<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
/ / TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NUMBER 0-24948
PVF CAPITAL CORP
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1659805
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
25350 ROCKSIDE ROAD, BEDFORD HTS., OHIO 44146
- ---------------------------------------- -------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 991-9600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
---------------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant's voting stock is listed on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") System Small-Cap Market under
the symbol "PVFC." The aggregate market value of the voting stock held by
nonaffiliates of the registrant, based on the closing sales price of the
registrant's common stock as quoted on the Nasdaq System on September 15, 1996,
was $25,222,456. For purposes of this calculation, it is assumed that
directors, executive officers and 5% stockholders of the registrant are
affiliates. As of September 15, 1996, the registrant had 2,323,338 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Stockholders for the Fiscal Year Ended June 30, 1996.
(Parts I, II and IV)
2. Proxy Statement for the 1996 Annual Meeting of Stockholders.
(Part III)
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
PVF Capital Corp. ("PVF" or the "Company") announced the reorganization of
Park View Federal Savings Bank ("Park View Federal" or the "Bank") into the
holding company structure of ownership effective October 31, 1994. On that
date, Park View Federal became a wholly owned subsidiary of PVF Capital Corp.,
and all issued and outstanding shares of common stock of the Bank were converted
on a three-for-two basis into shares of common stock of PVF Capital Corp. PVF
owns and operates Park View Federal Savings Bank and PVF Service Corporation
("PVFSC"), a real estate subsidiary, purchased by PVF from the Bank during
fiscal 1995. Park View Federal is a federal stock savings bank operating
through nine offices located in Cleveland and surrounding communities. Park
View Federal has operated continuously for 76 years, having been founded as an
Ohio chartered savings and loan association in 1920. Its deposits became
federally insured in 1936. The Bank became federally chartered in 1950. On
December 30, 1992, the Bank completed its conversion from a federally chartered
mutual savings and loan association to a federally chartered stock savings bank
(the "Conversion"), at which time it adopted its present name, Park View
Federal. PVFSC was purchased by PVF to improve the Bank's regulatory capital
ratios and for the purpose of conducting real estate activities at the holding
company level. PVF Capital Corp's main office is located at 2618 N. Moreland
Boulevard, Cleveland, Ohio 44120 and its telephone number is (216) 991-9600.
The Bank's principal business consists of attracting deposits from the
general public and investing these funds primarily in loans secured by first
mortgages on real estate located in the Bank's market area, which consists of
Portage, Lake, Geauga, Cuyahoga, Summit, Stark, Medina and Lorain Counties in
Ohio. Park View Federal emphasizes the origination of loans for the purchase or
construction of residential real estate, commercial real estate and multi-family
residential property and land loans. To a lesser extent, the Bank originates
loans secured by second mortgages, including home equity lines of credit and
loans secured by savings deposits.
The Bank derives its income principally from interest earned on loans and,
to a lesser extent, loan servicing and other fees, mortgage banking activities,
and interest earned on investments. The Bank's principal expenses are interest
expense on deposits and borrowings and non-interest expense such as compensation
and employee benefits, office occupancy expenses and other miscellaneous
expenses. Funds for these activities are provided principally by deposits, FHLB
advances, repayments of outstanding loans, mortgage banking activities, and
operating revenues. The business of PVF consists primarily of the business of
the Bank.
Park View Federal is subject to examination and comprehensive regulation by
the Office of Thrift Supervision (the "OTS"), and the Bank's savings deposits
are insured up to applicable limits by the Savings Association Insurance Fund
(the "SAIF"), which is administered by the Federal Deposit Insurance Corporation
(the "FDIC"). The Bank is a member of and owns capital stock in the Federal
Home Loan Bank (the "FHLB") of Cincinnati, which is one of 12 regional banks in
the FHLB System. The Bank is further subject to regulations of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") governing
reserves to be maintained and certain other matters. See " -- Regulation."
2
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MARKET AREA
The Bank conducts its business through nine offices located in Cuyahoga,
Summit and Lake Counties in Ohio, and its market area consists of Portage, Lake,
Geauga, Cuyahoga, Summit, Stark, Medina and Lorain Counties in Ohio. At June
30, 1996, over 98% of the Bank's net loan portfolio and over 98% of the Bank's
deposits were in the Bank's market area. Park View Federal has targeted
business development efforts in suburban sectors of its market area, such as
Lake, Geauga, and Summit Counties, where demographic growth has been stronger.
The economy in the Cleveland area historically has been based on the
manufacture of durable goods. Though manufacturing continues to remain an
important sector of the economy, diversification has occurred in recent years
with the growth of service, financial and wholesale and retail trade industries.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION
The Bank's net loan portfolio, including mortgage-backed securities,
totalled $297.8 million at June 30, 1996, representing 89.8% of total assets at
such date. It is the Bank's policy to concentrate its lending in its market
area. Single-family residential loans comprise the largest group of loans,
amounting to $114.4 million, or 38.4% of the net loan portfolio at June 30,
1996. In addition, at June 30, 1996, loans for the construction of single-
family residential real estate totalled $76.7 million, or 25.8% of the net loan
portfolio. At June 30, 1996, loans for the purchase and construction of
commercial real estate amounted to $72.5 million, or 24.4% of the net loan
portfolio, at such date. The Bank also had $30.6 million of multi-family
residential real estate loans and $26.0 million of land loans, most of the
latter consisting of loans to acquire land on which the borrowers intended to
construct single-family residences. The Bank also had $8.7 million outstanding
in Home Equity Line of Credit loans. The remainder of the loan portfolio at
June 30, 1996 consisted of $2.4 million in consumer loans, which included
$328,000 in mobile home loans, $742,000 in loans secured by savings deposits,
$43,000 in property improvement loans and $1.2 million of other consumer loans,
which consist primarily of automobile loans, demand loans and lines of credit.
In addition, mortgage-backed securities totaled $8.6 million at June 30, 1996.
3
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Set forth below is certain data relating to the composition of the Bank's
loan portfolio by type of loan on the dates indicated. As of June 30, 1996, the
Bank had no concentrations of loans exceeding 10% of total loans other than as
disclosed below.
<TABLE>
<CAPTION>
AT JUNE 30,
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1996 1995 1994 1993 1992
--------------- ---------------- ------------------ ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Real estate loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential (1) $114,373 38.41% $ 98,203 38.56% $ 79,901 37.93% $ 79,031 48.08% $ 78,759 48.20%
Multi-family residential. . . 30,607 10.28% 39,531 15.52% 33,706 16.00% 16,647 10.13% 16,503 10.10%
Commercial. . . . . . . . . . 72,543 24.36% 57,498 22.58% 53,347 25.33% 38,233 23.26% 38,187 23.37%
Home equity LOC . . . . . . . 8,749 2.94% 3,314 1.30% 0 0.00% 0 0.00% 0 0.00%
Construction. . . . . . . . . 76,725 25.77% 61,653 24.21% 53,774 25.53% 31,701 19.29% 23,952 14.66%
Land. . . . . . . . . . . . . 26,000 8.73% 18,318 7.19% 16,488 7.83% 12,341 7.51% 9,401 5.75%
Mortgage-backed securities
available for sale, net . . . 7,963 2.67% 989 0.39% 0 0.00% 3,006 1.83% 5,090 3.11%
Mortgage-backed securities
held to maturity. . . . . . . 629 0.21% 2,747 1.08% 0 0.00% 0 0.00% 0 0.00%
Consumer loans:
Property improvement. . . . . 43 0.01% 76 0.03% 103 0.05% 176 0.11% 238 0.15%
Passbook loans. . . . . . . . 742 0.25% 999 0.39% 842 0.40% 666 0.41% 725 0.44%
Mobile home . . . . . . . . . 328 0.11% 519 0.20% 833 0.40% 1,386 0.84% 2,153 1.32%
Other . . . . . . . . . . . . 1,244 0.42% 701 0.28% 486 0.23% 433 0.26% 651 0.40%
----- --- --- --- ---
339,946 114.16% 284,548 111.72% 239,480 113.70% 183,620 117.71% 175,659 107.50%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less:
Accrued interest receivable. 1,709 0.57% 1,589 0.62% 1,083 0.51% 950 0.58% 1,103 0.67%
Deferred loan fees . . . . . (2,098) -0.70% (1,811) -0.71% (1,583) -0.75% (942) -0.57% (817) -0.50%
Unearned discount. . . . . . (165) -0.06% (336) -0.13% (347) -0.16% (272) -0.17% (192) -0.12%
Unearned discount FHLMC MBS. (158) -0.05% (2) 0.00% 0 -0.00% 0 0.00% 0 0.00%
Unrealized loss FHLMC MBS. . (234) -0.08% 0 0.00% 0 -0.00% 0 0.00% 0 0.00%
Undisbursed portion of loan
proceeds. . . . . . . . . . (38,649) -12.98% (26,891) -10.56% (25,058) -11.90% (16,244) -9.88% (9,393) -5.75%
Market valuation reserve
(Mtg. banking). . . . . . . (13) -0.00% 0 0.00% (871) -0.41% 0 0.00% 0 0.00%
Allowance for possible
loan losses. . . . . . . . (2,565) -0.86% (2,402) -0.94% (2,075) -0.99% (2,738) -1.67% (2,949) -1.80%
Total other items. . . . . (42,173) -14.16% (29,853) -11.72% (28,851) -13.70% (19,246) -11.71% (12,248) -7.50%
-------- -------- -------- -------- --------
Total loans and mortgage-
backed securities. . . . . $297,773 100.00% $254,695 100.00% $210,629 100.00% $164,374 100.00% $163,411 100.00%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
</TABLE>
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(1) Includes loans held for sale in the amounts of $11.2 million, $4.5 million,
$4.0 million, $4.9 million and $3.2 million at June 30, 1996, 1995, 1994,
1993 and 1992 respectively.
4
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The following table presents at June 30, 1996 the amounts of loan principal
repayments scheduled to be received by the Bank during the periods shown based
upon the time remaining before contractual maturity. Loans with adjustable
rates are reported as due in the year in which they reprice. Demand loans,
loans having no schedule of repayments and no stated maturity. The table below
does not include any estimate of prepayments which significantly shorten the
average life of all mortgage loans and may cause the Bank's actual repayment
experience to differ from that shown below.
<TABLE>
<CAPTION>
DUE DURING DUE ONE DUE THREE DUE FIVE DUE 10
THE YEAR THROUGH THREE THROUGH FIVE THROUGH 10 THROUGH 20 DUE 20 YEARS
ENDING YEARS AFTER YEARS AFTER YEARS AFTER YEARS AFTER OR MORE AFTER
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1996 1996 1996 1996
---------- ------------- ------------ ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans . . . . . . . $180,921 $52,903 $29,247 $13,217 $6,844 $4,034
Consumer loans . . . . . . . . . . . . . 1,917 14 20 244 162 0
-------- ------- ------- ------- ------- ------
Total. . . . . . . . . . . . . . . . $182,838 $52,917 $29,267 $13,461 $7,006 $4,034
-------- ------- ------- ------- ------- ------
-------- ------- ------- ------- ------- ------
</TABLE>
5
<PAGE>
The following table apportions the dollar amount of the loans due or
repricing after June 30, 1997 between those with predetermined interest rates
and those with adjustable interest rates.
FLOATING OR
PREDETERMINED ADJUSTABLE
RATES RATES TOTAL
---------------- ------------- --------
(IN THOUSANDS)
Real estate mortgage loans . . $17,649 $88,596 $106,245
Consumer loans . . . . . . . . 440 0 440
------- ------- --------
Total. . . . . . . . . . . $18,089 $88,596 $106,685
------- ------- --------
------- ------- --------
Scheduled contractual principal repayments of loans and mortgage-backed
securities do not reflect the actual life of such assets. The average life of
loans and mortgage-backed securities is substantially less than their
contractual terms because of prepayments. In addition, due-on-sale clauses on
loans generally give the Bank the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan rates are substantially higher than rates on existing mortgage loans and,
conversely, decreases when rates on existing mortgages are substantially higher
than current mortgage loan rates.
ORIGINATION, PURCHASE AND SALE OF LOANS
The Bank generally has authority to originate and purchase loans secured by
real estate located throughout the United States. Consistent with its emphasis
on being a community-oriented financial institution, the Bank concentrates its
lending activities in its market area.
Residential real estate loans typically are originated through salaried
loan officers, while construction loans and commercial real estate loans are
originated through senior management officers. Residential mortgage loan
originations are attributable to depositors, walk-in customers, advertising and
referrals from real estate brokers and developers. Construction and commercial
real estate loan originations are attributable largely to the Bank's reputation
and its long-standing ties to builders in its market area. All loan
applications are evaluated by the Bank's staff to ensure compliance with the
Bank's underwriting standards. See "-- Loan Underwriting Policies."
The Bank originates all fixed-rate, single-family mortgage loans in
conformity with FHLMC and FNMA guidelines so as to permit their being swapped
with the FHLMC or the FNMA in exchange for mortgage-backed securities secured by
such loans or their sale in the secondary market. All such loans are sold or
swapped, as the case may be, with servicing retained, and are sold in
furtherance of the Bank's goal of better matching the maturities and interest
rate-sensitivity of its assets and liabilities. The Bank generally retains
responsibility for collecting and remitting loan payments, inspecting the
properties, making certain insurance and tax payments on behalf of borrowers and
otherwise servicing the loans it sells or converts into mortgage-backed
securities, and receives a fee for performing these services. Sales of loans
also provide funds for additional lending and other purposes.
The following table shows total loan origination and sale activity
during the periods indicated.
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Loans originated:
Real estate: . . . . . . . . . .
Residential and commercial (1) $ 44,411 $ 37,297 $ 46,417
Construction . . . . . . . . . 90,899 72,752 53,913
Land . . . . . . . . . . . . . 19,038 11,761 14,099
Second mortgage. . . . . . . . . 533 2,733 1,204
Savings deposit. . . . . . . . . 410 747 1,496
Mobile home. . . . . . . . . . . 0 0 0
Other. . . . . . . . . . . . . . 1157 367 477
-------- -------- --------
Total loans originated . . . . $156,448 $125,657 $117,606
-------- -------- --------
-------- -------- --------
Loans refinanced . . . . . . . . . $ 20,533 $ 17,043 $ 56,208
-------- -------- --------
-------- -------- --------
Loans and mortgage-backed
securities sold. . . . . . . . . $ 48,435 $ 36,251 $ 71,582
-------- -------- --------
-------- -------- --------
- -------------------
(1) Includes single-family and multi-family residential and commercial loans.
6
<PAGE>
LOAN UNDERWRITING POLICIES
The Bank's lending activities are subject to the Bank's written, non-
discriminatory underwriting standards and to loan origination procedures
prescribed by the Bank's Board of Directors and its management. Detailed loan
applications are obtained to determine the borrower's ability to repay, and the
more significant items on these applications are verified through the use of
credit reports, financial statements and confirmations. Property valuations are
generally performed by independent outside appraisers approved by the Bank's
Board of Directors. The Bank's Loan Underwriter has authority to approve all
fixed-rate single-family residential mortgage loans which meet FHLMC and FNMA
underwriting guidelines and those adjustable-rate single-family residential
mortgage loans which meet the Bank's underwriting standards and are in amounts
of less than $400,000. The Board of Directors has established a Loan Committee
comprised of the Chairman of the Board, President, Senior Vice President, other
management and an outside director of the Bank. This committee reviews all
loans approved by the underwriter and has the authority to approve adjustable
rate single-family residential loans up to $400,000 and construction and
commercial real estate loans up to $500,000. All loans in excess of the above
amounts must be approved by the Board of Directors. All loans secured by
savings deposits can be approved by lending officers based in the Bank's branch
offices.
It is the Bank's policy to have a mortgage creating a valid lien on real
estate and to generally obtain a title insurance policy which insures that the
property is free of prior encumbrances. When a title insurance policy is not
obtained, an attorney's certificate is received. Borrowers must also obtain
hazard insurance policies prior to closing and, when the property is in a flood
plain as designated by the Department of Housing and Urban Development, paid
flood insurance policies. Most borrowers are also required to advance funds on
a monthly basis together with each payment of principal and interest to a
mortgage escrow account from which the Bank makes disbursements for items such
as real estate taxes and homeowners insurance.
The Bank is permitted to lend up to 100% of the appraised value of the real
property securing a mortgage loan. However, if the amount of a residential loan
originated or refinanced exceeds 90% of the appraised value, the Bank is
required by federal regulations to obtain private mortgage insurance on that
portion of the principal amount of the loan that exceeds 80% of the appraised
value of the property. The Bank will make a single-family residential mortgage
loan with up to a 90% loan-to-value ratio if the required private mortgage
insurance is obtained. The Bank generally limits the loan-to-value ratio on
multi-family and commercial real estate mortgages to 75%.
Interest rates charged by the Bank on loans are affected principally by
competitive factors, the demand for such loans and the supply of funds available
for lending purposes and, in the case of fixed-rate, single-family residential
loans, rates established by the FHLMC and the FNMA. These factors are, in turn,
affected by general economic conditions, monetary policies of the federal
government, including the Federal Reserve Board, legislative tax policies and
government budgetary matters.
RESIDENTIAL REAL ESTATE LENDING. The Bank historically has been and
continues to be an originator of single-family, residential real estate loans in
its market area. The Bank currently originates fixed-rate, residential mortgage
loans in accordance with underwriting guidelines promulgated by the FHLMC and
the FNMA and adjustable-rate mortgage loans for terms of up to 30 years. In
addition, in accordance with FHLMC and FNMA guidelines, the Bank offers 30-year
loans with interest rates that adjust after five or seven years to a rate which
is 0.5% above the FHLMC 60 day delivery rate, at which point the rate is fixed
over the remaining 25 or 23 years of the loan, respectively. At June 30, 1996,
$114.4 million, or 38.4%, of the Bank's net loan and mortgage-backed securities
portfolio consisted of single-family, conventional mortgage loans, of which
approximately $84.6 million, or 74.0%, carried adjustable interest rates.
Included in this amount are $3.4 million in second mortgage loans. Such loans
are for terms of up to fifteen years and adjust annually to a rate which is
3.75% above the treasury rate. Any such loans having fixed rates are originated
by the Bank to be swapped with the FHLMC and the FNMA in exchange for mortgage-
backed securities available for sale or sold for cash in the secondary market.
7
<PAGE>
The Bank offers adjustable-rate residential mortgage loans with interest
rates which adjust annually based upon changes in an index based on the weekly
average yield on United States Treasury securities adjusted to a constant
comparable maturity of one year, as made available by the Federal Reserve Board
(the "Treasury Rate"), plus a margin of 2.75%. The amount of any increase or
decrease in the interest rate is presently limited to 2% per year, with a limit
of 6% over the life of the loan. The adjustable-rate mortgage loans offered by
the Bank, as well as many other savings institutions, provide for initial rates
of interest below the rates which would prevail when the index used for
repricing is applied. However, the Bank underwrites the loan on the basis of
the borrower's ability to pay at the rate which would be in effect without the
discount.
COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE LENDING. The
commercial real estate loans originated by the Bank are primarily secured by
office buildings, shopping centers, warehouses and other income producing
commercial property. The Bank's multi-family residential loans are primarily
secured by apartment buildings. These loans are generally for a term of from 10
to 25 years with interest rates that adjust either annually or every three years
based upon changes in the Treasury Rate, plus a negotiated margin of between
3.0% and 3.5%. Commercial and multi-family residential real estate loans
amounted to $103.1 million, or 34.6%, of the total loan and mortgage-backed
securities portfolio at June 30, 1996.
Commercial real estate lending entails significant additional risks as
compared with residential property lending. Commercial real estate loans
typically involve large loan balances to single borrowers or groups of related
borrowers. The payment experience on such loans typically is dependent on the
successful operation of the real estate project. These risks can be
significantly impacted by supply and demand conditions in the market for office
and retail space, and, as such, may be subject to a greater extent to adverse
conditions in the economy. To minimize these risks, Park View Federal generally
limits itself to its market area and to borrowers with which it has substantial
experience or who are otherwise well known to the Bank. The Bank obtains
financial statements and personal guarantees from all principals obtaining
commercial real estate loans.
CONSTRUCTION LOANS. The Bank also offers residential and commercial
construction loans, with a substantial portion of such loans originated to date
being for the construction of owner-occupied, single-family dwellings in the
Bank's market area. Residential construction loans are offered to selected
local developers to build single-family dwellings and to individuals building
their primary or secondary residence. Generally, loans for the construction of
owner-occupied, single-family residential properties are originated in
connection with the permanent loan on the property and have a construction term
of six to 18 months. Such loans are offered only on an adjustable rate basis.
Interest rates on residential construction loans made to the eventual occupant
are set at the prime rate plus 2%, and are fixed for the construction term.
Interest rates on residential construction loans to builders are set at the
prime rate plus 2%, and adjust quarterly. Interest rates on commercial
construction loans float with a specified index, with construction terms
generally not exceeding 18 months. Advances are generally paid directly to
subcontractor's and suppliers and are made on a percentage of completion basis.
At June 30, 1996, $76.7 million or 25.8%, of the Bank's total loan and mortgage-
backed securities portfolio consisted of construction loans, virtually all of
which were secured by single-family residences.
Prior to making a commitment to fund a loan, the Bank requires both an
appraisal of the property by appraisers approved by the Board of Directors and a
study of the feasibility of the proposed project. The Bank also reviews and
inspects each project at the commencement of construction and prior to every
disbursement of funds during the term of the construction loan.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate.
Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result
in delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate
of value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment.
8
<PAGE>
LAND LOANS. The Bank originates loans to builders and developers for the
acquisition and/or development of vacant land. The proceeds of the loan are
used to acquire the land and/or to make site improvements necessary to develop
the land into saleable lots. The Bank will not originate land loans to
individuals wishing to speculate in the value of land, and limits such loans to
borrowers who have agreed to begin development of the property within two years
of the date of the loan. The term of the loans are generally limited to two
years. Repayments are made on the loans as the developed lots are sold.
Land development and acquisition loans involve significant additional risks
when compared with loans on existing residential properties. These loans
typically involve large loan balances to single borrowers, and the payment
experience is dependent on the successful development of the land and the sale
of the lots. These risks can be significantly impacted by supply and demand
conditions. To minimize these risks, Park View Federal generally limits the
loans to builders and developers with whom it has substantial experience or who
are otherwise well-known to the Bank, and it obtains the financial statements
and personal guarantees of such builders and developers. The Bank also requires
feasibility studies and market analyses to be performed with respect to the
project. The amount of the loan is limited to the lesser of 80% of the
estimated gross sell out value or 100% of the discounted value. If land is
being acquired, the amount of the loan to be used for such purposes is limited
to 75% of the cost of the land. All of these loans originated are within the
Bank's market area. The Bank had $26.0 million, or 8.7% of its net loan and
mortgage-backed securities portfolio, in land loans at June 30, 1996.
HOME EQUITY LINE OF CREDIT LOANS. The Bank originates loans secured by
mortgages on residential real estate. Such loans are for terms of 5 years with
one 5 year review and renewal option followed by a balloon payment. The rate
adjusts monthly to a rate ranging from the prime lending rate to prime plus
0.5%. At June 30, 1996, the Bank had $8.8 million in home equity lines of
credit, which amounted to 2.9% of its net loan and mortgage-backed securities
portfolio.
LOAN FEES AND SERVICING
In addition to interest earned on loans, Park View Federal receives fees
for servicing loans which it had sold or swapped for mortgage-backed securities.
During the year ended June 30, 1996, the Bank reported loan servicing fee income
of $542,000, and at June 30, 1996, the Bank was servicing $171.1 million of
loans for others. The Bank has been able to keep delinquencies on loans
serviced for others to a relatively low level of below 1% of the aggregate
outstanding balance of loans serviced as a result of its policy to limit
servicing to loans it originated and subsequently sold to the FHLMC and the
FNMA. Because of the success the Bank has experienced in this area and because
it has data processing equipment that will allow it to expand its portfolio of
serviced loans without incurring significant incremental expenses, the Bank
intends in the future to augment its portfolio of loans serviced by continuing
to originate and either swap such fixed-rate, single-family residential mortgage
loans with the FHLMC and the FNMA in exchange for mortgage-backed securities or
sell such loans for cash, while retaining servicing.
On August 18, 1995, the Bank sold $146.0 million in FHLMC servicing to PVF
and recognized no gain due to the transaction being an intercompany sale. PVF
then entered into an agreement with the Bank to service the underlying loans for
$8.00 per loan monthly. PVF borrowed $1.2 million to finance the purchase of
this servicing. The servicing income from these loans will provide sufficient
funds to pay both the servicing fee to the Bank and finance the debt incurred
for the purchase of the servicing.
In addition to loan servicing fees, the Bank receives fees in connection
with loan commitments and originations, loan modifications, late payments and
changes of property ownership and for miscellaneous services related to its
loans. Loan origination fees are calculated as a percentage of the amount
loaned. The Bank typically receives fees of up to three points (one point being
equivalent to 1% of the principal amount of the loan) in connection with the
origination of fixed-rate and adjustable-rate residential mortgage loans. All
loan origination fees are deferred and accreted into income over the contractual
life of the loan according to the interest method of recognizing income. If a
loan is prepaid, refinanced or sold, all remaining deferred fees with respect to
such loan are taken into income at such time.
9
<PAGE>
Income from these activities varies from period to period with the volume
and type of loans originated, sold and purchased, which in turn is dependent on
prevailing mortgage interest rates and their effect on the demand for loans in
the Bank's market area.
MORTGAGE BANKING ACTIVITY
At June 30, 1996 and June 30, 1995, the Bank had $11,204,000 and $4,451,000
of fixed rate single family mortgage loans available for sale. In connection
with these activities the Bank establishes a mortgage banking reserve for market
valuation losses. See Note 4 of Notes to Consolidated Financial Statements.
NON-PERFORMING LOANS AND OTHER PROBLEM ASSETS
It is management's policy to continually monitor its loan portfolio to
anticipate and address potential and actual delinquencies. When a borrower
fails to make a payment on a loan, the Bank takes immediate steps to have the
delinquency cured and the loan restored to current status. Loans which are
delinquent 15 days incur a late fee of 5% of the scheduled principal and
interest payment. As a matter of policy, the Bank will contact the borrower
after the loan has been delinquent 20 days. The Bank orders a property
inspection after a loan payment becomes 45 days past due. If a delinquency
exceeds 90 days in the case of a residential mortgage loan, 30 days in the case
of a construction loan or 30-60 days for a loan on commercial real estate, the
Bank will institute additional measures to enforce its remedies resulting from
the loan's default, including, commencing foreclosure action. Loans which are
delinquent 90 days or more generally are placed on non-accrual status, and
formal legal proceedings are commenced to collect amounts owed.
The following table sets forth information with respect to the Bank's non-
performing loans and other problem assets at the dates indicated. During the
periods shown, the Bank had no material restructured loans within the meaning of
SFAS No. 15 as amended by SFAS No. 114 and SFAS No. 118.
<TABLE>
<CAPTION>
At June 30,
-------------------------------
1996 1995 1994 1993 1992
----- ------ ------ ------ ------
(Dollars in thousands)
Non-accruing loans (1):
<S> <C> <C> <C> <C> <C>
Real estate. . . . . . . . . . . . . . . . . $2,272 $3,497 $3,274 $1,846 $3,591
Consumer loans . . . . . . . . . . . . . . 80 109 151 280 439
------ ------ ------ ------ ------
Total. . . . . . . . . . . . . . . . . . $2,352 $3,606 $3,425 $2,126 $4,030
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Accruing loans which are
contractually past due 90
days or more:
Real estate. . . . . . . . . . . . . . . $ 95 $1,028 $ 891 $ 688 $1,945
------ ------ ------ ------ ------
Total. . . . . . . . . . . . . . . . . $ 95 $1,028 $ 891 $ 688 $1,945
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total nonaccrual and 90 days
past due loans . . . . . . . . . . . . $2,447 $4,634 $4,316 $2,814 $5,975
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of non-performing loans to total loans
and mortgage-backed securities . . . . . . 0.82% 1.81% 2.05% 1.71% 3.66%
----- ------ ------ ------ -----
----- ------ ------ ------ -----
Other non-performing assets (2). . . . . . . 53 $ 0 $ 20 $ 521 $ 466
----- ------ ------ ------ ------
----- ------ ------ ------ ------
Total non-performing assets. . . . . . . . . $2,500 $4,634 $4,336 $3,335 $6,641
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total non-performing assets to
total assets . . . . . . . . . . . . . . . 0.75% 1.47% 1.82% 1.73% 3.25%
----- ------ ------ ------ -----
----- ------ ------ ------ -----
</TABLE>
- ------------------
(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. A policy
change to non-accruing loans effective with the fiscal year ending June 30,
1994 provided for the non-accrual of all loans classified as substandard,
doubtful, or loss and all loans greater than 90-days past due with a loan-
to-value ratio greater than 65%. 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.
It is the Bank's policy to classify as non-accruing any loan where less
than the full required interest payment is made and to not record into income
such partial interest payments. During the year ended June 30,
10
<PAGE>
1996, gross interest income of $340,000 would have been recorded on loans
accounted for on a non-accrual basis if such loans had been current throughout
the period. At June 30, 1996, the Bank had no restructured loans.
At June 30, 1996, non-accruing loans consisted of 49 loans totalling $2.4
million, and included 1 land loan in the amount of $56,000, 1 commercial real
estate loan in the amount of $160,000, 5 construction loans aggregating
$556,000, 30 conventional mortgage loans aggregating $1.5 million and 12
consumer loans aggregating $80,000. Most non-accruing consumer loans at June
30, 1996 were mobile home loans. Management has reviewed its non-accruing loans
and believes that the allowance for loan losses is adequate.
Real estate acquired by the Bank as a result of foreclosure is classified
as real estate owned until such time as it is sold. At June 30, 1996, the Bank
had two real estate owned properties aggregating $52,000.
ASSET CLASSIFICATION AND ALLOWANCE FOR LOAN LOSSES. Federal regulations
require savings institutions to review their assets on a regular basis and to
classify them as "substandard," "doubtful" or "loss," if warranted. Assets
classified as substandard or doubtful require the institution to establish
general allowances for loan losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount. An asset which does not currently
warrant classification but which possesses weaknesses or deficiencies deserving
close attention is required to be designated as "special mention." The Bank has
established an Asset Classification Committee, which is comprised of the
Chairman of the Board, the Chief Financial Officer and senior employees of the
Bank. The Asset Classification Committee meets quarterly to review the Bank's
loan portfolio and determine which loans should be placed on a "watch-list" of
potential problem loans which are considered to have more than normal credit
risk. Currently, general loss allowances (up to 1.25% of risk-based assets)
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses do not qualify as regulatory
capital. See "Regulation -- Regulatory Capital Requirements." OTS examiners
may disagree with the insured institution's classifications and amounts
reserved. If an institution does not agree with an examiner's classification of
an asset, it may appeal this determination to the OTS. At June 30, 1996, total
non-accrual and 90 days past due loans and other non-performing assets were $2.5
million, of which amount approximately $2.4 million were classified as follows:
$2.1 million were classified as substandard; and $267,000 were classified as
loss. In addition, the Bank has determined that at June 30, 1996, it had $2.1
million in assets classified as substandard, $267,000 of assets classified as
loss and $386,000 of assets designated as special mention. Special mention
loans included $294,000 in single-family mortgage loans and $92,000 in
commercial real estate loans, and consisted of performing loans. For additional
information, see " -- Non-Performing Loans and Other Problem Assets" and Note 4
of Notes to Consolidated Financial Statements.
In originating loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. It is management's policy to maintain an
adequate allowance for loan losses based on, among other things, the Bank's and
the industry's historical loan loss experience, evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality. The
Bank increases its allowance for loan losses by charging provisions for possible
loan losses against the Bank's income.
General allowances are made pursuant to management's assessment of risk in
the Bank's loan portfolio as a whole. Specific allowances are provided for
individual loans when ultimate collection is considered questionable by
management after reviewing the current status of loans which are contractually
past due and considering the net realizable value of the security for the loan.
Management continues to actively monitor the Bank's asset quality and to charge
off loans against the allowance for loan losses when appropriate or to provide
specific loss reserves when necessary. Although management believes it uses the
best information available to make determinations with respect
11
<PAGE>
to the allowance for loan losses, future adjustments may be necessary if
economic conditions differ substantially from the economic conditions in the
assumptions used in making the initial determinations.
The following table summarizes the activity in the allowance for loan
losses for the periods indicated.
