid assets are cash and cash
equivalents. The levels of these assets are dependent on our operating, financing, lending and
investing activities during any given period. Additional sources of funds include lines of credit
available from the FHLB.
During the current period the Company enhanced its liquidity position by increasing its deposits
and cash and cash equivalents as well as increasing its collateral borrowing position. Management
believes the Company maintains sufficient liquidity to meet current operational needs.
Our holding company, PVF Capital Corp., has certain ongoing cash needs primarily related to trust
preferred securities and the payment of dividends to stockholders. Interest payments on the trust
preferred securities instruments totaled $462,000 during the six months ended December 31, 2008.
Cash dividends to stockholders totaled $77,700 for the six months ended December 31, 2008. During
the quarter the Company elected to defer interest payments on the trust preferred securities and
suspend the payment of cash dividends to stockholders. Cash at the holding company
Page 23
Part I Financial Information
Item 2
LIQUIDITY AND CAPITAL RESOURCES continued
totaled $17,700
at December 31, 2008.
Our ability to pay dividends depends, in part, on our receipt of dividends from the Bank because
the Company has minimal sources of income other than distributions from the Bank. OTS regulations
impose limitations upon all capital distributions, including cash dividends, by a savings
institution, such as the Bank. Under the regulations, an application to and prior approval of the
OTS is required prior to any capital distribution if the institution does not meet the criteria for
expedited treatment of applications under OTS regulations (i.e., generally, examination and
Community Reinvestment Act ratings in the two top categories), the total capital distributions for
the calendar year exceed net income for that year plus the amount of retained net income for the
preceding two years, the institution would be undercapitalized following the distribution or the
distribution would otherwise be contrary to a statute, regulation or agreement with the OTS. If an
application is not required, the institution must still provide prior notice to the OTS of the
capital distribution if, like the Bank, it is a subsidiary of a holding company. In the event the
Banks capital fell below its regulatory requirements or the OTS notified it that it was in need of
increased supervision, the Banks ability to make capital distributions could be restricted. In
addition, the OTS could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
As of December 31, 2008, the Banks calendar year-to-date net income for 2008 plus net income for
the prior two calendar years totaled $5,190,900, and the Bank had the ability to pay additional
dividends to the Company of up to $790,900 upon notice to the OTS. Dividends in excess of this
amount plus additional net income earned in the future would require application to the OTS. Our
ability to pay dividends to stockholders depends on our ability to generate sufficient income and
maintain sufficient capital at the Bank to pay dividends to the Company.
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk management is essential in operating a financial services company effectively and
successfully. Risks inherent in the financial services industry include credit, operational,
interest rate, market and liquidity risk. Credit risk involves the risk of uncollectible amounts
due on loans or other financial or insurance instruments. Operational risk is the risk of fraud,
legal and compliance issues, processing errors, technology and disaster recovery, and breaches in
business continuation and internal controls. Changes in interest rates affecting net interest
income are interest rate risk. Market risk is the risk that a financial institutions earnings and
capital are adversely affected by movements in market rates and prices. The inability to fund
obligations due to investors, borrowers and depositors is liquidity risk. The primary risks are
credit risk and market risk.
During most of the three-month period ended December 31, 2008, despite declining short-term rates,
competitive local market demand for deposits has resulted in only a modest decrease to the Banks
cost of funds, while the yield on interest-earning assets has declined due to decreases in
short-term borrowing rates along with increases in impaired loans, resulting in a decrease in
interest-rate spread. The compression of interest-rate spread is a function of a flatter yield
curve for much
of the period. Although the yield curve has returned to a more traditional positive
Page 24
Part I Financial Information
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK continued
slope during
the current quarter, there remains a lag between market rates and the re-pricing of interest-earning assets and interest-bearing liabilities. Our strategy is to keep the
maturities of interest-earning assets and interest-bearing liabilities short. Our efforts are
focused on mitigating the impact of the shape of the yield curve on our interest-rate spread.
Item 4
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management of the Company carried out an
evaluation, under the supervision and with the participation of the Companys principal executive
officer and principal financial officer, of the effectiveness of the Companys disclosure controls
and procedures. Based on this evaluation, the Companys principal executive officer and principal
financial officer concluded that the Companys disclosure controls and procedures are effective in
ensuring that information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934, as amended: (i) is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms; and (ii) is accumulated and communicated to the Companys management,
including its principal executive and principal financial officers or persons performing similar
functions, as appropriate to allow timely decisions regarding disclosure. It should be noted that
the design of the Companys disclosure controls and procedures is based in part upon certain
reasonable assumptions about the likelihood of future events, and there can be no reasonable
assurance that any design of disclosure controls and procedures will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote, but the Companys
principal executive and financial officers have concluded that the Companys disclosure controls
and procedures are, in fact, effective at a reasonable assurance level. There have been no changes
in the Companys internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Securities and Exchange Commission Rule 13a-15 that occurred during the Companys last fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting except as set forth in its Annual Report on Form 10-K for
the year ended June 30, 2008.
