By
PRESS ANNOUNCEMENT Date: January 23, 2013
Contact: James H. Nicholson
Chief Financial Officer
440-248-7171
Net income of $2.7 million for the quarter, boosted by strong mortgage banking results and improved mix of earning assets
Momentum building in commercial loan growth Core operating results continue to improve and reflect the impact of the ongoing business transformation Capital ratios remain strong Fiscal 2012 and First Quarter Fiscal 2013 results revised for correction deemed immaterial
Solon, OH - PVF Capital Corp. (Nasdaq: PVFC), the parent company of Park View Federal Savings Bank, announced net income of $2.7 million, or $0.10 basic and diluted earnings per share, for the fiscal 2013 second quarter ended December 31, 2012. These results compare favorably with a net loss of $1.9 million, or $0.07 basic and diluted loss per share, for the prior-year quarter and net income of $1.4 million, or $0.05 basic and diluted earnings per share, for the fiscal 2013 first quarter ended September 30, 2012.
Robert J. King, Jr., President and Chief Executive Officer, commented, "We are pleased with our continued progress in all areas, including mortgage originations and refinancing, commercial lending, and relationship banking. As a result of our strategic transformation, we are generating solid revenue growth and strengthening our balance sheet, which has led to strong momentum and improved operating performance for Park View."
Net Interest Income
Net interest income for the quarter ended December 31, 2012 totaled $5.8 million, an increase of $0.5 million, or
9.5%, from the fiscal 2012 second quarter ended December 31, 2011. This improvement over the prior-year linked quarter is attributable to the continued improvement in the mix of average earning assets which resulted in a relatively stable earning asset yield, as part of the Company's multi-year strategic plan to strengthen and diversify its balance sheet and improve its risk profile, combined with the Company's ability to continue to lower its funding costs in this low interest rate environment. Compared with the quarter ended September 30, 2012, net interest income for the December quarter increased $0.1 million, or 2.0%, as the Company improved the mix of earning assets and continued to lower its funding costs. During the quarter, the Company's loans receivable balance increased $10.4 million, or
1.9% since September 30, 2012, and 7.4% on an annualized basis.
The Company recognized an adjustment in the current quarter to correct the amount of interest income recognized in the month of origination on residential loans originated and sold in the secondary market. In conjunction therewith, the Company revised its fiscal 2012 financial results which reduced capital at June 30, 2012 by $0.6 million, increased other liabilities by $0.6 million and reduced quarterly net income and net interest income by $0.1 million,
$0.1 million, $0.2 million and $0.2 million for the first through fourth quarters of fiscal 2012, respectively. Additionally, the Company revised its fiscal 2013 first quarter results to reduce net interest income and net income by
$153,000 and correspondingly reduced retained earnings and increased other liabilities by such amount. The
Company has concluded that such adjustments to the periods discussed did not have a material impact on its financial statements.
In this low interest rate environment, the Company has improved its net interest margin to 3.16% for the period ended
December 31, 2012, compared with 3.12% and 2.89% for the quarters ended September 30, 2012 and December 31,
2011, respectively. The Company's balance sheet strategy of improving the mix of earning assets is driving the
improving margin.
Mortgage Banking Revenues Increase, Improving Non-interest Income
Non-interest income totaled $4.2 million for the quarter ended December 31, 2012, an increase of $3.1 million or
273.5% from the linked quarter ended December 31, 2011. This increase is the result of growth in net revenue from mortgage banking activities which totaled $3.8 million for the quarter, an increase of $2.0 million from the year-ago
quarter. The Company continued to capitalize on its significant residential mortgage origination capabilities in the lower interest rate environment, resulting in an increase in the gain on sale of mortgages income. Included in the
mortgage banking results and partially offsetting the strong gain on sale revenue is a $0.2 million charge to the
impairment valuation allowance recognized against the carrying value of the Company's capitalized mortgage
servicing rights. The majority of mortgage lending activities in the current environment involves refinance and is highly correlated to interest rate movements and levels, and negatively impacts the fair value of mortgage servicing rights. Also contributing to the increase in non-interest income over the prior-year period is the reduction in the credit- related costs associated with other real estate owned, which declined $0.9 million from a year ago and totaled $0.3 million. The credit-related costs resulted from updated valuations on other real estate owned and losses on property dispositions whose values have shown signs of stabilizing as compared to a year ago. Service charges and other fees increased $0.3 million due to electronic banking related fees and improving fees related to transaction accounts.
