- 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.