PVF Capital 10K 2006 Annual report | PVFC Filing

Exhibit 13

A n n u a l R e p o r tJ u n e 3 0 , 2 0 0 6

2006

B o a r d o f D i r e c t o r s

John R. Male
Chairman of the Board and
Chief Executive Officer

C. Keith Swaney
President, Chief Operating Officer
and Chief Financial Officer

Gerald A. Fallon
Retired

Robert K. Healey
Retired

Ronald D. Holman, II
Partner
Cavitch, Familo, Durkin & Frutkin

Stanley T. Jaros
Partner
Moriarty & Jaros, P.L.L.

Raymond J. Negrelli
President
Raymond J. Negrelli, Inc.

Stuart D. Neidus
Chairman and
Chief Executive Officer
Anthony & Sylvan Pools Corporation

O f f i c e r s

John R. Male
Chairman of the Board and
Chief Executive Officer

C. Keith Swaney
President, Chief Operating Officer
and Chief Financial Officer

Jeffrey N. Male
Executive Vice President

William J. Harr, Jr.
Senior Vice President
Lending

Anne M. Johnson
Senior Vice President
Operations

Carol S. Porter
Corporate Secretary and
Marketing Director

Edward B. Debevec
Treasurer

Mark E. Fosnaught
Vice President
Retail Banking

Robert L. Katitus
Vice President
Commercial Real Estate Lending

Adeline Novak
Vice President
Human Resources

Robert J. Papa
Vice President
Construction Lending

J. Thomas Peyton
Vice President
Information Systems

John E. Schimmelmann
Vice President
Deposit Operations

Kennaird H. Stewart
Vice President
Commercial Real Estate Lending


*Table of Contents*

Letter to Shareholders			2

Full Service Locations			4

Selected Consolidated Financial and Other Data			6

Management’s Discussion and Analysis of Financial Condition and Results of Operations			8

Management’s Annual Report on Internal Control over Financial Reporting			21

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting			22

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements			24

2006

To O u r S h a r e h o l d e r s

We are pleased to report on the progress of our strategic initiatives and the results of operations for PVF Capital Corp., the parent of Park View Federal Savings Bank, for the fiscal year ended June 30, 2006.

The Company’s strategic initiatives focus on community lending, controlling interest rate risk, growth of core deposits, expense control and internet banking. We are currently in the process of reorganizing and expanding our lending area to produce quality growth and service in all areas of residential lending. The loan portfolio for the year had measured growth in one-to-four family, multi-family, acquisition and development and construction loans. The Bank has been able to control its interest rate risk by originating short-term, adjustable-rate loans for investment while selling long-term, fixed-rate loans and retaining the servicing. The Bank has introduced new products and services and has focused much of its advertising budget and cross-selling efforts on increasing the Company’s deposit base, with the emphasis on growth in core deposits. The implementation of PVF Online Banking and PVF Bill Pay has enhanced both the visibility and product offerings of Park View Federal Savings Bank.

Earnings for the fiscal year ended June 30, 2006 decreased by $0.7 million to $4.8 million, or $0.63 basic earnings per share and $0.62 diluted earnings per share. The return on average assets was 0.56 percent and return on average common equity was 7.15 percent for the year. The decline in earnings for the year is attributable to an increase in the provision for loan losses, a decrease in non-interest income, an increase in non-interest expense and an increase in net interest income. Non-interest income decreased as a result of declines in mortgage banking activities, gains on the sale of real estate owned and real estate activity. Non-interest expense increased primarily as a result of increases to compensation and benefits and office occupancy and equipment. The increase to net interest income was attributable to balance sheet growth in both interest-earning assets and interest-bearing liabilities in addition to an increase in the Company’s interest rate spread. The details of our financial performance are contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations portion of this report.

While the Company’s investment in technology along with enhanced products and services has resulted in higher staffing levels, increased administrative costs and reduced earnings in the short run, we believe the Company is now well positioned for future growth.

2006

Consolidated assets of the Company increased $82.2 million to $906.1 million, while total stockholders’ equity of PVF Capital Corp. increased to $69.0 million at June 30, 2006. Loans receivable increased by $75.6 million, mortgage-backed securities held to maturity decreased by $4.1 million, and loans receivable held for sale increased by $1.6 million. The increases in deposits and borrowings of $64.7 million and $10.4 million, respectively, were used to fund asset growth.

Our stock repurchase program was renewed for an additional 12 months in July 2006. Pursuant to this plan and our cash dividend policy, the Company repurchased a total of 472,725 shares, or 5.8 percent, of its common stock through June 30, 2006 and paid a $0.296 per share cash dividend for the year.

Visit our web site at www.pvfsb.com. The site provides information about our products and services, and provides access to current loan and deposit account rates, terms and other information.

We invite all shareholders to attend the Annual Meeting of Stockholders of PVF Capital Corp. on Monday, October 23, 2006 at 10:00 a.m., at PVF Capital Corp.’s Corporate Center, 30000 Aurora Road, Solon, Ohio. We look forward to another successful year of service and dedication to the community, its members, our shareholders and our customers.


	Sincerely,

	John R. Male		C. Keith Swaney
	Chairman of the Board and Chief Executive Officer		President, Chief Operating Officer and Treasurer


				3

F U L L S E R V I C E L O C A T I O N S

Bainbridge Office 8500 Washington St. Chagrin Falls, OH 44023 Tel: 440-543-8889Avon Office 36311 Detroit Rd. Avon, OH 44011 Tel: 440-934-3580Aurora Office 215 W. Garfield Rd. Aurora, OH 44202 Tel: 330-562-0620Beachwood Office La Place 2111 Richmond Rd. Beachwood, OH 44122 Tel: 216-831-6373Bedford Office 413 Northfield Rd. Bedford, OH 44146 Tel: 440-439-2200Chardon Office 408 Water St. Chardon, OH 44024 Tel: 440-285-2343Lakewood-Cleveland Office 11010 Clifton Blvd. Cleveland, OH 44102 Tel: 216-631-8900Macedonia Office 497 East Aurora Rd. Macedonia, OH 44056 Tel: 330-468-0055Corporate Center Office 30000 Aurora Rd. Solon, OH 44139 Tel: 440-914-3900CLEVELAND Lakewood Mentor90 90 480 480 77 71 80 80 306 Chardon Beachwood Shaker Hts. Mayfield Hts. Bainbridge Bedford North Royalton Strongsville Macedonia Corporate Ctr. Solon Medina44 91 82 322 422 Streetsboro Aurora 4 Avon480 43 271

Mentor Office Heisley Corners 6990 Heisley Rd. Mentor, OH 44060 Tel: 440-944-0276North Royalton Office 13901 Ridge Rd. North Royalton, OH 44133 Tel: 440-582-7417Shaker Heights Office Shaker Towne Centre 16909 Chagrin Blvd. Shaker Hts., OH 44120 Tel: 216-283-4003Solon Office Solar Shopping Center 34400 Aurora Rd. Solon, OH 44139 Tel: 440-542-6070Streetsboro Office 9305 Market Square Dr. Streetsboro, OH 44241 Tel: 330-626-9444Strongsville Office 17780 Pearl Rd. Strongsville, OH 44136 Tel: 440-878-6010Mayfield Heights Office 1244 SOM Center Rd. Mayfield Hts., OH 44124 Tel: 440-449-8597Medina Office Reserve Square 3613 Medina Rd. Medina, OH 44256 Tel: 330-721-7484Park View Federal’s conveniently located full service branch offices, with ample parking facilities immediately adjacent to each office, are equipped with state-of-the-art technology to process any transaction quickly and efficiently. Our loan officers and account representatives are available to answer any questions about our financial products and services. We pride ourselves on providing our customers with the best in financial assistance