YEAR ENDED JUNE 30,
--------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ -------
(IN THOUSANDS)
Balance at beginning of year . . . $2,402 $2,075 $2,738 $2,949 $2,047
------ ------ ------ ------ ------
Charge-offs:
Mortgage loans . . . . . . . . . 241 77 140 334 168
Consumer loans (1) . . . . . . . 24 18 23 70 99
------ ------ ------ ------ ------
Total charge-offs. . . . . . . 265 95 163 404 267
------ ------ ------ ------ ------
Recoveries:
Mortgage loans . . . . . . . . . 5 4 0 0 96
Consumer loans (1) . . . . . . . 6 2 0 25 21
------ ------ ------ ------ ------
Total recoveries . . . . . . . 11 6 0 25 117
------ ------ ------ ------ ------
Net charge-offs. . . . . . . . . . 254 89 163 379 150
------ ------ ------ ------ ------
Transfer to mortgage banking
reserve. . . . . . . . . . . . . 0 0 500 0 0
Provision charged to income. . . . 417 416 0 168 1,052
------ ------ ------ ------ ------
Balance at end of year . . . . . . $2,565 $2,402 $2,075 $2,738 $2,949
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of net charge-offs during
the year to average loans
outstanding during the year. . . 0.0% 0.0% 0.1% 0.2% 0.1%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
- ---------------------
(1) Consists primarily of mobile home loans.
12
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
AT JUNE 30,
1996 1995 1994 1993 1992
------------------- ------------------- -------------------- ------------------- -------------------
% OF LOANS % OF LOANS % OF LOANS % OF LOANS % OF LOANS
IN IN IN IN IN
CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO
TOTAL NET TOTAL NET TOTAL NET TOTAL NET TOTAL NET
LOANS LOANS LOANS LOANS LOANS
AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
Single-family . . . $ 977 55.11% $ 857 54.27% $ 743 50.34% $ 137 58.47% $ 199 58.34%
Multi-family. . . . 163 10.51% 295 15.36% 188 15.91% 363 9.91% 185 10.18%
Commercial. . . . . 968 24.71% 940 22.42% 636 25.03% 619 22.90% 519 23.29%
Land. . . . . . . . 210 8.90% 154 7.11% 168 7.75% 27 7.49% 33 5.92%
Unallocated. . . . 123 0.00% 0 0.00% 109 0.00% 959 0.00% 1,303 0.00%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Total mortgage
loans. . . . . . $2,441 99.23% $2,246 99.16% $1,844 99.03% $2,105 98.77% $2,239 97.73%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Consumer loans (1) . 124 0.77% 156 0.84% 231 0.97% 633 1.23% 710 2.27%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Total allowance
for loan losses. . $2,565 100.00% $2,402 100.00% $2,075 100.00% $2,738 100.00% $2,949 100.00%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
</TABLE>
- ---------------
(1) Consists of property improvement loans and mobile home loans.
13
<PAGE>
INVESTMENT ACTIVITIES
Park View Federal is required under federal regulations to maintain a
minimum amount of liquid assets, which can be invested in specified short-term
securities, and is also permitted to make certain other investments. See
"Regulation -- Liquidity Requirements". Park View Federal maintains a liquidity
portfolio well in excess of the amount required to satisfy regulatory
requirements. The Bank's liquidity ratio of 10.26% at June 30, 1996 exceeded
the 5% regulatory requirement. Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives, management's judgment as
to the attractiveness of the yields then available in relation to other
opportunities, its expectations of the level of yield that will be available in
the future and its projections as to the short-term demand for funds to be used
in the Bank's loan origination and other activities.
Park View Federal's investment policy currently allows for investment in
various types of liquid assets, including United States Government and Agency
securities, time deposits at the FHLB of Cincinnati, certificates of deposit or
bankers' acceptances at other federally insured depository institutions and
mortgage-backed securities. The general objective of Park View Federal's
investment policy is to maximize returns without compromising liquidity or
creating undue credit or interest rate risk. In accordance with the investment
policy, at June 30, 1996 Park View Federal had investments in Government and
agency notes, federal funds sold, FHLB of Cincinnati stock and interest-bearing
deposits in other financial institutions.
In accordance with GAAP, the Bank reports its investments, other than
marketable equity securities and investments available for sale, at cost as
adjusted for discounts and unamortized premiums and only recognizes realized
gains or losses in income. The Bank's generally holds all investment securities
until maturity. Any FHLMC mortgage-backed securities created from loans
originated by the Bank for sale will be designated available for sale. For
additional information see Notes 1 and 2 of Notes to Consolidated Financial
Statements.
At present, management is not aware of any conditions or circumstances
which could impair its ability to hold its remaining investment securities to
maturity. Accordingly, management does not anticipate that it will be required
to reclassify any other investment securities as available for sale.
The following table sets forth the carrying value of the Bank's investment
securities portfolio, short-term investments and FHLB of Cincinnati stock at the
dates indicated. At June 30, 1996 the market values of the Bank's investment
securities portfolio was $13.9 million.
AT JUNE 30,
---------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Investment securities:
U.S. Government and agency securities. . $14,094 $41,194 $ 8,351
------- ------- -------
Total investment securities. . . . . 14,094 41,194 8,351
Interest-bearing deposits. . . . . . . . . 245 650 156
Federal funds sold . . . . . . . . . . . . 6,875 5,325 9,725
FHLB of Cincinnati stock . . . . . . . . . 1,880 1,756 1,332
------- ------- -------
Total investments. . . . . . . . . . . $23,094 $48,925 $19,564
------- ------- -------
------- ------- -------
14
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, market values and average yields for the Bank's investment securities at
June 30, 1996.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------------------------------------------------------------------------------------------------
ONE YEAR ONE TO FIVE FIVE TO 10 MORE THAN
OR LESS YEARS YEARS 10 YEARS TOTAL INVESTMENT SECURITIES
----------------- ------------------ ------------------ ------------------ ----------------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING MARKET AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency securities . $ 100 6.40% $13,994 6.62% $0 0.00% $ 0 0.00% $14,094 $13,894 6.62%
Deposits(1). . . . . 7,120 5.36% 0 0.00% 0 0.00% 0 0.00% 7,120 7,120 5.36%
FHLB stock . . . . . 0 0.00% 0 0.00% 0 0.00% 1,880 7.00% 1,880 1,880 7.00%
------ ------- -- ------ ------- -------
Total. . . . . . . $7,220 5.37% $13,994 6.62% $0 0.00% $1,880 7.00% $23,094 $22,894 6.26%
------ ------- -- ------ ------- -------
------ ------- -- ------ ------- -------
</TABLE>
_______________
(1) Includes interest-bearing deposits at other financial institutions and
federal funds sold.
15
<PAGE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for lending,
investment activities and general operational purposes. In addition to
deposits, Park View Federal derives funds from loan principal and interest
repayments, maturities of investment securities and interest payments thereon.
Although loan repayments are a relatively stable source of funds, deposit
inflows and outflows are significantly influenced by general interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds, or on a longer term
basis for general operational purposes.
DEPOSITS. The Bank attracts deposits principally from within its primary
market area by offering a variety of deposit instruments, including checking
accounts, money market accounts, regular savings accounts and certificates of
deposit which range in maturity from seven days to four years. Deposit terms
vary according to the minimum balance required, the length of time the funds
must remain on deposit and the interest rate. Maturities, terms, service fees
and withdrawal penalties for its deposit accounts are established by the Bank on
a periodic basis. Park View Federal generally reviews its deposit mix and
pricing on a weekly basis. In determining the characteristics of its deposit
accounts, Park View Federal considers the rates offered by competing
institutions, funds acquisition and liquidity requirements, growth goals and
federal regulations. The Bank does not accept brokered deposits due to the
volatility and rate sensitivity of such deposits.
Park View Federal competes for deposits with other institutions in its
market area by offering deposit instruments that are competitively priced and
providing customer service through convenient and attractive offices,
knowledgeable and efficient staff and hours of service that meet customers'
needs. To provide additional convenience, Park View Federal participates in MAC
(money access card) Automated Teller Machine networks at locations throughout
Ohio and other participating states, through which customers can gain access to
their accounts at any time.
With improved capital levels resulting from the Conversion, the Bank was
positioned for growth. Consequently, management's decision to aggressively
match market savings rates along with the opening of two new branch offices
during the fiscal year ended June 30, 1995 resulted in increased deposits.
Deposit balances totalled $271.0 million, $272.3 million, and $197.0 million at
the fiscal years ended June 30, 1996, 1995, and 1994 respectively.
Deposits in the Bank as of June 30, 1996 were represented by the various
programs described below.
WEIGHTED
AVERAGE PERCENTAGE
INTEREST MINIMUM MINIMUM BALANCE IN OF TOTAL
RATE TERM CATEGORY BALANCE THOUSANDS DEPOSITS
- -------- ------- -------- ------- ---------- ----------
2.00% None NOW accounts $ 50 $ 14,528 4.40%
2.75% None Passbook statement accounts 5 31,883 11.45%
3.87% None Money market accounts 1,000 5,279 1.89%
0.00% None Non-interest-earning
demand accounts 50 5,528 1.39%
-------- ------
$ 57,218 19.13%
-------- ------
CERTIFICATES OF DEPOSIT
-----------------------
5.47% 3 months or less 500 64,677 17.45%
5.47% 3 - 6 months 500 30,563 10.59%
5.65% 6 - 12 months 500 71,172 30.92%
6.20% 1 - 3 years 500 25,746 11.43%
6.90% More than three years 500 21,669 10.48%
-------- ------
5.76% Total certificates of deposit $213,827 80.87%
-------- ------
5.06% Total deposits $271,045 100.00%
-------- ------
-------- ------
16
<PAGE>
The following table sets forth the change in dollar amount of deposits in
the various types of accounts offered by the Bank between the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, 1996 AT JUNE 30, 1995 AT JUNE 30, 1994
-------------------------------- ---------------------------------- ----------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
% OF FROM PRIOR % OF FROM PRIOR % OF
BALANCE DEPOSITS YEAR BALANCE DEPOSITS YEAR BALANCE DEPOSITS
------- -------- --------- -------- -------- --------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW checking (1) . . . $ 20,056 7.44% $ 4,294 $ 15,762 5.79% $ 1,968 $ 13,794 7.00%
Super NOW checking and
money market . . . . 5,279 1.91% 126 5,153 1.89% (1,940) 7,093 3.60%
Passbook and regular
savings. . . . . . . 31,883 11.76% 712 31,171 11.45% (5,813) 36,984 18.76%
Jumbo certificates . . 31,923 11.78% (1,728) 33,651 12.36% 16,073 17,578 8.92%
Other certificates . . 146,040 53.88% (5,011) 151,051 55.47% 58,568 92,483 46.94%
Keogh accounts . . . . 2,261 0.83% 41 2,220 0.82% (178) 2,398 1.22%
IRA accounts . . . . . 33,603 12.40% 321 33,282 12.22% 6,571 26,711 13.56%
-------- ------- ------- -------- ------- -------- -------- -------
Total. . . . . . . $271,045 100.00% ($1,245) $272,290 100.00% $ 75,249 $197,041 100.00%
-------- -------- ------- -------- ------- -------- -------- -------
-------- ------- ------- -------- ------- -------- -------- -------
</TABLE>
_____________
(1) Includes non-interest-bearing demand accounts.
The following table sets forth the average balances and average interest
rates based on month-end balances for interest-bearing demand deposits and time
deposits during the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ---------------------------- ----------------------------
INTEREST- INTEREST- INTEREST-
BEARING BEARING BEARING
DEMAND SAVINGS TIME DEMAND SAVINGS TIME DEMAND SAVINGS TIME
DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average balance. . . $17,703 $31,399 $221,872 $16,469 $32,775 $182,740 $18,304 $39,862 $122,017
Average rate paid. . 2.34% 2.76% 6.13% 2.20% 2.78% 5.57% 2.36% 2.84% 4.77%
</TABLE>
17
<PAGE>
The following table sets forth the time deposits in the Bank classified by
rates as of the dates indicated.
AT JUNE 30,
---------------------------------------
RATE 1996 1995 1994
- --------- --------- -------- ---------
(IN THOUSANDS)
2.50% - 3.99%. . . . . $ 7 $ 0 $ 42,172
4.00% - 5.99%. . . . . 147,934 68,400 75,713
6.00% - 7.99%. . . . . 65,721 149,960 13,241
8.00% - 9.99%. . . . . 165 1,497 3,253
10.00% - 11.99%. . . . . 0 349 2,777
12.00% - 13.99%. . . . . 0 0 2,014
-------- -------- --------
$213,827 $220,206 $139,170
-------- --------- --------
The following table sets forth the amount and maturities of time deposits
in specified weighted average interest rate categories at June 30, 1996.
<TABLE>
<CAPTION>
AMOUNT DUE
-----------------------------------------------------------------------
ONE YEAR AFTER
RATE OR LESS 1-2 YEARS 2-3 YEARS 3 YEARS TOTAL
----------- ----------- ----------- --------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2.50% - 3.99% . . . . . $ 7 $ 0 $ 0 $ 0 $ 7
4.00% - 5.99%. . . . . 134,098 6,387 5,069 2,380 147,934
6.00% - 7.99%. . . . . 32,308 8,628 5,653 19,132 65,721
8.00% - 9.99%. . . . . 0 8 0 157 165
-------- -------- ------- -------- --------
$166,413 $ 15,023 $10,722 $ 21,669 $213,827
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
</TABLE>
The rates currently paid on certificates maturing within one year or less are
lower than the rates currently being paid on similar certificates of deposit
maturing thereafter. The Bank will seek to retain these deposits to the extent
consistent with its long-term objective of maintaining positive interest rate
spreads. Depending upon interest rates existing at the time such certificates
mature, the Bank's cost of funds may be significantly affected by the rollover
of these funds. A decrease in such cost of funds, if any, may have a material
impact on the Bank's operations. To the extent such deposits do not rollover,
the Bank may, if necessary, use other sources of funds, including borrowings
from the FHLB of Cincinnati, to replace such deposits. See "-- Borrowings."
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
1996.
CERTIFICATES
MATURITY PERIOD OF DEPOSIT
--------------- ---------------
(IN THOUSANDS)
Three months or less. . . . . . . . . . . . . $11,386
Three through six months. . . . . . . . . . . 6,778
Six through 12 months . . . . . . . . . . . . 11,310
Over 12 months. . . . . . . . . . . . . . . . 7,297
-------
Total . . . . . . . . . . . . . . . . . . $36,771
-------
-------
18
<PAGE>
The following table sets forth the Bank's deposit activities for the
periods indicated.
YEAR ENDED JUNE 30,
--------------------------------------
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
Deposits . . . . . . . . . . . . . $ 50,688 $100,324 $ 50,702
Withdrawals. . . . . . . . . . . . 62,229 33,261 29,417
--------- -------- --------
Net increase (decrease)
before interest credited . . . (11,541) 67,063 21,285
Interest credited. . . . . . . . . 10,296 8,186 5,140
--------- -------- --------
Net increase (decrease) in
Savings deposits . . . . . . . $ (1,245) $ 75,249 $ 26,425
--------- -------- --------
--------- -------- --------
BORROWINGS. Savings deposits historically have been the primary source of
funds for the Bank's lending, investments and general operating activities. The
Bank is authorized, however, to use advances from the FHLB of Cincinnati to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB of Cincinnati functions as a central reserve bank
providing credit for savings institutions and certain other member financial
institutions. As a member of the FHLB System, Park View Federal is required to
own stock in the FHLB of Cincinnati and is authorized to apply for advances.
Advances are pursuant to several different programs, each of which has its own
interest rate and range of maturities. Park View Federal has a Blanket
Agreement for advances with the FHLB under which the Bank may borrow up to 25%
of assets subject to normal collateral and underwriting requirements. The Bank
currently has a commitment with the Federal Home Loan Bank of Cincinnati for a
flexible line of credit, referred to as a cash management advance, in the amount
of $30 million that was drawn upon in the amount of $16 million at June 30,
1996. Advances from the FHLB of Cincinnati are secured by the Bank's stock in
the FHLB of Cincinnati and other eligible assets. For additional information
please refer to Note 8 of Notes to Consolidated Financial Statements.
The following table sets forth certain information regarding the Bank's
advances from the FHLB of Cincinnati for the periods indicated:
YEAR ENDED JUNE 30,
-------------------------------
1996 1995 1994
-------- -------- ------
(DOLLARS IN THOUSANDS)
Maximum amount outstanding at any
month end. . . . . . . . . . . . . . . . . $27,482 $29,000 $22,560
Approximate average outstanding balance. . . 10,623 16,870 14,289
Approximate weighted average rate
paid (1) . . . . . . . . . . . . . . . . . 5.13% 4.39% 4.94%
- ------------------------
(1) Computed from average monthly balances.
The weighted average rates outstanding on FHLB advances was 5.46%, 4.15%
and 4.81% at June 30, 1996, 1995 and 1994, respectively.
At the years ended June 30, 1996, 1995, and 1994 PVFSC had loans
outstanding of $1.7 million, $1.8 million and $0.6 million collateralized by
real estate and guaranteed by PVF. At the year ended June 30, 1996 PVF had a
loan outstanding for $1.0 million collateralized by mortgage servicing rights.
SUBSIDIARY ACTIVITIES
As a result of regulatory changes mandated by FIRREA, savings associations
are currently required to deduct from regulatory capital calculations their
investment in and extensions of credit to service corporations engaged in
activities not permissible for a national bank. The land acquisition and
development activities of PVFSC are not permissible for national banks. As a
result, the Bank's net investment in and extensions of credit to PVFSC must be
deducted from capital in their entirety. It was for this reason that PVF
purchased the stock of PVFSC from Park View Federal. The effect of this
transaction to the Bank was to increase GAAP capital by $785,000 and
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<PAGE>
eliminate the Bank's net investment in and deduction for PVF Service Corp. from
its books, thus increasing regulatory capital by $1.2 million.
The Bank is now required to give the FDIC and the Director of OTS 30 days
prior notice before establishing or acquiring a new subsidiary or commencing a
new activity through an existing subsidiary. Both the FDIC and the Director of
OTS have the authority to prohibit the initiation or to order the termination of
subsidiary activities determined to pose a risk to the safety or soundness of
the institution.
As a federally chartered savings bank, Park View Federal is permitted to
invest an amount equal to 2% of its assets in subsidiaries, with an additional
investment of 1% of assets where such investment serves primarily community,
inner-city and community development purposes. Under such limitations, as of
June 30, 1996, Park View Federal was authorized to invest up to approximately
$9.9 million in the stock of or loans to subsidiaries, including the additional
1% investment for community inner-city and community development purposes.
Institutions meeting their applicable minimum regulatory capital requirements
may invest up to 50% of their regulatory capital in conforming first mortgage
loans to subsidiaries in which they own 10% or more of the capital stock. Park
View Federal currently exceeds its regulatory capital requirements.
PVF has two active subsidiaries, Park View Federal and PVFSC, which is
engaged in the activities of land acquisition and development. At June 30,
1996, PVFSC had an investment in two properties aggregating $855,000, described
below. In addition PVF has three non-active subsidiaries, PVF Community
Development Corp., PVF Mortgage Corp., and Mid Pines Land Company, which have
been chartered for future activity.
MID PINES. Mid-Pines consists of two adjacent parcels of land aggregating
257 acres in Solon, Ohio. In 1983, PVFSC acquired a 150 acre parcel from the
Bank, which property the Bank acquired in foreclosure. The 150 acre parcel
included 85 acres of vacant land and a 65 acre golf course. PVFSC acquired the
additional 107 acre parcel of land in 1985 for $150,000. PVFSC acquired the
properties as an investment. Mid-Pines was appraised in 1994 at a value of $2.5
million. Mid Pines had a net book value of $820,000 at June 30, 1996. PVFSC
intends to submit a Planned Unit Development (PUD) proposal to the City of Solon
for their approval during the fiscal year ended June 30, 1997.
DEER LAWN FARMS. In 1987, PVFSC acquired Deer Lawn Farms, which consists
of 84.5 acres of vacant land in Solon, Ohio. Initially, PVFSC had sought to
develop and subdivide the property into 42 lots for sale as residential building
sites. However, PVFSC encountered environmental regulatory permit issues that
would have delayed the development of the project. Consequently, PVFSC
determined to divide the property into 10 lots of at least 4.6 acres. At June
30, 1996, Deer Lawn Farms had a net book value of $35,000. PVF estimates the
fair market value of the two remaining lots to approximate book value at June
30, 1996.
COMPETITION
The Bank faces strong competition both in originating real estate and other
loans and in attracting deposits. The Bank competes for real estate and other
loans principally on the basis of interest rates and the loan fees it charges,
the type of loans it originates and the quality of services it provides to
borrowers. Its competition in originating real estate loans comes primarily
from other savings institutions, commercial banks and mortgage bankers making
loans secured by real estate located in the Bank's market area.
The Bank attracts all its deposits through its branch offices primarily
from the communities in which those branch offices are located. Consequently,
competition for deposits is principally from other savings institutions,
commercial banks, credit unions and brokers in these communities. Park View
Federal competes for deposits and loans by offering a variety of deposit
accounts at competitive rates, a wide array of loan products, convenient
20
<PAGE>
business hours and branch locations, a commitment to outstanding customer
service and a well-trained staff. In addition, the Bank believes it has
developed strong relationships with local businesses, realtors, builders, and
the public in general, giving it an excellent image in the community.
EMPLOYEES
As of June 30, 1996, PVF and its subsidiaries had 115 full-time employees
and 17 part-time employees, none of whom was represented by a collective
bargaining agreement. The Company believes it enjoys a good relationship with
its personnel.
REGULATION OF THE BANK
GENERAL. As a savings institution, Park View Federal is subject to
extensive regulation by the OTS, and its deposits are insured by the SAIF, which
is administered by the FDIC. The lending activities and other investments of
the Bank must comply with various federal regulatory requirements. OTS
periodically examines the Bank for compliance with various regulatory
requirements. The FDIC also has the authority to conduct special examinations
of SAIF-insured savings institutions. The Bank must file reports with OTS
describing its activities and financial condition. The Bank is also subject to
certain reserve requirements promulgated by the Federal Reserve Board. This
supervision and regulation is intended primarily for the protection of
depositors. Certain of these regulatory requirements are referred to below or
elsewhere herein.
REGULATORY CAPITAL REQUIREMENTS. Under OTS regulations, savings
institutions must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3.0% of adjusted total assets and "total
capital," a combination of core and "supplementary" capital, equal to 8.0% of
"risk-weighted" assets. In addition, the OTS has adopted regulations which
impose certain restrictions on savings associations that have a total risk-based
capital ratio that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted
assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets
of less than 4.0% (or 3.0% if the institution is rated composite 1 under the OTS
examination rating system). For purposes of these regulations, Tier 1 capital
has the same definitions as core capital. See "-- Prompt Corrective Regulatory
Action." The Bank is in compliance with all applicable regulatory capital
requirements.
The core and tangible capital requirements are measured against adjusted
total assets, which are a savings institution's consolidated total assets as
determined under GAAP adjusted for certain goodwill amounts and increased by a
pro rated portion of the assets of subsidiaries in which the savings institution
holds a minority interest and which are not engaged in activities for which the
capital rules require the savings institution to net its debt and equity
investments in such subsidiaries against capital, as well as a pro rated portion
of the assets of other subsidiaries for which netting is not fully required
under phase-in rules. Adjusted total assets are reduced by the amount of assets
that have been deducted from capital, the portion of savings institution's
investments in subsidiaries that must be netted against capital under the
capital rules and, for purposes of the core capital requirement, qualifying
supervisory goodwill. At June 30, 1996, Park View Federal's adjusted total
assets for purposes of the core and tangible capital requirements were $335.0
million.
In determining compliance with the risk-based capital requirement, a
savings institution calculates its total capital, which may include both core
capital and supplementary capital, provided the amount of supplementary capital
used does not exceed the savings institution's core capital. Supplementary
capital is defined to include certain preferred stock issues, nonwithdrawable
accounts and pledged deposits that do not qualify as core capital, certain
approved subordinated debt, certain other capital instruments and a portion of
the savings institution's general loss allowances.
The risk-based capital requirement is measured against risk-weighted
assets, which equal the sum of each asset and the credit-equivalent amount of
each off-balance sheet item after being multiplied by an assigned risk
21
<PAGE>
weight. Under the OTS risk-weighting system, single-family first mortgages
not more than 90 days past due with loan-to-value ratios under 80%, and
multi-family mortgages (maximum 36 dwelling units) with loan-to-value ratios
under 80% and average annual occupancy rates over 80%, are assigned a risk
weight of 50%. Consumer loans, residential construction loans and commercial
real estate loans are assigned a risk weight of 100%. Mortgage-backed
securities issued, or fully guaranteed as to principal and interest, by the
FNMA or FHLMC are assigned a 20% risk weight. Cash and United States
Government securities backed by the full faith and credit of the United
States Government are given a 0% risk weight. Under the risk-based capital
requirement, a savings institution is required to maintain total capital,
consisting of core capital plus certain other components, including general
valuation allowances, equal to 8.0% of risk-weighted assets. At June 30,
1996, the Bank's risk-weighted assets were $232.1 million, and its total
regulatory capital was $26.5 million, or 11.4% of risk-weighted assets.
The table below presents the Bank's capital position at June 30, 1996,
relative to its various minimum regulatory capital requirements.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------------
PERCENT OF
AMOUNT ASSETS (1)
------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tangible Capital. . . . . . . . . . . . $24,282 7.25%
Tangible Capital Requirement. . . . . . 5,026 1.50
------- ------
Excess . . . . . . . . . . . . . . . $19,256 5.75%
------- ------
------- ------
Tier 1/Core Capital . . . . . . . . . . $24,282 7.25%
Tier 1/Core Capital Requirement.. . . . 13,402 4.00
------- ------
Excess . . . . . . . . . . . . . . . $10,880 3.25%
------- ------
------- ------
Tier 1 Risk-Based Capital . . . . . . . $ 24,282 10.46%
Tier 1 Risk-Based Capital Requirement.. 7,986 4.00
------- ------
Excess . . . . . . . . . . . . . . . $ 16,296 6.46%
------- ------
------- ------
Risk-Based Capital. . . . . . . . . . . $ 26,510 11.42%
Risk-Based Capital Requirement. . . . . 18,565 8.00
------- ------
Excess. . . . . . . . . . . . . . . . $ 7,945 3.42%
------- ------
------- ------
----------------
(1) Based upon adjusted total assets for purposes of the tangible, core
and Tier 1 capital requirements, and risk-weighted assets for purposes
of the Tier 1 risk-based and risk-based capital requirements.
</TABLE>
The OTS has adopted an amendment to its risk-based capital requirements
that requires savings institutions with more than a "normal" level of interest
rate risk to maintain additional total capital. A savings institution's
interest rate risk will be measured in terms of the sensitivity of its "net
portfolio value" to changes in interest rates. Net portfolio value is defined,
generally, as the present value of expected cash inflows from existing assets
and off-balance sheet contracts less the present value of expected cash outflows
from existing liabilities. A savings institution will be considered to have a
"normal" level of interest rate risk exposure if the decline in its net
portfolio value after an immediate 200 basis point increase or decrease in
market interest rates (whichever results in the greater decline) is less than
two percent of the current estimated economic value of its assets. A savings
institution with a greater than normal interest rate risk will be required to
deduct from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the economic value of its
total assets. At June 30, 1996 the Bank had no interest rate risk component
deduction from total capital.
The OTS will calculate the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital will be based on
the institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from
22
<PAGE>
filing the interest rate risk schedule with their Thrift Financial Reports.
However, the OTS will require any exempt savings institution that it determines
may have a high level of interest rate risk exposure to file such schedule on a
quarterly basis.
The OTS has proposed an amendment to its capital regulations establishing a
minimum 3% core capital ratio for savings institutions in the strongest
financial and managerial condition. For all other savings associations, the
minimum core capital ratio would be 3% plus at least an additional 100 to 200
basis points. In determining the amount of additional capital, the OTS would
assess both the quality of risk management systems and the level of overall risk
in each individual savings association through the supervisory process on a
case-by-case basis. As a result, the exact effect on the Bank cannot be
predicted at this time.
In addition to requiring generally applicable capital standards for savings
institutions, the Director of OTS may establish the minimum level of capital for
a savings institution at such amount or at such ratio of capital-to-assets as
the Director determines to be necessary or appropriate for such institution in
light of the particular circumstances of the institution. The Director of OTS
may treat the failure of any savings institution to maintain capital at or above
such level as an unsafe or unsound practice and may issue a directive requiring
any savings institution which fails to maintain capital at or above the minimum
level required by the Director to submit and adhere to a plan for increasing
capital. Such an order may be enforced in the same manner as an order issued by
the FDIC.
PROMPT CORRECTIVE REGULATORY ACTION. Under FDICIA, the federal banking
regulators are required to take prompt corrective action if an insured
depository institution fails to satisfy certain minimum capital requirements.
All institutions, regardless of their capital levels, are restricted from making
any capital distribution or paying any management fees if the institution would
thereafter fail to satisfy the minimum levels for any of its capital
requirements. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased monitoring by the appropriate federal banking regulator; (ii)
required to submit an acceptable capital restoration plan within 45 days; (iii)
subject to asset growth limits; and (iv) required to obtain prior regulatory
approval for acquisitions, branching and new lines of businesses. The capital
restoration plan must include a guarantee by the institution's holding company
that the institution will comply with the plan until it has been adequately
capitalized on average for four consecutive quarters, under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution into capital compliance as of
the date it failed to comply with its capital restoration plan. A
"significantly undercapitalized" institution, as well as any undercapitalized
institution that did not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities, possible replacement of
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution. Any company controlling the
institution could also be required to divest the institution or the institution
could be required to divest subsidiaries.
Under implementing regulations, the federal banking regulators will measure
a depository institution's capital adequacy on the basis of the institution's
total risk-based capital ratio (the ratio of its total capital to risk-weighted
assets), Tier 1 risk-based capital ratio (the ratio of its core capital to risk-
weighted assets) and leverage ratio (the ratio of its core capital to adjusted
total assets). Under the regulations, a savings association that is not subject
to an order or written directive to meet or maintain a specific capital level
will be deemed "well capitalized" if it also has: (i) a total risk-based capital
ratio of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6.0% or
greater; and (iii) a leverage ratio of 5.0% or greater. An "adequately
capitalized" savings association is a savings association that does not meet the
definition of well capitalized and has: (i) a total risk-based capital ratio of
8.0% or greater; (ii) a Tier 1 capital risk-based ratio of 4.0% or greater; and
(iii) a leverage ratio of 4.0% or greater (or 3.0% or greater if the savings
association has a composite 1 CAMEL rating). An "undercapitalized institution"
is a savings association that has (i) a total risk-based capital ratio less than
8.0%; or (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0% (or 3.0% if the association has a composite 1
23
<PAGE>
CAMEL rating). A "significantly undercapitalized" institution is defined as a
savings association that has: (i) a total risk-based capital ratio of less than
6.0%; or (ii) a Tier 1 risk-based capital ratio of less than 3.0%; or (iii) a
leverage ratio of less than 3.0%. A "critically undercapitalized" savings
association is defined as a savings association that has a ratio of core
capital to total assets of less than 2.0%. The OTS may reclassify a well
capitalized savings association as adequately capitalized and may require an
adequately capitalized or undercapitalized association to comply with the
supervisory actions applicable to associations in the next lower capital
category if the OTS determines, after notice and an opportunity for a hearing,
that the savings association is in an unsafe or unsound condition or that the
association has received and not corrected a less-than-satisfactory rating for
any CAMEL rating category. The Bank is classified as "well capitalized" under
these regulations.
SAFETY AND SOUNDNESS STANDARDS. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Act of 1994 (the "CDRI Act"), each Federal
banking agency is required to establish safety and soundness standards for
institutions under its authority. On July 10, 1995, the Federal banking
agencies, including the OTS, released Interagency Guidelines Establishing
Standards for Safety and Soundness and published a final rule establishing
deadlines for submission and review of safety and soundness compliance plans.
The final rule and the guidelines go into effect on August 9, 1995. The
guidelines require savings institutions to maintain internal controls and
information systems and internal audit systems that are appropriate for the
size, nature and scope of the institution's business. The guidelines also
establish certain basic standards for loan documentation, credit underwriting,
interest rate risk exposure, and asset growth. The guidelines further provide
that savings institutions should maintain safeguards to prevent the payment of
compensation, fees and benefits that are excessive or that could lead to
material financial loss, and should take into account factors such as comparable
compensation practices at comparable institutions. If the OTS determines that a
savings institution is not in compliance with the safety and soundness
guidelines, it may require the institution to submit an acceptable plan to
achieve compliance with the guidelines. A savings institution must submit an
acceptable compliance plan to the OTS within 30 days of receipt of a request for
such a plan. Failure to submit or implement a compliance plan may subject the
institution to regulatory sanctions. Management believes that the Bank already
meets substantially all the standards adopted in the interagency guidelines, and
therefore does not believe that implementation of these regulatory standards
will materially affect the Bank's operations.
