PVF Capital (PVFC) 10-Q 2001 Q3 Quarterly report

TABLE OF CONTENTS

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20552

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2001.

[   ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ___________ to ______________

Commission File Number0-24948

PVF Capital Corp.

( Exact name of registrant as specified in its charter)

United States	34-1659805
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

25350 Rockside Road, Bedford Heights, Ohio	44146
(Address of principal executive offices)	(Zip Code)

(440) 248-7171

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES   X       NO        

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 Par Value	4,745,203
(Class)	(Outstanding at April 30, 2001)

PVF CAPITAL CORP.

INDEX

		Page
Part I	Financial Information
Item 1	Financial Statements
	Consolidated Statements of Financial Condition, March 31, 2001 and June 30, 2000 (unaudited).		1
	Consolidated Statements of Operations for the three and nine months ended March 31, 2001 and 2000 (unaudited).		2
	Consolidated Statements of Cash Flows for the nine months ended March 31, 2001 and 2000 (unaudited).		3
	Notes to Consolidated Financial Statements (unaudited).		4
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		6
Item 3	Quantitative and Qualitative Disclosures about Market Risk		13
Part II	Other Information		13

PART I FINANCIAL INFORMATION

ITEM 1

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

				March 31,			June 30,
				2001			2000
			ASSETS
Cash and cash equivalents:
		Cash and amounts due from depository institutions		$	4,109,667		$	3,806,575
		Interest bearing deposits			547,349			815,280
		Federal funds sold			4,050,000			1,050,000
Total cash and cash equivalents					8,707,016			5,671,855
Securities held to maturity, at cost					65,125,193			65,258,853
Loans receivable, net					559,093,535			513,669,748
Loans receivable held for sale, net					6,092,814			10,737,721
Mortgage-backed securities held to maturity, net					21,209,922			1,215,045
Office properties and equipment, net					3,566,051			1,857,344
Real estate owned, net					448,867			488,461
Investment in real estate					5,089,446			4,094,020
Investment required by law - stock in the Federal Home Loan Bank of Cincinnati					7,125,341			5,841,227
Prepaid expenses and other assets					3,646,287			4,151,852
Total Assets				$	680,104,472		$	612,986,126
			LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
	Deposits			$	480,411,630		$	440,981,859
	Advances from the Federal Home Loan Bank of Cincinnati				135,920,951			114,973,840
	Notes payable				4,250,000			1,000,000
	Advances from borrowers for taxes and insurance				3,083,241			6,175,119
	Accrued expenses and other liabilities				9,881,611			6,955,245
Total Liabilities					633,547,433			570,086,063
Stockholders’ Equity
	Serial preferred stock, none issued				—			—
	Common stock, $0.01 par value, 15,000,000 shares authorized; 4,851,000 and 4,832,918 shares issued, respectively				48,510			48,329
	Additional paid-in-capital				24,818,171			24,780,978
	Retained earnings-substantially restricted				22,783,273			19,043,934
	Treasury Stock, at cost 105,797 and 93,063 shares, respectively				(1,092,915	)		(973,178	)
Total Stockholders’ Equity					46,557,039			42,900,063
Total Liabilities and Stockholders’ Equity				$	680,104,472		$	612,986,126