In comparison with the first quarter of fiscal 2013, non-interest income increased $0.9 million, primarily due to higher mortgage banking revenues of $0.6 million, and higher service charges and other fees of $0.3 million.
Asset Quality Stable
The Company continued to make progress with respect to its multi-year strategic plan to improve the Bank's balance
sheet and reduce problem assets.
The classified assets to core capital plus general valuation allowance ratio improved to 42.4% at December 31, 2012, compared with 60.29% at the end of the prior-year linked quarter and 44.7% at September 30, 2012. The Company also reduced its level of classified assets plus special mention assets to core capital plus general valuation allowance ratio to 47.3% at December 31, 2012, as compared to 75.8% a year ago and 51.7% at September 30, 2012.
During the quarter, nonperforming loans increased $0.5 million, or 2.8%, to $18.4 million, compared with the first quarter of fiscal 2013, while other real estate owned increased $0.5 million to $7.7 million, resulting in total nonperforming assets of $26.1 million. This was an increase of $1.0 million, or 4.0%, compared with total nonperforming assets of $25.1 million at September 30, 2012, and a decline of $14.2 million, or 35.2%, over the prior year.
The allowance for loan losses at December 31, 2012 was $15.1 million, or 2.7% of total loans. This compares with an allowance of $16.1 million, or 2.9% of total loans, at September 30, 2012, and $17.5 million, or 3.1% of total loans, at December 31, 2011. The allowance's coverage of nonperforming loans was 82.5% at December 31, 2012, compared with 90.3% at September 30, 2012, and 57.8% at December 31, 2011. Net charge-offs for the quarter ended December 31, 2012 were $2.0 million. The net charge-offs included approximately $0.6 million related to prior valuation allowances which had been specifically reserved and included in the Company's historical loss factors and, accordingly, the allowance for loan losses did not need to be replenished after recording these charge-offs. The provision for loan losses totaled $1.0 million for the current quarter compared with $1.1 million for the quarter ended September 30, 2012, and $2.0 million for the quarter ended December 31, 2011. The lower provision level in the current quarter reflects the Company's continued progress in improving the risk profile and strengthening the performance of the loan portfolio.
Non-interest Expense Stable
Non-interest expense declined by $0.2 million and totaled $6.3 million for the current quarter, compared with $6.5 million for the fiscal 2013 first quarter. Non-interest expense was unchanged from the prior-year quarter. The
Company continues to manage its expense level while investing in the infrastructure and personnel necessary to transform the organization, its risk profile and its balance sheet to a higher-performing, relationship-based community bank.
Pre-tax, Pre-credit Provision Income Improves Sequentially
One metric that management believes is useful in analyzing performance is pre-tax, pre-credit provision income, which adjusts earnings to exclude provision expense, credit-related charges involving the valuation and disposition of other real estate owned, and securities gains or losses. In addition, earnings are adjusted for items identified by
management to be outside of ordinary banking activities and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed to be infrequent or short-term
in nature, which management believes may distort the Company's underlying performance trends. The pre-tax, pre- credit provision income was $4.0 million for the quarter ended December 31, 2012, compared with $2.8 million for
the quarter ended September 30, 2012, and $1.3 million for the prior-year linked quarter.