Additionally, under FDICIA, as amended by the CDRI Act, the Federal banking
agencies are required to establish standards relating to the asset quality and
earnings that the agencies determine to be appropriate. On July 10, 1995, the
federal banking agencies, including the OTS, issued proposed guidelines relating
to asset quality and earnings. Under the proposed guidelines, a savings
institution should maintain systems, commensurate with its size and the nature
and scope of its operations, to identify problem assets and prevent
deterioration in those assets as well as to evaluate and monitor earnings and
ensure that earnings are sufficient to maintain adequate capital and reserves.
Management believes that the asset quality and earnings standards, in the form
proposed by the bank agencies, would not have a material effect on the Bank's
operations.
FEDERAL HOME LOAN BANK SYSTEM. Park View Federal is a member of the FHLB
System, which consists of 12 regional FHLBs subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB"). The FHLBs provide a
central credit facility primarily for member institutions. As a member of the
FHLB System, the Bank is required to acquire and hold shares of capital stock in
the FHLB of Cincinnati in an amount at least equal to 1% of the aggregate unpaid
principal of its home mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB of Cincinnati, whichever is greater. The Bank was in compliance
with this requirement with an investment in FHLB of Cincinnati stock at June 30,
1996 of $1.9 million.
The FHLB of Cincinnati serves as a reserve or central bank for its member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB of Cincinnati. Under FIRREA,
long-term advances may be made only for the purpose
24
<PAGE>
of providing funds for residential housing finance. At June 30, 1996, the Bank
had $27.5 million in advances outstanding from the FHLB of Cincinnati. See " --
Deposit Activity and Other Sources of Funds -- Borrowings."
LIQUIDITY REQUIREMENTS. Park View Federal is required to maintain average
daily balances of liquid assets (cash, certain time deposits, bankers'
acceptances, highly rated corporate debt and commercial paper, securities of
certain mutual funds, mortgage loans and mortgage-related securities with less
than one year to maturity or subject to purchase within one year and specified
United States government, state or federal agency obligations) equal to the
monthly average of not less than a specified percentage (currently 5%) of its
net withdrawable savings deposits plus short term borrowings. Savings and loan
associations also are required to maintain average daily balances of short-term
liquid assets at a specified percentage (currently 1%) of the total of their net
withdrawable savings accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet liquidity requirements.
The average daily liquidity and short-term liquidity ratios of the Bank for the
month of June 1996 were 8.1% and 3.0%, respectively. A substantial and
sustained decline in savings deposits would adversely affect the Bank's
liquidity which may result in restricted operations and additional borrowings
from the FHLB of Cincinnati.
QUALIFIED THRIFT LENDER TEST. A savings association that does not meet the
Qualified Thrift Lender test ("QTL Test") must either convert to a bank charter
or comply with the following restrictions on its operations: (i) the institution
may not engage in any new activity or make any new investment, directly or
indirectly, unless such activity or investment is permissible for a national
bank; (ii) the branching powers of the institution shall be restricted to those
of a national bank; (iii) the institution shall not be eligible to obtain any
advances from its FHLB; and (iv) payment of dividends by the institution shall
be subject to the rules regarding payment of dividends by a national bank. Upon
the expiration of three years from the date the institution ceases to be a
Qualified Thrift Lender, it must cease any activity, and not retain any
investment not permissible for a national bank and immediately repay any
outstanding FHLB advances (subject to safety and soundness considerations).
To meet the QTL test, an institution's "Qualified Thrift Investments" must
total at least 65% of "portfolio assets." Under OTS regulations, portfolio
assets are defined as total assets less intangibles, property used by a savings
institution in its business and liquidity investments in an amount not exceeding
20% of assets. Qualified Thrift Investments consist of (i) loans, equity
positions or securities related to domestic, residential real estate or
manufactured housing, (ii) 50% of the dollar amount of residential mortgage
loans subject to sale under certain conditions, and (iii) stock in an FHLB or
the FHLMC or FNMA. In addition, subject to a 20% of portfolio assets limit,
savings institutions are able to treat as Qualified Thrift Investments 200% of
their investments in loans to finance "starter homes" and loans for
construction, development or improvement of housing and community service
facilities or for financing small businesses in "credit-needy" areas. In order
to maintain QTL status, the savings institution must maintain a weekly average
percentage of Qualified Thrift Investments to portfolio assets equal to 65% on a
monthly average basis in nine out of 12 months. A savings institution that
fails to maintain QTL status will be permitted to requalify once, and if it
fails the QTL test a second time, it will become immediately subject to all
penalties as if all time limits on such penalties had expired. Failure to
qualify as a QTL results in a number of sanctions, including the imposition of
certain operating restrictions imposed on national banks and a restriction on
obtaining additional advances from the FHLB System. At June 30, 1996, the Bank
qualified as a QTL.
UNIFORM LENDING STANDARDS. Under OTS regulations, savings institutions
must adopt and maintain written policies that establish appropriate limits and
standards for extensions of credit that are secured by liens or interests in
real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards, including loan-to-value limits, that
are clear and measurable, loan administration procedures and documentation,
approval and reporting requirements. The real estate lending policies must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies (the "Interagency Guidelines") that have been adopted by the federal
bank regulators.
25
<PAGE>
The Interagency Guidelines, among other things, call upon depository
institutions to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits; (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multifamily or other nonresidential property, the supervisory limit is 80%; (iv)
for loans for the construction of one-to-four family properties, the supervisory
limit is 85%; and (v) for loans secured by other improved property (e.g.,
farmland, completed commercial property and other income-producing property
including non-owner-occupied, one-to-four family property), the limit is 85%.
Although no supervisory loan-to-value limit has been established for owner-
occupied, one-to-four family and home equity loans, the Interagency Guidelines
state that for any such loan with a loan-to-value ratio that equals or exceeds
90% at origination, an institution should require appropriate credit enhancement
in the form of either mortgage insurance or readily marketable collateral.
The Interagency Guidelines state that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits, based on the support provided by other credit
factors. The aggregate amount of loans in excess of the supervisory loan-to-
value limits, however, should not exceed 100% of total capital and the total of
such loans secured by commercial, agricultural, multifamily and other non-one-
to-four family residential properties should not exceed 30% of total capital.
The supervisory loan-to-value limits do not apply to certain categories of loans
including loans insured or guaranteed by the U.S. government and its agencies or
by financially capable state, local or municipal governments or agencies, loans
backed by the full faith and credit of a state government, loans that are to be
sold promptly after origination without recourse to a financially responsible
party, loans that are renewed, refinanced or restructured without the
advancement of new funds, loans that are renewed, refinanced or restructured in
connection with a workout, loans to facilitate sales of real estate acquired by
the institution in the ordinary course of collecting a debt previously
contracted and loans where the real estate is not the primary collateral.
The Bank believes that its current lending policies conform to the
Interagency Guidelines and does not anticipate that the Interagency Guidelines
will have a material effect on its lending activities.
DEPOSIT INSURANCE. The Bank is charged an annual premium by the Savings
Association Insurance Fund ("SAIF") for federal insurance of its deposit
accounts up to applicable regulatory limits. Through December 31, 1997, the
assessment rate shall not be less than 0.18%. After December 31, 1997, the SAIF
assessment rate will be a rate determined by the FDIC to be appropriate to
increase the reserve ratio of the SAIF to 1.25% of insured deposits or such
higher percentage as the FDIC determines to be appropriate but not less than
0.15%.
Under the Federal Deposit Insurance Corporation's ("FDIC") risk-based
assessment system, the assessment rate for an insured depository institution
will depend on the assessment risk classification assigned to the institution by
the FDIC which will be determined by the institution's capital level and
supervisory evaluations. Institutions are assigned to one of three capital
groups -- well capitalized, adequately capitalized or undercapitalized -- based
on the data reported to regulators for date closest to the last day of the
seventh month preceding the semi-annual assessment period. Well capitalized
institutions are institutions satisfying the following capital ratio standards:
(i) total risk-based capital ratio of 10.0% or greater; (ii) Tier 1 risk-based
capital ratio of 6.0% or greater; and (iii) Tier 1 leverage ratio of 5.0% or
greater. Adequately capitalized institutions are institutions that do not meet
the standards for well capitalized institutions but which satisfy the following
capital ratio standards: (i) total risk-based capital ratio of 8.0% or greater;
(ii) Tier 1 risk-based capital ratio of 4.0% or greater; and (iii) Tier 1
leverage ratio of 4.0% or greater. Undercapitalized institutions consist of
institutions that do not qualify as either "well capitalized" or "adequately
capitalized." Within each capital group, institutions are assigned to one of
three subgroups on the basis of supervisory evaluations by the institution's
primary supervisory authority and such other information as the FDIC determines
to be relevant to the institution's financial condition and the risk posed to
the deposit insurance fund. Subgroup A will consist of financially sound
institutions with only a few minor weaknesses. Subgroup B consists of
institutions that demonstrate weaknesses which, if not corrected, could result
in significant
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deterioration of the institution and increased risk of loss to the deposit
insurance fund. Subgroup C consists of institutions that pose a substantial
probability of loss to the deposit insurance fund unless effective corrective
action is taken. The assessment rate will range from 0.23% of deposits for well
capitalized institutions in Subgroup A to 0.31% of deposits for undercapitalized
institutions in Subgroup C.
The Bank's savings deposits are insured by the SAIF, which is administered
by the FDIC. The assessment rate currently ranges from 0.23% of deposits for
well capitalized institutions to 0.31% of deposits for undercapitalized
institutions. The FDIC also administers the Bank Insurance Fund ("BIF"), which
has the same designated reserve ratio as the SAIF. On August 8, 1995, the FDIC
adopted an amendment to the BIF risk-based assessment schedule which lowered the
deposit insurance assessment rate for most commercial banks and other depository
institutions with deposits insured by the BIF to a range of from 0.31% of
insured deposits for undercapitalized BIF-insured institutions to 0.04% of
deposits for well-capitalized institutions, which constitute over 90% of BIF-
insured institutions. Subsequently, the BIF assessment rate has been lowered to
the statutory minimum of $2,000 per year. The amendments create a substantial
disparity in the deposit insurance premiums paid by BIF and SAIF members and
could place SAIF-insured savings institutions at a significant competitive
disadvantage to BIF-insured institutions.
The House of Representatives and the Senate of the United States provided
for a resolution of the recapitalization of the SAIF in the Balanced Budget Act
of 1995 (the "Reconciliation Bill") which was vetoed by the President in
December 1995 for reasons unrelated to the recapitalization of the SAIF. The
Reconciliation Bill provided that all SAIF member institutions would pay a
special assessment recently estimated to be a one-time charge of 0.85% of the
Company's total SAIF-assessable deposits as of March 31, 1995, or approximately
$2.2 million pretax. Such special assessment would be in addition to the
Company's annual deposit insurance premium. A balanced budget bill subsequently
was enacted and signed by the President in April 1996. That bill did not
provide for the recapitalization of the SAIF, and there can be no assurance
whether the SAIF will be recapitalized, whether the premium disparity between
SAIF and BIF insured institutions will be reduced or eliminated or whether a
special assessment will be charged. If a special assessment as described above
were to be required, it would result in a one-time charge to the Bank of up to
$2.35 million, which would have the effect of reducing the Bank's tangible and
core capital to $17.96 million, or 5.62% of adjusted total assets, and risk-
based capital to $19.96 million, or 10.00% of risk-weighted assets, on a
proforma basis as of June 30, 1995. If such a special assessment were required
and the SAIF as a result was fully recapitalized, it could have the effect of
reducing the Bank's deposit insurance premiums to the SAIF, thereby increasing
net income in future periods.
In addition, another proposal under consideration by Congress would require
savings associations to convert their charters to that of commercial banks in
connection with a merger of the BIF and the SAIF. Under current tax laws, a
savings association converting to a commercial bank charter must recapture into
taxable income the amount of its tax bad debt reserve that would not have been
allowed if the savings association had operated as a commercial bank. The tax
associated with the recapture of all or part of its tax bad debt reserve would
immediately reduce the capital of the savings institution even though such tax
would actually be paid out over the succeeding years. The Bank estimates that
the amount of the tax expense associated with a recapture of its tax bad debt
reserves if it were to convert to a national bank at June 30, 1996 was
approximately $1.5 million. The Bank cannot predict at this time if any of the
foregoing proposals would be adopted in their current form or, if adopted,
whether such proposals would remedy some or all of the related adverse financial
and tax effects.
SAIF members are generally prohibited from converting to the status of
members of the Bank Insurance Fund ("BIF"), also administered by the FDIC, or
merging with or transferring assets to a BIF member before August 9, 1994. The
FDIC, however, may approve such a transaction in the case of a SAIF member in
default or if the transaction involves an insubstantial portion of the deposits
of each participant. In addition, mergers, transfers of assets and assumptions
of liabilities may be approved by the appropriate bank regulator so long as
deposit insurance premiums continue to be paid to the SAIF for deposits
attributable to the SAIF members plus an adjustment for the annual rate of
growth of deposits in the surviving bank without regard to subsequent
acquisitions. Each depository institution participating in a SAIF-to-BIF
conversion transaction is required to pay an exit fee to
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SAIF and an entrance fee to BIF. A savings association is not prohibited from
adopting a commercial bank or savings bank charter prior to August 9, 1994 if
the resulting bank remains a SAIF member.
The FDIC has adopted a regulation which provides that any insured
depository institution with a ratio of Tier 1 capital to total assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition, which
would constitute grounds for the initiation of termination of deposit insurance
proceedings. The FDIC, however, will not initiate termination of insurance
proceedings if the depository institution has entered into and is in compliance
with a written agreement with its primary regulator, and the FDIC is a party to
the agreement, to increase its Tier 1 capital to such level as the FDIC deems
appropriate. Tier 1 capital is defined as the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
other than mortgage servicing rights and qualifying supervisory goodwill
eligible for inclusion in core capital under OTS regulations and minus
identified losses and investments in certain securities subsidiaries. Insured
depository institutions with Tier 1 capital equal to or greater than 2% of total
assets may also be deemed to be operating in an unsafe or unsound condition
notwithstanding such capital level. The regulation further provides that in
considering applications that must be submitted to it by savings associations,
the FDIC will take into account whether the savings association is meeting with
the Tier 1 capital requirement for state non-member banks of 4% of total assets
for all but the most highly rated state non-member banks.
DIVIDEND LIMITATIONS. Under OTS regulations, the Bank may not pay
dividends on its capital stock if its regulatory capital would thereby be
reduced below the amount then required for the liquidation account established
for the benefit of certain depositors of the Bank at the time of the conversion
of the bank from the mutual to stock form. In addition, savings institution
subsidiaries of savings and loan holding companies are required to give the OTS
30 days' prior notice of any proposed declaration of dividends to the holding
company.
Federal regulations impose additional limitations on the payment of
dividends and other capital distributions (including stock repurchases and cash
mergers) by the Bank. Under these regulations, a savings association that,
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution, has total capital (as defined by OTS regulation)
that is equal to or greater than the amount of its fully phased-in capital
requirements (a "Tier 1 Association") is generally permitted without OTS
approval to make capital distributions during a calendar year in an amount equal
to the greater of (i) 75% of net income for the previous four quarters or (ii)
100% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its total capital to assets ratio
exceeded its fully phased-in capital requirement to assets ratio at the
beginning of the calendar year. A savings association with total capital in
excess of current minimum capital requirements but not in excess of the fully
phased-in requirements (a "Tier 2 Association") is permitted to make capital
distributions without OTS approval of up to 75% of its net income for the
previous four quarters, less dividends already paid for such period depending on
the savings association's level of risk-based capital. A savings association
that fails to meet current minimum capital requirements (a "Tier 3 Association")
is prohibited from making any capital distributions without the prior approval
of the OTS. Tier 1 Associations that have been notified by the OTS that they
are in need of more than normal supervision will be treated as either a Tier 2
or Tier 3 Association. At June 30, 1994, the Bank was a Tier 1 Association.
The Bank is prohibited from making any capital distributions if after
making the distribution, it would be undercapitalized as defined in the OTS'
prompt corrective action regulations. After consultation with the FDIC, the OTS
may permit a savings association to repurchase, redeem, retire or otherwise
acquire shares or ownership interests if the repurchase, redemption, retirement
or other acquisition: (i) is made in connection with the issuance of additional
shares or other obligations of the institution in at least an equivalent amount;
and (ii) will reduce the institution's financial obligations or otherwise
improve the institution's financial condition.
In addition to the foregoing, earnings of the Bank appropriated to bad debt
reserves and deducted for Federal income tax purposes are not available for
payment of cash dividends without payment of taxes at the then
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current tax rate by the Bank on the amount of earnings removed from the reserves
for such distributions. See "Taxation." The Bank intends to make full use of
this favorable tax treatment afforded to the Bank and does not contemplate use
of any earnings of the Bank in a manner which would limit the Bank's bad debt
deduction or create federal tax liabilities.
FEDERAL RESERVE SYSTEM. Pursuant to regulations of the Federal Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
the first $54.0 million of transaction accounts, plus 12% on the remainder.
These percentages are subject to adjustment by the Federal Reserve Board.
Because required reserves must be maintained in the form of vault cash or in a
noninterest-bearing account at a Federal Reserve Bank, the effect of the reserve
requirement is to reduce the amount of the institution's interest-earning
assets. At June 30, 1995, Park View Federal met its reserve requirements.
INTERSTATE AND INTERINDUSTRY ACQUISITIONS. OTS regulations permit federal
associations to branch in any state or states of the United States and its
territories. Except in supervisory cases or when interstate branching is
otherwise permitted by state law or other statutory provision, a federal
association may not establish an out-of-state branch unless (i) the federal
association qualifies as a "domestic building and loan association" under
Section 7701(a)(19) of the Internal Revenue Code and the total assets
attributable to all branches of the association in the state would qualify such
branches taken as a whole for treatment as a domestic building and loan
association and (ii) such branch would not result in (a) formation of a
prohibited multi-state multiple savings and loan holding company or (b) a
violation of certain statutory restrictions on branching by savings association
subsidiaries of banking holding companies. Federal associations generally may
not establish new branches unless the association meets or exceeds minimum
regulatory capital requirements. The OTS will also consider the association's
record of compliance with the Community Reinvestment Act of 1977 in connection
with any branch application.
FIRREA amended the Bank Holding Company Act of 1956 to authorize the
Federal Reserve Board to permit the acquisition of a savings institution by a
bank holding company. In approving an application by a bank holding company to
acquire a savings institution, the Federal Reserve Board is prohibited from
imposing restrictions on tandem operations of the subsidiary savings institution
and its holding company affiliates except as required under Sections 23A and 23B
of the Federal Reserve Act, as amended. Previously, the Federal Reserve Board
had only approved acquisitions of insolvent savings institutions and only
subject to certain restrictions on tandem operation of the savings institutions
and bank subsidiaries of the bank holding company.
A bank holding company that controls a savings association may merge or
consolidate the assets and liabilities of the savings association with, or
transfer assets and liabilities to, any subsidiary bank which is a BIF member
with the approval of the appropriate federal banking agency and the Federal
Reserve Board. The resulting bank will be required to continue to pay
assessments to the SAIF at the rates prescribed for SAIF members on the deposits
attributable to the merged savings association plus an annual growth increment.
In addition, the transaction must comply with the restrictions on interstate
acquisitions of commercial banks under the Bank Holding Company Act.
LOANS-TO-ONE-BORROWER LIMITATIONS. Under federal law, loans and extensions
of credit outstanding at one time to a person shall not exceed 15% of the
unimpaired capital and surplus of the savings association. Loans and extensions
of credit fully secured by certain readily marketable collateral may represent
an additional 10% of unimpaired capital and surplus. FIRREA additionally
authorizes savings associations to make loans to one borrower, for any purpose,
in an amount not to exceed $500,000 or, by order of the Director of OTS, in an
amount not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and
surplus to develop residential housing, provided: (i) the purchase price of
each single-family dwelling in the development does not exceed $500,000; (ii)
the savings association is in compliance with the fully phased-in capital
standards of FIRREA; (iii) the loans comply with applicable loan-to-value
requirements, and; (iv) the aggregate amount of loans made under this authority
does not exceed 150% of unimpaired capital and surplus. FIRREA also authorizes
a savings association to make loans
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to one borrower to finance the sale of real property acquired in satisfaction of
debts in an amount up to 50% of unimpaired capital and surplus.
TRANSACTIONS WITH AFFILIATES. Transactions between savings associations
and any affiliate are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings association is any company or entity which
controls, is controlled by or is under common control with the savings
association. In a holding company context, the parent holding company of a
savings association and any companies which are controlled by such parent
holding company are affiliates of the savings association. Generally, Sections
23A and 23B (i) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, and contain
an aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable, to
the institution or subsidiary as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and similar other types of transactions. In addition to the
restrictions imposed by Sections 23A and 23B, no savings association may (i)
loan or otherwise extend credit to an affiliate, except for any affiliate which
engages only in activities which are permissible for bank holding companies, or
(ii) purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the savings association.
Savings institutions are also subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act on loans to executive officers,
directors and principal stockholders. Under Section 22(h), loans to a director,
executive officer or greater than 10% stockholder of a savings association and
certain affiliated interests of the foregoing, may not exceed, together with all
other outstanding loans to such person and affiliated interests, the
association's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus) and all loans to such persons may
not exceed the institution's unimpaired capital and unimpaired surplus. Section
22(h) also prohibits loans, above amounts prescribed by the appropriate federal
banking agency, to directors, executive officers and greater than 10%
stockholders of a savings association, and their respective affiliates, unless
such loan is approved in advance by a majority of the board of directors of the
association with any "interested" director not participating in the voting. The
Federal Reserve Board has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of capital and
surplus (up to $500,000). Further, the Federal Reserve Board pursuant to
Section 22(h) requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons. Section 22(h) also prohibits a depository
institution from paying the overdrafts of any of its executive officers or
directors.
Savings institutions are also subject to the requirements and restrictions
of Section 22(g) of the Federal Reserve Act on loans to executive officers and
the restrictions of 12 U.S.C. Section 1972 on certain tying arrangements and
extensions of credit by correspondent banks. Section 22(g) of the Federal
Reserve Act requires that loans to executive officers of depository institutions
not be made on terms more favorable than those afforded to other borrowers,
requires approval for such extensions of credit by the board of directors of the
institution, and imposes reporting requirements for and additional restrictions
on the type, amount and terms of credits to such officers. Section 1972 (i)
prohibits a depository institution from extending credit to or offering any
other services, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution, subject to certain exceptions, and (ii)
prohibits extensions of credit to executive officers, directors, and greater
than 10% stockholders of a depository institution by any other institution which
has a correspondent banking relationship with the institution, unless such
extension of credit is on substantially the same terms as those prevailing at
the time for comparable transactions with other persons and does not involve
more than the normal risk of repayment or present other unfavorable features.
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REGULATION OF THE COMPANY
GENERAL.
The company is a savings and loan holding company as defined by the HOLA.
As such, the Company is registered with the OTS and is subject to OTS
regulation, examination, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, the Bank is subject to certain
restrictions in its dealings with the Company and affiliates thereof.
ACTIVITIES RESTRICTIONS. The Board of Directors of the Company presently
intends to operate the Company as a unitary savings and loan holding company.
There are generally no restrictions on the activities of a unitary savings and
loan holding company. However, if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the
Director of the OTS may impose such restrictions as deemed necessary to address
such risk including limiting: (i) payment of dividends by the savings
institution; (ii) transactions between the savings institution and its
affiliates; and (iii) any activities of the savings institution that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution. Notwithstanding the above
rules as to permissible business activities of unitary savings and loan holding
companies, if the savings institution subsidiary of such a holding company fails
to meet the QTL test, then such unitary holding company shall also presently
become subject to the activities restrictions applicable to multiple holding
companies and, unless the savings institution requalifies as a QTL within one
year thereafter, register as, and become subject to the restrictions applicable
to a bank holding company. See "--Regulation of the Bank-- Qualified Thrift
Lender Test."
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, the activities of the Company and any of its subsidiaries (other than the
Bank or other subsidiary savings institutions) would thereafter be subject to
further restrictions. Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings institution shall commence
or continue for a limited period of time after becoming a multiple savings and
loan holding company or subsidiary thereof, any business activity, upon prior
notice to, and no objection by, the OTS, other than: (i) furnishing or
performing management services for a subsidiary savings institution; (ii)
conducting an insurance agency or escrow business; (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings institution;
(iv) holding or managing properties used or occupied by a subsidiary savings
institution; (v) acting as trustee under deeds of trust; (vi) those activities
authorized by regulation as of March 5, 1987 to be engaged in by multiple
holding companies; or (vii) unless the Director of the OTS by regulation
prohibits or limits such activities for savings and loan holding companies,
those activities authorized by the Federal Reserve Board as permissible for bank
holding companies. Those activities described in (vii) above must also be
approved by the Director of the OTS prior to being engaged in by a multiple
holding company.
Legislation has been passed by the U.S. House of Representatives which
would subject all unitary holding companies to the same restrictions on
activities as are currently applied to multiple holding companies. If such
legislation is enacted in its current form, the ability of the Company to engage
in certain activities that are currently permitted to a unitary holding company
may be restricted. Since the Company does not and has no current plans to,
engage in any business activity impermissible for a multiple holding company,
such legislation would not require the Company to discontinue any current
activity. In addition, such legislation would preclude companies that are
engaged in activities not permitted to multiple holding companies from acquiring
control of the Company. No
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prediciton can be made at this time as to whether such legislation will be
enacted or whether it will be enacted in its current form.
RESTRICTIONS ON ACQUISITIONS. Savings and loan holding companies are
prohibited from acquiring, without prior approval of the Director of OTS, (i)
control of any other savings institution or savings and loan holding company or
substantially all the assets thereof or (ii) more than 5% of the voting shares
of a savings institution or holding company thereof which is not a subsidiary.
Under certain circumstances, a registered savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the voting shares of an under-capitalized savings institution pursuant to a
"qualified stock issuance" without that savings institution being deemed
controlled by the holding company. In order for the shares acquired to
constitute a "qualified stock issuance," the shares must consist of previously
unissued stock or treasury shares, the shares must be acquired for cash, the
savings and loan holding company' other subsidiaries must have tangible capital
of at least 6-1/2% of total assets, there must not be more than one common
director or officer between the savings and loan holding company and the issuing
savings institution, and transactions between the savings institution and the
savings and loan holding company and any of its affiliates must conform to
Sections 23A and 23B of the Federal Reserve Act. Except with the prior approval
of the Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may also acquire control of any savings institution, other
than a subsidiary savings institution, or of any other savings and loan holding
company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by state chartered institutions or savings and loan holding companies
located in the state where the acquiring entity is located (or by a holding
company that controls such state-chartered savings institutions).
TAXATION
GENERAL
The Company and its subsidiaries currently file a consolidated federal
income tax return based on a fiscal year ending June 30. Consolidated returns
have the effect of eliminating intercompany distributions, including dividends,
from the computation of consolidated taxable income for the taxable year in
which the distributions occur.
FEDERAL INCOME TAXATION
Savings institutions are subject to the provisions of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code") in the same general
manner as other corporations. However, institutions such as Park View Federal
which meet certain definitional tests and other conditions prescribed by the
Internal Revenue Code previously benefitted from certain favorable provisions
regarding their deductions from taxable income for annual additions to their bad
debt reserve. This reserve method afforded to thrifts is repealed for tax years
beginning after December 31, 1995. Large thrifts must switch to the specific
charge off method of section 166 while small thrifts must switch to the reserve
method of section 585(the method currently used by small commercial banks). In
general, a thrift is required to recapture the excess of its qualifying and non
qualifying reserves in excess of its qualifying and non qualifying base year
reserves. There is an exception to the general recapture provision for small
thrifts. A small thrift is required to recapture the portion of its reserves
that exceeds the greater of (1) the experience method reserve computed as if the
thrift had always been a small bank, or (2) the lesser of the qualifying and non
qualifying base year reserves or the contractual base year reserves. The
opening tax bad debt reserve for a small thrift for the first taxable year
beginning after December 31, 1995 is the greater of the two amounts described in
(1) and (2) above. A small thrift that switches to the section 585 experience
method must make an
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annual addition to its reserve for bad debts. Under section 593, a thrift was
not required to make a minimum addition to its reserve for any taxable year.
The change in a thrift's method of accounting for the bad debt reserve will
generally be taken into taxable income ratably (on a straight line basis) over a
six-year period. If, however, a thrift meets a "residential loan requirement"
for a taxable year beginning in 1996 or 1997, the recapture of the reserve will
be suspended for such tax year. Thus, recapture can potentially be deferred for
up to two years. The "residential loan requirement" is met if the principal
amount of housing loans made by a thrift during 1996 of 1997 is not less than
the average of the principal amount of loans made during the six most recent
taxable years prior to 1996. Refinancings and home equity loans are excluded.
The residential loan test is applied on a combined entity basis.
The base year reserves and the supplemental reserve are frozen not forgiven.
These reserves continue to be subject to the section 593(e) recapture penalty
and are treated as a section 381(c) attribute for purposes of certain corporate
acquisitions. There are other ancillary provisions affected by the repeal of
section 593, most notably the repeal of section 595 which provides thrifts with
special treatment for foreclosure on property securing loans. Section 595 is
repealed for property acquired in taxable years beginning after December 31,
1995.
For taxable years beginning after December 31, 1986, the Tax Reform Act of
1986 (the "Tax Reform Act") changed the corporate minimum tax from an add-on tax
to a tax based on alternative minimum taxable income ("AMTI"), and increased the
tax rate from 15% to 20%. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
allowable under an experience method is treated as a preference item for
purposes of computing the corporate minimum tax, which has been modified
significantly by the Tax Reform Act. The Internal Revenue Code provisions
relating to the alternative minimum tax ("AMTI") also: (i) treat as a preference
item interest on certain tax-exempt private activity bonds issued on or after
August 8, 1986; and (ii) include in AMTI (for tax years beginning in 1987-1989)
an amount equal to one-half of the amount by which a corporation's book income
(as specifically defined) exceeds its AMTI (determined without regard to this
preference and prior to reduction by net operating losses). Also, only 90% of
AMTI can be offset by net operating losses. For taxable years beginning after
December 31, 1989, the adjustment to AMTI based on book income is an amount
equal to 75% of the amount by which a corporation's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses).
Legislation that is effective for tax years beginning after December
31, 1995 would require savings associations to recapture into taxable income the
portion of the tax loan reserve that exceeds the 1987 tax loan loss reserve.
All of the Bank's tax loan loss reserves at June 30, 1996 were pre-1987 loan
loss reserves and therefore this provision should not affect future operations.
The Bank will no longer be allowed to use the reserve method for tax loan loss
provisions, but would be allowed to use either the experience method or the
specific charge-off method of accounting for bad debts.
Earnings appropriated to Park View Federal's bad debt reserve and claimed
as a tax deduction are not available for the payment of cash dividends or for
distribution to PVF (including distributions made on dissolution or
liquidation), unless the Bank includes the amount in taxable income, along with
the amount deemed necessary to pay the resulting federal income tax. At June
30, 1996, the Bank had approximately $5.4 million of accumulated allocations of
income for which federal income taxes had not been provided.
The Bank's federal income tax returns thru June 30, 1992 were audited by
the IRS.
For further information regarding federal income taxes, see Note 8 of Notes
to Consolidated Financial Statements.
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STATE INCOME TAXATION
The Company is subject to an Ohio franchise tax based on its equity capital
plus certain reserve amounts. Total equity capital for this purpose is reduced
by certain exempted assets. The resulting net taxable value of capital was
taxed at a rate of 1.5% for fiscal years 1996, 1995 and 1994.
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ITEM 2. PROPERTIES
The following table sets forth the location and certain additional
information regarding the Company's offices at June 30, 1996.
<TABLE>
<CAPTION>
YEAR NET BOOK OWNED OR APPROXIMATE
OPENED/ TOTAL VALUE AT LEASED/ SQUARE
LOCATION ACQUIRED DEPOSITS JUNE 30, 1995 EXPIRATION FOOTAGE
- -------- -------- -------- ------------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MAIN OFFICE:
2618 N. Moreland Blvd. 1963 $39,100 $ 422 Owned 16,800
Cleveland, Ohio
BRANCH OFFICES:
2111 Richmond Road 1967 45,764 5 Lease 2,750
Beachwood, Ohio 3/1/99
25350 Rockside Road 1969 48,129 110 Lease 14,400
Bedford Heights, Ohio 3/1/03
11010 Clifton Blvd. 1974 20,573 14 Lease 1,550
Cleveland, Ohio 8/1/05
7448 Ridge Road 1979 28,242 552 Owned 3,200
Parma, Ohio
6990 Heisley Road 1994 24,417 76 Lease 2,400
Mentor, Ohio 10/25/98
1456 SOM Center Road 1995 24,706 282 Lease 2,200
Mayfield Heights, Ohio 9/30/04
497 East Aurora Road 1994 17,117 112 Lease 2,400
Macedonia, Ohio 9/30/04
8500 Washington Street 1995 22,997 126 Lease 2,700
Chagrin Falls, Ohio 11/30/04
</TABLE>
At June 30, 1996, the net book value of the Bank's premises, furniture,
fixtures and equipment was $2.6 million. See Note 5 of Notes to Consolidated
Financial Statements for further information.