Part II Other Information
Item 1. Legal Proceedings. N/A
Item 1A. Risk Factors
For information regarding the Companys risk factors see Risk Factors, in the Companys Form 10-K
for the fiscal year ended June 30, 2008 filed with the Securities and Exchange Commission on
September 15, 2008. As of December 31, 2008, the risk factors of the Company have not changed
materially from those reported in the Form 10-K.
Page 25
Part II Other Information continued
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
|
(a)
|
|
N/A
|
|
|
(b)
|
|
N/A
|
|
|
(c)
|
|
The following table illustrates the repurchase of the Companys
common stock during the period ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
|
|
(a) Total
|
|
|
|
|
|
Part of
|
|
(d) Maximum Number of
|
|
|
Number of
|
|
(b) Average
|
|
Publicly
|
|
Shares that May Yet
|
|
|
Shares
|
|
Price Paid
|
|
Announced Plans
|
|
Be Purchased Under
|
Period
|
|
Purchased
|
|
per Share
|
|
or Programs
|
|
the Plans or Programs
|
October 1
through October 31, 2008
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
0
|
|
|
|
265,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1
through November 30, 2008
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
0
|
|
|
|
265,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1
through December 31, 2008
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
0
|
|
|
|
265,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
0
|
|
|
|
265,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In August 2002, the Company announced a stock repurchase program to acquire up to 5% of the
Companys common stock. This plan was renewed for an additional year in July 2008. The plan is
renewable on an annual basis and will expire in August 2009, if not renewed.
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders.
The Companys Annual Meeting of Stockholders was held on November 25, 2008. A total of 7,537,282
shares of the Companys common stock were represented at the Annual Meeting in person or by proxy.
Proposal I Stockholders voted in favor of the election of four nominees for director. The voting
results for each nominee were as follows:
|
|
|
|
|
|
|
|
|
|
|
Votes in Favor
|
|
|
Nominee
|
|
of election
|
|
Votes Withheld
|
Robert K. Healey
|
|
|
7,257,070
|
|
|
|
280,210
|
|
|
|
|
|
|
|
|
|
|
Stanley T. Jaros
|
|
|
6,996,247
|
|
|
|
541,033
|
|
|
|
|
|
|
|
|
|
|
Stuart D. Neidus
|
|
|
7,260,741
|
|
|
|
276,539
|
|
|
|
|
|
|
|
|
|
|
Raymond J. Negrelli
|
|
|
7,001,402
|
|
|
|
535,878
|
|
Page 26
Part II Other Information continued
The following directors continued in office with terms ending October 2009.
C. Keith Swaney
Gerald A. Fallon
Steven A. Calabrese
The following directors continued in office with terms ending October 2010.
John R. Male
Ronald D. Holman, II
Richard M. Osborne Sr.
Proposal II To ratify the appointment of Crowe Horwath LLP as independent registered public
accountant firm of the Company for the fiscal year ending June 30, 2009. The voting results were as
follows:
|
|
|
|
|
|
|
|
|
Votes For
|
|
Votes against
|
|
Abstain
|
7,491,006
|
|
|
44,804
|
|
|
|
1,472
|
|
Stockholder Proposal III Approval of the PVF Capital Corp. 2008 Equity Incentive Plan. The
voting results were as follows:
|
|
|
|
|
|
|
|
|
Votes For
|
|
Votes against
|
|
Abstain
|
2,838,164
|
|
|
917,805
|
|
|
|
6,534
|
|
There were 2, 0, and 3,774,779 broker non-votes with respect to Proposals I, II and III,
respectively.
Item 5. Other Information. N/A.
Item 6. (a)
Exhibits
The following exhibits are filed herewith:
|
10.1
|
|
Amended and Restated Severance Agreement among PVF Capital Corp.,
Park View Federal Savings Bank and John R. Male * (1)
|
|
|
10.2
|
|
Amended and Restated Severance Agreement among PVF Capital Corp.,
Park View Federal Savings Bank and Jeffrey N. Male * (1)
|
|
|
10.3
|
|
Amended and Restated Severance Agreement among PVF Capital Corp.,
Park View Federal Savings Bank and Edward B. Debevec * (1)
|
|
|
31.1
|
|
Rule 13a-14(a) Certification of Chief Executive Officer
|
|
|
31.2
|
|
Rule 13a-14(a) Certification of Chief Financial Officer
|
|
|
32
|
|
Section 1350 Certification
|
|
|
|
*
|
|
Management contract or compensatory plan, contract or arrangement.
|
|
(1)
|
|
Amended during the quarter ended December 31, 2008 to comply with
Section 409A of the Internal Revenue Code of 1986, as amended (the Code) and the
regulations and guidance issued with respect to Section 409A of the Code.
|
Page 27
Signature
Pursuant to the requirements 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.
(Registrant)
|
|
Date: February 12, 2009
|
/s/ Edward B. Debevec
|
|
|
Edward B. Debevec
|
|
|
Treasurer
(Only authorized officer and Principal Financial Officer)
|
|
|
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