See accompanying notes to consolidated financial statements

Page 1

PART I FINANCIAL INFORMATION
ITEM 1

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

			Three Months Ended				Nine Months Ended
			March 31,				March 31,
			2001		2000		2001		2000
Interest income
	Loans		$	12,103,826	$	9,720,562	$	36,057,782	$	27,497,041
	Mortgage-backed securities			379,179		20,557		857,236		69,767
	Cash and investment securities			782,550		1,098,622		3,408,342		2,315,344
		Total interest income		13,265,555		10,839,741		40,323,360		29,882,152
Interest expense
	Deposits			6,879,762		5,371,032		20,508,733		13,594,504
	Borrowings			1,375,631		1,050,130		5,042,354		3,162,942
		Total interest expense		8,255,393		6,421,162		25,551,087		16,757,446
		Net interest income		5,010,162		4,418,579		14,772,273		13,124,706
Provision for loan losses				75,000		0		75,000		450,000
		Net interest income after provision for loan losses		4,935,162		4,418,579		14,697,273		12,674,706
Noninterest income, net
	Service and other fees			138,091		94,582		358,420		347,284
	Mortgage banking activities, net			276,973		102,295		604,728		405,885
	Insurance proceeds			0		40,100		0		732,243
	Other, net			151,033		90,503		632,441		514,784
		Total noninterest income, net		566,097		327,480		1,595,589		2,000,196
Noninterest expense
	Compensation and benefits			1,720,684		1,363,897		4,895,832		4,169,623
	Office, occupancy, and equipment			738,853		512,655		1,980,105		1,489,625
	Other			762,138		754,035		2,229,985		2,120,014
		Total noninterest expense		3,221,675		2,630,587		9,105,922		7,779,262
		Income before federal income tax provision		2,279,584		2,115,472		7,186,940		6,895,640
Federal income tax provision				770,502		702,417		2,408,818		2,296,306
		Net income	$	1,509,082	$	1,413,055	$	4,778,122	$	4,599,334
Basic earnings per share			$	0.32	$	0.30	$	1.01	$	0.96
Diluted earnings per share			$	0.31	$	0.29	$	0.97	$	0.92

See accompanying notes to consolidated financial statements

Page 2

PART I FINANCIAL INFORMATION
ITEM 1

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

					Nine Months Ended
					March 31,
					2001			2000
Operating Activities
	Net income				$	4,778,122		$	4,599,334
	Adjustments to reconcile net income to net cash provided by (used in) operating activities
				Accretion of discount on marketable securities		(10,702	)		(6,875	)
				Depreciation and amortization		558,522			447,189
				Provision for losses on loans		75,000			450,000
				Accretion of unearned discount and deferred loan origination fees, net		(844,485	)		(827,470	)
				(Gain) loss on loans receivable held for sale, net		(277,505	)		4,326
				Gain on disposal of real estate owned, net		(55,270	)		(28,829	)
				Federal Home Loan Bank stock dividends		(376,814	)		(237,047	)
				Change in accrued interest on investments, loans, and borrowings, net		(505,871	)		(526,185	)
				Origination of loans receivable held for sale, net		(40,956,998	)		(39,844,378	)
				Sale of loans receivable held for sale, net		45,879,410			29,307,022
				Change in other, net		(66,642	)		(2,166,492	)
				Net cash provided by (used in) operating activities		8,196,767			(8,829,405	)
Investing Activities
				Loan and mortgage-backed securities repayments and originations, net		(62,806,493	)		(66,180,698	)
				Disposals of real estate owned		142,286			127,832
				Mortgage-backed securities purchased, net		(977,543	)		0
				Securities purchases		(49,918,836	)		(39,995,313	)
				Securities maturities		50,063,199			59,380
				Federal Home Loan Bank stock purchases		(907,300	)		(964,400	)
				Additions to office properties and equipment, net		(2,267,229	)		(499,350	)
				Change in real estate held for investment		(995,426	)		(227,099	)
				Net cash used in investing activities		(67,667,342	)		(107,679,648	)
Financing Activities
				Net increase in demand deposits, NOW, and passbook savings		1,828,994			6,747,107
				Net increase in time deposits		37,600,777			100,831,331
				Net increase in Federal Home Loan Bank advances		20,947,111			8,950,208
				Net increase in notes payable		3,250,000			0
				Purchase of treasury stock		(119,737	)		(823,398	)
				Proceeds from exercise of stock options		33,405			8,083
				Cash dividend paid		(1,034,814	)		(1,023,172	)
				Net cash provided by financing activities		62,505,736			114,690,159
Net increase (decrease) in cash and cash equivalents						3,035,161			(1,818,894	)
Cash and cash equivalents at beginning of period						5,671,855			10,089,332
Cash and cash equivalents at end of period					$	8,707,016		$	8,270,438
Supplemental disclosures of cash flow information:
			Cash payments of interest expense		$	25,231,409		$	16,802,909
			Cash payments of income taxes		$	3,250,000		$	2,440,000
Supplemental noncash investing activity:
		Securitization of mortgage loans to mortgage-backed securities held to maturity			$	19,857,995		$	0