The Company also owns real estate in the City of Solon, Ohio. See
Subsidiary Activities for further information.
35
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Bank is a party to various legal proceedings
incident to its business. There are no other material legal proceedings to
which the Bank or PVF is a party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
The information contained under the section captioned "Market Information"
in the Company's Annual Report to Stockholders for the Fiscal Year Ended June
30, 1996 (the "Annual Report") is incorporated herein by reference. For
information regarding restrictions on the payment of dividends see "Item 1.
Business -- Regulation -- Dividend Limitations."
ITEM 6. SELECTED FINANCIAL DATA
The information contained in the table captioned "Selected Financial Data"
in the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements contained in the Annual Report which
are listed under Item 14 herein are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the section captioned "Proposal I --
Election of Directors" in the Company's definitive proxy statement for the
Company's 1996 Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference.
36
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the section captioned "Proposal I --
Election of Directors -- Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) The information required by this item is incorporated herein by
reference to the sections captioned "Proposal I - Election of
Directors" and "Voting Securities and Principal Holders Thereof"
of the Proxy Statement.
(c) Management knows of no arrangements, including any pledge by any
person of securities of the Bank, the operation of which may at a
subsequent date result in a change in control of the registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the section captioned "Proposal I -- Election of Directors" of the Proxy
Statement.
37
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Independent Auditors' Report (incorporated by reference to the
Annual Report)
Consolidated Financial Statements (incorporated by reference to
the Annual Report)
(a) Consolidated Statements of Financial Condition, at June 30,
1996 and 1995
(b) Consolidated Statements of Operations for the Years Ended
June 30, 1996, 1995 and 1994
(c) Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1996, 1995 and 1994
(d) Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994
(e) Notes to Consolidated Financial Statements.
2. All schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated
Financial Statements.
3. Exhibits and Index to Exhibits
The following exhibits are either attached to or incorporated by
reference in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Page No.
in Sequentially
No. Description Numbered Copy
- ---- ----------- ---------------
<C> <S> <C>
3.1 Certificate of Incorporation
3.2 Code of Regulations
3.3 Bylaws
4 Specimen Stock Certificate
10.1 Park View Federal Savings Bank Conversion Stock Option Plan
10.2 PVF Capital Corp. 1996 Incentive Stock Option Plan
13 PVF Capital Corp. Annual Report to Stockholders for the year ended
June 30, 1996
21 Subsidiaries of the Registrant
23 Consent of KPMG
Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the Bank's Registration Statement on Form 10
filed with the Office of Thrift Supervision on December 30, 1992.
38
<PAGE>
(b) During the last quarter of the fiscal year ended June 30, 1996, the Company
did not file any Current Reports on Form 8-K.
(c) All required exhibits are filed as attached.
(d) No financial statement schedules are required.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PVF CAPITAL CORP.
September 24, 1996 By: /s/ John R. Male
-----------------------------
John R. Male
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ John R. Male September 24, 1996
- ----------------------------
John R. Male
President and Chief Executive Officer
(Principal Executive Officer)
/s/ C. Keith Swaney September 24, 1996
- ----------------------------
C. Keith Swaney
Vice President and Treasurer
(Principal Financial and Accounting Officer)
/s/ James W. Male September 24, 1996
- ----------------------------
James W. Male
Chairman of the Board
/s/ Robert K. Healey September 24, 1996
- ----------------------------
Robert K. Healey
Director
/s/ Richard J. Moriarty September 24, 1996
- ----------------------------
Richard J. Moriarty
Director
/s/ Creighton E. Miller September 24, 1996
- ----------------------------
Creighton E. Miller
Director
/s/ Robert F. Urban September 24, 1996
- ----------------------------
Robert F. Urban
Director
/s/ Stuart D. Neidus September 24, 1996
- ----------------------------
Stuart D. Neidus
Director
<PAGE>
FIRST AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PVF CAPITAL CORP.
FIRST: The name of the corporation is PVF Capital Corp. (herein the
"Corporation").
SECOND: The place in Ohio where the principal office of the Corporation is
located is 2618 North Moreland Boulevard, in the City of Cleveland, Cuyahoga
County.
THIRD: The purpose for which the Corporation is formed is to become a
savings bank holding company and to engage in any lawful act or activity for
which corporations may be formed under Chapter 1701 of the Revised Code of Ohio.
FOURTH: The number of directors constituting the initial board of
directors of the Corporation is six.
FIFTH: The aggregate number of shares of all classes of capital stock
which the Corporation has authority to issue is 6,000,000 shares, of which
5,000,000 shares are to be shares of common stock, $.01 par value per share, and
of which 1,000,000 are to be shares of serial preferred stock, $.01 par value
per share. The shares may be issued by the Corporation from time to time as
approved by the Board of Directors of the Corporation without the approval of
the stockholders except as otherwise provided in these Articles of Incorporation
or the rules of a national securities exchange, if applicable. The
consideration for the issuance of the shares shall be paid to or received by the
Corporation in full before their issuance and shall not be less than the par
value per share. The consideration for the issuance of the shares may be paid
in whole or in part, in real property, in tangible or intangible personal
property, in labor or services actually performed for the Corporation or in its
formation, or as otherwise permitted by Ohio law. In the absence of actual
fraud in the transaction, the judgment of the Board of Directors or the
stockholders as the case may be as to the value of such consideration shall be
conclusive. Upon payment of such consideration such shares shall be deemed to
be fully paid and nonassessable. In the case of a stock dividend, the part of
the surplus of the Corporation which is transferred to stated capital upon the
issuance of shares as a stock dividend shall be deemed to be the consideration
for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative rights, preferences
and limitations of the shares of each class and series (if any) of capital
stock, are as follows:
A. COMMON STOCK. Except as provided in these Articles of Incorporation,
the holders of the common stock shall exclusively possess all voting power.
Each holder of shares of common stock shall be entitled to one vote for each
share held by such holders.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and sinking fund or retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends, out of any assets
legally available for the payment of dividends, but only when and as declared by
the Board of Directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any such event, the full preferential amounts to which
they are respectively entitled, the
1
<PAGE>
holders of the common stock and of any class or series of stock entitled to
participate therewith, in whole or in part, as to distribution of assets shall
be entitled, after payment or provision for payment of all debts and liabilities
of the Corporation, including the payment of all fees, taxes and other expenses
incidental thereto, to receive the remaining assets of the Corporation available
for distribution, in cash or in kind.
Each share of common stock shall have the same relative rights, preferences
and limitations as, and shall be identical in all respects with, all the other
shares of common stock of the Corporation.
B. SERIAL PREFERRED STOCK. Except as provided in these Articles of
Incorporation, the Board of Directors of the Corporation is authorized, by
resolution or resolutions from time to time adopted, to further amend these
Articles to provide for the specific terms of serial preferred stock to be
issued in series and to fix and state the rights, preferences, limitations and
relative, participating, optional or other special rights of the shares of each
such series, and the qualifications, limitations or restrictions thereof. The
terms of shares of different series shall be identical except as to the
following rights and preferences, as to which there may be variations between
different series:
1. the distinctive serial designation and the number of shares
constituting such series;
2. the voting rights, full, conditional or limited, of shares of such
series;
3. the dividend rates or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment date or dates for dividends, and the participating or
other special rights, if any, with respect to dividends;
4. whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions upon which such shares
may be redeemed;
5. the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
6. whether the shares of such series shall be entitled to the benefits of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and, if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such funds;
7. whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rates or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
8. the price or other consideration for which the shares of such series
shall be issued;
9. restrictions, if any, on the issuance of shares of the same series or
any other class or series; and
10. any other designations, preferences, limitations or rights that are
now or hereafter permitted by the laws of the State of Ohio and are not
inconsistent with the provisions of this Paragraph B.
Each share of each series of serial preferred stock shall have the same
relative rights, preferences and limitations as, and shall be identical in all
respects with, all the other shares of capital stock of the Corporation of the
same series.
2
<PAGE>
SIXTH: By resolution adopted by the directors in the manner set forth in
division (E) of Section 1701.13 of the Revised Code of Ohio or its successor,
the Corporation shall indemnify or agree to indemnify:
1. Any person who was or is a party or is threatened to be made a
party, to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative,
other than an action by or in the right of the Corporation, by reason of
the fact that he is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, trustee, officer, employee, or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture,
trust, or other enterprise, against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding
by judgment, order, settlement, or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, he had reasonable
cause to believe that his conduct was unlawful; and
2. Any person who was or is a party or is threatened to be made a
party, to any threatened, pending, or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, trustee, officer, employee, or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture,
trust or other enterprise, against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
of the following:
a. Any claim, issue or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless, and only to the extent that the court
of common pleas or the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability,
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court of common
pleas or such other court shall deem proper;
b. Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised Code of
Ohio.
3. To the extent that a director, trustee, officer, employee, or
agent has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in subsections (1) and (2) of this
Article Sixth, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the action, suit or
proceeding.
4. Any indemnification under subsections (1) and (2) of this Article
Sixth, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification
of the director, trustee, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set
forth in subsections (1) and (2) of this Article Sixth. Such determination
shall be made by the directors of the Corporation in the manner set forth
in division (E)(4) of Section 1701.13 of the Revised Code of Ohio.
3
<PAGE>
SEVENTH: No stockholder of the Corporation shall have, as a matter of
right, the preemptive right to purchase or subscribe for shares of any class,
now or hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such shares.
EIGHTH: The Corporation may from time to time, pursuant to authorization
by the board of directors of the Corporation and without action by the
stockholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Corporation in such manner, upon such terms, and in such
amounts as the board of directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Corporation outstanding at the time of the purchase
or acquisition in question or as are imposed by law.
NINTH: A. Notwithstanding any other provision of these Articles or the
Code of Regulations of the Corporation, no action required to be taken or which
may be taken at any annual or special meeting of stockholders of the Corporation
may be taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the chairman of the board, the
president, the board of directors by action at a meeting or a majority of the
board of directors acting without a meeting, and shall be called by the chairman
of the board, the president, or the secretary upon the written request of the
holders of 50% of all the shares outstanding and entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered at the principal executive office of the
Corporation addressed to the president or the secretary.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
D. Meetings of stockholders may be held within or without the State of
Ohio, as the Code of Regulations may provide.
E. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the board of directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than thirty days nor more than sixty days prior to any such
meeting; provided, however, that if less than forty days' notice of the meeting
is given to stockholders, such written notice shall be delivered or mailed, as
prescribed, to the Secretary of the Corporation not later than the close of the
tenth day following the day on which notice of the meeting was mailed to
stockholders. Each such notice given by a stockholder with respect to
nominations for the election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominee,
and (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee. In addition, the stockholder making
such nomination shall promptly provide any other information reasonably
requested by the Corporation.
F. Each such notice given by a stockholder to the Secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of
the Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the
4
<PAGE>
stockholder in such business. Notwithstanding anything in the Articles of
Incorporation or Code of Regulations to the contrary, no business shall be
conducted at the meeting except in accordance with the procedures set forth in
this Article Ninth.
G. The Chairman of the annual or special meeting of stockholders may, if
the facts warrant, determine and declare to such meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if he
should so determine, he shall so declare to the meeting and the defective
nomination or proposal shall be disregarded and laid over for action at the next
succeeding adjourned, special or annual meeting of the stockholders taking place
thirty days or more thereafter. This provision shall not require the holding of
any adjourned or special meeting of stockholders for the purpose of considering
such defective nomination or proposal.
TENTH: The number of directors of the Corporation shall be such number,
not less than five nor more than 15 (exclusive of directors, if any, to be
elected by holders of preferred stock of the Corporation, voting separately as a
class), as shall be provided from time to time in or in accordance with the
Bylaws of the Board of Directors, provided that no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director, and provided further that no action shall be taken to decrease or
increase the number of directors from time to time unless at least two-thirds of
the directors then in office shall concur in said action. Vacancies in the
board of directors of the Corporation and newly created directorships shall be
filled by a vote of two-thirds of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of the class to which the
director has been chosen expires and when the director's successor is elected
and qualified. Directors shall not be required to own any shares of the
Corporation's common stock and need not be residents of any particular state,
country or other jurisdiction.
The board of directors of the corporation shall be divided into two
classes, which shall be designated Class I and Class II, if the board of
directors consists of six, seven or eight members, or into three classes, which
shall be designated Class I, Class II and Class III, if the board of directors
consists of nine or more members. Such classes shall consist of no fewer than
three members each. The members of each class shall be elected for a term of
two years if the board of directors consists of six, seven or eight members, or
three years if the board of directors consists of nine or more members, and
until their successors are elected and qualified. Such classes shall be as
nearly equal in number as the then total number of directors constituting the
entire board of directors shall permit, with the terms of office of all members
of one class expiring each year. Should the number of directors not be equally
divisible by three, the excess director or directors shall be assigned to
Classes I or II as follows: (i) if there shall be an excess of one directorship
over a number equally divisible by three, such extra directorship shall be
classified in Class I; and (ii) if there be an excess of two directorships over
a number equally divisible by three, one shall be classified in Class I and the
other in Class II.
At the first annual meeting of stockholders, directors of Class I shall be
elected to hold office for a term expiring at the second or third succeeding
annual meeting thereafter, depending on whether the board of directors consists
of less than nine members or nine or more members. At the second annual meeting
of stockholders, directors of Class II shall be elected to hold office for a
term expiring at the second or third succeeding annual meeting thereafter,
depending on whether the board of directors consists of less than nine members
or nine or more members. If the board of directors consists of nine or more
members, at the third annual meeting of stockholders, directors of Class III
shall be elected to hold office for a term expiring at the third succeeding
annual meeting thereafter. Thereafter, at each succeeding annual meeting,
directors of each class shall be elected for two or three year terms, depending
on whether the board of directors is classified into two or three classes,
respectively. Notwithstanding the foregoing, the director whose term shall
expire at any annual meeting shall continue to serve until such time as his
successor shall have been duly elected and shall have qualified unless his
position on the board of directors shall have been abolished by action taken to
reduce the size of the board of directors prior to said meeting.
5
<PAGE>
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified above. The board of
directors shall designate, by the name of the incumbent(s), the position(s) to
be abolished. Notwithstanding the foregoing, no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Should the number of directors of the Corporation be increased, the
additional directorships shall be allocated among classes as appropriate so that
the number of directors in each class is as specified above, and, if such
increase increases the number of directors to nine or more, the new and existing
directorships may be reallocated as appropriate so as to create a third class of
directors, with the number of directors in each class as specified above.
ELEVENTH: Notwithstanding any other provision of these Articles or the
Code of Regulations of the Corporation, no director of the Corporation may be
removed from office at any time, unless for cause and by the affirmative vote of
the holders of at least 80 percent of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the stockholders
called for that purpose. In the case of a removal of a director by the
stockholders, a new director may be elected at the same meeting of stockholders
to hold office for the remainder of the term of the removed director. Failure
by the stockholders to fill the unexpired term of a removed director at such
meeting of stockholders shall be deemed to create a vacancy in the board of
directors, which shall be filled by the Board of Directors as provided in
Article Tenth.
TWELFTH: A director shall perform his duties as a director, including his
duties as a member of any committee of the directors upon which he may serve, in
good faith, in a manner he reasonably believes to be in or not opposed to the
best interests of the Corporation, and with the care that an ordinarily prudent
person in a like position would use under similar circumstances. In performing
his duties, a director is entitled to rely on information, opinions, reports, or
statements, including financial statements and other financial data, that are
prepared or presented by one or more directors, officers, or employees of the
Corporation, counsel, public accountants, or other persons as to matters that
the director reasonably believes are within the person's professional or expert
competence, or a committee of the directors upon which he does not serve.
A director shall not be found to have violated his duties as described in
this Article Twelfth, unless it is proved by clear and convincing evidence that
the director has not acted in good faith, in a manner he reasonably believes to
be in or not opposed to the best interests of the Corporation, or with the care
that an ordinarily prudent person in a like position would use under similar
circumstances, in any action brought against a director, including actions
involving or affecting any of the following: (a) a change or potential change
in control of the Corporation, including a determination to resist a change or
potential change in control made pursuant to division (F)(7) of section 1701.13
of the Revised Code of Ohio; (b) a termination or potential termination of his
service to the Corporation as a director; or (c) his service in any other
position or relationship with the Corporation.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause reliance on
information, opinions, reports, or statements that are prepared or presented by
the persons described above to be unwarranted. A director shall be liable in
damages for any action he takes or fails to take as a director only if it is
proved by clear and convincing evidence in a court of competent jurisdiction
that his action or failure to act involved an act or omission undertaken with
deliberate intent to cause injury to the Corporation or undertaken with reckless
disregard for the best interests of the Corporation. Nothing contained in this
Article Twelfth shall affect the liability of directors under Section 1701.95 of
the Revised Code of Ohio or limit relief available under Section 1701.60 of the
Revised Code of Ohio.
For purposes of this Article Twelfth, a director, in determining what he
reasonably believes to be in the best interests of the Corporation shall
consider the interests of the Corporation's shareholders and, in his discretion,
may consider any of the following: (a) the interests of the Corporation's
employees, suppliers, creditors, and customers; (b) the economy of the state and
nation; (c) community and societal considerations; and (d) the long-term as well
as short-term interests of the Corporation and its shareholders, including the
possibility that these interests may be best served by the continued
independence of the Corporation.
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Nothing contained herein affects the duties of either of the following: (a)
a director who acts in any capacity other than his capacity as a director; or
(b) a director of a corporation that does not have issued and outstanding shares
that are listed on a national securities exchange or are regularly quoted in an
over-the-counter market by one or more members of a national or affiliated
securities association, who votes for or assents to any action taken by the
directors of the corporation that, in connection with a change in control of the
corporation, directly results in the holder or holders of a majority of the
outstanding shares of the corporation receiving a greater consideration for
their shares than other shareholders.
THIRTEENTH: A. THREE YEAR PROHIBITION. For a period of three years from
the effective date of the completion of the conversion of Park View Federal
Savings Bank (the "Bank") from mutual to stock form, no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of equity security of the Corporation, unless such offer or
acquisition shall have been approved in advance by a two-thirds vote of the
Continuing Directors, as defined in Article Fourteenth below, or unless such 10%
beneficial ownership shall have resulted solely from the issuance of the
Corporation's common stock to a former 10% stockholder of the Bank in connection
with the reorganization of the Bank into the holding company form of ownership,
pursuant to which the Bank will become a wholly owned subsidiary of the
Corporation. In addition, for a period of three years from the completion of
the conversion of the Bank from mutual to stock form, and notwithstanding any
provision to the contrary in these Articles or the Code of Regulations of the
Corporation, where any person directly or indirectly acquires beneficial
ownership of more than 10% of any class of equity security of the Corporation in
violation of this Article Thirteenth (a "10% Stockholder"), the securities
beneficially owned in excess of 10% shall not be counted as shares entitled to
vote, shall not be voted by any person or counted as voting shares in connection
with any matter submitted to the shareholders for a vote, and shall not be
counted as outstanding for purposes of determining a quorum or the affirmative
vote necessary to approve any matter submitted to the shareholders for a vote.
B. DEFINITIONS. The term "person" means an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group acting in concert formed for the purpose of acquiring, holding or
disposing of securities of the Corporation. The term "acquire" includes every
type of acquisition, whether effected by purchase, exchange, operation of law or
otherwise. The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for or request for invitation for
tenders of, a security or interest in a security for value. The term "acting in
concert" includes (1) knowing participation in a joint activity or conscious
parallel action towards a common goal whether or not pursuant to an express
agreement and (2) a combination or pooling of voting or other interests in the
Corporation's outstanding shares for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. The term "beneficial ownership" shall have the meaning defined in
Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as in effect on the date of filing these articles.
C. EXCLUSION FOR EMPLOYEE BENEFIT PLANS, DIRECTORS, OFFICER, EMPLOYEE AND
CERTAIN PROXIES. The restrictions contained in this Article Thirteenth shall
not apply to (1) any underwriter or member of an underwriting or selling group
involving a public sale or resale of securities of the Corporation or a
subsidiary thereof; provided, however, that upon completion of the sale or
resale of such securities, no such underwriter or member of such selling group
is a beneficial owner of more than 10% of any class of equity security of the
Corporation; (2) any proxy granted to one or more Continuing Directors by a
shareholder of the Corporation; or (3) any employee benefit plans of the
Corporation or a subsidiary thereof. In addition, the Continuing Directors, the
officers and employees of the Corporation and its subsidiaries, the directors of
subsidiaries of the Corporation, the employee benefit plans of the Corporation
and its subsidiaries, entities organized or established by the Corporation or
any subsidiary thereof pursuant to the terms of such plans and trustees and
fiduciaries with respect to such plans acting in such capacity shall not be
deemed to be a group with respect to their beneficial ownership of voting stock
of the Corporation solely by virtue of their being directors, officers or
employees of the Corporation or a subsidiary thereof or by virtue of the
Continuing Directors, the officers and employees of the Corporation and its
subsidiaries and the directors of subsidiaries of the Corporation being
fiduciaries or beneficiaries of an employee benefit plan of the Corporation or
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a subsidiary of the Corporation. Notwithstanding the foregoing, no director,
officer or employee of the Corporation or any of its subsidiaries, or group of
any of them, shall be exempt from the provisions of this Article Thirteenth of
these Articles, should any such person or group become a beneficial owner of
more than 10% of any class of equity security of the Corporation.
D. DETERMINATIONS. A majority of the Continuing Directors shall have the
power to construe and apply the provisions of this Article Thirteenth and to
make all determinations necessary or desirable to implement such provisions,
including but not limited to matters with respect to (a) the number of shares
beneficially owned by any person; (b) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in the
definition of beneficial ownership; (c) the application of any other definition
or operative provision of this Article Thirteenth to the given facts; or (d) any
other matter relating to the applicability or effect of this Article Thirteenth.
Any constructions, applications or determinations made by the Continuing
Directors, as defined below, pursuant to this Article Thirteenth in good faith
and on the basis of such information and assistance as was then reasonably
available for such purpose shall be conclusive and binding upon the Corporation
and its shareholders.
FOURTEENTH: The shareholder vote required to approve a Business
Combination (as hereinafter defined) shall be as set forth in this Article
Fourteenth, in addition to any other requirements under applicable law.
A. (1) Except as otherwise expressly provided in this Article
Fourteenth, the affirmative vote of the holders of (i) at least 80% of the
outstanding shares entitled to vote thereon (and, if any class or series of
shares is entitled to vote thereon separately, the affirmative vote of the
holders of at least two-thirds of the outstanding shares of each such class
or series) and (ii) a majority of the outstanding shares entitled to vote
thereon not including shares deemed beneficially owned by a Related Person
(as hereinafter defined) shall be required in order to authorize any of the
following:
(a) any merger, share exchange or consolidation of the
Corporation with or into a Related Person;
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security
device, of all or any Substantial Part (as hereinafter defined) of the
assets of the Corporation (including, without limitation, any voting
securities of a subsidiary) or of a subsidiary to a Related Person;
(c) any merger or consolidation of a Related Person with or into
the Corporation or a subsidiary;
(d) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other capital device,
of all or any Substantial Part of the assets of a Related Person to
the Corporation or a subsidiary;
(e) the issuance of any securities of the Corporation or a
subsidiary to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of any
securities of a Related Person;
(g) any reclassification of the common stock of the Corporation,
or any recapitalization involving the common stock of the Corporation;
and
(h) any agreement, contract or other arrangement providing for
any of the transactions described in this Paragraph A.
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(2) Such affirmative vote shall be required notwithstanding any other
provision of these Articles, any provision of law, or any agreement with
any national securities exchange or automated quotation system which might
otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article
Fourteenth shall mean any transaction which is referred to in any one or
more of paragraphs (1)(a) through (1)(h) of this Article Fourteenth.
B. The provisions of Paragraph (A) of this Article shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by any other provision of
these Articles, any provisions of law or any agreement with any federal
regulatory agency, national securities exchange or automated quotation system,
if the Business Combination shall have been approved by at least two-thirds of
the Continuing Directors (as hereinafter defined); provided, however, that such
approval shall be effective only if obtained at a meeting at which a Continuing
Director Quorum (as hereinafter defined) is present.
C. For the purpose of this Article Fourteenth the following definitions
apply:
(1) The term "Related Person" shall mean (a) any individual,
corporation, partnership or other person or entity which together with its
"affiliates" (as that term is defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934) "beneficially
owns" (as that term is defined in Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934) in the aggregate 10%
or more of the outstanding shares of the common stock of the Corporation;
and (b) any "affiliate" (as that term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934) of any such individual, corporation,
partnership or other person or entity. Without limitation, any shares of
the common stock of the Corporation which any Related Person has the right
to acquire pursuant to any agreement, upon exercise of conversion rights,
warrants or options or otherwise shall be deemed "beneficially owned" by
such Related Person.
(2) The term "Substantial Part" shall mean more than 25 percent of
the total assets of the Corporation, as of the end of its most recent
fiscal year ending prior to the time the determination is made.
(3) The term "Continuing Director" shall mean any member of the board
of directors of the Corporation who is unaffiliated with a Related Person
and was a member of the board of directors prior to the time that the
Related Person became a Related Person, and any successor of a Continuing
Director who is recommended to succeed a Continuing Director by a majority
of Continuing Directors then on the board of directors.
(4) The term "Continuing Director Quorum" shall mean at least two-
thirds of the Continuing Directors capable of exercising the powers
conferred on them.
D. In addition to Paragraphs (A) through (C) of this Article Fourteenth,
the Ohio Control Share Acquisition Act, appearing at Section 1701.831 of the
Revised Code of Ohio, shall apply to the Corporation.
FIFTEENTH: The Code of Regulations may be made, repealed, altered, amended
or rescinded by the stockholders of the Corporation by the vote of the holders
of not less than two-thirds of the voting power of the Corporation entitled to
vote at a meeting of stockholders called for that purpose.
SIXTEENTH: The Corporation reserves the right to repeal, alter, amend or
rescind any provision contained in these Articles in the manner now or hereafter
prescribed by law upon the affirmative vote of at least a majority of the voting
power of the Corporation, and all rights conferred on stockholders herein are
granted subject to this reservation. Notwithstanding the foregoing, the
provisions of Articles Fourth, Sixth, Ninth, Tenth, Eleventh, Twelfth,
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Thirteenth, Fourteenth, Fifteenth and this Article Sixteenth of these Articles
may not be repealed, replaced, altered, amended or rescinded in any respect
unless the same is approved by the affirmative vote of the holders of not less
than 80 percent of the voting power of the Corporation entitled to vote at a
meeting of stockholders called for that purpose (provided that notice of such
proposed adoption, repeal, replacement, alteration, amendment or recision is
included in the notice of such meeting); except that such repeal, alteration,
amendment or rescission may be made by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Corporation entitled
to vote at a meeting of stockholders (considered for this purpose as a single
class) if the same is first approved by a majority of the Continuing Directors,
as defined in Article Fourteenth of these Articles.
IN WITNESS WHEREOF, the undersigned hereby declare and certify that the
facts herein stated are true, and accordingly have hereunto signed their names
this 26th day of July, 1994.
/s/ John R. Male
----------------------------------------
John R. Male
President
/s/ Jeffrey N. Male
----------------------------------------
Jeffrey N. Male
Secretary
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FIRST AMENDED AND RESTATED
CODE OF REGULATIONS
OF
PVF CAPITAL CORP.
ARTICLE I
HOME OFFICE
The place in Ohio where the principal office of PVF Capital Corp. (herein
the "Corporation") is located is 2618 North Moreland Boulevard, in the City of
Cleveland, Cuyahoga County. The home office of the Corporation shall be at 2618
North Moreland Boulevard, Cleveland, Ohio 44120. The Corporation may also have
offices at such other places within or without the State of Ohio as the board of
directors shall from time to time determine.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the principal executive office of the Corporation
or at such other place within or without the State in which the principal
executive office of the Corporation is located as the board of directors may
determine and as designated in the notice of such meeting.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes may be called by the chairman of the board, the president or
the board of directors in accordance with the Corporation's Articles of
Incorporation.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and the purpose or purposes for which the meeting is called
shall be mailed by the secretary or the officer performing his duties, not less
than seven days nor more than sixty days before the meeting to each shareholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed to
the shareholder at his address as it appears on the stock transfer books or
records of the Corporation as of the record date prescribed in Section 6 of this
Article II, with postage thereon prepaid. If a shareholder is present at a
meeting, or in writing waives notice thereof before or after the meeting, notice
of the meeting to such shareholder shall be unnecessary. When any shareholders'
meeting, either annual or special, is adjourned, notice of adjournment need not
be given if the time and place to which such meeting is adjourned are fixed and
announced at such meeting.
Upon request in writing delivered either in person or by registered mail to
the president or the secretary by any persons entitled to call a meeting of
shareholders, the president or the secretary shall give written notice of the
meeting to be held on a date not less than seven nor more than sixty days
following the provision of such notice. If such notice is not given within
fifteen days after the delivery or mailing of such request, the persons calling
the meeting may fix the time of the meeting and give notice thereof as provided
in the preceeding paragraph, or cause notice to be given by any designated
representative.
<PAGE>
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of shareholders. Such date in any case shall
not be a date earlier than the date on which the record date is fixed and shall
not be more than sixty days and, in case of a meeting of shareholders, not less
than twenty days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
SECTION 7. VOTING LISTS. The Corporation shall make available upon the
request of any shareholder at any meeting of shareholders, a complete record of
the shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. The original stock transfer books shall be prima facie evidence
as to who are the shareholders entitled to examine such record or transfer books
or to vote at any meeting of shareholders.
SECTION 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding voting shares are represented at a meeting, a majority of the
shares so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy. Every appointment of a proxy shall be revocable unless such
appointment is coupled with an interest.
SECTION 10. VOTING. Every shareholder entitled to vote shall be entitled
to one vote for each share of stock held by him. Unless otherwise provided in
the Articles of Incorporation, by applicable law, or by this Code of
Regulations, a majority of those votes cast by shareholders at a lawful meeting
shall be sufficient to pass on a transaction or matter.
SECTION 11. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
shareholders of the Corporation any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 12. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
and except to the extent inconsistent with applicable law, as the board of
directors of such corporation may determine. Shares held by an administrator,
executor, guardian, conservator or a trustee in bankruptcy may be voted by him,
either in person or by proxy, without a transfer of such shares into his name.
Shares standing in the name of a trustee may be voted by him, either in person
or by proxy, but no trustee, other than a trustee in bankruptcy, shall be
entitled to vote shares held by him without a transfer of such shares into his
name. Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a re-
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ceiver may be voted by such receiver without the transfer thereof into his
name if authority to do so is contained in an appropriate order of the court
or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may, and on the
request of not less than ten percent of the votes represented at the meeting
shall, make such appointment at the meeting. In case any person appointed as
inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment by the board of directors in advance of the meeting or at the
meeting by the chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all shareholders.
ARTICLE III
OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall be a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall be
the chief executive officer, unless the board of directors designates another
person as the chief executive officer. The offices of the secretary and
treasurer may be held by the same person and a vice president may also be either
the secretary or the treasurer. The board of directors may designate one or
more vice presidents as executive vice president or senior vice president. The
board of directors may also elect or authorize the appointment of such other
officers as the business of the Corporation may require. The officers shall
have such authority and perform such duties as the board of directors may from
time to time authorize or determine. In the absence of action by the board of
directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the shareholders or at such
other meeting of the board of directors as is determined by the board of
directors. Each officer shall hold office until his successor shall have been
duly elected and qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided. Election or appointment
of an officer, employee or agent shall not of itself create contract rights.
The board of directors may authorize the Corporation to enter into an employment
contract with any officer in accordance with state law; but no such contract
shall impair the right of the board of directors to remove any officer at any
time in accordance with Section 3 of this Article III.
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SECTION 3. REMOVAL. Any officer may be removed by the board of directors
whenever, in its judgment, the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the board of directors.