Selected Consolidated Financial and Other Data

Financial Condition Data:


	At June 30,
(dollars in thousands)	2006		2005		2004		2003		2002

Total assets	$	906,081	$	823,899	$	755,687	$	743,404	$	679,620
Loans receivable, net		736,065		660,494		610,681		576,985		560,577
Loans receivable held for sale, net		10,698		9,060		11,871		33,604		11,680
Mortgage-backed securities held to maturity		27,578		31,720		36,779		2,931		7,211
Cash and cash equivalents		19,738		11,090		17,470		96,751		14,314
Securities		58,000		57,500		27,500		33		55,121
Deposits		656,864		591,226		526,493		526,429		479,672
Borrowings		156,773		146,413		147,526		125,938		129,028
Stockholders’ equity		68,973		66,453		63,361		58,603		52,299

Operating Data:


	Year Ended June 30,
(dollars in thousands except for earnings per share)	2006		2005		2004		2003		2002

Interest income	$	55,179	$	43,595	$	39,109	$	43,482	$	48,814
Interest expense		28,408		19,801		16,739		20,646		27,060

Net interest income before provision for loan losses		26,771		23,794		22,370		22,836		21,754
Provision for loan losses		826		111		597		0		558

Net interest income after provision for loan losses		25,945		23,683		21,773		22,836		21,196
Non-interest income		2,500		3,374		6,130		5,893		3,751
Non-interest expense		21,549		18,942		17,571		16,509		14,139

Income before federal income taxes		6,896		8,115		10,332		12,220		10,808
Federal income taxes		2,053		2,531		3,422		4,124		3,635

Net income	$	4,843	$	5,584	$	6,910	$	8,096	$	7,173

Basic earnings per share⁽¹⁾	$	0.63	$	0.72	$	0.89	$	1.05	$	0.93

Diluted earnings per share⁽¹⁾	$	0.62	$	0.71	$	0.87	$	1.03	$	0.91


⁽¹⁾		Adjusted for stock dividends.


6

Other Data:


	At or For the Year Ended June 30,
	2006			2005			2004			2003			2002

Return on average assets		0.56	%		0.70	%		0.96	%		1.15	%		1.03	%

Return on average equity		7.15	%		8.62	%		11.26	%		14.60	%		14.19	%

Interest rate spread		3.09	%		3.07	%		3.12	%		3.13	%		2.95	%

Net interest margin		3.28	%		3.19	%		3.31	%		3.37	%		3.26	%

Average interest-earning assets to average interest-bearing liabilities		105.38	%		104.81	%		107.62	%		108.10	%		107.64	%

Non-accruing loans and repossessed assets to total assets		1.80	%		1.59	%		1.42	%		1.06	%		1.23	%

Stockholders’ equity to total assets		7.61	%		8.07	%		8.38	%		7.88	%		7.70	%

Ratio of average equity to average assets		7.78	%		8.16	%		8.49	%		7.86	%		7.24	%

Dividend payout ratio (cash dividends declared divided by net income)		47.13	%		37.37	%		33.71	%		21.21	%		21.76	%

Bank Regulatory Capital Ratios:


Ratio of tangible capital to adjusted total assets	8.33	%	8.77	%	7.97	%	7.73	%	7.88	%

Ratio of Tier-1 core capital to adjusted total assets	8.33	%	8.77	%	7.97	%	7.73	%	7.88	%

Ratio of Tier-1 risk-based capital to risk-weighted assets	9.72	%	10.41	%	9.54	%	9.92	%	10.84	%

Ratio of Total risk-based capital to risk-weighted assets	10.28	%	10.97	%	10.19	%	10.55	%	11.63	%


				7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

PVF Capital Corp. (“PVF” or the “Company”) is the holding company for Park View Federal Savings Bank (“Park View Federal” or the “Bank”), its principal and wholly-owned subsidiary and a federally chartered savings bank headquartered in Solon, Ohio. Park View Federal has 17 branch offices located in Cleveland and surrounding communities. 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 Cuyahoga, Lake, Geauga, Portage, 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, commercial real estate loans and multi-family residential real estate loans. In addition, the Bank originates loans secured by second mortgages, including equity line of credit loans and non real estate loans. 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.

Forward-Looking Statements

When used in this Annual Report, 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, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the 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 result 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.

Overview of Financial Condition at June 30, 2006, 2005 and 2004

PVF had total assets of $906.1 million, $823.9 million and $755.7 million at June 30, 2006, 2005 and 2004, respectively. The primary source of the Bank’s total assets has been its loan portfolio. Net loans receivable, loans receivable held for sale and mortgage-backed securities totaled $774.3 million, $701.3 million and $659.3 million at June 30, 2006, 2005 and 2004, respectively.

The following table provides a breakdown of the composition of loans receivable, loans receivable held for sale and mortgage-backed securities for these periods.


(dollars in thousands)	2006			2005			2004

One-to-four family residential	$	174,575		$	148,956		$	128,210
Home equity line of credit		94,450			97,692			83,505
Multi-family residential		45,716			33,504			38,777
Commercial		170,392			171,331			175,323
Commercial equity line of credit		34,064			31,875			38,113
Land		77,242			68,165			54,047
Construction — residential		84,146			75,460			70,833
Construction — multi-family		7,956			0			0
Construction — commercial		33,756			24,355			15,679

Total real estate mortgages		722,297			651,339			604,487
Non real estate mortgages		21,824			17,300			13,951

Total loans receivable		744,121			668,639			618,438
Net deferred loan origination fees		(3,382	)		(3,833	)		(3,380	)
Allowance for loan losses		(4,675	)		(4,312	)		(4,377	)

Total loans receivable, net	$	736,065		$	660,494		$	610,681
Loans receivable held for sale, net	$	10,698		$	9,060		$	11,871
Mortgage-backed securities held to maturity	$	27,578		$	31,720		$	36,779

The decrease in mortgage-backed securities in 2006 resulted from the purchase of $1.1 million in mortgage-backed securities less payments received of $5.2 million. Securities totaled $58.0 million, $57.5 million and $27.5 million, and cash and cash equivalents totaled $19.7 million, $11.1 million and $17.5 million at June 30, 2006, 2005 and 2004, respectively.

The securities portfolio has been and will continue to be used primarily to meet the liquidity requirements of the Bank in its deposit taking and lending activities. These securities are pledged as collateral to secure the Bank’s repurchase agreement.

The Bank has adopted a policy that permits investment only in U.S. government and U.S. government-sponsored enterprises securities or Triple-A-rated securities. The Bank invests primarily in securities having a final maturity of five years or less, federal funds sold and deposits at the Federal Home Loan Bank (“FHLB”) of Cincinnati. The entire portfolio matures within five years or less, and the Bank has no plans to change the short-term nature of its securities portfolio.