A reconciliation of net earnings reported under generally accepted accounting principles ("GAAP") to pre-tax, pre- credit provision income (a non-GAAP metric) for the current and trailing four quarters ended December 31, 2012, is as follows (dollars in millions):
Dec. 31,
2012
Sept. 30,
2012
Rev ised
June 30,
2012
Rev ised
March 31,
2012
Rev ised
Dec. 31,
2011
Rev ised
Net income (loss) Federal income tax provision (benefit) | $ 2.7 | $ 1.4 | $ 0.6 | $ 0.2 | $ (1.9) |
Net income (loss) Federal income tax provision (benefit) | 0.0 | 0.0 | (0.2) | 0.0 | 0.0 |
Pre-tax income (loss) | 2.7 | 1.4 | 0.4 | 0.2 | (1.9) |
Provision for loan losses | 1.0 | 1.1 | 1.5 | 2.0 | 2.0 |
Loss/w rite-dow n (gain) on other real estate ow ned | 0.3 | 0.3 | 0.7 | 0.6 | 1.2 |
Pre-tax, pre-credit provision income
$ 4.0
$ 2.8
$ 2.6
$ 2.8
$ 1.3
Pre-tax, pre-credit provision income improved by approximately $1.2 million compared with the September 30, 2012 period, as a result of higher non-interest income of $0.9 million, including increased mortgage banking revenue of
$0.6 million and service charge income of $0.3 million, higher net interest income of $0.1 million and lower non- interest expense of $0.2 million.
Bank Capital Ratios Remain Strong
The Bank's capital ratios have continued to strengthen and remain above regulatory requirements. As of December
31, 2012, the ratio of tier one (core) capital to adjusted total assets stood at 9.36% and the ratio of total risk-based capital to risk-weighted assets was 12.93%.
Year-to-Date Results
For the six months ended December 31, 2012, the Company's net income totaled $4.1 million, or $0.16 basic and
$0.15 diluted earnings per share, compared with a loss of $2.7 million, or $0.11 basic and diluted loss per share, for the six-month period ended December 31, 2011. The $6.8 million improvement in the Company's results is attributable to a $1.0 million improvement in net interest income, a reduction in the provision for loan losses of $1.4 million from improving asset quality, a $4.7 million increase in non-interest income substantially from higher overall mortgage banking revenue, a $0.2 million increase in non-interest expense, and higher federal income tax provision of
$0.1 million.
About PVF Capital Corp.
Park View Federal is a wholly-owned subsidiary of PVF Capital Corp. and operates 16 full-service offices located throughout the Greater Cleveland area. For additional information, visit our website at parkviewfederal.com. PVF
Capital Corp.'s common shares trade on the NASDAQ Capital Market under the symbol PVFC.
Use of Non-GAAP Financial Measures
This release included certain financial information determined by methods other than in accordance with GAAP. One non-GAAP performance metric that management believes is useful in analyzing underlying performance
trends is pre-tax, pre-credit provision income. This is the level of earnings adjusted to exclude the impact of:
• provision expense and credit related charges involving the valuation and disposition of other real estate owned, which are excluded because its absolute level is elevated and volatile in times of economic stress;
• available-for-sale and other securities gains/losses, which are excluded because in times of economic stress securities market valuations may also become particularly volatile; and
• certain items identified by management to be outside of ordinary banking activities, and/or by items that, while they may be associated with ordinary banking activities, are so unusually large that their outsized impact is believed by management at the time to be infrequent or short-term in nature, which management believes may distort the Company's underlying performance trends.