ARTICLE IV
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by applicable law, and
except as otherwise prescribed by the Corporation's Articles of Incorporation or
this Code of Regulations with respect to certificates for shares, the board of
directors may authorize any officer, employee, or agent of the Corporation to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation. Such authority may be general or confined to
specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by the board of directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in any of
its duly authorized depositories as the board of directors may select.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. The shares of the Corporation shall
be represented by certificates signed by the chairman of the board of directors
or by the president or a vice president and by the treasurer, an assistant
treasurer, the secretary, or an assistant secretary of the Corporation, and may
be sealed with the seal of the Corporation or a facsimile thereof. Any or all
of the signatures upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent, or registered by a registrar, other than the
Corporation itself of an employee of the Corporation. If any officer who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before the certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of its issue.
SECTION 2. FORM OF SHARE CERTIFICATES. All certificates representing
shares issued by the Corporation shall set forth upon the face or back that the
Corporation will furnish to any shareholder upon request and without charge
within five days after receipt of written request therefor a full statement of
the designations, preferences, limitations, and relative rights of the shares of
each class authorized to be issued, the variations in the relative rights and
preferences between the shares of each such series so far as the same have been
fixed and determined, and the authority of the board of directors to fix and
determine the relative rights and preferences of subsequent series.
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Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Ohio; the name
of the person to whom issued; the number of shares represented by such
certificate; the date of issue; the designation of the series or class, if any,
which such certificate represents. Other matters in regard to the form of the
certificates shall be determined by the board of directors.
SECTION 3. PAYMENT FOR SHARES. No certificate shall be issued for any
shares until such share is fully paid.
SECTION 4. FORM OF PAYMENT FOR SHARES. The consideration for the issuance
of shares shall be paid in accordance with the provisions of the Corporation's
Articles of Incorporation.
SECTION 5. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Corporation. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner thereof for all purposes.
SECTION 6. STOCK LEDGER. The stock ledger of the Corporation shall be the
only evidence as to who are the shareholders entitled to examine the stock
ledger, the list required by Section 7 of Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of shareholders.
SECTION 7. LOST CERTIFICATES. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 8. RECORD OWNERS. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Corporation shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VI
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the last day of June of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the board of directors.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Articles of Incorporation and applicable
law, the board of directors may, at any regular or special meeting, declare
dividends on the Corporation's outstanding capital stock. Dividends may be paid
in cash, in property or in the Corporation's own stock.
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ARTICLE VIII
CORPORATE SEAL
The corporate seal of the Corporation shall be in such form as the board of
directors shall prescribe.
ARTICLE IX
AMENDMENTS
In accordance with the Corporation's Articles of Incorporation, this Code
of Regulations may be repealed, altered, amended or rescinded by the
shareholders of the Corporation by vote of not less than a two-thirds of the
outstanding voting power of the Corporation entitled to vote at a meeting of the
shareholders called for that purpose.
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BYLAWS
OF THE
BOARD OF DIRECTORS OF
PVF CAPITAL CORP.
ARTICLE I
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of PVF Capital Corp.
(herein the "Corporation") shall be under the direction of its board of
directors. The board of directors shall annually elect a chairman of the board
from among its members. The chairman of the board shall preside at all meetings
of the board of directors.
SECTION 2. NUMBER AND CLASSIFICATION. The board of directors shall
initially consist of six members. The number of members of the board of
directors may be increased or decreased by resolution of the board of directors
within the range set forth in the Corporation's Articles of Incorporation. The
board of directors shall be divided into classes in accordance with the
provisions of the Corporation's Articles of Incorporation.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this Section immediately after, and at
the same place as, the annual meeting of stockholders. The board of directors
may provide, by resolution, the time and place for the holding of additional
regular meetings without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board or the
president, or by one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place as the place for
holding any special meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
SECTION 5. NOTICE. Written notice of any special meeting shall be given
to each director at least two days previous thereto delivered personally or by
telegram or at least five days previous thereto delivered by mail at the address
at which the director is most likely to be reached. Such notice shall be deemed
to be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid if mailed or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting by a writing
filed with the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, unless, prior to or at the
commencement of such meeting, such director objects to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the board of
directors need be specified in the notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by Section
2 of this Article I shall constitute a quorum for the transaction of business at
any meeting of the board of directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 5 of this Article I.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Articles of Incorporation, or the laws of Ohio.
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SECTION 8. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
SECTION 9. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Corporation
addressed to the chairman of the board or the president. Unless otherwise
specified therein such resignation shall take effect upon receipt thereof by the
chairman of the board or the president.
SECTION 10. VACANCIES. Vacancies occuring in the board of directors shall
be filled in accordance with the provisions of the Corporation's Articles of
Incorporation. A director elected to fill a vacancy shall be elected to serve
until the annual meeting of stockholders at which the term of the class to which
the director has been chosen expires.
SECTION 11. PRESUMPTION OF ASSENT. Unless Ohio law provides otherwise, a
director of the Corporation who is present at a meeting of the board of
directors at which action on any Corporation matter is taken shall be presumed
to have assented to the action taken unless (i) he objects at the beginning of
the meeting (or promptly upon his arrival) to holding the meeting or transacting
business at the meeting; (ii) his dissent or abstention from the action taken is
entered in the minutes of the meeting; or (iii) he delivers written notice of
his dissent or abstention to the presiding officer of the meeting before its
adjournment or to the Corporation immediately after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
SECTION 12. COMPENSATION. The board of directors may, by resolution, from
time to time establish the compensation to be paid to directors for their
service as such. Members of either standing or special committees may be
allowed such compensation for actual attendance at committee meetings as the
board of directors may determine.
ARTICLE II
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, as they may determine to be necessary
or appropriate for the conduct of the business of the Corporation, and may
prescribe the duties, constitution and procedures thereof. Each committee shall
consist of not less than three directors of the Corporation. The board may
designate not less than three directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.
The board of directors shall have power, by the affirmative vote of a
majority of the number of directors fixed by Article I, Section 2, at any time
to change the members of, to fill vacancies in, and to discharge any committee
of the board. Any member of any such committee may resign at any time by giving
notice to the Corporation; provided, however, that notice to the board, the
chairman of the board, the chief executive officer, the chairman of such
committee, or the secretary shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective. Any
member of any such committee may be removed at any time, either with or without
cause, by the affirmative vote of a majority of the authorized number of
directors at any meeting of the board called for that purpose.
ARTICLE III
AMENDMENT
These Bylaws may be amended in whole or in part at any time by the Board of
Directors by the affirmative vote of a majority of the authorized number of
directors.
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CUSIP:
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PVF CAPITAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO
This certifies that _____________________ is the owner of __________________
fully paid and nonassessable shares of common stock, par value $0.01 per share,
of PVF Capital Corp. (the "Corporation"), an Ohio corporation. The shares
represented by this certificate are transferable only on the stock transfer
books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate
to be executed by the facsimile signature of its duly authorized
officers and has caused a facsimile of its corporate seal to be
hereunto affixed.
Dated:
--------------------------- -------------------
Jeffrey N. Male John R. Male
Secretary President
Countersigned and Registered:
-------------------------------
Transfer Agent and Registrar
By:
-------------------------------
Authorized Signature
SEE REVERSE FOR CERTAIN RESTRICTIONS ON TRANSFER
<PAGE>
The shares represented by this certificate are issued subject to all the
provisions of the Articles of Incorporation, Bylaws and Code of Regulations of
the Corporation as from time to time amended (copies of which are on file at the
principal executive office of the Corporation), to all of which the holder by
acceptance hereof assents.
The Corporation will mail to each stockholder the express terms of the
shares represented by this certificate within five days after receipt of a
written request therefor. Such request shall be made in writing to the
Secretary of the Corporation.
The Articles of Incorporation of the Corporation include a provision which
prohibits any person from directly or indirectly acquiring the beneficial
ownership of more than 10% of any class of equity security of the Corporation.
This provision does not apply to the purchase of shares by underwriters in
connection with a public offering, the granting of proxies to certain directors
of the Corporation by stockholders of the Corporation or the acquisition of
shares by an employee benefit plan of the Corporation or a subsidiary. Such
provision eliminates the voting rights of securities acquired in violation of
the provision. Such provision will expire five years from the date of
completion of the conversion of Park View Federal Savings Bank, from mutual to
stock form. The Articles of Incorporation also impose certain restrictions on
the voting rights of beneficial owners of more than 10% of any class of equity
security of the Corporation after five years from the date of completion of the
conversion of Park View Federal Savings Bank, from mutual to stock form.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF TRANSFER MIN ACT -..........Custodian......... under Uniform Transfers to
(Cust) (Minor)
Minors Act.......................
(State)
Additional abbreviations may also be used though not in the above list.
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND
-----------------------------
TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------- SHARES
OF THE COMMON STOCK EVIDENCED BY THIS CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT , ATTORNEY, TO TRANSFER
----------------------------------
THE SAID SHARES ON THE BOOKS OF THE CORPORATION, WITH FULL POWER OF
SUBSTITUTION.
DATED
---------------------
-----------------------------------
SIGNATURE
-----------------------------------
SIGNATURE
IN PRESENCE OF:
------------------
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PARK VIEW FEDERAL SAVINGS BANK
CONVERSION STOCK OPTION PLAN
1. Purpose of the Plan.
The Plan shall be known as the Park View Federal Savings Bank Conversion
Stock Option Plan (the "Plan"). The purpose of the Plan is to attract and
retain the best available personnel for positions of substantial responsibility
and to provide additional incentive to officers and other key employees of Park
View Federal Savings Bank (the "Bank") or any present or future parent or
subsidiary of the Bank to promote the success of the business. Except as
otherwise provided in Section 5(b) below, it is intended that the options issued
pursuant to this Plan will constitute incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986.
2. Definitions.
As used herein, the following definitions shall apply.
(a) "Association" shall mean Park View Federal Savings and Loan
Association.
(b) "Bank" shall mean Park View Federal Savings Bank, the
continuing entity of Park View Federal Savings and Loan
Association as a Federal Capital Stock Savings Bank.
(c) "Board" shall mean the Board of Directors of the Bank or any
Parent thereof.
(d) "Common Stock" shall mean Common Stock, $0.01 par value per
share, of the Bank.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Stock Option Committee appointed
by the Board in accordance with Subparagraph 4(a) of the
Plan.
(g) "Continuous Employment" or "Continuous Status as an
Employee" shall mean the absence of any interruption or
termination of the Employee's employment with the Bank or
any present or future Parent or Subsidiary of the Bank.
Employment shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence
approved by the Bank or in the case of transfers between
payroll locations of the Bank or between the Bank, its
Parent, its Subsidiaries or a successor.
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(h) "Director" shall mean a member of the Board of the Bank.
(i) "Effective Date" shall mean the date specified in Paragraph
12 hereof.
(j) "Employee" shall mean any person employed by the Bank or any
present or future Parent or Subsidiary of the Bank.
(k) "Option" shall mean an option to purchase Common Stock
granted pursuant to this Plan.
(l) "Optioned Stock" shall mean stock subject to an option
granted pursuant to this Plan.
(m) "Optionee" shall mean a person who receives an Option
pursuant to the Plan.
(n) "Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Subsections
424(e) and (g) of the Code.
(o) "Plan" shall mean the Park View Federal Savings Bank
Conversion Stock Option Plan.
(p) "Share" shall mean one share of the Common Stock.
(q) "Subsidiary" shall mean any present or future corporation
which would be a "subsidiary corporation" as defined in
Sections 424(f) and (g) of the Code.
3. Shares Subject to the Plan.
(a) Except as otherwise required by the provisions of Paragraph
10 hereof, the aggregate number of shares of Common Stock
deliverable upon the exercise of Options pursuant to the
Plan shall be equal to ten percent (10%) of the common stock
sold in the conversion of the Association to the Bank less
10,000 shares. Such shares issued upon exercise of an
Option may either be authorized but unissued or treasury
shares.
(b) If Options should expire, become unexercisable or forfeited
for any reason without having been exercised in full, the
unpurchased shares which were subject thereto shall, unless
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the Plan shall have been terminated, be available for the
grant of other Options under the Plan.
4. Administration of the Plan.
(a) Composition of Option Committee. The Plan shall be
administered by the Committee which shall consist of not
less than three non-employee directors who are appointed by
the Board and who have not received a grant of options
within the prior twelve (12) months other than options
granted under the plan of conversion of the Association to
the Bank and not granted under this Plan. All members of
the Committee shall serve at the pleasure of the Board.
(b) Powers of the Committee. The Committee shall have
discretionary authority (but only to the extent not contrary
to the express provisions of the Plan or to resolutions
adopted by the Board) to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to the
Plan, to determine the form and content of Options to be
issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan,
and shall have and may exercise such other power and
authority as may be delegated to it by the Board from time
to time. A majority of the entire Committee shall
constitute a quorum and the action of a majority of the
members present at any meeting at which a quorum is present
shall be deemed the action of the Committee.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be
final and conclusive on all persons affected thereby.
5. Eligibility.
(a) Options may be granted to each such Employee of the Bank or
any present or future Parent or Subsidiary as shall be
designated by the Committee. An Optionee who has been
granted an Option may, if otherwise eligible, be granted an
additional Option or Options.
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(b) The aggregate fair market value (determined pursuant to
Paragraph 7 hereof as of the date the Option is granted) of
the Shares with respect to which incentive stock options are
exercisable for the first time by an Employee during any
calendar year (under all incentive stock option plans, as
defined in Section 422 of the Code, of the Bank or any
present or future Parent or Subsidiary of the Bank) shall
not exceed $100,000. Notwithstanding the prior provisions
of this Paragraph, the Committee may grant Options in excess
of the foregoing limitations, in which case such Options
granted in excess of such limitation shall be treated as
Options which are not incentive stock options, as defined in
Section 422 of the Code, pursuant to Section 422(d) of the
Code.
6. Term of Plan; Term of Options.
(a) The Plan shall continue in effect for a term of ten years
from its Effective Date, unless sooner terminated pursuant
to Paragraph 15. No Option shall be granted under the Plan
after ten years from the Effective Date.
(b) The term of each Option granted under the Plan shall be
established by the Committee, but shall not exceed 10 years;
provided however that in the case of an Employee who owns
stock representing more than ten (10) percent of the Bank's
outstanding Common Stock at the time the Option is granted,
the term of such Option shall not exceed five (5) years.
7. Exercise Price.
The price per share at which each Option granted under the Plan may be
exercised shall not, as to any particular Option, be less than the fair market
value of the stock to which the Option relates at the time such Option is
granted. In the case of an Employee who owns stock representing more than ten
percent of the Bank's outstanding Common Stock at the time the Option is
granted, the exercise price shall not be less than 110% of the fair market value
of the stock at the time the Option is granted. Such exercise price shall be
determined in good faith by the Committee.
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8. Exercise of Option.
(a) Procedure for Exercise.
(1) Any Option granted hereunder shall be exercisable at such
times and under such conditions as shall be permissible under the terms of the
Plan and of the Option granted to an Optionee. An Option may not be exercised
for a fractional Share.
(2) An Option granted pursuant to the Plan may be exercised,
subject to provisions relative to its termination and limitations on its
exercise, from time to time only by (a) written notice of intent to exercise the
Option with respect to a specified number of shares, and (b) payment to the
Bank, (contemporaneously with delivery of such notice), in cash, of the amount
of the Option price for the number of Shares with respect to which the Option is
then being exercised. Each such notice and payment shall be delivered, or
mailed by prepaid registered or certified mail, addressed to the Treasurer of
the Bank at the Bank's executive offices.
(b) Exercise During Employment or Following Death or Disability.
(1) Except as may be specifically provided for by the terms of
an Option as may be authorized by the Committee at the time of such grant, an
Option constituting an incentive stock option under the Code may be exercised by
an Optionee only while he is an Employee and has maintained Continuous Status as
an Employee since the date of the grant of the Option or within three months
after termination of status as an Employee (but not later than the date on which
the Option would otherwise expire), except if his Continuous Employment is
terminated by reason of (a) "Cause" (which for purposes hereof shall have the
same meaning as defined in the then existing employment agreement between the
Optionee and the Bank or any of its Parent or Subsidiaries and, in the absence
of any such agreement, shall have the meaning defined in 12 C.F.R. Section
563.39(b)(1) as in effect on the Effective Date of this Plan) then the
Optionee's rights to exercise such Option shall expire on the date of such
termination, (b) death, then to the extent that the Optionee would have been
entitled to exercise the Option immediately prior to his death, such Option of
the deceased Optionee may be exercised within two years from the date of his
death (but not later than the date on which the Option would otherwise expire)
by the personal representatives of his estate or by the person or persons to
whom his rights under such Option shall have passed by will or by laws of
descent and distribution, or (c) Permanent and Total Disability (as such term is
defined in Section 22(e)(3) of the Code), then to the extent that the Optionee
would have been entitled to exercise the Option immediately prior to his
Permanent and Total Disability, such Option may be exercised within
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<PAGE>
one year from the date of termination of status as an Employee due to such
Permanent and Total Disability, but not later than the date on which the Option
would otherwise expire. Notwithstanding the provisions of any Option which
provides for its exercise in installments as designated by the Committee, such
Option shall become immediately exercisable upon death or Permanent and Total
Disability, as defined herein, of the Optionee.
(2) The Committee's determination whether an Optionee's
employment has ceased, and the effective date thereof, shall be final and
conclusive on all persons affected thereby.
(c) Notwithstanding anything herein to the contrary, in no event
shall any Option granted as an incentive stock option
pursuant to the Plan be exercisable for six months from the
date of grant, except in the event of the Death or Permanent
and Total Disability of the Optionee; and, provided the
Bank's shareholders shall ratify the Plan.
9. Non-Transferability of Options.
Options granted under the Plan may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Effect on Change in Stock Subject to the Plan.
(a) In the event that each of the outstanding shares of Common
Stock (other than shares held by dissenting shareholders)
shall be changed into or exchanged for a different number or
kind of shares of stock of the Bank or of another
corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, stock dividend, split-
up, combination of shares, or otherwise), then there shall
be substituted for each share of Common Stock then under
Option or available for Option the number and kind of shares
of stock into which each outstanding share of Common Stock
(other than shares held by dissenting shareholders) shall be
so changed or for which each such share shall be so
exchanged, together with an appropriate adjustment of the
exercise price.
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(b) In the event there shall be any change in the number of, or
kind of, issued shares of Common Stock, or of any stock or
other securities into which such Common Stock shall have
been changed, or for which it shall have been exchanged,
then if the Committee shall, in its discretion, determine
that such change equitably requires an adjustment in the
number, or kind, or exercise price of shares then subject to
an Option or available for Option, such adjustment shall be
made by the Board and shall be effective and binding for all
purposes of the Plan.
11. Time of Granting Options.
The date of grant of an Option under the Plan shall be the date on which
the Committee makes the determination of granting such Option. Notice of the
determination shall be given to each Employee to whom an Option is so granted
within a reasonable time after the date of such grant.
12. Effective Date.
The Plan shall become effective upon the commencement of business
activities by the Bank, which for purposes hereof shall be deemed to have
occurred upon the consummation of the conversion of the Association to the Bank
(the "Effective Date"). Options may be granted prior to ratification of the Plan
by the stockholders of the Bank if the exercise of such Options is subject to
such stockholder ratification of the Plan. The Plan shall continue in effect
for a term of ten years from the Effective Date, unless sooner terminated under
Paragraph 15 of the Plan.
13. Approval by Shareholders.
The Plan is in all respects conditioned upon approval by ratification of
the Plan by Bank's stockholders within twelve (12) months after the Effective
Date.
14. Modification of Options.
At any time and from time to time the Board may authorize the Committee to
direct execution of an instrument providing for the modification of any
outstanding Option, provided no such modification, extension or renewal shall
confer on the holder of said Option any right or benefit which could not be
conferred on him by the grant of a new Option at such time, or impair the Option
without the consent of the holder of the Option.
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15. Amendment and Termination of the Plan.
(a) The Plan shall terminate and be of no further force and
effect in the event the Bank's shareholders shall not ratify
and approve the Plan within twelve (12) months after the
Effective Date.
(b) The Board may amend, modify or terminate the Plan except
that no action of the Board may materially increase (other
than as provided in Paragraph 10) the maximum number of
shares permitted to be optioned or become available for the
granting of Options under the Plan, materially increase the
benefits accruing to participants, or materially modify the
requirements for eligibility for participation in the Plan,
unless such action of the Board shall be subject to approval
or ratification by the shareholders of the Bank.
(c) No action of the Board may, without the consent of the
holder of the Option, impair any then outstanding Option.
16. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued with respect to any Option
granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of
1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the Shares may
then be listed.
(b) Inability of the Bank to obtain from any regulatory body the
authority deemed by the Bank's counsel to be necessary to
the lawful issuance and sale of any Shares hereunder shall
relieve the Bank of any liability in respect of the non-
issuance or sale of such Shares. As a condition to the
exercise of an Option, the Bank may require the person
exercising to make such representations and warranties as
may be necessary to assure the availability of an exemption
from the registration requirements of federal or state
securities law.
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17. Reservation of Shares.
The Bank, during the term of this Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
18. Withholding Tax.
Where an Optionee or other person is entitled to receive Shares pursuant to
the exercise of an Option pursuant to the Plan, the Bank shall have the right to
require the Optionee or such other person to pay the Bank the amount of any
taxes which the Bank is required to withhold with respect to such Shares.
19. Governing Law.
The Plan shall be governed and construed in accordance with the laws of the
State of Ohio except to the extent that Federal law shall be deemed to apply.
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EXHIBIT A
PVF CAPITAL CORP.
1996 INCENTIVE STOCK OPTION PLAN
SECTION I
PURPOSE
The purpose of PVF Capital Corp. 1996 Incentive Stock Option Plan (the
"Plan") is to promote the interest of PVF Capital Corp. ("Company") and its
stockholders by providing a method whereby key executives (as determined by the
Committee in its sole discretion) ("Optionees") of the Company and its
subsidiaries may be encouraged to invest in the Company's Common Stock, thereby
increasing their proprietary interest in its business, providing them with
additional incentive to remain in the employ of the Company and increasing their
personal interest in its continued success and progress. These employees will
be granted options ("Options") to purchase shares of the common stock, $.01 par
value, of the Company ("Common Stock"). It is intended that Options issued
hereunder will constitute Incentive Stock Options within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended from time to time (the
"Code").
SECTION II
ADMINISTRATION
2.1 THE COMMITTEE. The Plan shall be administrated by a Committee of the
Board of Directors of the Company (the "Committee"). The Committee shall
consist of not less than two nonemployee directors within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and
shall be appointed by the Board of Directors. A majority of the members
of the Committee shall constitute a quorum. All decisions of the
Committee shall be made by not less than a majority of its members. Any
decision or determination reduced to writing and signed by all the
members of the Committee shall be fully as effective as if it had been
made by a majority vote at a meeting duly called and held. The Committee
may appoint a chairman from among the members and a secretary (who need
not be a member) and may make such rules and regulations for the conduct
of its business as it shall deem advisable. No member of the Committee
shall be liable, in the absence of bad faith, for any act or omission
with respect to his or her service on the Committee. Service on the
Committee shall constitute service as a Director of the Company so that
members of the committee shall be entitled to indemnification and
reimbursement as Directors of the Company.
2.2 AUTHORITY OF THE COMMITTEE. Subject to the express provisions of the
Plan, the Committee shall have plenary authority to determine, in its
discretion, the employees to whom, and the time to times within which
(during the term of the Option) all or a portion of such Options may be
exercised. In making such determination, the Committee may take into
account the nature of the services rendered or expected to be rendered by
the respective employees, their present and potential contributions to
the Company's success, the anticipated number of years of effective
<PAGE>
service remaining and such other factors as the Committee in its
discretion shall deem relevant. Subject to the express provisions of the
Plan, Section 422A of the Code and any regulations or rulings thereunder,
the Committee shall also have plenary authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and conditions of the respective Options (which terms
and conditions need not be the same in each case), to impose restrictions
on any shares issued upon the exercise of an Option and to determine the
manner in which such restrictions may be removed, and to make all other
determinations deemed necessary or advisable in administering the Plan.
The Committee may specify in the original terms of any Option, or, if not
so specified, shall determine whether any authorized leave of absence or
absence on military or governmental service or for any other reason shall
constitute a termination of employment for purposes of the Plan. The
determination of the Committee on the matters referred to in the Plan
shall be conclusive; provided that it shall be the Board of Directors of
the Company which shall determine whether unissued or treasury shares
shall be issued upon the exercise of any Option.
2.3 OPTION AGREEMENT. Each Option shall be evidenced by an option agreement
which shall contain such terms and conditions as may be approved by the
Committee, and the said agreement shall be signed by an officer of the
Company and the Optionee.
SECTION III
SHARES SUBJECT TO THE PLAN
An aggregate of 150,000 shares of Common Stock shall be subject to the
Plan, subject to adjustment in accordance with Section 8 hereof. Such shares
may be either authorized but unissued shares or shares now or hereafter held in
the treasury of the Company.
In the event that any Option under the Plan expires unexercised or is
terminated, surrendered or cancelled, the shares subject to such Option, or the
unexercised portion thereof, shall again become available for Option under the
Plan, including to the former holder of such Option, upon such terms as the
Committee shall determine in accordance with the Plan and which terms may be
more or less favorable than those applicable to such former Option.
SECTION IV
GRANTING DATE
The action of the Committee with respect to the granting of an Option
shall take place on such date as a majority of the members of the Committee at a
meeting shall make a determination with respect to the granting of an Option or,
in the absence of a meeting, on such date as of which written designation
covering such Option shall have been executed by all members of the Committee.
The effective date of the grant of an Option (the "Granting Date") shall be the
date specified by the Committee in its determination or designation relating to
the award of such Option or, in the absence of such a specification, the date on
which the action of the Committee relating to the award of such Option took
place. However, the Granting Date shall not be later than the termination date
of Section 9.2.
<PAGE>
SECTION V
ELIGIBILITY
Options may be granted only to key executives (which term shall be deemed
to include among others, the president, any vice president, secretary, treasurer
or any manager in charge of a principal business unit, division or function
(such as sales, administration or finance), any other officer who performs a
policy making function, or any other person who performs similar policy making
functions for the Company or any of its subsidiaries) and who on the Granting
Date are in the employ of the company or one of its then subsidiary
corporations, as defined in Section 425 of the Code (the "subsidiaries"). No
Option shall be granted to any Director of the Company or of a subsidiary
corporation who is not also such an employee or officer of the Company or of one
of its subsidiary corporations on the Granting Date.
SECTION VI
TERMS AND CONDITIONS OF OPTIONS
6.1 OPTION PRICE. Subject to the provision of Section 6.5 below, the
purchase price of the Common Stock under each option shall be determined
by the Committee as of the Granting Date, but shall not be less than 100%
of the fair market value of the stock on the Granting Date. The fair
market value of the stock shall be, for purposes of the Plan, determined
in accordance with the requirements of Section 422A of the Code.
6.2 TERMS. Subject to the provisions of Section 6.5 below, the term of each
Option granted under the Plan shall be for a period not exceeding ten
years from the Granting Date. Each Option granted under the Plan may be
exercised by the Optionee as stated in his or her individual option
agreement, but in no event may any option be exercised before one year of
continued employment with the Company, or a subsidiary, immediately
following the Granting Date.
6.3 RESTRICTIONS ON TRANSFER AND EXERCISE.
(a) Except as hereinafter provided, no Option granted pursuant to the
Plan may be exercised at any time unless the holder thereof is
then an employee of the Company or of a subsidiary. Options
granted under the Plan shall not be affected by any change of
employment so long as the Optionee continues to be an employee of
the Company or of a subsidiary corporation.
(b) The Option of any Optionee whose employment is terminated for any
reason, other than for death, disability (as defined in Section
105(d)(4) of the Code) or discharge for cause (as defined in
Section 6.3(d) below), shall be exercisable or payable to the
extent provided therein, through the earlier of the date which is
three months after termination of employment or the date that such
Option expires in accordance with its terms, and shall expire
thereafter.
(c) In the event of the death of an Optionee (1) while an employee of
the Company or a subsidiary corporation, or (2) within three
months after the termination of employment of the Optionee for
other than cause, or in the event of the termination of employment
by an Optionee for permanent disability, the Option may be
exercised as follows:
<PAGE>
(i) In the event of the death of an Optionee during employment
or the death of the Optionee within three months after the
termination of employment for other than cause, each Option
granted to such Optionee shall be exercisable or payable to
the extent provided therein but not later than one year
after his or her death (but not beyond the stated duration
of the Option). Any such exercise or payment shall be made
only: (1) by or to the executor or administrator of the
estate of the deceased Optionee or person or persons to
whom the deceased Optionee's rights under the Option shall
pass by will or the laws of descent and distribution; and
(2) to the extent, if any, that the deceased Optionee was
entitled at the date of his or her death.
(ii) In the case of an Optionee who becomes disabled, the Option
shall be exercisable or payable to the extent provided
therein on the earlier of one year after termination of
employment or the date that such Option expires in
accordance with its terms. During such period, the Option
may be exercised by an Optionee who becomes disabled with
respect to the same number of shares, in the same manner
and to the same extent as if the Optionee had continued
employment during such period.
(d) Any unexercised Options shall lapse immediately upon termination
of employment of the Optionee through discharge for "cause".
"Cause" shall mean, in the good faith determination of the
Company's Board of Directors, the Optionee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated
duties, or willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-
desist order. No act, or failure to act, on the Optionee's part
shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of the
Company or its subsidiaries.
(e) Each Option granted under the Plan shall, by its terms, not be
transferable otherwise than by will or the laws of descent and
distribution. During the Optionee's lifetime, an Option granted
under the Plan can be exercised only by him or her.
6.4 MANNER OF EXERCISE. An Option shall be exercised by giving a written
notice to the President of the Company stating the number of shares of
stock with respect to which the Option is being exercised and containing
such other information as the President may request and by tendering
payment therefor with a cashier's check, certified check, or with
existing holdings of Common Stock.
6.5 LIMITATIONS ON OPTIONS.
(a) Notwithstanding the provision of Sections 6.1 and 6.2 above, if an
Optionee, at the time of Option is granted, owns (as defined in
Section 425(d) of the Code) Common Stock possessing more than 10%
of the total combined voting power of all classes of stock of the
Company, any subsidiary thereof or of the Company's parent (if
any), the option price for such Option shall be at least 110% of
the fair market value of the stock subject to such Option, and
such Option by its term shall not be exercisable after the
expiration of five years from the date such Option is granted.
(b) If the aggregate fair market value (determined as of the time the
Option is granted) with
<PAGE>
respect to which Options are exercisable for the first time by
Employee during any calendar year (under this Plan or any other
plan of the Company and its parent and subsidiary corporations)
exceeds $100,000, such Options in excess of $100,000 shall be
treated as Options which are not Incentive Stock Options as
defined in Section 422A of the Code.
SECTION VII
STOCKHOLDER AND EMPLOYMENT RIGHTS
A holder of an Option shall have none of the rights of a stockholder with
respect to any of the shares subject to Option until such shares shall be issued
upon the exercise of the Option.
Nothing in the Plan or in any Option granted pursuant to the Plan shall,
in the absence of an express provision to the contrary, confer on any individual
any right to be or to continue in the employ of the Company or any of its
subsidiaries or shall interfere in any way with the right to the Company or any
of its subsidiaries to terminate the employment of any individual at any time.
SECTION VIII
ADJUSTMENTS TO COMMON STOCK
The aggregate number of shares of Common Stock of the Company on which
Options may be granted hereunder, the number of shares thereof covered by each
outstanding Option and the price per share thereof in each such Option may all
be appropriately adjusted, as the Board of Directors may determine, for any
increase or decrease in the number of shares of stock of the Company resulting
from a subdivision or consolidation of shares whether through reorganization,
recapitalization, stock split-up or combination of shares, or the payment of a
stock dividend or other increase or decrease in such shares effected without
receipt of consideration by the Company. No fractional shares of stock shall be
issued upon exercise of an Option by reason of a stock dividend or otherwise,
the grantee holding such Option shall not be entitled to exercise it with
respect to such fractional share.
Subject to any required action by the stockholders, if the Company shall
be the surviving corporation in any merger or consolidation, any Option granted
hereunder shall pertain to and apply to the securities to which a holder of the
number of shares of stock subject to the Option would have been entitled. Upon
a dissolution of the Company, a merger or consolidation in which the Company is
not the surviving corporation, or sale or disposition of all or substantially
all of the Company's assets (any of the foregoing to be referred to herein as a
"Transaction"), every Option outstanding hereunder together with the exercise
price thereof shall be equitably adjusted for any changes or exchange of Common
Stock for a different number of kind of shares or other securities which results
from the Transaction, provided, however, that in the event of a Transaction,
then during the period thirty days prior to the effective date of such event,
each holder of an Option granted pursuant to the Plan shall have a right to
exercise the Option, in whole or in part.