See accompanying notes to consolidated financial statements

Page 3

PART I FINANCIAL INFORMATION
ITEM 1

PVF CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001 and 2000
(Unaudited)

1. The accompanying consolidated interim financial statements were prepared in accordance with regulations of the Securities and Exchange Commission for Form 10-Q. All information in the consolidated interim financial statements is unaudited except for the June 30, 2000 consolidated statement of financial condition which was derived from the Corporation’s audited financial statements. Certain information required for a complete presentation in accordance with generally accepted accounting principles has been condensed or omitted. However, in the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring accruals, necessary to fairly present the interim financial information. The results of operations for the three and nine months ended March 31, 2001 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2001. The results of operations for PVF Capital Corp. (“PVF” or the “Company”) for the periods being reported have been derived primarily from the results of operation of Park View Federal Savings Bank (the “Bank”). PVF Capital Corp.’s common stock is traded on the NASDAQ SMALL-CAP ISSUES under the symbol PVFC.

2. Recently Issued Accounting Standards

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” was issued in June, 1998 and amended by SFAS No. 137, “Deferral of Effective Date of FASB Statement No. 133,” which deferred the effective date to fiscal years beginning after June 15, 2000. This statement establishes comprehensive accounting and reporting requirements for derivative instruments and hedging activities. This statement requires entities to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for gains and losses resulting from changes in fair value of the derivative instrument depends on the use of the derivative and the type of risk being hedged. In June 2000, SFAS No. 133 was also amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” which adds further guidance to the accounting for derivative instruments and hedging activities. The Company adopted SFAS No. 133 as amended by SFAS No. 137 and SFAS No. 138 as of July 1, 2000. The adoption did not have a material impact on the Bank’s consolidated financial statements.

Page 4

Part I Financial Information
Item 1

3. The following table discloses Earnings Per Share for the three and nine months ended March 31, 2001 and March 31, 2000.

	Three months ended March 31,
	2001						2000
	Income		Shares		Per-Share		Income		Shares		Per-Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Basic EPS
Net Income	$	1,509,082		4,737,703	$	0.32	$	1,413,055		4,762,812	$	0.30
Effect of Stock Options				162,638		0.01				169,454		0.01
Diluted EPS
Net Income	$	1,509,082		4,900,341	$	0.31	$	1,413,055		4,932,266	$	0.29

	Nine months ended March 31,
	2001						2000
	Income		Shares		Per-Share		Income		Shares		Per-Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Basic EPS
Net Income	$	4,778,122		4,740,322	$	1.01	$	4,599,334		4,794,777	$	0.96
Effect of Stock Options				161,108		0.04				181,859		0.04
Diluted EPS
Net Income	$	4,778,122		4,901,430	$	0.97	$	4,599,334		4,976,636	$	0.92

Note — Shares represent average shares for the period adjusted for Treasury Stock.

Page 5

Part I Financial Information
Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis discusses changes in financial condition and results of operations at and for the three-month and nine-month periods ended March 31, 2001 for PVF Capital Corp. (“PVF” or the “Company”), Park View Federal Savings Bank (the “Bank”), its principal and wholly-owned subsidiary, PVF Service Corporation (“PVFSC”), a wholly owned real estate subsidiary, Mid Pines Land Co., a wholly-owned real estate subsidiary, and PVF Holdings, Inc., a wholly-owned and currently inactive subsidiary.

FORWARD-LOOKING STATEMENTS

When used in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area, competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

FINANCIAL CONDITION

Consolidated assets of PVF were $680.1 million as of March 31, 2001, an increase of approximately $67.1 million, or 10.9%, as compared to June 30, 2000. The Bank remained in regulatory capital compliance for tangible, core, and risk-based capital on a fully phased-in basis with capital levels of 6.76%, 6.76% and 10.27%, respectively at March 31, 2001.

During the nine months ended March 31, 2001, the Company’s cash and

Page 6

Part I Financial Information
Item 2

cash equivalents, which consist of cash, interest-bearing deposits and federal funds sold, increased $3.0 million, or 53.5%, as compared to June 30, 2000. The change in the Company’s cash and cash equivalents consisted of a decrease in interest-bearing deposits of $0.3 million and an increase in federal funds sold and cash of $3.3 million.