The Bank’s deposit liabilities totaled $656.9 million, $591.2 million and $526.5 million at June 30, 2006, 2005 and 2004, respectively. Management’s decision to continue to pay attractive market savings rates and promote the growth of core accounts resulted in an increase in savings deposits of $65.6 million for the year ended June 30, 2006. Following is a breakdown of deposits by category for these periods.


(dollars in thousands)	2006		2005		2004

Now accounts	$	39,565	$	38,319	$	38,578
Passbook savings		35,194		43,415		46,726
Money market accounts		60,900		22,952		20,477
Non-interest bearing		17,069		16,958		16,429
Certificates of deposit		504,316		469,582		404,283

Total deposits	$	656,864	$	591,226	$	526,493

FHLB advances and other borrowings amounted to $156.8 million, $146.4 million and $147.5 million at June 30, 2006, 2005 and 2004, respectively. In March 2006, the Bank entered into a $50 million repurchase agreement with another institution. The proceeds were used to repay FHLB advances.


				9

Capital

PVF’s stockholders’ equity totaled $69.0 million, $66.5 million and $63.4 million at the years ended June 30, 2006, 2005 and 2004, respectively. The increases were the result of the retention of net earnings, less cash dividends paid and purchased treasury stock.

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, 2006, the Bank was in compliance with all of the current applicable regulatory 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
(dollars in thousands)	Capital		Assets⁽¹⁾			Institution

Tangible capital	$	75,827		8.33	%		N/A
Tier-1 core capital	$	75,827		8.33	%		5.00	%
Tier-1 risk-based capital	$	75,827		9.72	%		6.00	%
Total risk-based capital	$	80,241		10.28	%		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

The Company’s common stock trades under the symbol “PVFC” on the NASDAQ Small-Cap Market. A 10 percent stock dividend was issued in August 2005 and 2004. As adjusted to reflect all stock dividends and purchases of treasury stock, the Company had 7,717,448 shares of common stock outstanding and approximately 210 holders of record of the common stock at September 12, 2006. 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.

Our stock repurchase program was renewed for a 12-month period in July 2006 and authorizes the purchase of an additional 265,602 shares of the Company’s common stock. At June 30, 2006, as adjusted to reflect all stock dividends, the Company had acquired a total of 472,725 shares, or 5.8 percent, of the Company’s common stock. The stock repurchase program is dependent on market conditions with no guarantee as to the exact number of shares to be repurchased. The cash dividend policy remains dependent upon the Company’s financial condition, earnings, capital needs, regulatory requirements and economic conditions. A quarterly cash dividend of $0.074 per share was paid on the Company’s outstanding common stock in fiscal 2006. A quarterly cash dividend of $0.067 per share was paid on the Company’s outstanding common stock in fiscal 2005. All amounts have been adjusted for stock dividends.

The following table sets forth certain information as to the range of the high and low bid prices for the Company’s common stock for the calendar quarters indicated.⁽¹⁾


	Fiscal 2006				Fiscal 2005
	High Bid		Low Bid		High Bid		Low Bid
Fourth Quarter	$	10.22	$	9.00	$	14.33	$	10.11
Third Quarter		11.30		9.73		12.73		10.91
Second Quarter		11.56		10.38		13.22		11.43
First Quarter		13.33		10.54		14.47		12.50


⁽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.

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, proceeds from maturing securities, and advances from the FHLB of Cincinnati. While loan and mortgage-backed securities payments and maturing securities are relatively stable sources of funds, deposit flows and loan and mortgage-backed securities 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 existing and continuing loan commitments, fund maturing certificates of deposit and deposit withdrawals, repay borrowings, maintain its liquidity and meet operating expenses. At June 30, 2006, the Bank had commitments to originate loans totaling $79.8 million,


10

Profile of Interest Earning Assets

Profile of Interest Earning Assets 1.8% Fixed-rate other mortgage loans 3.1% Fixed-rate mortgage-backed securities 37.2% Adjustable-rate single-family mortgage loans 10.2% Other interest-earning assets 41.7% Adjustable-rate other mortgage loans 3.9% Fixed-rate single-family mortgage loans 2.1% Non real estate loans

of which $31.5 million is intended to be sold, commitments to fund equity lines of credit totaling $92.9 million and $66.7 million of undisbursed loans in process. Scheduled maturities of certificates of deposit during the 12 months following June 30, 2006 total $441.7 million. Management believes that a significant portion of the amounts maturing during fiscal 2007 will be reinvested with the Bank because they are retail deposits, however, no assurances can be made that this will occur.

Park View Federal maintains liquid assets sufficient to meet operational needs. The Bank’s most liquid assets are cash and cash equivalents, which are short-term, highly-liquid investments 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.

Market Risk Management

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. The Bank’s market risk is composed of interest rate risk.

Asset/Liability Management: The Bank’s asset and liability committee (“ALCO”), which includes senior management representatives and two outside directors, monitors and considers methods of managing the rate sensitivity and repricing characteristics of the balance sheet components consistent with maintaining acceptable levels of changes in net portfolio value (“NPV”) and net interest income. Park View Federal’s asset and liability management program is designed to minimize the impact of sudden and sustained changes in interest rates on NPV and net interest income.

The Bank’s exposure to interest rate risk is reviewed on a quarterly basis by the Board of Directors and the ALCO. Exposure to interest rate risk is measured with the use of interest rate sensitivity analysis to determine the Bank’s change in NPV in the event of hypothetical changes in interest rates, while interest rate sensitivity gap analysis is used to determine the repricing characteristics of the Bank’s assets and liabilities. If estimated changes to NPV and net interest income are not within the limits established by the Board, the Board may direct management to adjust its asset and liability mix to bring interest rate risk within Board-approved limits.

In order to reduce the exposure to interest rate fluctuations, the Bank has developed strategies to manage its liquidity, shorten the 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 mortgage loans for the acquisition,

Profile of Interest Bearing Liabilities

Profile of Interest Bearing Liabilities 1.9% CDs over 36 months 55.5% CDs 12 months or less 1.0% CDs 25 to 36 months 4.9% CDs 13 to 24 months 12.6% Transaction accounts 10.0% FHLB advances and other borrowings greater than 3 months 9.7% FHLB advances and other borrowings 3 months or less 4.4% Passbook accounts


				11

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.

Interest rate sensitivity analysis is used to measure the Bank’s interest rate risk by computing estimated changes in NPV of its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. NPV represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for of-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of an immediate and sustained 1 and 2 percent increase or decrease in market interest rates. The Bank’s Board of Directors has adopted an interest rate risk policy which establishes maximum decreases in the NPV ratio (ratio of market value of portfolio equity to the market value of portfolio assets) of 0.5 and 1.0 percent in the event of an immediate and sustained 1 and 2 percent increase or decrease in market interest rates.

The following table presents the Bank’s projected change in NPV for the various rate shock levels at June 30, 2006 and 2005. All market risk sensitive instruments presented in this table are held to maturity or available for sale. The Bank has no trading securities.