<PAGE>
SECTION IX
EFFECTIVE DATE AND TERMINATION EFFECTIVE DATE
9.1 EFFECTIVE DATE. The Plan shall become operative and in effect on the
date the Plan is approved by a vote of a majority of all members of the
Board of Directors provided, however, that the Plan shall be submitted to
the stockholders of the Company for approval within twelve months of the
date of adoption of the Plan, and if such approval shall not be obtained
within that period by a vote of the holders of a majority of the total
outstanding capital stock of the Company entitled to vote, voting as a
single class, the Plan shall be null and void and all Options, if any,
granted thereunder shall automatically be cancelled.
9.2 TERMINATION EFFECTIVE DATE. The Plan shall remain in effect until and
shall terminate within 10 years from the date the Plan is adopted or the
Plan was approved by the shareholders, whichever is earlier, but it may
be terminated at an earlier date by action of the Board of Directors.
Except as provided in paragraph 9.1 above, termination of this Plan shall
not affect the rights of grantees under Options theretofore granted to
purchase stock under the Plan, and, all such Options shall continue in
force and operation after termination of the Plan, except as provided in
subparagraph A above and except as may be terminated through death or
other termination of employment in accordance with the terms of the Plan.
SECTION X
AMENDMENTS
The Board of Directors shall have complete power and authority to amend
the Plan, provided, however, that except as expressly permitted in the Plan, the
Board of Directors shall not, without the affirmative vote of the holders of a
majority of the voting stock of the Company, make any amendment which would (a)
abolish the Committee without designating such other committee, change the
qualifications of its members, or withdraw the administration of the Plan from
its supervision, (b) increase the maximum number of shares for which options may
be granted under the Plan, (c) amend the formula for determination of the
purchase price of shares on which options may be granted, (d) extend the terms
of the Plan or the maximum option price or (e) amend the requirements as to the
employees eligible to receive Options.
SECTION XI
GOVERNMENT AND OTHER REGULATIONS
The obligation of the Company to sell or deliver shares under Options
granted pursuant to the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by and registrations with any governmental
agencies as may be required.
<PAGE>
SECTION XII
LOAN AGREEMENTS
Each Option shall be subject to the condition that the Company shall not
be obliged to issue or transfer any of its stock to a holder of an Option, in
the exercise thereof, if at any time the Committee or the Board of Directors
shall determine that the issuance or transfer of such stock would be in
violation of any covenant in any of the Company's loan agreements or other
contracts.
The Company hereby agrees to the provisions of this Plan, and in Witness
Thereof, the Company causes this Agreement to be executed on this day of
---
, 1996.
- -------------------
PVF CAPITAL CORP.
By:
-----------------------------------------
President
ATTEST:
----------------------------------------
Secretary
<PAGE>
[LOGO]
ANNUAL REPORT
JUNE 30, 1996
<PAGE>
TABLE OF CONTENTS
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . 1
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 2
Real Estate Lending. . . . . . . . . . . . . . . . . . . . . . . . . 2
Looking Forward. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selected Consolidated Financial and Other Data . . . . . . . . . . . 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . 6
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 14
<PAGE>
TO OUR SHAREHOLDERS
Looking back at the highlights of the fiscal year ended June 30, 1996
should give our shareholders much pleasure. PVF Capital Corp. stock was selling
at $14.50 per share at June 30, 1995, and in addition to a 10% stock dividend
paid in August 1995, the stock closed at $19.00 per share at June 30, 1996. The
net income from operations for the fiscal year ended June 30, 1996 of $3.8
million was an all-time high for the corporation. As a result of this
performance, the Board of Directors authorized a three-for-two stock split that
became effective Friday, August 16, 1996. On Monday morning, August 19, 1996,
the stock opened for trading at $14.00 per share. Although the number of
outstanding shares of common stock increased from 1,404,095 at June 30, 1995 to
2,323,338 at August 19, 1996, the price per share remained approximately the
same.
Fiscal year 1996 was also a record year in mortgage lending with total
growth in loans and mortgage-backed securities of approximately $43.1 million.
Management was also pleased by the sharp drop in non-performing loans as a
percentage of total loans and mortgage-backed securities from 1.81% at fiscal
year end 1995 to 0.82% at fiscal year end 1996. On the following page, we have
provided a chart that shows the composition of Park View Federal Savings Bank's
loan and mortgage-backed securities portfolio for the last three years. On the
liability side of the balance sheet, management made a strategic decision to
fund our increased lending activity with Federal Home Loan Bank advances rather
than competing for deposits with the current high returns being generated by the
stock market and mutual fund industry.
Our Annual Meeting of Shareholders will take place at the Cleveland
Marriott East in Beachwood, Ohio, at 10:00 a.m. on Monday, October 21, 1996. We
hope that you will be able to attend the meeting. The Board of Directors will
submit two important issues to the shareholders at the meeting. They are
recommending the expansion of the Board to seven members and are nominating
Stuart D. Neidus, a former Audit Partner of KPMG Peat Marwick LLP, for re-
election to that seat. They also recommend the passage of an Incentive Stock
Option Plan for key officers of the corporation and its wholly-owned subsidiary,
Park View Federal Savings Bank. A detailed explanation of this plan is included
in the proxy statement accompanying this annual report.
We pledge to continue our commitment to the community, customers and
shareholders to provide the innovative services that only a dedicated community
bank can provide.
Sincerely,
/s/ John R. Male
---------------------------
John R. Male
President
<PAGE>
BOARD OF DIRECTORS
This group, who have been together for many years and who continue to serve with
distinction, recruited a new member to join the Board. He is Stuart D. Neidus,
a former Audit Partner with KPMG Peat Marwick LLP, who handled the Park View
Federal Savings Bank account for many years.
Mr. Neidus joined KPMG upon graduation from Kent State University in 1973 and
remained with the firm for about 20 years, the last three as Partner in Charge
of the audit practice in Northeast Ohio supervising 150 professionals in three
offices. A substantial portion of his work was devoted to serving clients in
the financial services industry that included a very large group of savings and
loans and thrift holding companies. He brings a vast amount of knowledge and
experience in the thrift industry to our Board of Directors.
In 1992, Mr. Neidus left KPMG to join Premier Industrial Corporation as an
Executive Vice President with a multitude of corporate responsibilities. Upon
Premier's acquisition in April 1996 by Farnell Electronics, a British company,
he decided to leave the merged company. Desiring to remain in Cleveland, where
he has always lived and worked, he recently joined ESSEF Corporation in Chardon,
Ohio as Executive Vice President and Chief Financial Officer. ESSEF is a
publicly-traded company in the design and manufacture of components to move,
treat and store water.
Mr. Neidus will chair the Audit Committee of the Bank and will make his
expertise available in the compensation and human resources areas. We are all
very pleased to have this highly qualified individual join our Board of
Directors.
REAL ESTATE LENDING
The Board and management agreed long ago that Park View Federal Savings Bank
(the "Bank") would operate as a community savings bank concentrating on
a wide range of real-estate-related lending opportunities in its immediate
market area with borrowers and investors personally guaranteeing the loans on
the collateral security.
The Bank's interest-rate spread has remained strong, in a very volatile
interest-rate environment, at 3.45%, 3.67%, and 4.04% during fiscal years 1996,
1995, and 1994 respectively.
In addition, as of June 30, 1996, the Bank was servicing a portfolio of owner-
occupied, single-family loans totaling $171.1 million for third-party investors.
PVF Capital Corp. purchased most of that servicing portfolio from the Bank
during fiscal 1996 in a transaction that resulted in an increase to the Bank's
regulatory capital of $1.2 million. Income from mortgage banking activities
amounted to $925,000, net, in fiscal 1996.
The following table indicates the composition of the Bank's loan and mortgage-
backed securities portfolio at the dates indicated:
At June 30,
---------------------------------
1996 1995 1994
---------------------------------
(in millions)
Real estate loans:
Single-family residential $114.4 $ 98.2 $ 79.9
Multi-family residential 30.6 39.5 33.7
Commercial 72.5 57.5 53.3
Construction 76.7 61.7 53.8
Land 26.0 18.3 16.5
Home equity line of credit 8.7 3.3 0.0
Mortgage-backed securities 8.6 3.7 0.0
Other loans 2.4 2.3 2.3
Less: total other items (42.1) (29.8) (28.9)
------ ------ ------
Total real estate loans $297.8 $254.7 $210.6
2
<PAGE>
LOOKING FORWARD
OPPORTUNITY
We are most optimistic about the future of the small community bank that
provides the one-on-one solution to a financial problem of its customer. We see
evidence every day of the dissatisfaction of customers with the large commercial
banking fee approach to customer service. We also are very much aware that if
we are to prosper in the financial community, we must fulfill the requirements
and needs of the people we serve. If you have a real-estate-related financial
problem, we urge you to try Park View Federal Savings Bank -- we will be able to
help.
SAVINGS ASSOCIATION INSURANCE FUND
Last year, we anticipated the Savings Association Insurance Fund (SAIF) would be
funded by an assessment on all of its insured banks, however, an intense
lobbying campaign on the part of the commercial banking interest has derailed
that effort so far. We anticipate that some compromise will be worked out
sometime in 1997. This is expected to result in a significant one-time expense,
but substantially lower costs for deposit insurance that should be reflected in
higher net earnings, such as those being enjoyed currently by the commercial
banks who now are paying virtually no deposit insurance premiums.
SOLON LAND DEVELOPMENT
In the coming fiscal year, we also anticipate that the Corporation will be
submitting a Planned Unit Development (PUD) proposal to the City of Solon for
their approval. The parcel of land in question is a 257-acre parcel located
on the south side of Aurora Road running east from the intersection of Pettibone
Road to the Cuyahoga County line. PVF Service Corporation has owned the land
for many years and it remains one of the largest pieces of undeveloped land in
Solon. We anticipate that it will take much time and effort to get final
approval. However, we do anticipate increased future net earnings when we
successfully reach some agreement with Solon.
BRANCH OFFICES
The major overhaul of our branch office network accomplished in 1995 continues,
but in a much less dramatic fashion. The older offices have been totally
renovated, and new technology has been installed in many offices that permits
the immediate preparation of loan documents and accelerates the closing of a
loan for the customer.
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
FINANCIAL CONDITION DATA:
At June 30,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . $331,634 $315,432 $238,245 $193,289 $198,382
Loans receivable and mortgage-backed
securities held for investment, net. . . . . . . . . 278,956 250,244 206,674 156,402 155,133
Loans receivable and mortgage-backed
securities available for sale, net . . . . . . . . . 18,817 4,451 3,954 7,972 8,278
Cash and investment securities . . . . . . . . . . . . 27,884 53,812 22,226 23,708 29,365
Savings deposits . . . . . . . . . . . . . . . . . . . 271,045 272,290 197,042 170,617 181,751
FHLB advances and notes payable. . . . . . . . . . . . 30,191 16,800 18,160 2,560 7,835
Stockholders' equity . . . . . . . . . . . . . . . . . 22,474 18,818 15,742 11,848 1,269
Number of:
Real estate loans outstanding . . . . . . . . . . . 2,527 2,512 2,259 2,165 2,163
Savings accounts. . . . . . . . . . . . . . . . . . 23,259 24,007 19,007 18,777 19,404
Offices . . . . . . . . . . . . . . . . . . . . . . 9 9 7 8 8
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA:
Year Ended June 30,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income. . . . . . . . . . . . . . . . . . . . $ 27,761 $ 22,941 $ 17,050 $ 15,503 $ 18,642
Interest expense . . . . . . . . . . . . . . . . . . . 15,703 12,261 8,113 8,531 12,290
-------- -------- -------- -------- --------
Net interest income
before provision for loan losses . . . . . . . . . . 12,058 10,680 8,937 6,972 6,352
Provision for loan losses. . . . . . . . . . . . . . . 417 416 0 168 1,052
-------- -------- -------- -------- --------
Net interest income
after provision for loan losses. . . . . . . . . . . 11,641 10,264 8,937 6,804 5,300
Non-interest income. . . . . . . . . . . . . . . . . . 1,747 1,514 1,703 2,468 2,175
Non-interest expense . . . . . . . . . . . . . . . . . 7,989 7,177 6,295 5,622 5,556
-------- -------- -------- -------- --------
Income before federal income tax
expense and extraordinary items. . . . . . . . . . . 5,399 4,601 4,345 3,650 1,919
Federal income taxes . . . . . . . . . . . . . . . . . 1,613 1,244 1,215 1,147 927
Extraordinary items. . . . . . . . . . . . . . . . . . 0 0 0 0 472
Cumulative effect of a change
in accounting principle. . . . . . . . . . . . . . . 0 0 755 0 0
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 3,786 $ 3,357 $ 3,885 $ 2,503 $ 1,464
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
OTHER DATA:
At or For the Year Ended June 30,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest rate spread information:
Average during year. . . . . . . . . . . . . . . . 3.45% 3.67% 4.04% 3.58% 3.29%
Average end of year. . . . . . . . . . . . . . . . 3.51% 3.84% 4.25% 4.14% 2.65%
Net interest margin at end of year . . . . . . . . . . 3.90% 4.00% 4.30% 3.78% 3.27%
Average interest-earning assets to
average interest-bearing liabilities . . . . . . . . 108.83% 107.08% 106.64% 104.42% 99.78%
Non-accruing loans (> 90 days) and
repossessed assets to total assets . . . . . . . . . 0.73% 1.14% 1.45% 1.37% 2.27%
Stockholders' equity to total assets . . . . . . . . . 6.78% 5.97% 6.61% 6.13% 0.64%
Return on average assets . . . . . . . . . . . . . . . 1.19% 1.23% 1.78% 1.29% 0.71%
Return on average equity . . . . . . . . . . . . . . . 18.43% 19.61% 27.53% 34.56% 268.13%
Ratio of average equity to
average assets . . . . . . . . . . . . . . . . . . . 6.47% 6.26% 6.46% 3.74% 0.26%
Ratio of tangible capital to
adjusted total assets. . . . . . . . . . . . . . . . 7.25% 6.10% 6.37% 5.71% 0.78%
Ratio of core capital to
adjusted total assets. . . . . . . . . . . . . . . . 7.25% 6.10% 6.37% 5.71% 0.78%
Ratio of total capital to
risk-weighted assets . . . . . . . . . . . . . . . . 11.42% 10.77% 10.37% 10.83% 2.61%
Dividend payout ratio. . . . . . . . . . . . . . . . . 0.00% 8.37% 0.00% 0.00% 0.00%
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
PVF Capital Corp. ("PVF" or the "Company") owns and operates Park View Federal
Savings Bank ("Park View Federal" or the "Bank"), its principal and wholly-owned
subsidiary, and PVF Service Corporation, a real estate subsidiary, also wholly-
owned, purchased by PVF from the Bank during fiscal 1995. Park View Federal has
nine offices located in Cleveland and surrounding communities, including two
recently opened branches in Macedonia and Bainbridge. The Bank's principal
business consists of attracting deposits from the general public through its
branch offices and investing these funds in loans secured by first mortgages on
real estate located in its market area, which consists of Portage, Lake, Geauga,
Cuyahoga, Summit, Stark, Medina and Lorain Counties in Ohio. The Bank has
concentrated its activities on serving the borrowing needs of local homeowners
and builders in its market area by originating both fixed-rate and adjustable-
rate single-family mortgage loans, as well as construction loans and commercial
real estate and multi-family residential real estate loans. In addition, to a
lesser extent, the Bank originates loans secured by second mortgages, including
home equity line of credit loans secured by single-family residential properties
and loans secured by savings deposits. Lending activities are influenced by the
demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and cost of funds
are influenced by prevailing market rates of interest, primarily on competing
investments, account maturities, and the level of personal income and savings in
the market area.
OVERVIEW OF FINANCIAL CONDITION AT JUNE 30, 1996, 1995, AND 1994
PVF had total assets of $331.6 million, $315.4 million and $238.2 million at the
fiscal years ended June 30, 1996, 1995, and 1994 respectively. The primary
source of the Bank's increase in total assets has been its loan and investment
portfolios. Net loans receivable and mortgage-backed securities totaled
$297.8 million, $254.7 million, and $210.6 million at June 30, 1996, 1995, and
1994 respectively. The Bank's current loans-to-one-borrower limitation was
approximately $3.9 million at June 30, 1996. In addition, investment securities
totaled $14.1 million, $41.2 million, and $8.4 million at the fiscal years ended
June 30, 1996, 1995, and 1994 respectively. The decrease of $27.1 million in
investment securities at June 30, 1996 resulted from management's decision to
reinvest funds from investment maturities and sales into the origination of real
estate loans.
The investment portfolio has been, and will continue to be used, primarily to
meet the regulatory liquidity requirements of the Bank in its deposit taking and
lending activities. The Bank has adopted an investment policy that permits
investment only in U.S. government and agency securities or Triple-A-rated
securities. The Bank invests primarily in securities having a final maturity of
five years or less that qualify as regulatory liquidity, federal funds sold, and
deposits at the Federal Home Loan Bank ("FHLB") of Cincinnati. Approximately
$7.2 million, or 31.3% of the investment portfolio has a repricing period of one
year or less, and the Bank has no plans to change the short-term nature of its
investment portfolio.
The Bank's deposits totaled $271.0 million, $272.3 million, and $197.0 million
at the fiscal years ended June 30, 1996, 1995, and 1994 respectively. Advances
from the FHLB of Cincinnati amounted to $27.5 million, $15.0 million, and
$17.6 million at the fiscal years ended June 30, 1996, 1995, and 1994
respectively. Management's decision to borrow funds from the FHLB rather than
aggressively matching market savings rates resulted in a decrease of $1.3
million in savings deposits and an increase in FHLB advances of $12.5 million.
CAPITAL
PVF's shareholders' equity totaled $22.5 million, $18.8 million, and
$15.7 million at the fiscal years ended June 30, 1996, 1995, and 1994
respectively. The increases were the result of the retention of net earnings
after payment of dividends to shareholders, net of capital adjustments
resulting from unrealized gains and losses on securities available for sale.
The sale of PVF Service Corporation during fiscal 1995 and mortgage servicing
rights during fiscal 1996 from the Bank to PVF, net of dividends paid by the
Bank to PVF, resulted in an increase of $1.9 million to the Bank's capital.
The Bank's primary regulator, The Office of Thrift Supervision ("OTS") has
implemented a statutory framework for capital requirements which establishes
five categories of capital strength, ranging from "well capitalized" to
"critically undercapitalized." An institution's category depends upon its
capital level in relation to relevant capital measures, including two risk-based
capital measures, a tangible capital measure and a core/leverage capital
measure. At June 30, 1996, the Bank was in compliance with all of the current
applicable regulatory
6
<PAGE>
capital measurements to meet the definition of a well-capitalized institution,
as demonstrated in the following table:
Park View Requirement for
Federal Percent of Well-Capitalized
Capital Assets (1) Institution
---------------------------------------------
(in thousands)
GAAP capital $ 24,128 7.21% N/A
Tangible capital $ 24,282 7.25% N/A
Core capital $ 24,282 7.25% 5.00%
Tier 1 risk-based capital $ 24,282 10.46% 6.00%
Risk-based capital $ 26,510 11.42% 10.00%
(1) Tangible and core capital levels are shown as a percentage of total adjusted
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
COMMON STOCK AND DIVIDENDS
On December 30, 1992, Park View Federal converted to a stock company by issuing
850,000 shares of common stock. A 10% stock dividend was issued in February
1994. PVF Capital Corp. announced the reorganization of Park View Federal into
the holding company structure of ownership effective October 31, 1994, and
concurrently converted all outstanding shares of common stock of the Bank on a
three-for-two basis into shares of common stock of PVF Capital Corp. The
Company's common stock trades under the symbol "PVFC" on the Nasdaq Small-Cap
Market. A 10% stock dividend was issued in August 1995 and a three-for-two
stock split effected in the form of a dividend was issued in August 1996. As
adjusted to reflect stock dividends and the three-for-two stock split, the
Company had 2,323,338 shares of common stock outstanding and approximately 305
holders of record of the common stock at August 31, 1996. OTS regulations
applicable to all Federal Savings Banks such as Park View Federal limit the
dividends that may be paid by the Bank to PVF. Any dividends paid may not
reduce the Bank's capital below minimum regulatory requirements.
The payment of cash dividends is continually reviewed by management and the
Board of Directors. A $0.12 per share cash dividend as adjusted for stock
dividends was paid by the Bank in August 1994.
The following table sets forth certain information as to the range of the high
and low bid prices for the Bank's common stock for the calendar quarters
indicated.(1)
Fiscal 1996 Fiscal 1995
---------------------------------------------
High Bid Low Bid High Bid Low Bid
--------------------- --------------------
Fourth Quarter $ 13.50 $ 12.17 $ 8.03 $ 7.88
Third Quarter 13.83 11.67 7.88 7.88
Second Quarter 11.33 9.50 7.88 7.88
First Quarter 9.50 7.88 8.49 6.06
(1) Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. Bid prices have been
adjusted to reflect the previously described stock dividends and stock splits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity measures its ability to fund loans and meet withdrawals
of deposits and other cash outflows in a cost-effective manner. The Company's
primary sources of funds for operations are deposits from its primary market
area, principal and interest payments on loans and mortgage-backed securities,
sales of loans and mortgage-backed securities, and proceeds from maturing
investment securities and advances from the FHLB of Cincinnati. While loan and
mortgage-backed securities payments and maturing investments are relatively
stable sources of funds, deposit flows and loan prepayments are greatly
influenced by prevailing interest rates, economic conditions and competition.
FHLB advances may be used on a short-term basis to compensate for deposit
outflows or on a long-term basis to support expanded lending and investment
activities.
The Bank uses its capital resources principally to meet its ongoing commitment
to fund maturing certificates of deposit and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, maintain its
liquidity, and meet operating expenses. At June 30, 1996, the Bank had
commitments to originate loans totaling $24.9 million and had $38.6 million of
undisbursed loans in process. Scheduled maturities of certificates of deposit
during the twelve months following June 30, 1996 totaled $166.5 million.
Management believes that a significant portion of the amounts maturing during
fiscal 1997 will be reinvested with the Bank because they are retail deposits,
however, no assurances can be made that this will occur.
Park View Federal is required by current OTS regulations to maintain specified
liquid assets of at least 5% of its net withdrawable accounts plus short-term
borrowings. Such investments serve as a source of liquid funds which the Bank
may use to meet deposit withdrawals and other short-term needs. The Bank's most
liquid assets are cash and cash equivalents, which are short-term, highly-liquid
investments with original maturities equal to or less than twelve months
7
<PAGE>
that are readily convertible to known amounts of cash. The levels of such
assets are dependent upon the Bank's operating, financing and investment
activities at any given time. Management believes that the liquidity levels
maintained are more than adequate to meet potential deposit outflows, repay
maturing FHLB advances, fund new loan demand, and cover normal operations. Park
View Federal's average daily liquidity ratio for the month of June 1996 was
8.1%, and its average short-term liquidity ratio for such period was
significantly above regulatory requirements.
ASSET/LIABILITY MANAGEMENT
The Company's asset and liability committee, which includes senior management
representatives, monitors and considers methods of managing the rate sensitivity
and repricing characteristics of the balance sheet components consistent with
maintaining acceptable levels of net interest income. Park View Federal's asset
and liability management program is designed to minimize the impact of
significant changes in interest rates on net interest income.
In order to reduce the exposure to interest-rate fluctuations, the Company has
developed strategies to manage its liquidity, shorten its effective maturity,
and increase the interest-rate sensitivity of its asset base. Management has
sought to decrease the average maturity of its assets by emphasizing the
origination of adjustable-rate residential mortgage loans and adjustable-rate
loans for the acquisition, development and construction of residential and
commercial real estate, all of which are retained by the Bank for its portfolio.
In addition, all long-term, fixed-rate mortgages are underwritten according to
guidelines of the Federal Home Loan Mortgage Corporation ("FHLMC") and the
Federal National Mortgage Association ("FNMA") and are either swapped with the
FHLMC and the FNMA in exchange for mortgage-backed securities secured by such
loans which are then sold in the market or sold directly for cash in the
secondary market. At June 30, 1996, as a result of these strategies, the Bank
held approximately $241.6 million in loans with adjustable interest rates, which
represented approximately 81.1% of the Bank's net loan and mortgage-backed
securities portfolio.
PROFILE OF LOAN PORTFOLIO
[PIE CHART]
(81.1%)
Adjustable-rate
mortgage
(0.8%)
Consumer
loans
(18.1%) Fixed-rate mortgage loans
PROFILE OF DEPOSITS
[PIE CHART]
(61.4%) CD's
12 months or less
(6.5%) CD's
13 to 24 months
(3.9%) CD's
26 to 36 months
(8.0%) CD's
over 35 months
(3.3%) NOW
Accounts
(11.8%)
Passbook
accounts
An industry measurement of a financial institution's general sensitivity to
interest rates is called the gap. The interest-rate sensitivity gap is defined
as the difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest-rate-sensitive assets exceeds the amount of
interest-rate-sensitive liabilities, and is considered negative when the amount
of interest-rate-sensitive liabilities exceeds the amount of interest-rate-
sensitive assets. Generally, during a period of rising interest rates, a
negative gap would adversely affect net interest income while a positive gap
would result in an increase in net interest income. Conversely, during a period
of falling interest rates, a negative gap would result in an increase in net
interest income and a positive gap would negatively affect net interest income.
Management's goal is to maintain a reasonable balance between exposure to
interest-rate fluctuations and earnings.
The table on the following page sets forth the repricing schedule of the Bank's
interest-earning assets and interest-bearing liabilities at June 30, 1996, and
the Bank's interest-rate sensitivity gap percentages at the dates indicated.
The table illustrates loans based on contractual maturity and does not include
prepayment assumptions. Had prepayment assumptions been utilized, balances
maturing would have been pushed into shorter time buckets resulting in a more
positive gap position for each period. Decay rates used on non-maturing
deposits are based on the FDICIA 305 maturity distribution table. According to
this table, passbook and NOW accounts mature at rates of 60% in years one
through three, 20% in years
8
<PAGE>
three through five, and 20% in years five through ten. Demand deposit accounts
mature at a rate of 50% in the first year, 30% in years one through three, and
20% in years three through five. All other interest-earning assets and
interest-bearing liabilities are shown based on their contractual maturity.
<TABLE>
<CAPTION>
Over Over Over Over
One Year 1-3 3-5 5-10 10
(in thousands) or less Years Years Years Years Total
- -------------------------------------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C> <C>
Adjustable-rate mortgage loans . . . . . . . . . $153,033 $ 51,584 $ 25,859 $ 10,902 $ 251 $241,629
Fixed-rate mortgage loans. . . . . . . . . . . . 36,138 1,319 3,388 2,315 10,627 53,787
Consumer loans . . . . . . . . . . . . . . . . . 1,917 14 20 244 162 2,357
Investment securities (1) . . . . . . . . . . . 7,220 0 13,994 0 0 21,214
-------- -------- -------- -------- ------- --------
Interest-earning assets. . . . . . . . . . . . 198,308 52,917 43,261 13,461 11,040 318,987
Liabilities:
Fixed maturity deposits. . . . . . . . . . . . . 166,514 25,746 20,559 1,008 0 213,827
Non-maturing deposits. . . . . . . . . . . . . . 0 31,014 10,338 10,338 0 51,690
FHLB advances. . . . . . . . . . . . . . . . . . . 16,000 5,000 5,000 1,482 0 27,482
Other borrowings . . . . . . . . . . . . . . . . 0 0 2,710 0 0 2,710
-------- -------- -------- -------- ------- --------
Total liabilities. . . . . . . . . . . . . . . 182,514 61,760 38,607 12,828 0 295,709
Interest sensitivity gap . . . . . . . . . . . . . 15,794 (8,843) 4,654 633 11,040 23,278
Cumulative interest sensitivity gap. . . . . . . . 15,794 6,951 11,605 12,238 23,278 23,278
Ratio of cumulative interest-earning assets
to cumulative interest-bearing liabilities . . . 1.09 1.03 1.04 1.04 1.08 1.08
Ratio of cumulative interest
sensitivity gap to total assets. . . . . . . . . 4.76% 2.10% 3.50% 3.69% 7.02% 7.02%
</TABLE>
- ------------------
(1) Consists of U.S. government and agency securities, federal funds sold and
interest-bearing deposits at other financial institutions.
It should be noted that the amounts in the gap table could be significantly
affected by external factors such as prepayment rates and early withdrawal of
deposits.
A change in interest rates would most likely cause the results calculated in the
table to deviate significantly.
RESULTS OF OPERATIONS
GENERAL
PVF Capital Corp.'s net income for the fiscal year ended June 30, 1996 was
$3.8 million, or $1.53 per share (fully diluted), as compared to $3.4 million,
or $1.37 per share (fully diluted) for fiscal 1995, and $3.9 million, or $1.61
per share (fully diluted) for fiscal 1994. All per share amounts have been
adjusted for stock dividends, the three-for-two stock split effective with
the holding company reorganization on October 31, 1994, and a three-for-two
stock split effected in the form of a dividend issued on August 16, 1996.
Net income for the current year increased by $429,000 from the prior fiscal year
and exceeded net income for fiscal 1994 by $656,000 before the cumulative effect
of an accounting change. In the first quarter of fiscal 1994, the Bank recorded
a non-recurring benefit from an accounting change related to accounting for
income taxes that amounted to $755,000, or $0.31 per share.
9
<PAGE>
NET INTEREST INCOME
Net interest income amounted to $12.1 million for the fiscal year ended June 30,
1996, as compared to $10.7 million and $8.9 million for the fiscal years ended
June 30, 1995 and 1994 respectively. The increase in net interest income of
$1.4 million and $1.8 million from the fiscal year ended June 30, 1995 to 1996
and from the fiscal year ended June 30, 1994 to 1995, respectively, is due to
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities. Following are two tables that will provide
information as to change in the Bank's net interest income.
The first table sets forth certain information relating to the Bank's average
interest-earning assets (loans and investments) and interest-bearing liabilities
(deposits and borrowings) and reflects the average yield on assets and average
cost of liabilities for the periods and at the dates indicated. Such yields and
costs are derived by dividing interest income or interest expense by the average
daily balance of assets or liabilities, respectively, for the periods presented.
During the periods indicated, non-accrual loans are included in the net loan
category.
This table also presents information for the periods indicated and at June 30,
1996 with respect to the difference between the weighted-average yield earned on
interest-earning assets and weighted-average rate paid on interest-bearing
liabilities, or "interest-rate spread," which savings institutions have
traditionally used as an indicator of profitability. Another indicator of an
institution's net interest income is its "net yield on interest-earning assets,"
which is its net interest income divided by the average balance of net interest-
earning assets. Net interest income is affected by the interest-rate spread and
by the relative amounts of interest-earning assets and interest-bearing
liabilities.