The net $60.8 million, or 11.6%, increase in loans receivable and mortgage-backed securities during the nine months ended March 31, 2001, resulted from an increase in loans receivable of $40.8 million and an increase in mortgage-backed securities of $20.0 million. The increase of $40.8 million in loans receivable included increases of $13.6 million in land loans, $10.1 million in construction loans (primarily single-family construction loans), $8.3 million in commercial real-estate loans, $3.9 million in home equity loans, $2.3 million in single-family mortgage loans, $1.2 million in commercial equity line of credit loans, $1.2 million in consumer loans, and $0.2 million in multi-family loans. The increase in mortgage-backed securities resulted from the Bank’s decision to securitize $19.9 million in single-family loans and purchase a $1.0 million mortgage-backed security less payments received of $0.9 million. The growth of the loan portfolio resulted in no material change to the composition of the portfolio.

Securities decreased by $0.1 million, or 0.2%. This resulted from the purchase of a $50.0 million agency security that was offset by calls exercised by the issuers on $50.0 million in agency securities and the scheduled maturity of $0.1 million in a municipal security. Investment in stock with the Federal Home Loan Bank of Cincinnati increased by $1.3 million, or 22.0%, due to the purchase of $907,300 in additional stock and stock dividends paid.

The increase of $1.7 million in office properties and equipment is the result of the purchase of a previously leased branch office, the purchase of office furniture for our new corporate headquarters in Solon, Ohio, and leasehold improvements at our corporate headquarters, and new branch offices in Solon and Shaker Heights, Ohio. Investment in real estate increased by $995,000 due to the purchase by Mid Pines Land Co., a wholly-owned subsidiary of PVF Capital Corp., of 5 acres of land, and investment in real estate development by PVF Service Corp., also a wholly owned subsidiary of PVF Capital Corp.

During the nine months ended March 31, 2001, the opening of one new branch office and the relocation of an existing branch office combined with management’s decision to build the deposit bases at these offices resulted in the Bank competing aggressively with market savings rates to increase total deposits by $39.4 million, or 8.9%. The increase of $20.9 million in advances from the Federal Home Loan Bank of Cincinnati was a result of management’s decision to take advantage of attractive short-term borrowing rates. The increase in notes payable of $3.2 million was used to fund the investment in real estate and for other general operating expenses.

Page 7

Part I Financial Information
Item 2

The decrease in advances from borrowers for taxes and insurance of $3.1 million, or 50.1%, is due to timing differences between the collection and payment of escrow funds. The increase of $2.9 million, or 42.1%, in accrued expenses and other liabilities is primarily the result of timing differences between the collection and remittance of payments received on loans serviced for investors.

The increase in deposits of $39.4 million, Federal Home Loan Bank advances of $20.9 million, and notes payable of $3.2 million along with net income of $4.8 million were used to fund the net increase in loans receivable and mortgage-backed securities of $60.8 million, to fund the increase in cash and cash equivalents of $3.0 million, to increase the investment in office properties and equipment by $1.7 million, to fund the increase in investments in real estate of $1.0 million, to pay cash dividends for the nine-month period of $1.0 million, and to purchase $0.9 million in stock from the Federal Home Loan Bank of Cincinnati.

RESULTS OF OPERATIONS Three months ended March 31, 2001, compared to three months ended March 31, 2000.

PVF’s net income is dependent primarily on its net interest income, which is the difference between interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net interest income also includes amortization of loan origination fees, net of origination costs.

PVF’s net income is also affected by the generation of noninterest income, which primarily consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans held for sale. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, net income is affected by the level of operating expenses and loan loss provisions.

The Company’s net income for the three months ended March 31, 2001 was $1,509,100 as compared to $1,413,100 for the prior year comparable period. This represents an increase of $96,000, or 6.8%, when compared with the prior year comparable period.