(dollars in thousands)	June 30, 2006								June 30, 2005
Change in	Market Value of		Dollar			NPV			Market Value of		Dollar			NPV
Interest Rates	Portfolio Equity		Change			Ratio			Portfolio Equity		Change			Ratio
+2%	$	85,142	$	(10,181	)		9.37	%	$	87,343	$	(5,011	)		10.44	%
+1%		90,340		( 4,983	)		9.85			91,084		(1,270	)		10.79
0		95,323					10.29			92,354					10.85
-1%		98,892		3,569			10.59			88,401		(3,953	)		10.34
-2%		98,438		3,115			10.50			80,987		(11,367	)		9.45

The table illustrates that for June 30, 2006, in the event of an immediate and sustained increase in prevailing market interest rates, the Bank’s NPV ratio would be expected to decrease, while in the event of an immediate and sustained decrease in market interest rates, the Bank’s NPV ratio would be expected to increase. The Bank carefully monitors the maturity and repricing of its interest-earning assets and interest-bearing liabilities to minimize the effect of changing interest rates on its NPV. At June 30, 2006, the Bank’s estimated changes in NPV ratio were within the targets established by the Board of Directors in the event of an immediate and sustained increase in prevailing market interest rates, but outside of the established targets in the event of an immediate and sustained decrease in prevailing market interest rates. The Bank’s interest rate risk position is the result of the repricing characteristics of assets and liabilities. The balance sheet is primarily comprised of interest-earning assets having a maturity and repricing period of one month to five years. These assets were funded utilizing interest-bearing liabilities having a final maturity of two years or less, advances convertible at the option of the FHLB of Cincinnati and a repurchase agreement.

Management carefully monitors its interest rate risk position and will make the necessary adjustments to its asset and liability mix to bring the Bank’s NPV ratio to within target levels established by the Board of Directors.

NPV is calculated by the OTS using information provided by the Bank. The calculation is based on the net present value of discounted cash flows utilizing market prepayment assumptions and market rates of interest provided by Bloomberg quotations and surveys performed during the quarters ended June 30, 2006 and 2005, with adjustments made to reflect the shift in the Treasury yield curve between the survey date and the quarter-end date.

Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates.


12

Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. Actual values may differ from those projections set forth in the table, should market conditions vary from assumptions used in the preparation of the table. Certain assets such as adjustable-rate loans, which represent the Bank’s primary loan product, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In addition, the proportion of adjustable-rate loans in the Bank’s portfolio could decrease in future periods if market interest rates remain at or decrease below current levels due to refinance activity. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the table. Finally, the ability of many borrowers to repay their adjustable-rate debt may decrease in the event of an interest rate increase.

The Company uses interest rate sensitivity gap analysis to monitor the relationship between the maturity and repricing of its interest-earning assets and interest-bearing liabilities, while maintaining an acceptable interest rate spread. 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, while 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 following table summarizes the Company’s interest rate sensitivity gap analysis at June 30, 2006. The table indicates that the Company’s one year and under ratio of cumulative gap to total assets is negative 11.1 percent, one-to-three year ratio of cumulative gap to total assets is negative 8.0 percent, and three-to-five year ratio of cumulative gap to total assets is positive 2.6 percent.


	Within			1-3			3-5			>5
(dollars in thousands)	1 Year			Years			Years			Years			Total

Total interest-rate-sensitive assets	$	428,101		$	176,262		$	188,175		$	69,266		$	861,804
Total interest-rate-sensitive liabilities		528,499			148,328			92,454			27,287			796,568
Periodic GAP		(100,398	)		27,934			95,721			41,979			65,236
Cumulative GAP		(100,398	)		(72,464	)		23,257			65,236
Ratio of cumulative GAP to total assets		(11.1	%)		(8.0	%)		2.6	%		7.2	%

Commitments, Contingencies and Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk including commitments to originate new loans, commitments to extend credit under existing lines of credit and commitments to sell loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.

Off-balance sheet financial instruments whose contract amounts represent credit risk are summarized as follows:


	June 30,
(dollars in thousands)	2006		2005
Commitments to originate:
Mortgage loans intended for sale	$	31,524	$	43,912
Mortgage loans held for investment		48,287		29,798
Unfunded home equity and commercial real estate lines of credit		92,901		79,452
Undisbursed portion of loan proceeds		66,749		69,715
Commitments to sell loans held for sale		13,250		17,881
Standby letters of credit		3,547		8,903

Commitments to originate new loans or to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally expire within 30 to 60 days. Most home equity line of credit commitments are for a term of five years and commercial real estate lines of credit are generally renewable every two years. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.

Commitments to sell loans intended for sale are agreements to sell loans to a third party at an agreed-upon price. The fair value of commitments to originate mortgage loans intended for sale at June 30, 2006 was negative $321,000 and commitments to sell loans intended for sale was $67,000. The Company recorded a net provision for loss on mortgage banking derivatives of $254,000 at June 30, 2006.

The following table presents as of June 30, 2006, PVF Capital Corp.’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts or other similar carrying value adjustments. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

Contractual Obligations:


	Note		Within		1-3		3-5		>5
(dollars in thousands)	Reference		1 Year		Years		Years		Years		Total

Deposits without a stated maturity		—	$	152,728		—		—		—	$	152,728
Certificates of deposit		7		441,726		46,933		15,477		—		504,136
Long-term advances from the FHLB of Cincinnati		8		—		20,000		—		—		20,000
Repurchase agreement		9		—		—		50,000		—		50,000
Subordinated debt		9		—		—		—		10,000		10,000
Operating leases		11		884		1,612		1,003		527		4,026

Results of Operations

General

PVF Capital Corp.’s net income for the year ended June 30, 2006 was $4.8 million, or $0.63 basic earnings per share and $0.62 diluted earnings per share as compared to $5.6 million, or $0.72 basic earnings per share and $0.71 diluted earnings per share for fiscal 2005, and $6.9 million, or $0.89 basic earnings per share and $0.87 diluted earnings per share for fiscal 2004. All per share amounts have been adjusted for stock dividends.

Net income for the current year decreased by $0.7 million from the prior fiscal year and $2.1 million from fiscal 2004. The decrease in net income from 2005 is due to an increase in provision for loan losses, a decrease in non-interest income that resulted from declining gains on the sale of loans and an increase in non-interest expense that was attributable to an increase in compensation and benefits
along with an increase in office occupancy and equipment, and outside services. This was offset by an increase in net interest income.

Net Interest Income

Net interest income amounted to $26.8 million for the year ended June 30, 2006, as compared to $23.8 million and $22.4 million for the years ended June 30, 2005 and 2004, respectively. Changes in the level of net interest income reflect changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities. Tables 1 and 2 provide information as to changes in the Company’s net interest income.

Table 1 sets forth certain information relating to the Company’s average interest-earning assets (loans and

securities) 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-accruing loans are included in the loan category.