<TABLE>
<CAPTION>
Table 1 AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
FOR THE YEAR ENDED JUNE 30,
1996 1995
----------------------------------------------------------------
At
6/30/96
Yield/ Average Yield/ Average
(in thousands) Cost Balance Interest Cost Balance Interest
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans. . . . . . . . . . . . . . . . . . . . . . . . 8.94% $272,768 $ 25,572 9.38% $230,846 $ 20,624
Mortgage-backed securities . . . . . . . . . . . . . 6.56 3,961 269 6.79 5,635 432
Investment securities and other
interest-earning assets. . . . . . . . . . . . . . 6.21 32,732 1,920 5.87 30,633 1,886
-------- -------- -------- --------
Total interest-earning assets. . . . . . . . . . 8.68 309,461 27,761 8.97 267,114 22,942
-------- --------
Non-interest-earning assets. . . . . . . . . . . . . . 7,775 6,595
-------- --------
Total assets. . . . . . . . . . . . . . . . . . $317,236 $273,709
-------- --------
-------- --------
Interest-bearing liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . 5.06 $270,975 $ 14,889 5.49 $231,984 $ 11,462
FHLB advances. . . . . . . . . . . . . . . . . . . . 5.78 10,638 546 5.13 16,870 740
Note payable . . . . . . . . . . . . . . . . . . . . 9.72 2,746 268 9.80 600 59
-------- -------- -------- --------
Total interest-bearing liabilities. . . . . . . 5.17 284,359 15,703 5.52 249,454 12,261
---- -------- ---- --------
Non-interest-bearing liabilities . . . . . . . . . . 12,337 7,132
-------- --------
Total liabilities . . . . . . . . . . . . . . . 296,696 256,586
Stockholders' equity . . . . . . . . . . . . . . . . . 20,540 17,123
-------- --------
Total liabilities and stockholders' equity. . . $317,236 $273,709
-------- --------
-------- --------
Net interest income. . . . . . . . . . . . . . . . . . $ 12,058 $ 10,681
-------- --------
-------- --------
Interest-rate spread . . . . . . . . . . . . . . . . . 3.51% 3.45%
---- ----
---- ----
Net yield on interest-earning assets . . . . . . . . . 3.90%
----
----
Ratio of average interest-earning assets
to average interest-bearing liabilities. . . . . . . 108.83% 107.08%
------ ------
------ ------
<CAPTION>
1994
----------------------------------------------
Yield/ Average Yield/
Cost Balance Interest Cost
- ------------------------------------------------------------------------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C>
Loans. . . . . . . . . . . . . . . . . . . . . . . . 8.93% $190,386 $ 16,338 8.58%
Mortgage-backed securities . . . . . . . . . . . . . 7.67 382 29 7.59
Investment securities and other
interest-earning assets. . . . . . . . . . . . . . 6.16 16,493 683 4.03
-------- --------
Total interest-earning assets. . . . . . . . . . . . . 8.59 207,711 17,050 8.21
--------
Non-interest-earning assets. . . . . . . . . . . . . . 10,670
--------
Total assets. . . . . . . . . . . . . . . . . . $218,381
--------
--------
Interest-bearing liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . 4.94 $180,183 $ 7,384 4.10
FHLB advances. . . . . . . . . . . . . . . . . . . . 4.39 14,289 706 4.94
Note payable . . . . . . . . . . . . . . . . . . . . 9.83 300 23 7.67
-------- --------
Total interest-bearing liabilities. . . . . . . 4.92 194,772 8,113 4.17
---- -------- ----
Non-interest-bearing liabilities . . . . . . . . . . 9,498
--------
Total liabilities . . . . . . . . . . . . . . . 204,270
Stockholders' equity . . . . . . . . . . . . . . . . . 14,111
--------
Total liabilities and stockholders' equity. . . $218,381
--------
--------
Net interest income. . . . . . . . . . . . . . . . . . $ 8,937
--------
--------
Interest-rate spread . . . . . . . . . . . . . . . . . 3.67% 4.04%
---- ----
---- ----
Net yield on interest-earning assets . . . . . . . . . 4.00% 4.30%
---- ----
---- ----
Ratio of average interest-earning assets
to average interest-bearing liabilities. . . . . . . 106.64%
------
------
</TABLE>
10
<PAGE>
The second table illustrates the extent to which changes in interest rates and
shifts in the volume of interest-related assets and liabilities have affected
the Bank's interest income and expense during the years indicated. The table
shows the changes by major component, distinguishing between changes relating to
volume (changes in average volume multiplied by average old rate), changes
relating to rate (changes in average rate multiplied by average old volume), and
changes relating to rate and volume (changes in average rate multiplied by
changes in average volume).
As is evidenced by these tables, interest-rate changes unfavorably affected the
Bank's net interest income for the fiscal years ended June 30, 1996 and 1995.
Due to the long-term nature of the Bank's loan portfolio and short-term nature
of its deposit portfolio, along with increasing interest rates and a relatively
flat yield curve during much of the fiscal year ended June 30, 1996, the Bank
experienced a decrease of 22 basis points in its interest-rate spread to 3.45%
for fiscal 1996 from 3.67% for fiscal 1995, while during fiscal 1995 its
interest-rate spread decreased 37 basis points from 4.04% for fiscal 1994.
These changes in average interest-rate spread resulted in a decrease in net
interest income for the year ended June 30, 1996 of $532,000 due to interest
rate changes and a decrease of $417,000 for the year ended June 30, 1995.
Net interest income was favorably affected by volume changes during the two
years ended June 30, 1996 and 1995. Accordingly, net interest income grew by
$1.9 million and $2.2 million due to volume changes for the fiscal years ended
June 30, 1996 and 1995 respectively. Changes attributable to both rate and
volume impacted net interest income positively during the fiscal years ended
June 30, 1996 and 1995, with the reduction in average interest-rate spread being
offset by an increase in average volume during the fiscal years ended June 30,
1996 and 1995.
The rate/volume analysis illustrates the effect that volatile interest-rate
environments can have on a financial institution. Increasing interest rates or
a flattening yield curve will both have a negative effect on net interest
income, while decreasing interest rates or a steepening yield curve will both
have a positive effect on net interest income.
<TABLE>
<CAPTION>
Table 2 Year Ended June 30,
----------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
---------------------------------------- ---------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------------- ---------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
---------------------------------------- ---------------------------------------
(in thousands)
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans. . . . . . . . . . . . . . . . $ 3,746 $ 1,017 $ 185 $ 4,948 $ 3,473 $ 671 $ 143 $ 4,287
Mortgage-backed securities . . . . . (128) (50) 15 (163) 399 0 4 403
Investment securities and
other interest-earning assets. . . 129 (89) (6) 34 552 360 291 1,203
------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets. . 3,747 878 194 4,819 4,424 1,031 438 5,893
------- ------- ------- ------- ------- ------- ------- -------
Interest expense:
Savings deposits . . . . . . . . . . 1,925 1,285 216 3,426 2,121 1,520 437 4,078
FHLB advances. . . . . . . . . . . . (274) 125 (46) (195) 128 (78) (14) 36
Other borrowings . . . . . . . . . . 210 0 1 211 23 6 66 35
------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities. . . . . . . . . . 1,861 1,410 171 3,442 2,272 1,448 429 4,149
------- ------- ------- ------- ------- ------- ------- -------
Net interest income. . . . . . . . . . $ 1,886 $ (532) $ 23 $ 1,377 $ 2,152 $ (417) $ 9 $ 1,744
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
11
<PAGE>
PROVISION FOR LOAN LOSSES
Due to the increased risks associated with commercial real estate, construction
and land loans, the Bank carefully monitors its loan portfolio and establishes
levels of unallocated and specific reserves for loan losses. Provisions for
loan losses are charged to earnings to bring the total allowances for loan
losses to a level considered adequate by management to provide for probable loan
losses, based on prior loss experience, volume and type of lending conducted by
the Bank, industry standards, and past due loans in the Bank's loan portfolio.
The Bank's policies require the review of assets on a regular basis and the Bank
appropriately classifies loans, as well as other assets, if warranted. The Bank
establishes specific provisions for loan losses when a loan is deemed to be
uncollectible in an amount equal to the net book value of the loan or to any
portion of the loan deemed uncollectible. A loan that is classified as either
substandard or doubtful is assigned an allowance based upon the specific
circumstances on a loan-by-loan basis after consideration of the underlying
collateral and other pertinent economic and market conditions. In addition, the
Bank maintains unallocated allowances based upon the establishment of a risk
category for each type of loan in the Bank's portfolio. Management believes it
uses the best information available to make a determination with respect to the
allowance for loan losses, recognizing that future adjustments may be necessary
depending upon a change in economic conditions. The allowance for loan losses
increased from $2.1 million at June 30, 1994 to $2.4 million at June 30, 1995
and to $2.6 million at June 30, 1996. At June 30, 1996, the allowance for loan
losses represented 104.8% of total non-performing loans, compared to 51.8% and
48.0% of total non-performing loans at June 30, 1995 and 1994 respectively.
Non-performing loans consist of all non-accrual loans and all loans ninety days
or more past due.
For the fiscal years ended June 30, 1996 and 1995, the Bank recorded provisions
for loan losses of $417,000 and $416,000, respectively, while no provision was
considered necessary for the fiscal year ended June 30, 1994. During fiscal
years 1995 and 1996, the Bank increased its unallocated reserves for loan losses
based on management's evaluation of the quality of the loan portfolio,
prevailing economic conditions, changes in the volume of the loan portfolio, and
other factors deemed relevant. Actual net charge-offs totaled $254,000, $89,000
and $163,000 for the fiscal years ended June 30, 1996, 1995, and 1994
respectively. At June 30, 1996, the allowance for loan losses represented 0.9%
of net loans and mortgage-backed securities.
[Bar Graph]
NON-PERFORMING ASSETS TO TOTAL ASSETS
2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
1992 1993 1994 1995 1996
12
<PAGE>
NON-INTEREST INCOME
Non-interest income amounted to $1.7 million, $1.5 million, and $1.7 million for
the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The
fluctuations in non-interest income are due primarily to fluctuations in income
derived from mortgage banking activities and fee income on deposit accounts.
Income attributable to mortgage banking activities consists of loan servicing
income, gains and losses on the sale of loans and mortgage-backed securities,
and market valuation provisions and recoveries. Income from mortgage banking
activities amounted to $925,000, $906,000, and $685,000 for the fiscal years
ended June 30, 1996, 1995, and 1994 respectively. Other non-interest income
amounted to $822,000, $607,000, and $1.0 million for the fiscal years ended June
30, 1996, 1995, and 1994 respectively. Changes in other non-interest income are
the result of servicing income, income realized on the sale of assets and
investments, the disposal of real estate owned properties, and other
miscellaneous fee income.
NON-INTEREST EXPENSE
Non-interest expense amounted to $8.0 million, $7.2 million, and $6.3 million
for the fiscal years ended June 30, 1996, 1995, and 1994 respectively. The
principal component of non-interest expense is compensation and related benefits
which amounted to $4.1 million, $3.7 million, and $3.3 million for the fiscal
years ended June 30, 1996, 1995, and 1994 respectively. The increase in
compensation for the fiscal years ended June 30, 1996 and 1995 is due primarily
to growth in the staff, the opening of two new branches in fiscal 1995, employee
401K benefits, a compensation incentive plan for both management and loan
originators, and inflationary salary and wage adjustments to employees. Office
occupancy totaled $1.4 million, $1.2 million, and $1.1 million for the fiscal
years ended June 30, 1996, 1995, and 1994 respectively. The increased occupancy
expense is attributable to maintenance and repairs to office buildings and costs
attributable to opening and operating two additional branch offices. Other non-
interest expense totaled $2.4 million, $2.2 million, and $1.8 million for the
fiscal years ended June 30, 1996, 1995, and 1994 respectively. This was the
result of increased advertising, professional and legal services, regulatory and
insurance expenses, and franchise tax expense.
FEDERAL INCOME TAXES
The Bank's federal income tax expense was $1.6 million, $1.2 million, and $1.2
million for the fiscal years ended June 30, 1996, 1995, and 1994 respectively.
Due to the availability of statutory bad debt deductions for the fiscal years
ended June 30, 1995 and 1994, and other miscellaneous deductions, the Bank's
effective federal income tax rate was below the expected tax rate of 35% with an
effective rate of 30%, 27%, and 28% for the fiscal years ended June 30, 1996,
1995, and 1994 respectively. Effective July 1, 1993, the Bank adopted Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. The
cumulative effect of this change in accounting for income taxes resulted in the
Bank recording $755,000 to income for the fiscal year ended June 30, 1994 as the
cumulative effect at July 1, 1993 of a change in accounting for income taxes.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, substantially all of the assets
and liabilities of the Bank are monetary in nature. As a result, interest rates
have a more significant impact on the Bank's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services since
such prices are affected by inflation to a larger extent than interest rates.
For further information regarding the effect of interest rate fluctuations on
the Bank, see "Asset/Liability Management."
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PVF Capital Corp. and Subsidiaries
Cleveland, Ohio:
We have audited the accompanying consolidated statements of financial condition
of PVF Capital Corp. and subsidiaries (Company) as of June 30, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PVF Capital Corp.
and subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statements
of Financial Accounting Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING
RIGHTS, in 1996; No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -
INCOME RECOGNITION AND DISCLOSURES, in 1995; and No. 109, ACCOUNTING FOR INCOME
TAXES, No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, and No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, in 1994.
KPMG Peat Marwick LLP
Cleveland, Ohio
July 17, 1996
14
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash and amounts due from depository institutions $ 6,670,604 6,643,369
Interest bearing deposits 244,612 650,211
Federal funds sold 6,875,000 5,325,000
Investment securities held to maturity 14,094,100 41,193,894
Mortgage-backed securities held to maturity, net 637,022 3,764,087
Mortgage-backed securities available for sale, net 7,613,365 -
Loans receivable held for long-term investment, net of allowance
for loan losses of $2,564,720 and $2,402,098, respectively 278,318,945 246,480,233
Loans receivable held for sale, net 11,203,705 4,451,156
Office properties and equipment, net 2,571,566 2,726,577
Real estate in development 854,891 885,750
Investment required by law
Stock in the Federal Home Loan Bank of Cincinnati 1,880,000 1,756,135
Prepaid expenses and other assets 670,271 1,555,367
----------- -----------
Total assets $ 331,634,081 315,431,779
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Deposits $ 271,045,085 272,290,442
Advances from the Federal Home Loan Bank of Cincinnati 27,481,651 15,000,000
Notes payable 2,710,000 1,800,000
Advances from borrowers for taxes and insurance 4,205,151 4,316,619
Accrued expenses and other liabilities 3,718,536 3,206,850
----------- -----------
Total liabilities 309,160,423 296,613,911
Stockholders' equity
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued - -
Common stock, $.01 par value, 5,000,000 shares authorized;
2,323,436 and 1,404,100 shares issued and outstanding,
respectively 23,235 14,041
Additional paid-in capital 9,995,916 8,155,885
Retained earnings (substantially restricted) 12,608,775 10,647,942
Net unrealized securities losses (154,268) -
----------- -----------
Total stockholders' equity 22,473,658 18,817,868
Commitments
----------- -----------
Total liabilities and stockholders' equity $ 331,634,081 315,431,779
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans $ 25,572,082 20,623,768 16,337,764
Mortgage-backed securities 268,604 432,016 29,210
Cash and investment securities 1,920,620 1,885,677 683,115
---------- ---------- ----------
Total interest income 27,761,306 22,941,461 17,050,089
Interest expense
Deposits 14,888,819 11,462,392 7,384,293
Short-term borrowings - 798,518 221,440
Long-term borrowings 814,360 - 507,214
---------- ---------- ----------
Total interest expense 15,703,179 12,260,910 8,112,947
---------- ---------- ----------
Net interest income 12,058,127 10,680,551 8,937,142
Provision for loan losses 417,000 416,000 -
---------- ---------- ----------
Net interest income after provision for loan losses 11,641,127 10,264,551 8,937,142
---------- ---------- ----------
Noninterest income, net
Service and other fees 462,985 434,150 450,181
Mortgage banking activities, net 924,657 906,347 685,243
Gain on sale of investment securities, net 74,721 - 55,000
Other, net 284,505 172,934 512,191
---------- ---------- ----------
Total noninterest income, net 1,746,868 1,513,431 1,702,615
Noninterest expense
Compensation and benefits 4,136,243 3,693,088 3,328,144
Office, occupancy, and equipment 1,433,037 1,233,111 1,145,100
Insurance 737,845 593,836 528,837
Professional and legal 167,689 248,697 235,683
Other 1,513,650 1,408,135 1,057,082
---------- ---------- ----------
Total noninterest expense 7,988,464 7,176,867 6,294,846
---------- ---------- ----------
Income before federal income taxes and cumulative
effect of change in accounting principle 5,399,531 4,601,115 4,344,911
Federal income taxes
Current 1,280,375 1,097,800 746,863
Deferred 333,000 146,200 468,137
---------- ---------- ----------
1,613,375 1,244,000 1,215,000
---------- ---------- ----------
Income before cumulative effect of change in
accounting principle 3,786,156 3,357,115 3,129,911
Cumulative effect at July 1, 1993 of change in accounting
for income taxes - - 754,769
---------- ---------- ----------
Net income $ 3,786,156 3,357,115 3,884,680
---------- ---------- ----------
Earnings per share
Earnings per share before cumulative effect of change
in accounting principle $ 1.53 1.37 1.30
Cumulative effect of change in accounting principle - - 0.31
---- ---- ----
Earnings per share $ 1.53 1.37 1.61
---- ---- ----
---- ---- ----
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-In Retained Securities
Stock Capital Earnings Losses Total
------ ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993 $ 8,500 8,066,336 3,772,830 - 11,847,666
Net income - - 3,884,680 - 3,884,680
Stock options exercised,
1,000 shares 10 9,990 - - 10,000
Stock dividend issued,
85,100 shares 851 84,239 (85,090) - -
Cash paid in-lieu of
fractional shares - - (166) - (166)
------ --------- ---------- ------- ----------
Balance at June 30, 1994 9,361 8,160,565 7,572,254 - 15,742,180
Net income - - 3,357,115 - 3,357,115
Cash dividend, $.18 per share - - (281,427) - (281,427)
Three-for-two stock exchange
in connection with formation
of the holding company 4,680 (4,680) - - -
------ --------- ---------- ------- ----------
Balance at June 30, 1995 14,041 8,155,885 10,647,942 - 18,817,868
Net income - - 3,786,156 - 3,786,156
Stock dividend issued,
140,325 shares 1,404 1,822,821 (1,824,225) - -
Cash paid in-lieu of
fractional shares - - (1,098) - (1,098)
Stock options exercised,
4,537 shares 45 24,955 - - 25,000
Net change in unrealized
securities losses, net of
taxes of $79,471 - - - (154,268) (154,268)
Three-for-two stock split
effected in the form of a
dividend 7,745 (7,745) - - -
------ --------- ---------- ------- ----------
Balance at June 30, 1996 $ 23,235 9,995,916 12,608,775 (154,268) 22,473,658
------ --------- ---------- ------- ----------
------ --------- ---------- ------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income $ 3,786,156 3,357,115 3,884,680
Adjustments required to reconcile net income to net
cash used in operating activities
Accretion of discount on securities (25,475) (42,767) (61,708)
Depreciation and amortization 477,946 359,450 261,655
Provision for loan losses 417,000 416,000 -
Accretion of unearned discount and deferred loan
origination fees, net (1,554,098) (1,245,139) (1,247,791)
Deferred income tax provision (333,000) (146,200) (468,137)
Gain on sale of investment securities, net (74,721) - (55,000)
Proceeds from loans held for sale 36,564,603 14,623,166 66,479,488
Originations of loans held for sale (51,350,242) (23,526,731) (67,563,486)
Mortgage banking operations, excluding mortgage
loan servicing fees (382,898) (345,978) (108,013)
Net change in other assets and other liabilities 1,461,043 (204,158) (1,619,612)
----------- ----------- -----------
Net cash used in operating activities (11,013,686) (6,755,242) (497,924)
----------- ----------- -----------
Investing activities
Loans originated (105,097,698) (102,130,657) (50,493,403)
Principal repayments on loans 76,464,071 60,937,038 15,868,390
Loans purchased (13,161,755) (11,169,245) (14,860,922)
Loans sold 10,976,057 13,422,886 -
Proceeds from sales of mortgage-backed securities
available for sale 894,443 8,205,393 5,102,018
Principal repayments on mortgage-backed securities
available for sale 195,177 - 10,177
Purchase of mortgage-backed securities held to maturity - (4,829,371) -
Principal repayments on mortgage-backed securities
held to maturity 2,246,171 1,095,219 -
Proceeds from sales of investment securities available
for sale 10,007,188 - 1,000,000
Purchase of investment securities held to maturity (24,298,789) (53,000,000) (6,000,000)
Maturities of investment securities held to maturity 41,491,590 20,200,000 4,200,000
Federal Home Loan Bank (FHLB) stock purchased, net (123,865) (423,805) (64,309)
Additions to office properties and equipment, net (322,935) (1,361,726) (554,383)
Disposals of real estate owned 826,080 373,337 1,351,170
Disposals of real estate in development, net 30,859 123,162 128,743
----------- ----------- -----------
Net cash used in investing activities 126,594 (68,557,769) (44,312,519)
----------- ----------- -----------
</TABLE>
(Continued)
18
<PAGE>
2
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Financing activities
Payments on FHLB advances $ (25,018,349) (28,560,000) (5,000,000)
Proceeds from FHLB advances 37,500,000 26,000,000 20,000,000
Proceeds from notes payable 1,200,000 1,800,000 600,000
Repayment of notes payable (290,000) (600,000) -
Net increase (decrease) in NOW and passbook savings 5,132,229 (5,785,818) (2,798,545)
Proceeds from issuance of certificates of deposit 45,556,108 106,109,678 53,501,029
Payments on maturing certificates of deposit (51,933,694) (25,074,965) (24,277,525)
Other (87,566) 167,388 442,045
---------- ---------- ----------
Net cash provided by financing activities 12,058,728 74,056,283 42,467,004
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,171,636 (1,256,728) (2,343,439)
Cash and cash equivalents at beginning of year 12,618,580 13,875,308 16,218,747
---------- ---------- ----------
Cash and cash equivalents at end of year $ 13,790,216 12,618,580 13,875,308
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of cash flow information
Cash payments of interest expense $ 15,611,439 12,254,542 8,050,044
Cash payments of income taxes 1,165,000 1,297,000 790,000
---------- ---------- ----------
---------- ---------- ----------
Supplemental schedule of noncash investing and
financing activities
Loans exchanged for mortgage-backed securities $ 8,052,331 8,812,249 2,066,733
Transfers from real estate owned (706,538) (342,867) (511,655)
Transfers to real estate owned 759,122 322,867 10,496
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996, 1995, and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
The accounting and reporting policies of PVF Capital Corp. and its
subsidiaries (Company) conform to generally accepted accounting principles
and general industry practice. The Company's principal subsidiary, Park
View Federal Savings Bank (Bank), is principally engaged in the business of
offering savings deposits through the issuance of savings accounts, money
market accounts, and certificates of deposit and lending funds primarily
for the purchase, construction, and improvement of real estate in Cuyahoga,
Summit, Geauga, and Lake Counties, Ohio. The deposit accounts of the Bank
are insured under the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation (FDIC) and are backed by the full
faith and credit of the United States government. The following is a
description of the significant policies which the Company follows in
preparing and presenting its consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PVF Capital
Corp. and its wholly owned subsidiaries, Park View Federal Savings Bank and
PVF Service Corporation. All significant intercompany transactions and
balances are eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
ALLOWANCE FOR LOSSES
Under Statement of Financial Accounting Standards No. 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN, and No. 118, ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURES, a loan is
considered impaired when, based on current information and events, it is
probable that the Bank will be unable to collect the scheduled payments of
principal and interest according to the contractual terms of the loan
agreement. Since the Bank's loans are primarily collateral dependent,
measurement of impairment is based on the fair value of the collateral.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries) based on the Bank's evaluation
of impairment of its loans.
The adequacy of the allowance for loan losses is periodically evaluated by
the Bank based upon the overall portfolio composition and general market
conditions. While management uses the best information available to make
these evaluations, future adjustments to the allowance may be necessary if
economic conditions change substantially from the assumptions used in
making the evaluations. Future adjustments to the allowance may also be
required by regulatory examiners based on their judgments about information
available to them at the time of their examination.
(Continued)
20
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Uncollectible interest on loans that are contractually 90 days or more past
due is charged off, or an allowance is established. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent cash
payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments is back to normal,
in which case the loan is returned to accrual status.
MORTGAGE BANKING ACTIVITIES
Mortgage loans held for sale are carried at the lower of cost or market
value, determined on a net aggregate basis.
The Company retains servicing on loans that are sold. Effective January 1,
1996, the Company adopted Statement of Financial Accounting Standards No.
122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. This pronouncement requires
separate recognition of an asset for mortgage servicing rights based on
allocation of total loan cost using relative fair values. The cost of
mortgage servicing rights is amortized in proportion to, and over the
period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on current market
interest rates and prepayment assumptions. For purposes of measuring
impairment, the rights are stratified based on predominant risk
characteristics of the underlying loans such as interest rates and
scheduled maturity. The amount of impairment recognized is the amount by
which the capitalized mortgage servicing rights exceed their fair value.
The Bank monitors prepayments, and in the event that actual prepayments
exceed original estimates, amortization is adjusted accordingly. There was
no impact on amortization as a result of accelerated prepayments at June
30, 1996.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES. Statement 115 requires that debt and equity
securities be classified into one of three categories: held to maturity,
available for sale, or held for trading. Securities held to maturity are
limited to debt securities that the holder has the positive intent and the
ability to hold to maturity; these securities are reported at amortized
cost. Securities held for trading are limited to debt and equity
securities that are held principally to be sold in the near term; these
securities are reported at fair value, and unrealized gains and losses are
reflected in earnings. Securities held as available for sale consist of
all other securities; these securities are reported at fair value, and
unrealized gains and losses are not reflected in earnings but are reflected
as a separate component of stockholders' equity, net of tax. Under
Statement 115, investment and mortgage-backed securities that could be sold
in the future because of changes in interest rates or other factors may not
be classified as held to maturity.
Gains or losses on the sales of all securities are recognized at the date
of sale (trade date).
(Continued)
21
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
OFFICE PROPERTIES AND EQUIPMENT
Depreciation and amortization are computed using the straight-line method
at rates expected to amortize the cost of the assets over their estimated
useful lives or, with respect to leasehold improvements, the term of the
lease, if shorter.
FEDERAL INCOME TAXES
The Company files a consolidated tax return with its wholly owned
subsidiaries and provides deferred federal income taxes in recognition of
timing differences between financial statement and income tax reporting.
Effective July 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled, and the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
LOAN ORIGINATION AND COMMITMENT FEES
The Bank defers loan origination and commitment fees and certain direct
loan origination costs and amortizes the net amount over the lives of the
related loans as a yield adjustment if the loans are held for investment.
REAL ESTATE IN DEVELOPMENT
Real estate in development is carried at the lower of cost, including
capitalized holding costs, or fair value less estimated selling costs.
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers cash and amounts due from depository institutions, interest
bearing deposits, and federal funds sold with original maturities of less
than three months to be cash equivalents.
EARNINGS PER SHARE
The per share data for 1996, 1995, and 1994 are calculated on a primary
basis because of the dilutive effect of unexercised options and are
adjusted to reflect the three-for-two stock issuance of PVF Capital Corp.
on October 31, 1994; the 10 percent stock dividends declared February 1994
and July 1995; and the three-for-two stock issuance declared July 1996.
The weighted average number of shares of common stock and common stocks
equivalents outstanding during the years ended June 30, 1996, 1995, and
1994 were 2,471,675, 2,447,772, and 2,409,895, respectively. Fully diluted
earnings per share is not materially different than primary earnings per
share.
(Continued)
22
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
RECLASSIFICATION
Certain reclassifications have been made to 1995 and 1994 amounts to
conform to the 1996 presentation.
(2) INVESTMENT SECURITIES
Investment securities, held to maturity, at June 30, 1996 and 1995, are
summarized as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States Government and
agency securities $ 14,094,100 - (200,264) 13,893,836
---------- ------- ------ ----------
---------- ------- ------ ----------
Due in one year or less $ 100,000 - - 100,000
Due after one year through five years 13,994,100 - (200,264) 13,793,836
---------- ------- ------ ----------
$ 14,094,100 - (200,264) 13,893,836
---------- ------- ------ ----------
---------- ------- ------ ----------
1995
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------- ---------- ---------- ----------
United States Government and
agency securities $ 41,193,894 102,746 (21,940) 41,274,700
---------- ------- ------ ----------
---------- ------- ------ ----------
</TABLE>
Realized gains on sales of investment securities were $100,658, $-0-, and
$55,000 for the years ended June 30, 1996, 1995, and 1994, respectively,
and realized losses for the year ended June 30, 1996 were $25,937. There
were no realized losses on sales of investments for the years ended June
30, 1995 and 1994.
On November 16, 1995, the Company adopted the implementation guidance in
the Special Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued by
the Financial Accounting Standards Board in November 1995, and reassessed
the appropriateness of the classification of all securities held at that
date. Investment securities held to maturity and mortgage-backed
securities with amortized costs of $9,932,467 and $879,059, respectively,
were transferred to the available-for-sale classification, and a valuation
account was established for the unrealized gain, totaling $90,105, to
increase the recorded balance of such securities to their fair value on
that date. Subsequent to the transfer to the available-for-sale category,
the investment securities and mortgage-backed securities were sold, and net
realized gains of $74,721 and $15,384, respectively, were recognized.
(Continued)
23
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities at June 30, 1996 and 1995, are summarized as
follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held to maturity
FHLMC mortgage-backed securities $ 628,640 11,148 - 639,788
Accrued interest receivable 8,382 - - 8,382
---------- ------- ------ ----------
$ 637,022 11,148 - 648,170
---------- ------- ------ ----------
---------- ------- ------ ----------
Due after ten years $ 637,022 11,148 - 648,170
---------- ------- ------ ----------
---------- ------- ------ ----------
Available for sale
FHLMC mortgage-backed securities $ 7,963,363 - (233,739) 7,729,624
Accrued interest receivable 41,608 - - 41,608
Unearned discount (157,867) - - (157,867)
---------- ------- ------ ----------
$ 7,847,104 - (233,739) 7,613,365
---------- ------- ------ ----------
---------- ------- ------ ----------
Due after ten years $ 7,847,104 - (233,739) 7,613,365
---------- ------- ------ ----------
---------- ------- ------ ----------
1995
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------- ---------- ---------- ----------
Held to maturity
FHLMC mortgage-backed securities $ 1,952,407 44,214 - 1,996,621
FNMA mortgage-backed securities 1,783,620 28,414 - 1,812,034
Accrued interest receivable 29,935 - - 29,935
Unearned discount (1,875) - - (1,875)
---------- ------- ------ ----------
$ 3,764,087 72,628 - 3,836,715
---------- ------- ------ ----------
---------- ------- ------ ----------
</TABLE>
(Continued)
24
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) LOANS RECEIVABLE
Loans receivable held for long-term investment at June 30, 1996 and 1995,
consist of the following:
1996 1995
---- ----
Real estate mortgages
One-to-four family residential $ 103,123,347 93,708,212
Home equity line of credit 8,748,668 3,314,374
Multifamily residential 30,607,353 39,531,000
Commercial 72,542,642 57,498,000
Land acquisition 26,000,195 18,318,728
One-to-four family residential construction 76,725,176 61,653,114
----------- -----------
Total real estate mortgages 317,747,381 274,023,428
Consumer 2,356,776 2,294,504
----------- -----------
320,104,157 276,317,932
Accrued interest receivable 1,615,633 1,542,129
Deferred loan origination fees (2,021,580) (1,749,417)
Unearned discount (165,295) (336,989)
Undisbursed portion of loan proceeds (38,649,250) (26,891,324)
Allowance for loan losses (2,564,720) (2,402,098)
----------- -----------
$ 278,318,945 246,480,233
----------- -----------
----------- -----------
A summary of the changes in the allowance for loan losses for the years
ended June 30, 1996, 1995, and 1994, is as follows (write-offs include
transfers to real estate owned):
Balance at June 30, 1993 $ 2,737,594
Transfers to mortgage banking
allowance for losses (500,000)
(Write-offs) recoveries, net (163,041)
---------
Balance at June 30, 1994 2,074,553
Provision charged to operations 416,000
(Write-offs) recoveries, net (88,455)
---------
Balance at June 30, 1995 2,402,098
Provision charged to operations 417,000
(Write-offs) recoveries, net (254,378)
---------
Balance at June 30, 1996 $ 2,564,720
---------
---------
(Continued)
25
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a summary of the principal balances (as rounded) of loans
on nonaccrual status, and loans past due 90 days or more which were on
accrual status, at June 30:
1996 1995
---- ----
Loans on nonaccrual status
Real estate mortgages
One-to-four family residential $ 1,500,000 2,149,000
Construction and land 612,000 766,000
Commercial 160,000 582,000
Consumer 80,000 109,000
--------- ---------
Total loans on nonaccrual status 2,352,000 3,606,000
--------- ---------
Past due loans on accrual status
Real estate mortgages
One-to-four family residential - 271,000
Construction and land 95,000 757,000
--------- ---------
Total past due loans on accrual status 95,000 1,028,000
--------- ---------
Total past due loans $ 2,447,000 4,634,000
--------- ---------
--------- ---------
It is the Bank's policy to classify as nonaccruing any loan where less than
the full required interest payment is made and to not record into income
partial interest payments. During the years ended June 30, 1996 and 1995,
gross interest income of $340,350 and $404,600, respectively, would have
been recorded on loans accounted for on a nonaccrual basis if the loans had
been current throughout the period.
At June 30, 1996 and 1995, the recorded investment in loans which have been
identified as being impaired and have been evaluated in accordance with
Statement of Financial Accounting Standards No. 114 and No. 118 totaled
$2,352,000 and $3,606,000, respectively. Included in the impaired amount
at June 30, 1996 and 1995, is $480,840 and $969,719, respectively, related
to loans with a corresponding valuation allowance of $393,730 and $403,855,
respectively. The Company recognized no interest on impaired loans in
1996, 1995, and 1994 (during the portion of the respective years that they
were impaired).
Average impaired loans for the years ended June 30, 1996, 1995, and 1994
amounted to $2,979,000, $3,515,000, and $2,775,000, respectively.