Non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. While the Company believes that non-GAAP financial measures provide useful supplemental information to investors, there are very significant limitations associated with their use. Non-GAAP financial measures are not prepared in accordance with GAAP, may not be reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact methods of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
Cautionary Note on Forward-Looking Statements
This press release contains statements that are forward-looking, as that term is defined by the Private Securities
Litigation Act of 1995 or the Securities and Exchange Commission in its rules, regulations and releases. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward- looking statements are based on current expectation regarding important risk factors including, but not limited to, interest rate changes, real estate values, continued softening in the economy, which could materially impact credit quality trends and the ability to generate loans, changes in the mix of the Company's business, competitive pressures, changes in accounting, tax or regulatory practices or requirements and those risk factors detailed in the Company's periodic reports and registration statements filed with the Securities and Exchange Commission. Accordingly, actual results may differ from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that results expressed therein will be achieved. This press release contains time-sensitive information that reflects management's best analysis only as of the date of this document. The Company does not undertake an obligation to publicly update or revise any forward- looking statements to reflect new events, information or circumstances, or otherwise. Further information concerning issues that could materially affect financial performance related to forward-looking statements can be found in the Company's periodic filings with the Securities and Exchange Commission.
(Unaudited)
AS
LI
Lia
Sto
Interest and dividends income
Three Months Ended Six Months Ended
December 31, December 31,
2012 2011 2012 2011
Revised Revised
Loans
$ 6,821,542 $
7,031,785
$ 13,654,494
$ 14,099,808
Mortgage-backed securities
Federal Home Loan Bank stock dividends
Securities
Federal funds sold and interest-bearing deposits
Total interest and dividends income
Interest expense
49,515 65,918 129,746 115,639
152,963 129,164 288,337 256,924
125,172 14,125 266,410 38,342
64,628 88,388 132,923 180,886
7,213,819 7,329,380 14,471,910 14,691,599
Pro
Non-interest income
Service charges and other fees | 470,763 | 205,860 | 651,155 | 384,678 | |||
Gain on sale of mortgage loans | 4,424,678 | 2,129,178 | 8,455,799 | 3,956,613 | |||
Income (loss) from mortgage servicing fees | (660,081) | (322,156) | (1,564,955) | (1,139,426) | |||
Gain on sale of SBA loans | - | - | (3,686) | 221,218 | |||
Increase in cash surrender value of bank-owned life insurance Gain on sale of mortgage-backed securities Gain (loss) on real estate owned | 37,426 - (99,160) | 56,288 - (384,069) | 84,892 - (117,041) | 118,987 - (243,957) | |||
Provision for real estate owned losses | (219,742) | (805,423) | (453,462) | (874,823) | |||
Other, net | 251,738 | 246,463 | 443,938 | 373,970 | |||
Total non-interest income | 4,205,622 | 1,126,141 | 7,496,641 | 2,797,260 |
Non-interest expense
Compensation and benefits | 3,246,259 | 2,732,389 | 6,356,018 | 5,627,087 | |||
Office occupancy and equipment | 568,368 | 564,384 | 1,137,957 | 1,163,294 | |||
FDIC insurance | 202,238 | 426,732 | 634,477 | 855,431 | |||
Professional and legal | 240,893 | 130,000 | 360,893 | 245,000 | |||
Outside services | 594,046 | 617,404 | 1,368,891 | 1,113,071 | |||