Table 1 also presents information for the periods indicated 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 interest margin” or “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 1	Average Balances, Interest, and Average Yields and Rates
	For the Year Ended June 30,

	2006								2005								2004
	Average					Yield/			Average					Yield/			Average					Yield/
(dollars in thousands)	Balance			Interest		Cost			Balance			Interest		Cost			Balance			Interest		Cost

Interest-earning assets:
Loans	$	709,789		$	50,514		7.12	%	$	649,305		$	39,825		6.13	%	$	610,081		$	36,605		6.00	%
Mortgage-backed securities		29,013			1,386		4.78			34,199			1,655		4.84			39,180			1,860		4.75
Securities and other interest-earning assets		77,989			3,279		4.20			61,747			2,115		3.43			27,538			645		2.34

Total interest-earning assets		816,791			55,179		6.75			745,251			43,595		5.85			676,799			39,110		5.78

Non-interest-earning assets		53,338								48,343								46,232

Total assets	$	870,129							$	793,594							$	723,031


Interest-bearing liabilities:
Deposits	$	609,685		$	20,777		3.41	%	$	537,874		$	13,133		2.44	%	$	497,803		$	11,351		2.28	%
Borrowings		165,441			7,631		4.61			173,205			6,668		3.85			131,069			5,389		4.11

Total interest-bearing liabilities		775,126			28,408		3.66			711,079			19,801		2.78			628,872			16,740		2.66

Non-interest-bearing liabilities		27,296								17,723								32,780

Total liabilities		802,422								728,802								661,652

Stockholders’ equity		67,707								64,792								61,379

Total liabilities and stockholders’ equity	$	870,129							$	793,594							$	723,031

Net interest income				$	26,771							$	23,794							$	22,370

Interest rate spread							3.09	%							3.07	%							3.12	%

Net yield on interest-earning assets							3.28	%							3.19	%							3.31	%

Ratio of average interest-earning assets to average interest-bearing liabilities		105.38	%							104.81	%							107.62	%

Table 2 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) and changes relating to rate (changes in average rate multiplied by average old volume). Changes not solely attributable to volume or rate have been allocated in proportion to the changes due to volume and rate.


Table 2	Year Ended June 30,
	2006			vs.			2005			2005			vs.			2004
	Increase (Decrease)									Increase (Decrease)
	Due to									Due to
(dollars in thousands)	Volume			Rate			Total			Volume			Rate			Total
Interest income:
Loans	$	3,930		$	6,759		$	10,689		$	2,392		$	829		$	3,220
Mortgage-backed securities		(248	)		(21	)		(269	)		(241	)		35			(205	)
Securities and other interest-earning assets		624			540			1,164			1,071			399			1,470

Total interest-earning assets		4,306			7,278			11,584			3,222			1,263			4,485

Interest expense:
Deposits		1,927			5,717			7,644			949			833			1,782
Borrowings		(309	)		1,272			963			1,695			(416	)		1,279

Total interest-bearing liabilities		1,618			6,989			8,607			2,644			417			3,061

Net interest income	$	2,688		$	289		$	2,977		$	578		$	846		$	1,424

As is evidenced by these tables, interest rate changes had a positive effect on the Bank’s net interest income for the year ended June 30, 2006. Due to the repricing characteristics of the Bank’s loan portfolio and short-term nature of its deposit portfolio, along with changing interest rates during the years ended June 30, 2006 and 2005, the Bank’s interest rate spread performed consistently at 3.09 percent for fiscal year 2006, 3.07 percent for fiscal 2005, and 3.12 percent for fiscal 2004. Changes in interest rates contributed to an increase of $0.3 million in net interest income for the year ended June 30, 2006 and an increase of $0.8 million in net interest income for the year ended June 30, 2005.

Net interest income was favorably affected by volume changes during the years ended June 30, 2006 and 2005. Accordingly, net interest income grew by $2.7 million and $0.6 million due to volume changes for the years ended June 30, 2006 and 2005, respectively.

The rate/volume analysis illustrates the effect that volatile interest rate environments can have on a financial institution.

Provision for Loan Losses

The Bank carefully monitors its loan portfolio and establishes levels of general and specific reserves for loan losses. Provisions for loan losses are charged to earnings to bring the total allowance for loan losses to a level considered adequate by management to provide for probable incurred loan losses inherent in the loan portfolio as of each balance sheet date, 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 uses a systematic approach in determining the adequacy of its loan loss allowance and the necessary provision for loan losses, whereby the loan portfolio is reviewed generally and delinquent loan accounts are analyzed individually, on a monthly basis. Consideration is given primarily to the types of loans in the portfolio and the overall risk inherent in the portfolio as well as, with respect to individual loans, account status, payment history, ability to repay and probability of repayment, and loan-to-value percentages. After reviewing current economic conditions, changes in delinquency status and actual loan losses incurred

by the Bank, 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 with respect to the allowance for loan losses, recognizing that future adjustments may be necessary depending upon a change in economic conditions.

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 loss of principal is probable. 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 general allowances based upon the establishment of a risk category for each type of loan in the Bank’s portfolio.

Classified assets are loans identified with an inherent weakness and serve as an early warning tool in identifying the risk of loss. Classification categories include substandard, doubtful and loss.

Loans in the substandard classification are inadequately protected by the current net worth and payment capacity of the obligor, or by the value of the collateral pledged. Substandard assets have a well-defined weakness based upon objective evidence and contain a distinct possibility of loss if deficiencies are not corrected.

Loans in the doubtful classification have all weaknesses inherent in those of substandard classification and these weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions and values, highly questionable and improbable.

Loans in the loss classification are considered uncollectible and of such little value that their continuance as assets is not warranted.

Substantially all loans reported as classified assets as of June 30, 2006 and June 30, 2005 were classified as substandard.

Following is a schedule detailing the performing status of our reported classified assets as of June 30, 2006 and June 30, 2005.


	2006								2005
			More than								More than
			90 days and								90 days and
	Performing		accruing		Non-accruing		Total		Performing		accruing		Non-accruing		Total
One-to-four family residential	$	124,401	$	—	$	4,732,215	$	4,856,616	$	1,086,330	$	—	$	3,157,053	$	4,243,383
Home equity line of credit		124,363		—		2,593,797		2,718,160		378,214		162,975		1,768,462		2,309,651
Multi-family residential		—		—		21,300		21,300		319,393		—		—		319,393
Commercial real estate		—		—		2,480,794		2,480,794		1,210,406		—		3,353,962		4,564,368
Land		—		—		1,188,659		1,188,659		141,651		—		276,427		418,078
Residential construction		175,000		—		3,687,350		3,862,350		—		270,000		256,000		526,000

Total classified real estate loans		423,764		—		14,704,115		15,127,879		3,135,994		432,975		8,811,904		12,380,873
Non real estate loans		59,810		—		—		59,810		—		—		—		—

Total classified loans	$	483,574	$	—	$	14,704,115	$	15,187,689	$	3,135,994	$	432,975	$	8,811,904	$	12,380,873

During 2006, the Bank experienced growth in the loan portfolio of $75.6 million, or 11.4 percent, while substantially maintaining the composition of the loan portfolio. The level of classified assets increased from $12.4 million in 2005 to $15.2 million in 2006. The level of non-accruing loans increased from $11.7 million in 2005 to $15.5 million in 2006. Net charge-offs increased from $175,000 in 2005 to $464,000 in 2006. Therefore, taking into consideration the growth of the portfolio, the level of non-accruing loans and classified assets, as well as net charge-offs and the overall performance of the loan portfolio, the Bank provided $826,000 of additional provision to increase the allowance to a level deemed appropriate of $4.7 million.

During 2005, the Bank experienced growth in the loan portfolio of $49.8 million, or 8.1 percent, while substantially maintaining the composition of the loan portfolio. The level of classified assets decreased from $14.0 million in 2004 to $12.4 million in 2005. The level of non-accruing loans increased from $10.6 million in 2004 to $11.7 million in 2005, however, the level of non-accruing loans in the loan categories other than 1-4 family loans decreased. Given the decrease in classified assets and the shift in non-accruing loans, the Bank provided $111,000 for loan losses in 2005, resulting in an allowance for loan losses of $4.3 million.