Net interest income for the three months ended March 31, 2001 increased by $591,600, or 13.4%, as compared to the prior year comparable period, due to an increase of $2,425,800, or 22.4%, in interest income that resulted from an increase of $91.1 million in the average balance of interest-earning assets and a 29 basis point

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Part I Financial Information
Item 2

increase in the average return on interest-earning assets from the prior year comparable period. The average balance on deposits and advances increased by $84.1 million from the prior year comparable period. This increased balance, along with a 50 basis point increase in the average cost of funds for the current period, resulted in an overall increase in interest expense of $1,834,200, or 28.6%. The Company’s net interest income increased despite a decrease of 21 basis points in the Company’s interest-rate spread, during the current period as compared to the prior year comparable period, because of balance sheet growth in both interest-earning assets and interest-bearing liabilities.

For the three months ended March 31, 2001, a $75,000 provision for loan losses was recorded, while no provision for loan losses was recorded in the prior year comparable period. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis with respect to payment history, ability to repay, probability of repayment, and loan-to-value percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses.

During the three months ended March 31, 2001, the Company experienced loan growth of $15.9 million, an increase in the level of impaired loans of $2.2 million, an increase of $1.0 million in classified assets and had no loans charged off. Due to increases in loans, impaired loans and classified assets, management determined it was necessary to record a provision for loan losses of $75,000 in the current period. At March 31, 2001, the allowance for loan losses was $3.4 million, which represented 58.9% of nonperforming loans and 0.60% of loans. For the three months ended March 31, 2000, the Company experienced loan growth of $23.8 million, an increase in the level of impaired loans of $1.6 million, an increase of $451,000 in classified assets and had no loans charged off. Despite the increase in loans, impaired loans and classified assets, it was not necessary to record a provision for loan losses in the prior quarter because the Bank made sufficient provisions in the first and second quarters of fiscal year 2000. At March 31, 2000, the allowance for loan losses was $3.0 million, which represented 44.9% of nonperforming loans and 0.64% of loans.

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Part I Financial Information
Item 2

For the three months ended March 31, 2001, noninterest income increased $238,600, or 72.9%, from the prior year comparable period. This was primarily attributable to an increase of $174,700, or 170.8%, in income from mortgage banking activities that resulted from an increase in gain on loan sales in the current period. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”) guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. Service and other fees increased by $43,500, or 46.0%, from the prior year comparable period primarily due to increases in late charges collected on loans along with increases in NOW checking account fee income. During the three months ended March 31, 2000, the Company received an insurance payment of $40,100 for legal costs previously incurred relating to the settlement of a lawsuit by PVF Holdings, Inc., a wholly-owned subsidiary of PVF Capital Corp. Other non-interest income, net, increased by $60,500, or 66.9%, primarily due to increased rental income in the current period.

Noninterest expense for the three months ended March 31, 2001 increased by $591,100, or 22.5%, from the prior year comparable period. This was primarily the result of a $356,800, or 26.2%, increase in compensation and benefits primarily attributable to increased staffing along with employee 401(k) benefits, incentive bonuses paid, and salary and wage adjustments. Office occupancy and equipment increased by $226,200, or 44.1% due to increases in office rent and additional lease payments attributable to the opening of our new corporate center along with the opening of a new branch office and the relocation of an existing branch office.

The federal income tax provision for the three-month period ended March 31, 2001 increased to an effective rate of 33.8% for the current period from an effective rate of 33.2% for the prior year comparable period.

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Part I Financial Information
Item 2

RESULTS OF OPERATIONS Nine months ended March 31, 2001, compared to nine months ended March 31, 2000.

PVF’s net income is dependent primarily on its net interest income, which is the difference between interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net interest income also includes amortization of loan origination fees, net of origination costs.

PVF’s net income is also affected by the generation of noninterest income, which primarily consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans held for sale. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, net income is affected by the level of operating expenses and loan loss provisions.

The Company’s net income for the nine months ended March 31, 2001 was $4,778,100 as compared to $4,599,300 for the prior year comparable period. This represents an increase of $178,800, or 3.9%, when compared with the prior year comparable period.

Net interest income for the nine months ended March 31, 2001 increased by $1,647,600, or 12.5%, primarily due to an increase of $10,441,200, or 34.9%, in interest income that resulted from an increase of $143.0 million in the average balance of interest-earning assets and a 31 basis point increase in the average return on interest-earning assets from the prior year comparable period. The average balance on deposits and advances increased by $135.6 million from the prior year comparable period. In addition, an 80 basis point increase in the average cost of funds for the current period resulted in an overall increase in interest expense of $8,793,600, or 52.5%. Despite a 49 basis point decrease in the Bank’s interest-rate spread during the current period, as compared to the prior year comparable period, the Bank’s net interest income increased due to balance sheet growth in both interest-earning assets and interest-bearing liabilities.