(Continued)
26
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans receivable held for sale at June 30, 1996 and 1995, consist of the
following:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Real estate mortgages $ 11,249,868 - (13,314) 11,236,554
Accrued interest receivable 43,188 - - 43,188
Deferred loan origination fees (76,037) - - (76,037)
---------- ------- ------ ----------
$ 11,217,019 - (13,314) 11,203,705
---------- ------- ------ ----------
---------- ------- ------ ----------
1995
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------- ---------- ---------- ----------
Real estate mortgages $ 4,495,308 201,339 - 4,696,647
Accrued interest receivable 17,365 - - 17,365
Deferred loan origination fees (61,517) - - (61,517)
---------- ------- ------ ----------
$ 4,451,156 201,339 - 4,652,495
---------- ------- ------ ----------
---------- ------- ------ ----------
</TABLE>
Mortgage banking activities, net, for each of the years in the three-year
period ended June 30, 1996, consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Mortgage loan servicing fees $ 541,759 560,379 577,230
Amortization of deferred premiums - (35,685) (55,232)
Gross realized
Gains on sales of loans 831,283 144,827 624,793
Losses on sales of loans (347,142) (27,742) (92,467)
Gains on sales of mortgage-backed securities 21,386 - 120,919
Losses on sales of mortgage-backed securities (40,625) (606,856) -
Market valuation provision for losses on loans
held for sale (82,004) (115,000) (490,000)
Market valuation recoveries - 986,434 -
------- ------- -------
$ 924,657 906,357 685,243
------- ------- -------
------- ------- -------
</TABLE>
(Continued)
27
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the changes in the allowance for mortgage banking market value
losses for the years ended June 30, 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ - 871,434 -
Market valuation provision for losses on loans
held for sale 82,004 115,000 490,000
Transfer from the allowance for loan losses - - 500,000
Recoveries - (986,434) -
Discount on loans transferred to held for investment (68,690) - (118,566)
------- ------- -------
Balance at end of year $ 13,314 - 871,434
------- ------- -------
------- ------- -------
</TABLE>
At June 30, 1996, 1995, and 1994, the Bank was servicing whole and
participation mortgage loans for others aggregating approximately
$171,043,000; $156,423,000; and $149,807,000, respectively. The Bank had
$2,431,750 and $1,575,417 at June 30, 1996 and 1995, respectively, of funds
collected on mortgage loans serviced for others due to investors, which is
included in accrued expenses and other liabilities.
Originated mortgage servicing rights capitalized during the year ended June
30, 1996, as a result of the adoption of Statement of Financial Accounting
Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, was
approximately $241,000. Fair value of the asset, as determined by market
quotes, approximated carrying value at June 30, 1996. Amortization during
the period was not significant.
(5) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at cost, less accumulated depreciation and
amortization at June 30, 1996 and 1995, are summarized as follows:
1996 1995
---- ----
Land and land improvements $ 520,402 520,402
Building and building improvements 1,479,913 1,469,673
Leasehold improvements 1,334,532 1,188,264
Furniture and equipment 3,040,041 2,929,949
--------- ---------
6,374,888 6,108,288
Less accumulated depreciation and amortization (3,803,322) (3,381,711)
--------- ---------
$ 2,571,566 2,726,577
--------- ---------
--------- ---------
(Continued)
28
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) DEPOSITS
Deposit balances at June 30, 1996 and 1995, are summarized by interest rate
as follows:
<TABLE>
<CAPTION>
1996 1994
----------------- -----------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C> <C>
NOW and money
market accounts Noninterest bearing $ 5,528,238 2.0% 3,788,294 1.4%
2.00 - 5.00% 19,807,255 7.3 17,126,283 6.3
---------- ---- ---------- ----
25,335,493 9.3 20,914,577 7.7
Passbook savings 3.00 - 5.00% 31,882,656 11.8 31,171,343 11.4
Certificates of deposit 2.50 - 2.99% 7,455 - - -
3.00 - 3.99 - - - -
4.00 - 4.99 23,125,606 8.5 7,588,155 2.8
5.00 - 5.99 124,808,178 46.1 60,811,496 22.3
6.00 - 6.99 46,387,193 17.1 89,986,026 33.1
7.00 - 7.99 19,333,358 7.1 59,973,724 22.0
8.00 - 8.99 157,173 0.1 1,008,698 0.4
9.00 - 9.99 7,973 - 487,892 0.2
10.00 - 10.99 - - 348,531 0.1
---------- ---- ---------- ----
213,826,936 78.9 220,204,522 80.9
---------- ---- ---------- ----
$ 271,045,085 100.0% 272,290,442 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
Weighted average rate on deposits 5.06% 5.63%
---- ----
---- ----
Remaining term to maturity of
certificates of deposit
12 months or less $ 166,412,661 77.8% 159,365,855 72.4%
13 to 24 months 15,023,122 7.0 23,579,043 10.7
25 to 36 months 10,722,530 5.0 8,713,239 3.9
Over 36 months 21,668,623 10.2 28,546,385 13.0
---------- ---- ---------- ----
$ 213,826,936 100.0% 220,204,522 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
Weighted average rate on certificates
of deposit 5.76% 6.39%
---- ----
---- ----
</TABLE>
Time deposits in amounts of $100,000 or more totaled $36,771,491 and
$38,108,945 at June 30, 1996 and 1995, respectively.
Interest expense on deposits is summarized as follows:
1996 1995 1994
---- ---- ----
NOW accounts $ 414,869 362,059 432,884
Passbook accounts 865,170 910,723 1,130,769
Certificates of deposit 13,608,780 10,189,610 5,820,640
------------ ---------- ---------
$ 14,888,819 11,462,392 7,384,293
------------ ---------- ---------
------------ ---------- ---------
(Continued)
29
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI
Advances from the Federal Home Loan Bank of Cincinnati, with maturities and
interest rates thereon at June 30, 1996 and 1995, were as follows:
Maturity Interest Rate 1996 1995
-------- ------------- ---- ----
October 1995 4.15% $ - 15,000,000
December 1996 5.25 16,000,000 -
March 1998 5.50 5,000,000 -
March 2001 5.93 5,000,000 -
February 2003 6.00 500,000 -
February 2006 6.05 981,651 -
---------- ----------
$ 27,481,651 15,000,000
---------- ----------
---------- ----------
Weighted average interest rate 5.46% 4.15%
---- ----
---- ----
The Bank maintains a $30,000,000 line of credit with the Federal Home Loan
Bank of Cincinnati (FHLB) which matures in December 1996. At June 30,
1996, the amount outstanding in related weighted average interest rate
totaled $16,000,000 and 5.25 percent, respectively.
Serving as collateral for such advances, the Bank has pledged mortgage
loans with unpaid principal balances aggregating approximately $41,222,000
and $22,500,000 at June 30, 1996 and 1995, respectively. In addition,
stock in the FHLB is pledged for such advances.
The Bank has the capacity to borrow up to 25 percent of its assets, upon
approval of the FHLB. At June 30, 1996 and 1995, the Bank had the capacity
to borrow an additional $55,000,000 and $64,000,000, respectively, in FHLB
advances.
(8) NOTES PAYABLE
Notes payable consist of the following at June 30, 1996 and 1995:
Maturity Interest Rate 1996 1995
-------- ------------- ---- ----
Promissory note September 2000 9.25% $ 1,000,000 -
Mortgage note July 2000 10.00% 1,710,000 1,800,000
--------- ---------
$ 2,710,000 1,800,000
--------- ---------
--------- ---------
On June 30, 1995, PVF Capital Corp. secured a mortgage note from a
federally insured institution at a fixed interest rate. Interest payments
are due on the first day of each month, and principal payments of $10,000
per month are due beginning in August 1998 through the date of maturity,
July 2000, at which time the remaining unpaid principal balance is due and
payable in full.
(Continued)
30
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On August 16, 1995, PVF Service Corporation, a wholly owned subsidiary of
the Company, secured a promissory note from another federally insured
institution at a variable interest rate that adjusts to prime plus 1
percent without notice to the Company on the effective date of each change
in the lender's prime rate. Interest payments are due on the first day of
each month, and principal payments of $50,000 per quarter are due
commencing January 1996 through the date of maturity, September 2000, at
which time any remaining unpaid principal balance is due and payable in
full. Additional principal payments may be required in accordance with the
terms of the note.
(9) FEDERAL INCOME TAXES AND RETAINED EARNINGS
As discussed in note 1, the Company adopted Statement of Financial
Accounting Standards No. 109 in 1994 and has applied the provisions of
Statement 109 effective July 1, 1993. The cumulative effect of this change
in accounting for income taxes of $754,769 is reported separately in the
1994 consolidated statement of operations.
The accompanying consolidated financial statements reflect provisions for
federal income taxes differing from the amounts computed by applying the
U.S. federal income tax statutory rates to income before federal income
taxes and cumulative effect of change in accounting principle. These
differences are reconciled as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax $ 1,889,836 35.0% 1,610,390 35.0% 1,520,719 35.0%
Decrease in tax resulting from
Book under tax bad debt
deduction - - (108,893) (2.4) (189,302) (4.3)
Benefit of graduated rates (53,995) (1.0) (46,011) (1.0) (43,450) (1.0)
Other, net (222,466) (4.1) (211,486) (4.6) (72,967) (1.7)
--------- ---- --------- ---- --------- ----
$ 1,613,375 29.9% 1,244,000 27.0% 1,215,000 28.0%
--------- ---- --------- ---- --------- ----
--------- ---- --------- ---- --------- ----
</TABLE>
(Continued)
31
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The net tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1996 and
1995, are:
1996 1995
---- ----
Deferred tax assets
Loan loss and other reserves $ 815,639 733,898
Other 38,954 40,792
------- -------
Total gross deferred tax assets 854,593 774,690
------- -------
Deferred tax liabilities
Deferred loan fees 162,162 40,156
FHLB stock dividend 389,759 328,241
Unrealized gains on loan sales, net 199,325 45,034
Originated mortgage servicing asset 81,997 -
Bad debt reserves over base year reserves - 103
Other 131,227 138,033
------- -------
Total gross deferred tax liabilities 964,470 551,567
------- -------
Net deferred tax asset (liability) $ (109,877) 223,123
------- -------
------- -------
The deferred tax asset and liability at June 30, 1996 was $854,593 and
$964,470, respectively; of this amount, a deferred tax liability of $79,471
is included in unrealized losses on securities available for sale.
Under Statement 109, a valuation allowance is established to reduce the
deferred tax asset if it is more likely than not that the related tax
benefits will not be realized. In management's opinion, it is more likely
than not that the tax benefits will be realized; consequently, no valuation
allowance has been established as of June 30, 1995.
If certain conditions are met, savings institutions, in determining taxable
income, are allowed a special bad debt deduction based on specified
experience formulas or on a percentage of taxable income before such
deduction. The Bank utilized the experience method in 1996, 1995, and
1994. At June 30, 1996, the Bank had accumulated approximately $4,514,000
representing accumulated bad debt deductions on which no federal income tax
has been paid. If the reserves are charged for purposes other than to
absorb bad debt losses, taxable income will be created to the extent of the
amount so charged.
(10) LEASES
Future minimum payments under noncancelable operating leases with initial
or remaining terms of one year or more consisted of the following at June
30, 1996:
Year Ending June 30,
--------------------
1997 $ 309,706
1998 309,706
1999 268,674
2000 198,614
2001 192,245
Thereafter 500,460
---------
Total minimum lease payments $ 1,779,405
---------
---------
(Continued)
32
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the years ended June 30, 1996, 1995, and 1994, rental expense
consisted of:
1996 1995 1994
---- ---- ----
Rental expense $ 331,941 295,145 303,393
Sublease rentals - - (4,725)
------- ------- -------
Net rental expense $ 331,941 295,145 298,668
------- ------- -------
------- ------- -------
(11) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank enters into commitments with
off-balance sheet risk to meet the financing needs of its customers.
Commitments to extend credit involve elements of credit risk and interest
rate risk in excess of the amount recognized in the consolidated statements
of financial condition. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the commitment is represented by the
contractual amount of the commitment. The Bank uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Interest rate risk on commitments to extend credit results from the
possibility that interest rates may have moved unfavorably from the
position of the Bank since the time the commitment was made.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates of 60 to 120 days or
other termination clauses and may require payment of a fee. Since some of
the commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained by the Bank upon extension of
credit is based on management's credit evaluation of the applicant.
Collateral held is generally residential and commercial real estate.
The Bank's lending is concentrated in Northeastern Ohio, and as a result,
the economic conditions and market for real estate in Northeastern Ohio
could have a significant impact on the Bank.
At June 30, 1996, the Bank had commitments of $1,169,000 to sell mortgage
loans in the secondary market and had commitments to fund variable and
fixed rate mortgage loans of approximately $21,945,000 and $2,951,000,
respectively.
At June 30, 1995, the Bank had commitments of $1,704,000 to sell mortgage
loans in the secondary market and had commitments to fund variable and
fixed rate mortgage loans of approximately $12,620,900 and $4,462,650,
respectively.
There are pending against the Company various lawsuits and claims which
arise in the normal course of business. In the opinion of management, any
liabilities that may result from pending lawsuits and claims will not
materially affect the financial position of the Company.
(Continued)
33
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The undercapitalized status of the SAIF has resulted in the introduction of
federal legislation to recapitalize the SAIF which, if enacted, would
require institutions like the Bank to pay a one-time charge to recapitalize
the depleted insurance fund. Although the ultimate amount of the one-time
charge has yet to be determined, the special assessment will be calculated
on the institution's deposit base at a specific, determined point in time,
and is expected to have a material one-time effect on the Bank's financial
position.
(12) REGULATORY CAPITAL
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
imposes stringent capital requirements upon savings institutions
(institutions). The capital standards require institutions to have minimum
regulatory tangible capital equal to 1.5 percent of tangible assets,
minimum core capital of not less than 3 percent of adjusted tangible
assets, and risk-based capital of not less than 8 percent of risk-weighted
assets. In conjunction with the risk-based capital requirement, the Office
of Thrift Supervision (OTS) has assigned risk-weighting factors to all
assets and certain commitments which are to be utilized in computing the
amount of required capital.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19,
1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in insurance coverage
for certain kinds of deposits, increased supervision by the federal
regulatory agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal controls, accounting,
and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To be considered "well capitalized," an institution
must generally have a leverage ratio of at least 5 percent, a Tier 1 risk-
based capital ratio of at least 6 percent, and a total risk-based capital
ratio of at least 10 percent. As of June 30, 1996, the most recent
notification from the OTS categorized the Bank as "well capitalized" under
the regulatory framework for prompt corrective action.
(Continued)
34
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At June 30, 1996 and 1995, the Bank was in compliance with regulatory
capital requirements as set forth below (dollars in thousands):
<TABLE>
<CAPTION>
Tier-1 Total
Core/ Risk- Risk-
Equity Tangible Leverage Based Based
Capital Capital Capital Capital Capital
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
June 30, 1996
GAAP capital $ 24,128 24,128 24,128 24,128 24,128
Unrealized depreciation or loss on
securities available for sale, net 154 154 154 154
General loan valuation allowances - - - 2,228
------- ------- ------- -------
Regulatory capital 24,282 24,282 24,282 26,510
Total assets 334,765
-------
Adjusted total assets 335,022 335,022
------- -------
Risk-weighted assets 232,060 232,060
------- -------
Capital ratio 7.21% 7.25% 7.25% 10.46% 11.42%
Regulatory requirement 1.50% 3.00% 8.00%
Regulatory capital category
Well capitalized -
equal to or greater than 5.00% 6.00% 10.00%
Tier-1 Total
Core/ Risk- Risk-
Equity Tangible Leverage Based Based
Capital Capital Capital Capital Capital
------- -------- -------- ------- -------
June 30, 1995
GAAP capital $ 19,503 19,503 19,503 19,503 19,503
Unrealized depreciation or loss on
securities available for sale, net - - - -
General loan valuation allowances - - - 2,007
------- ------- ------- -------
Regulatory capital 19,503 19,503 19,503 21,510
Total assets 319,336
-------
Adjusted total assets 319,482 319,482
------- -------
Risk-weighted assets 199,661 199,661
------- -------
Capital ratio 6.11% 6.10% 6.10% 9.77% 10.77%
Regulatory requirement 1.50% 3.00% 8.00%
Regulatory capital category
Well capitalized -
equal to or greater than 5.00% 6.00% 10.00%
</TABLE>
(Continued)
35
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) CONVERSION
On December 30, 1992, the Bank converted from a federally chartered mutual
savings association to a federally chartered stock savings bank. The stock
offering provided for the issuance of 850,000 shares of $.01 par value
common stock. Proceeds from the stock offering, after deducting offering
expenses of $425,000, totaled approximately $8,075,000.
At the time of conversion, the Bank established a liquidation account equal
to its retained earnings as of June 30, 1992. The liquidation account is
being maintained for depositors of record at December 31, 1991, who
continue to maintain deposits in the Bank. In the event of a complete
liquidation of the Bank (and only in such event), each eligible account
holder shall be entitled to receive a liquidation distribution equal to
their interest in the liquidation account before any liquidation
distribution may be made with respect to the Bank's stockholders. The Bank
may not declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect of such dividend or repurchase would cause its
retained earnings to be reduced below the aggregate amount then required
for the liquidation account. At June 30, 1996, the liquidation account
balance was $548,010.
(14) STOCK OPTIONS
During 1994, the Bank offered stock options to the directors and officers
of the Bank. These options are exercisable for a ten-year period, and can
be exercised at any time. At June 30, 1996 and 1995, there were 221,885 and
228,690 options outstanding, respectively, after giving effect to the
three-for-two stock split declared July 17, 1996. During 1996, 4,537 shares
were exercised at a price of $5.51 per share (approximately 6,805 shares at
a price of $3.67 per share after giving effect to the three-for-two stock
split). Options may be exercised for $3.67 per share.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS. The estimated fair value amounts have been
determined by the Bank using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts the Bank could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
(Continued)
36
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets
Cash and amounts due from
depository institutions $ 6,670,604 6,670,604 6,643,369 6,643,369
Interest bearing deposits 244,612 244,612 650,211 650,211
Federal funds sold 6,875,000 6,875,000 5,325,000 5,325,000
Investment securities 14,094,100 14,003,836 41,193,894 41,274,700
Mortgage-backed securities
Held to maturity, net 637,022 648,170 3,764,087 3,836,715
Available for sale, net 7,613,365 7,613,365 - -
Loans receivable held for
Long-term investment, net 278,318,945 278,990,000 246,480,233 249,342,000
Sale, net 11,203,705 11,203,705 4,451,156 4,652,495
Stock in the Federal Home
Loan Bank of Cincinnati 1,880,000 1,880,000 1,756,135 1,756,135
Liabilities
Demand deposits 57,218,149 51,718,000 52,085,920 47,884,000
Time deposits 213,826,936 217,193,000 220,204,522 222,996,000
Advances from the Federal
Home Loan Bank of
Cincinnati 27,481,651 27,135,000 15,000,000 14,902,000
Notes payable 2,710,000 2,710,000 1,800,000 1,800,000
</TABLE>
CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS, INTEREST BEARING
DEPOSITS, AND FEDERAL FUNDS SOLD. The carrying amount is a reasonable
estimate of fair value because of the short maturity of these instruments.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Estimated fair value for
investment and mortgage-backed securities is based on quoted market prices.
LOANS RECEIVABLE HELD FOR INVESTMENT AND HELD FOR SALE. For loans
receivable held for sale, fair value is estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences in
loan characteristics. For performing loans receivable held for investment,
fair value is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary market sources
adjusted to reflect differences in servicing and credit costs. For other
loans, cash flows and maturities are estimated based on contractual
interest rates and historical experience and are discounted using secondary
market rates adjusted for differences in servicing and credit costs.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market
information and specific borrower information.
STOCK IN THE FEDERAL HOME LOAN BANK OF CINCINNATI. This item is valued at
cost, which represents redemption value and approximate fair value.
(Continued)
37
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
DEMAND DEPOSITS AND TIME DEPOSITS. The fair value of demand deposits,
savings accounts, and certain money market deposits is the amount payable
on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using discounted cash flows and rates
currently offered for deposits of similar remaining maturities.
ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI. The fair value of
the Bank's FHLB debt is estimated based on the current rates offered to the
Bank for debt of the same remaining maturities.
NOTES PAYABLE. The carrying value of the Company's fixed rate note payable
is a reasonable estimate of fair value based on the current incremental
borrowing rate for similar types of borrowing arrangements. For the
variable rate note payable, the carrying amount is a reasonable estimate of
fair value.
OFF-BALANCE SHEET INSTRUMENTS. The fair value of commitments is estimated
using the fees currently charged to enter similar agreements, taking into
account the remaining terms of the agreements and the counterparties'
credit standing. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of undisbursed lines of credit is based on
fees currently charged for similar agreements or on estimated cost to
terminate them or otherwise settle the obligations with the counterparties
at the reporting date. The carrying amount and fair value of off-balance
sheet instruments is not significant as of June 30, 1996 and 1995.
(Continued)
38
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results
of operations for 1996 and 1995 (in thousands of dollars, except per share
data):
<TABLE>
<CAPTION>
Quarters for the Year Ended June 30, 1996(1)
-----------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Interest income $ 6,862 6,912 6,770 7,217
Interest expense 4,129 3,970 3,810 3,793
----- ----- ----- -----
Net interest income 2,733 2,942 2,960 3,424
Provision for losses on loans 20 374 23 -
Noninterest income 319 584 382 461
Noninterest expense 1,965 1,813 1,928 2,282
----- ----- ----- -----
Income before taxes 1,067 1,339 1,391 1,603
Federal income taxes 316 420 458 420
----- ----- ----- -----
Net income $ 751 919 933 1,183
----- ----- ----- -----
----- ----- ----- -----
Earnings per share (2) $ 0.30 0.37 0.38 0.48
----- ----- ----- -----
----- ----- ----- -----
Quarters for the Year Ended June 30, 1995(1)
-----------------------------------------
First Second Third Fourth
----- ------ ----- ------
Interest income $ 5,057 5,432 5,780 6,672
Interest expense 2,473 2,827 3,127 3,834
----- ----- ----- -----
Net interest income 2,584 2,605 2,653 2,838
Provision for losses on loans 80 20 125 191
Noninterest income 271 189 567 487
Noninterest expense 1,689 1,697 1,824 1,967
----- ----- ----- -----
Income before taxes 1,086 1,077 1,271 1,167
Federal income taxes 346 244 389 265
----- ----- ----- -----
Net income $ 740 833 882 902
----- ----- ----- -----
Earnings per share (2) $ 0.30 0.34 0.36 0.37
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
--------------------
(1) The total of the four quarterly amounts may not equal the full
year amount due to rounding.
(2) After giving effect to three-for-two stock split effected in the
form of a stock dividend, declared on July 17, 1996 and
distributed on August 16, 1996.
(Continued)
39
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) PARENT COMPANY
On October 31, 1994, PVF Capital Corp. became a savings and loan holding
company and the sole shareholder of Park View Federal Savings Bank. The
holding company structure was created pursuant to a plan of reorganization
which had been approved by the Bank's shareholders on October 26, 1994 and
by regulatory authorities on September 22, 1994. Under the agreement,
three shares of PVF Capital Corp. common stock were issued and exchanged
for two shares of Park View Federal Savings Bank common stock outstanding
as of October 31, 1994.
Condensed parent company only financial information as of and for the years
ended June 30, 1996 and 1995, follows:
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition 1996 1995
------------------------------------------- ---- ----
<S> <C> <C>
Cash and amounts due from depository institutions $ 110,989 186,143
Prepaid expenses and other assets 292,159 21,708
Investment in subsidiaries, at equity in underlying
value of net assets 23,313,310 18,610,000
---------- ----------
Total assets $ 23,539,458 18,817,851
---------- ----------
---------- ----------
Notes payable $ 1,000,000 -
Accrued expenses and other liabilities 65,800 (17)
---------- ----------
1,065,800 (17)
Stockholders' equity 22,473,658 18,817,868
---------- ----------
Total liabilities and stockholders' equity $ 23,539,458 18,817,851
---------- ----------
---------- ----------
Condensed Statements of Operations
----------------------------------
Income
Mortgage banking activities $ 488,814 -
Expenses
Interest expense 92,513 -
General and administrative 234,063 -
---------- ----------
326,576 -
---------- ----------
Income before federal income taxes and equity
in undistributed net income of subsidiaries 162,238 -
Federal income taxes 55,160 10,937
---------- ----------
Income (loss) before equity in undistributed
net income of subsidiaries 107,078 (10,937)
Equity in undistributed net income of subsidiaries 3,679,078 3,368,052
---------- ----------
Net income $ 3,786,156 3,357,115
---------- ----------
---------- ----------
</TABLE>
(Continued)
40
<PAGE>
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows 1996 1995
---------------------------------- ---- ----
<S> <C> <C>
Operating activities
Net income $ 3,786,156 3,357,115
Equity in undistributed net income of subsidiaries (3,679,078) (3,368,052)
Other, net (206,135) 249,257
--------- ---------
Net cash provided (used) by operating activities (99,057) 238,320
--------- ---------
Investing activities
Acquisition of PVF Service Corp. - (919,649)
Purchase of servicing portfolio from bank (2,154,535) -
--------- ---------
Net cash used by investing activities (2,154,535) (919,649)
Financing activities
Proceeds from notes payable 1,200,000 -
Repayment on note payable (200,000) -
Proceeds from exercise of stock options 25,000 -
Cash dividend (1,098) (281,427)
Dividends received from subsidiaries 1,154,535 1,148,899
--------- ---------
Net cash provided by financing activities 2,178,437 867,472
--------- ---------
Net increase (decrease) in cash and cash equivalents (75,155) 186,143
Cash and cash equivalents at beginning of year 186,144 -
--------- ---------
Cash and cash equivalents at end of year $ 110,989 186,143
--------- ---------
--------- ---------
</TABLE>
(19) 401(K) SAVINGS PLAN
Employees who have reached age 18 and have completed one year of
eligibility service are eligible to participate in the Company's 401(k)
Savings Plan. The plan allows eligible employees to contribute up to 7
percent of their compensation, with the Company matching up to 50 percent
of the first 4 percent contributed by the employee, as determined by the
Company for the contribution period. The plan also permits the Company to
make a profit sharing contribution at its discretion up to 4 percent of the
employees compensation. Participants vest in the Company's contributions
as follows:
Years of Service Percent Vested
---------------- --------------
Less than 2 0%
2 but less than 3 20
3 but less than 4 40
4 but less than 5 60
5 but less than 6 80
6 or more 100
The total of the Company's matching and profit sharing contribution cost
related to the plan for the years ended June 30, 1996, 1995, and 1994 was
$68,100; $102,100; and $40,900, respectively.
41
<PAGE>
PVF Capital Corp.
BOARD OF DIRECTORS
JAMES W. MALE CREIGHTON E. MILLER STUART D. NEIDUS
Chairman of the Board Partner Executive Vice President and
Miller, Stillman & Bartel Chief Financial Officer
JOHN R. MALE ESSEF Corporation
President and RICHARD J. MORIARTY
Chief Executive Officer Partner ROBERT F. URBAN
Moriarty & Jaros Retired
ROBERT K. HEALEY
Retired
EXECUTIVE OFFICERS
JAMES W. MALE C. KEITH SWANEY
Chairman of the Board Vice President and Treasurer
JOHN R. MALE JEFFREY N. MALE
President and Vice President and
Chief Executive Officer Corporate Secretary
[LOGO]
"A Proud Cleveland Tradition . . . Building a Better Community"
<PAGE>
PARK VIEW FEDERAL SAVINGS BANK
EXECUTIVE OFFICERS
JOHN R. MALE JEFFREY N. MALE EDWARD B. DEBEVEC
President and Senior Vice President Treasurer
Chief Executive Officer
Carol S. Porter
C. Keith Swaney Corporate Secretary
Executive Vice President and
Chief Financial Officer
OTHER OFFICERS
MICHAEL G. HEALEY ADELINE NOVAK JOHN E. SCHIMMELMANN
Vice President Vice President Vice President
Commercial Lending Human Resources Savings Administration
ANNE M. JOHNSON ROBERT J. PAPA ROBERT D. TOTH
Vice President Vice President Vice President
Mortgage Loan Servicing Construction Lending Data Processing
OFFICE LOCATIONS
MAIN OFFICE ADMINISTRATIVE OFFICES
2618 N. Moreland Blvd. 25350 Rockside Road
Cleveland, Ohio 44120 Bedford Heights, Ohio 44146
(216) 991-9600 (216) 439-6790
BRANCH OFFICES
2111 Richmond Road 7448 Ridge Road 497 East Aurora Road
Beachwood, Ohio 44122 Parma, Ohio 44129 Macedonia, Ohio 44056
(216) 831-6373 (216) 845-5300 (216) 468-0055
25350 Rockside Road 6990 Heisley Road 8500 Washington Street
Bedford Heights, Ohio 44146 Mentor, Ohio 44060 Chagrin Falls, Ohio 44023
(216) 439-2200 (216) 944-0276 (216) 543-8889
11010 Clifton Blvd. 1456 SOM Center Road
Cleveland, Ohio 44102 Mayfield Heights, Ohio 44124
(216) 631-8900 (216) 449-8597
[LOGO]
<PAGE>
GENERAL INFORMATION
INDEPENDENT
CERTIFIED ACCOUNTANTS
KPMG Peat Marwick LLP
1500 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114
GENERAL COUNSEL
Moriarty & Jaros
30195 Chagrin Boulevard
Suite 110 North
Pepper Pike, Ohio 44124
TRANSFER AGENT AND REGISTRAR
Fifth Third Bank
Fifth Third Center
38 Fountain Square
Cincinnati, Ohio 45263
SPECIAL COUNSEL
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
ANNUAL MEETING
The 1996 Annual Meeting of
Stockholders will be held on
October 21, 1996 at 10:00 a.m.
at the Cleveland Marriott East,
3663 Park East Drive, Beachwood, Ohio.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report
on Form 10-K for the fiscal year ended
June 30, 1996 as filed with the Securities
and Exchange Commission will be furnished
without charge to stockholders upon written
request to the Corporate Secretary,
PVF Capital Corp.,
2618 N. Moreland Boulevard,
Cleveland, Ohio 44120.
<PAGE>
[LOGO]
2618 North Moreland Blvd., Cleveland, Ohio 44120, (216) 991-9600
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Parent
- ------
PVF Capital Corp.
State or Other
Jurisdiction of Percentage
Subsidiaries (1) Incorporation Ownership
- ------------------ -------------- ---------
Park View Federal Savings Bank Ohio 100%
PVF Service Corporation Ohio 100%
PVF Mortgage Corp. Ohio 100%
PVF Community Development Corp. Ohio 100%
Mid Pines Land Co. Ohio 100%
- ------------------------
(1) The assets, liabilities and operations of the subsidiaries are included in
the consolidated financial statements contained in the Annual Report to
Stockholders attached hereto as an exhibit.
<PAGE>
The Board of Directors
PVF Capital Corp.
We consent to incorporation by reference in the registration statements (No.
33-97450 and No. 33-86116) on Forms S-8 of PVF Capital Corp. of our report
dated July 17, 1996, relating to the consolidated statements of financial
condition of PVF Capital Corp. and subsidiaries as of June 30, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
1996 which report appears in the June 30, 1996 annual report on Form 10-K of
PVF Capital Corp.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
September 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,670
<INT-BEARING-DEPOSITS> 245
<FED-FUNDS-SOLD> 6,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,817
<INVESTMENTS-CARRYING> 14,094
<INVESTMENTS-MARKET> 13,894
<LOANS> 289,522
<ALLOWANCE> 2,565
<TOTAL-ASSETS> 331,634
<DEPOSITS> 271,045
<SHORT-TERM> 16,000
<LIABILITIES-OTHER> 7,924
<LONG-TERM> 14,192
0
0
<COMMON> 23
<OTHER-SE> 22,451
<TOTAL-LIABILITIES-AND-EQUITY> 331,634
<INTEREST-LOAN> 25,572
<INTEREST-INVEST> 2,189
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,761
<INTEREST-DEPOSIT> 14,889
<INTEREST-EXPENSE> 15,703
<INTEREST-INCOME-NET> 12,058
<LOAN-LOSSES> 417
<SECURITIES-GAINS> 75
<EXPENSE-OTHER> 7,988
<INCOME-PRETAX> 5,400
<INCOME-PRE-EXTRAORDINARY> 5,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,786
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.53
<YIELD-ACTUAL> 3.45
<LOANS-NON> 2,352
<LOANS-PAST> 95
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 386
<ALLOWANCE-OPEN> 2,402
<CHARGE-OFFS> 265
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 2,565
<ALLOWANCE-DOMESTIC> 2,565
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,228
</TABLE>