Non-interest Income

Non-interest income amounted to $2.5 million, $3.4 million and $6.1 million for the years ended June 30, 2006, 2005 and 2004, respectively. The fluctuations in non-interest income are due primarily to fluctuations in income derived from mortgage banking activities, fee income on deposit accounts, gains on the sale of real estate owned and the increase in the cash surrender value of Bank Owned Life Insurance (“BOLI”). Income attributable to mortgage banking activities consists of loan servicing income, gains and losses on the sale of loans, and market valuation provisions and recoveries. Income from mortgage banking activities amounted to $0.8 million, $1.3 million and $4.6 million for the years ended June 30, 2006, 2005 and 2004, respectively. The income from mortgage banking activities is primarily due to net profit realized on the sale of loans. In 2004, income from mortgage banking activity was attributable in large part to historically low market interest rates and is not representative of typical mortgage banking volume. Other non-interest income amounted to $1.7 million, $2.1 million and $1.5 million for the years ended June 30, 2006, 2005 and 2004, respectively. The decrease in other non-interest income of $0.4 million from the year ended June 30, 2005 to June 30, 2006 is attributable primarily to a single item of other income being reported in 2005 that did not reoccur in 2006. In 2005, the Company reported income from a successful real estate venture that was completed in that year. Changes in other non-interest income are typically the result of service and other miscellaneous fee income, rental income, insurance proceeds, income realized on the sale of assets and investments, and the disposal of real estate owned properties.

Non-interest Expense

Non-interest expense amounted to $21.5 million, $18.9 million and $17.6 million for the years ended June 30, 2006, 2005 and 2004, respectively. The principal component of non-interest expense is compensation and related benefits which amounted to $12.1 million, $10.8 million and $9.6 million for the years ended June 30, 2006, 2005 and 2004, respectively. The increase in compensation for the years ended June 30, 2006 and 2005 is due primarily to an increase in the cost of employee benefits, salary and wage adjustments to employees, a compensation incentive plan for employees, and stock option expenses resulting from the adoption of Financial Accounting Standards Bulletin No. 123R. Office occupancy totaled $3.8 million, $3.7 million and $3.4 million for the years ended June 30, 2006, 2005 and 2004, respectively. Other non-interest expense totaled $5.7 million, $4.4 million and $4.6 million for the years ended June 30, 2006, 2005 and 2004, respectively. Changes in other non-interest expense are primarily the result of advertising, professional and legal services, insurance expenses, outside services and franchise tax expense.

Federal Income Taxes

The Company’s federal income tax expense was $2.1 million, $2.5 million and $3.4 million for the years ended June 30, 2006, 2005 and 2004, respectively. Due to the availability of tax credits for the years ended June 30, 2006, 2005 and 2004, the tax advantaged treatment of BOLI and other miscellaneous deductions, the Company’s effective federal income tax rate was below the expected tax rate of 35 percent with an effective rate of 30 percent for the year ended June 30, 2006, an effective rate of 31 percent for the year ended June 30, 2005, and 33 percent for the year ended June 30, 2004.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which require 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 Company are monetary in nature. As a result, interest rates have a more significant impact on the Company’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 Company, see “Market Risk Management.”

Critical Accounting Policies and Estimates

The accounting and reporting policies of PVF Capital Corp. are in accordance with U.S. generally accepted accounting principles and conform to general practices within the banking industry. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements. Accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments.

The most significant accounting policies followed by PVF Capital Corp. are presented in Note 1 to the consolidated financial statements. Accounting and reporting policies for the allowance for loan losses and mortgage servicing rights are deemed critical since they involve the use of estimates and require significant management judgments. PVF Capital Corp. provides further detail on the methodology and reporting of the allowance for loan losses in Note 4 and mortgage servicing rights in Note 5.

O f f i c e L o c a t i o n s

a n d H o u r s

Aurora Office
215 W. Garfield Road
Aurora, Ohio 44202
330-562-0620

Avon Office
36311 Detroit Road
Avon, Ohio 44011
440-934-3580

Bainbridge Office
8500 Washington Street
Chagrin Falls, Ohio 44023
440-543-8889

Beachwood Office
La Place
2111 Richmond Road
Beachwood, Ohio 44122
216-831-6373

Bedford Office
413 Northfield Road
Bedford, Ohio 44146
440-439-2200

Chardon Office
408 Water Street
Chardon, Ohio 44024
440-285-2343

Lakewood-Cleveland Office
11010 Clifton Blvd.
Cleveland, Ohio 44102
216-631-8900

Macedonia Office
497 East Aurora Road
Macedonia, Ohio 44056
330-468-0055

Mayfield Heights Office
1244 SOM Center Road
Mayfield Hts., Ohio 44124
440-449-8597

Medina Office
Reserve Square
3613 Medina Road
Medina, Ohio 44256
330-721-7484

Mentor Office
Heisley Corners
6990 Heisley Road
Mentor, Ohio 44060
440-944-0276

North Royalton Office
13901 Ridge Road
North Royalton, Ohio 44133
440-582-7417

Solon Office
Solar Shopping Center
34400 Aurora Road
Solon, Ohio 44139
440-542-6070

Streetsboro Office
9305 Market Square Drive
P.O. Box 2130
Streetsboro, Ohio 44241
330-626-9444

Strongsville Office
17780 Pearl Road
Strongsville, Ohio 44136
440-878-6010

LOBBY
Mon., Tues., Wed., Thurs.:
9:00 am — 4:30 pm
Friday:9:00 am — 5:30 pm
Saturday:9:00 am — 1:00 pm

AUTO TELLER
Mon., Tues., Wed., Thurs.:
9:00 am — 5:00 pm
Friday:9:00 am — 6:00 pm
Saturday:9:00 am — 1:00 pm

Shaker Heights Office
Shaker Towne Centre
16909 Chagrin Blvd.
Shaker Hts., Ohio 44120
216-283-4003

LOBBY
Mon., Tues., Wed., Thurs.:
9:00 am — 5:00 pm
Friday :9:00 am — 6:00 pm
Saturday: 9:00 am — 1:00 pm

Corporate Center Office
30000 Aurora Road
Solon, Ohio 44139
440-914-3900

LOBBY & AUTO TELLER
Monday — Friday:
9:00 am — 5:00 pm
Closed Saturday

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

The management of PVF Capital Corp. is responsible for establishing and maintaining adequate internal control over financial reporting. PVF Capital Corp.’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.

With the supervision and participation of our Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on management’s assessment and those criteria, management believes that PVF Capital Corp. maintained effective internal control over financial reporting as of June 30, 2006.

The Company’s independent registered public accounting firm, Crowe Chizek and Company LLC, has issued their report on management’s assessment of the Company’s internal control over financial reporting. That report is included in this Annual Report.