For the nine months ended March 31, 2001, a $75,000 provision for loan losses was recorded, while a $450,000 provision for loan losses was recorded in the prior year comparable period. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis with respect to payment history, ability to repay, probability of repayment, and loan-to-value percentage. Consideration is given to the types of loans in the

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Part I Financial Information
Item 2

portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses.

During the nine months ended March 31, 2001, the Company experienced growth in the loan portfolio of $40.8 million, an increase in the level of impaired loans of $0.9 million, and had $215,000 in loans charged off. Due to the growth of the loan portfolio, an increase in the level of impaired loans, and loans charged off, management determined it was necessary to record a provision for loan losses of $75,000 in the current period. At March 31, 2001, the allowance for loan losses was $3.4 million, which represented 58.9% of nonperforming loans and 0.60% of loans. For the nine months ended March 31, 2000, the Company experienced growth in the loan portfolio of $77.7 million, an increase in the level of impaired loans of $3.1 million, an increase of $1.5 million in classified assets, and had $36,000 in loans charged off. Due to the growth of the loan portfolio, an increases in the level of impaired loans and classified assets, and loans charged off, management determined it was necessary to record a provision for loan losses of $450,000 in the prior period. At March 31, 2000, the allowance for loan losses was $3.0 million, which represented 44.9% of nonperforming loans and 0.64% of loans.

For the nine months ended March 31, 2001, noninterest income decreased $404,600, or 20.2%, from the prior year comparable period. This was primarily attributable to the Company’s receipt of an insurance payment of $732,200 for legal costs previously incurred relating to the settlement of a lawsuit by PVF Holdings, Inc., a wholly-owned subsidiary of PVF Capital Corp., in the prior year comparable period. An increase of $198,800, or 49.0%, in income from mortgage banking activities resulted from an increase in gain on loan sales in the current period. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”) guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. Other non-interest income, net, increased by $117,700, or 22.9%, primarily due to increased rental income in the current period.

Noninterest expense for the nine months ended March 31, 2001 increased by $1,326,700, or 17.0%, from the prior year comparable period. This resulted from a $726,200, or 17.4%, increase in compensation and benefits attributable to increased staffing, incentive bonuses paid, and salary and wage adjustments. Office occupancy and equipment

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Part I Financial Information
Item 2

increased by $490,500, or 32.9% due to increases in office rent and additional lease payments attributable to the opening of our new corporate center along with the opening of a new branch office and the relocation of an existing branch office.

The federal income tax provision for the nine-month period ended March 31, 2001 increased to an effective rate of 33.5% for the current period from an effective rate of 33.3% for the prior year comparable period.

LIQUIDITY AND CAPITAL RESOURCES

The Bank is required by federal regulations to maintain specific levels of “liquid” assets consisting of cash and other eligible investments. The current level of liquidity required by the Office of Thrift Supervision is 4% of the sum of net withdrawable savings and borrowings due within one year. The Bank’s liquidity at March 31, 2001 was 7.6%. Management believes the Bank has sufficient liquidity to meet its operational needs.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes to the Company’s interest rate risk position or any changes to how the Company manages its Asset/ Liability position since June 30, 2000.

Part II	Other Information
Item 1.	Legal Proceedings. N/A
	(a) Information pertaining to lawsuits is set forth in Item 3 of Form 10-K for the Year ended June 30, 2000.
Item 2.	Changes in Securities and Use of Proceeds. N/A
Item 3.	Defaults Upon Senior Securities. N/A
Item 4.	Submission of Matters to a Vote of Security Holders. N/A
Item 5.	Other Information. N/A
Item 6.	Exhibits and Reports on Form 8-K. N/A

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PVF Capital Corp.
	(Registrant)
Date: May 9, 2001	/s/ C. Keith Swaney
	C. Keith Swaney
	President and Treasurer