Maintenance contracts | 175,313 | 222,523 | 350,153 | 418,857 | |||
Franchise tax | 196,707 | 225,427 | 393,414 | 450,855 | |||
Real estate owned and collection expense | 463,130 | 783,512 | 848,634 | 1,397,371 | |||
Other | 568,863 | 640,958 | 1,310,453 | 1,266,233 | |||
Total non-interest expense | 6,255,817 | 6,343,329 | 12,760,890 | 12,537,199 | |||
Income (loss) before federal income taxes | 2,722,762 | (1,909,121) 4,120,364 | (2,791,140) | ||||
Federal income tax provision (benefit) | 57,000 | - 57,000 | (25,178) | ||||
Net income (loss) | $ 2,665,762 | $ (1,909,121) $ 4,063,364 | $ (2,765,962) | ||||
Basic earnings (loss) per share | $ 0.10 | $ (0.07) | $ 0.16 | $ (0.11) | |||
Diluted earnings (loss) per share | $ 0.10 | $ (0.07) | $ 0.15 | $ (0.11) |
At or for the three months ended
(dollars in thousands except per share data) December 31, September 30, June 30, March 31, December 31,
2012 2012 2012 2012 2011
Revised Revised Revised Revised
Balance Sheet Data:
Total assets
$ 781,798 $
779,123 $
791,450 $
806,472 $
794,823
Loans receivable 569,716 559,322 557,680 563,557 564,036
Allowance for loan losses 15,140 16,136 16,053 16,914 17,515
Loans receivable held for sale, net 30,089 19,766 25,063 16,386 8,221
Cash and cash equivalents 94,458 114,575 120,110 134,496 151,850
Securities available for sale 39,761 38,281 38,658 40,908 22,595
Deposits 634,313 646,150 655,979 667,198 658,632
Borrowings 35,993 36,019 36,046 36,073 36,099
Stockholders' equity 75,098 72,077 70,131 69,385 68,761
Nonperforming loans 18,361 17,864 19,900 23,542 30,313
Other nonperforming assets 7,744 7,232 7,734 9,552 9,995
Tangible common equity ratio 9.61% 9.25% 8.86% 8.60% 8.65% Book value per share $2.90 $2.78 $2.72 $2.69 $2.68
Common shares outstanding at period end 25,927,214 25,919,470 25,820,424 25,820,424 25,669,718
Operating Data:
Interest income
$ 7,214 $
7,258 $
7,212 $
7,345 $
7,329
Interest expense 1,4411,5961,7371,8612,055
Net interest income before provision for loan losses 5,773 5,662 5,475 5,484 5,274
Provision for loan losses 1,0001,0501,5002,0161,966
Net interest income (loss) after provision for loan losses 4,773 4,612 3,975 3,468 3,308
Non-interest income 4,206 3,291 3,043 3,275 1,126
Non-interest expense 6,2566,5056,6026,5186,343
Income (loss) before federal income taxes 2,723 1,398 415 225 (1,909) Federal income tax expense (benefit) 57- (194) --
Net income (loss)
$ 2,666 $
1,398 $
609 $
225 $
(1,909)
Basic earnings (loss) per share
Diluted earnings (loss) per share
$ 0.10 $
$ 0.10 $
0.05 $
0.05 $
0.02 $
0.02 $
0.01 $
0.01 $
(0.07)
(0.07)
Performance Ratios:
Return on average assets 1.37% 0.70% 0.30% 0.11% (0.97%) Return on average equity 14.49% 7.98% 4.71% 2.42% (10.07%) Net interest margin 3.16% 3.12% 2.94% 2.99% 2.89% Interest rate spread 3.13% 3.07% 2.88% 2.91% 2.82% Efficiency ratio 61.09% 69.21% 72.38% 69.55% 83.75% Stockholders' equity to total assets (all tangible) 9.61% 9.25% 8.86% 8.60% 8.65%
Asset Quality Ratios:
Nonperforming assets to total assets 3.34% 3.22% 3.49% 4.10% 5.07% Nonperforming loans to total loans 3.22% 3.19% 3.57% 4.18% 5.37% Allowance for loan losses to total loans 2.66% 2.88% 2.88% 3.00% 3.11% Allowance for loan losses to nonperforming loans 82.46% 90.32% 80.67% 71.85% 57.78% Net charge-offs to average loans, annualized 1.37% 0.67% 1.64% 1.86% 9.90%
Park View Federal Regulatory Capital Ratios:
Ratio of tangible capital to adjusted total assets 9.36% 9.06% 8.66% 8.50% 8.24% Ratio of tier one (core) capital to adjusted total assets 9.36% 9.06% 8.66% 8.50% 8.24% Ratio of tier one risk-based capital to risk-weighted assets 11.66% 11.94% 11.73% 11.60% 11.37% Ratio of total risk-based capital to risk-weighted assets 12.93% 13.20% 13.00% 12.87% 12.64%
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