John R. Male		C. Keith Swaney
Chairman of the Board		President, Chief Operating Officer
and Chief Executive Officer		and Treasurer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Shareholders
PVF Capital Corp.
Solon, Ohio

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, that PVF Capital Corp. (“Company”) maintained effective internal control over financial reporting as of June 30, 2006, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). PVF Capital Corp.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management’s assessment that PVF Capital Corp. maintained effective internal control over financial reporting as of June 30, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, PVF Capital Corp. maintained, in all material respects, effective internal control over financial reporting as of June 30, 2006, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of PVF Capital Corp. as of June 30, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2006, and our report dated August 15, 2006 expressed an unqualified opinion on those consolidated financial statements.

Cleveland, Ohio
August 15, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
CONSOLIDATED FINANCIAL STATEMENTS

The Board of Directors and Shareholders
PVF Capital Corp.
Solon, Ohio

We have audited the accompanying consolidated statements of financial condition of PVF Capital Corp. (“Company”) as of June 30, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 the Company as of June 30, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of PVF Capital Corp.’s internal control over financial reporting as of June 30, 2006, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated August 15, 2006 expressed an unqualified opinion thereon.

Cleveland, Ohio
August 15, 2006

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Years ended June 30, 2006 and 2005


	2006			2005
ASSETS

Cash and amounts due from depository institutions	$	6,614,171		$	4,034,353
Interest bearing deposits		1,804,098			2,180,723
Federal funds sold		11,320,000			4,875,000

Cash and cash equivalents		19,738,269			11,090,076
Securities held to maturity (fair values of $57,256,642 and $57,345,425, respectively)		58,000,000			57,500,000
Mortgage-backed securities held to maturity (fair values of $25,761,813 and $31,487,772, respectively)		27,577,923			31,720,033
Loans receivable held for sale, net		10,698,064			9,059,647
Loans receivable, net of allowance of $4,674,681 and $4,312,274		736,064,995			660,494,144
Office properties and equipment, net		12,032,692			13,413,231
Real estate owned		817,279			1,319,251
Federal Home Loan Bank stock		11,955,000			11,316,400
Prepaid expenses and other assets		29,197,159			27,985,916

Total assets	$	906,081,381		$	823,898,698


LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits	$	656,864,201		$	591,226,478
Short-term advances from the FHLB		75,000,000			15,000,000
Line of credit		1,772,871			—
Long-term advances from the FHLB		20,000,000			120,012,018
Repurchase agreement		50,000,000			—
Notes payable		—			1,400,780
Subordinated debentures		10,000,000			10,000,000
Advances from borrowers for taxes and insurance		8,102,098			3,184,981
Accrued expenses and other liabilities		15,369,071			16,621,262

Total liabilities		837,108,241			757,445,519

Commitments and contingencies

Stockholders’ equity
Serial preferred stock, $.01 par value, 1,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value, 15,000,000 shares authorized; 8,188,867 and 8,175,779 shares issued, respectively		81,889			81,758
Additional paid-in capital		68,507,097			68,288,834
Retained earnings		4,221,301			1,663,992
Treasury stock, at cost, 472,725 and 451,088 shares, respectively		(3,837,147	)		(3,581,405	)

Total stockholders’ equity		68,973,140			66,453,179

Total liabilities and stockholders’ equity	$	906,081,381		$	823,898,698

See accompanying notes to consolidated financial statements.

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 2006, 2005 and 2004


	2006			2005		2004
Interest and dividends income
Loans	$	50,513,550		$	39,825,656	$	36,604,621
Mortgage-backed securities		1,385,572			1,654,537		1,860,224
Federal Home Loan Bank stock dividends		638,807			491,125		429,402
Securities		2,273,566			1,493,167		111,443
Fed funds sold and interest-bearing deposits		367,080			130,354		103,951

Total interest income		55,178,575			43,594,839		39,109,641
Interest expense
Deposits		20,776,397			13,133,468		11,351,365
Short-term borrowings		2,816,260			934,738		124,651
Long-term borrowings		4,121,641			5,229,070		5,260,897
Subordinated debt		693,292			503,190		2,301

Total interest expense		28,407,590			19,800,466		16,739,214

Net interest income		26,770,985			23,794,373		22,370,427
Provision for loan losses		826,300			111,000		597,300

Net interest income after provision for loan losses		25,944,685			23,683,373		21,773,127
Noninterest income
Service charges and other fees		1,081,021			838,470		660,646
Mortgage banking activities, net		834,471			1,311,235		4,632,561
Gain (loss) on disposal of real estate owned		(35,330	)		165,575		488,839
Increase in cash surrender value of bank-owned life insurance		597,447			554,405		187,533
Other, net		22,606			504,558		160,177

Total noninterest income		2,500,215			3,374,243		6,129,756
Noninterest expense
Compensation and benefits		12,060,345			10,835,446		9,590,924
Office, occupancy, and equipment		3,815,592			3,670,437		3,394,285
Insurance		295,724			235,692		232,926
Professional and legal		492,061			339,050		397,179
Advertising		572,477			382,689		373,702
Outside services		1,430,915			776,801		876,799
Franchise tax		881,691			773,308		728,400
Other		2,000,595			1,929,080		1,977,065

Total noninterest expense		21,549,400			18,942,503		17,571,280

Income before federal income taxes		6,895,500			8,115,113		10,331,603
Federal income taxes
Current		2,323,692			2,413,291		2,287,524
Deferred		(271,193	)		117,701		1,134,025

		2,052,499			2,530,992		3,421,549

Net income	$	4,843,001		$	5,584,121	$	6,910,054

Basic earnings per share	$	0.63		$	0.72	$	0.89

Diluted earnings per share	$	0.62		$	0.71	$	0.87

See accompanying notes to consolidated financial statements.

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended June 30, 2006, 2005 and 2004


				Additional
	Common			paid-in			Retained			Treasury
	stock			capital			earnings			stock			Total
Balance at June 30, 2003		67,173			47,176,696			14,486,460			(3,127,193	)		58,603,136
Net income		—			—			6,910,054			—			6,910,054
Stock options exercised, 34,580 shares		346			256,447			—			—			256,793
Stock purchased and retired, 6,373 shares		(64	)		(94,147	)		—			—			(94,211	)
Cash paid in lieu of fractional shares								(2,814	)		—			(2,814	)
Stock dividend issued, 674,555 shares		6,745			11,039,093			(11,045,838	)		—			—
Cash dividend, $0.300 per share		—			—			(2,312,015	)		—			(2,312,015	)

Balance at June 30, 2004		74,200			58,378,089			8,035,847			(3,127,193	)		63,360,943
Net income		—			—			5,584,121			—			5,584,121
Stock options exercised, 21,712 shares		217			166,029			—						166,246
Stock purchased and retired, 9,024 shares		(90	)		(122,934	)		—			—			(123,024	)
Cash paid in lieu of fractional shares		—			—			(3,488	)		—			(3,488	)
Stock dividend issued, 743,046 shares		7,431			9,867,650			(9,875,081	)		—			—
Cash dividend, $0.269 per share		—			—			(2,077,407	)		—			(2,077,407	)
Purchase of 32,210 shares of treasury stock		—			—			—			(454,212	)		(454,212	)

Balance at June 30, 2005	$	81,758		$	68,288,834		$	1,663,992		$	(3,581,405	)	$	66,453,179
Net income		—			—			4,843,001			—			4,843,001
Stock options exercised, 26,038 shares		260			144,477			—			—			144,737
Stock purchased and retired, 12,950 shares		(129	)		(140,975	)		—			—			(141,104	)
Cash paid in lieu of fractional shares		—			—			(3,022	)		—			(3,022	)
Cash dividend, $0.296 per share		—			—			(2,282,670	)		—			(2,282,670	)
Purchase of 21,637 shares of treasury stock		—			—			—			(255,742	)		(255,742	)
Paid in capital related to stock based compensation		—			214,761			—			—			214,761

Balance at June 30, 2006	$	81,889		$	68,507,097		$	4,221,301		$	(3,837,147	)	$	68,973,140

See accompanying notes to consolidated financial statements.

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2006, 2005 and 2004


	2006			2005			2004
Operating activities:
Net income	$	4,843,001		$	5,584,121		$	6,910,054
Adjustments required to reconcile net income to net cash from operating activities
Amortization of premium on mortgage-backed securities		46,883			26,471			72,548
Depreciation		1,816,028			1,863,375			1,658,958
Provision for loan losses		826,300			111,000			597,300
Accretion of deferred loan origination fees, net		(2,072,972	)		(1,007,937	)		(1,108,263	)
(Gain)/loss on disposal of real estate owned		35,330			(165,575	)		(488,839	)
Market adjustments for loans held for sale		156,000			—			—
Change in fair value of mortgage banking derivatives		239,000			15,000			—
Stock compensation		214,761			—			—
FHLB stock dividends		(638,600	)		(490,800	)		(429,201	)
Deferred income tax provision		(271,193	)		117,701			1,134,025
Proceeds from loans held for sale		104,648,344			118,420,611			301,018,063
Originations of loans held for sale		(107,212,344	)		(115,813,850	)		(277,787,331	)
Gain on the sale of loans, net		(633,782	)		(1,095,039	)		(5,260,163	)
Net change in other assets and other liabilities		(946,126	)		433,489			(7,841,279	)

Net cash from operating activities		1,050,630			7,998,567			18,475,872

Investing activities:
Loans originated		(243,702,577	)		(216,290,237	)		(137,580,380	)
Principal repayments on loans		168,059,591			164,871,379			104,195,639
Principal repayments on mortgage-backed securities held to maturity		5,201,834			6,085,195			5,932,009
Purchase of mortgage-backed securities held to maturity		(1,106,607	)		(1,052,410	)		(39,853,303	)
Purchase of securities held to maturity		(500,000	)		(35,000,000	)		(27,500,000	)
Maturities and calls of securities held to maturity		—			5,000,000			33,252
Additions to office properties and Equipment		(435,489	)		(1,388,214	)		(3,991,431	)
Acquisition of bank-owned life insurance					—			(15,000,000	)
Proceeds from disposals of real estate owned		1,785,449			1,418,796			1,166,703
Acquisition of real estate owned		—			—			(70,000	)
Investments in nonconsolidated affiliates		(131,750	)		—			525,000

Net cash from investing activities		(70,829,549	)		(76,355,491	)		(112,142,511	)

See accompanying notes to consolidated financial statements.

PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2006, 2005 and 2004


	2006			2005			2004
Financing Activities:
Payments on long-term FHLB advances		(100,012,018	)		(27,813	)		(83,389	)
Net increase in short-term FHLB advances		60,000,000			—			15,000,000
Proceeds from repurchase agreement		50,000,000			—			—
Net proceeds from line of credit		1,772,871			—			—
Repayment of note payable		(1,400,780	)		(1,085,470	)		(3,328,900	)
Net change in NOW and passbook savings		31,083,809			(565,469	)		(2,052,829	)
Proceeds from issuance of certificates of deposit		130,717,293			163,111,432			107,020,928
Payments on maturing certificates of deposit		(96,163,379	)		(97,812,199	)		(104,904,312	)
Proceeds from issuance of subordinated Debentures		—			—			10,000,000
Net increase (decrease) in advances from borrowers		4,917,117			808,109			(5,587,781	)
Payment of cash dividend		(2,235,692	)		(2,034,595	)		(1,841,130	)
Purchase of treasury stock		(255,742	)		(454,212	)		—
Proceeds from exercise of stock options		144,737			160,468			256,793
Stock repurchased and retired		(141,104	)		(123,024	)		(94,211	)

Net cash from financing activities		78,427,112			61,977,227			14,385,169

Net increase (decrease) in cash and cash equivalents		8,648,193			(6,379,697	)		(79,281,470	)
Cash and cash equivalents at beginning of year		11,090,076			17,469,773			96,751,243

Cash and cash equivalents at end of year	$	19,738,269		$	11,090,076		$	17,469,773

Supplemental disclosures of cash flow information:
Cash payments of interest	$	28,546,235		$	19,766,150		$	16,740,542
Cash payments of income taxes		2,316,000			2,069,000			2,760,000
Supplemental schedule of noncash investing and financing activities:
Transfers to real estate owned	$	1,318,807		$	2,502,472		$	200,000
Income tax benefit from exercise of stock options	$	—		$	5,778		$	—

See accompanying notes to consolidated financial statements

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

The accounting and reporting policies of PVF Capital Corp. and its subsidiaries (“Company”) conform to U.S. 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, Lake, Medina, Lorain and Portage Counties, Ohio. The deposit accounts of the Bank are insured up to applicable limits under 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, PVF Service Corporation (“PVFSC”), PVF Holdings, Inc., and Mid-Pines Land Co. PVFSC owns some Bank premises and leases them to the Bank. PVF Holdings, Inc. and Mid-Pines Land Co. did not have any significant assets or activity as of or for the years ended June 30, 2006, 2005, or 2004. All significant intercompany transactions and balances are eliminated in consolidation.

PVFSC and the Bank have entered into various nonconsolidated joint ventures that consolidated own real estate including properties leased to the Bank. The Bank has created certain limited liability companies, Crock, LLC and CADR, LLC, that have taken title to property acquired through or in lieu of foreclosure.

PVF Capital Trust I (“Trust”) was created for the sole purpose of issuing trust preferred securities. The Trust is not consolidated into the financial statements.

Use of Estimates: The preparation of financial statements in conformity with U.S. 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. The allowance for loan losses, valuation of mortgage servicing rights, fair value of mortgage banking derivatives, valuation of loans held for sale, and supplemental employee retirement plan accrual are particularly subject to change.

Securities: The Company classifies all securities as held to maturity. Securities held to maturity are limited to debt securities that the Company has the positive intent and the ability to hold to maturity; these securities are reported at amortized cost. Securities that could be sold in the future because of changes in interest rates or other factors are not to be classified as held to maturity.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS(Continued)

Interest income includes amortization of purchase premium or accretion of purchase discount. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield. Prepayment is assumed for mortgage-backed securities.

A decline in fair value of any held to maturity security below cost that is deemed other than temporary is charged to earnings resulting in establishment of a new cost basis for the security. Management’s consideration as to whether a decline in fair value is other-than-temporary is based on (1) the length of time and extent that fair value has been less than cost, (2) the financial condition of the issuer and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Loans Receivable: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance and includes amortization of net deferred loan fees and costs over the loan term.

Uncollectible interest on loans that are contractually 90 days or more past due is charged off against interest income. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Income is subsequently recognized only to the extent cash payments are received until the loan is determined to be performing in accordance with the applicable loan terms in which case the loan is returned to accrual status. Past due status is based on the contractual terms of the loan.

Allowance for Loan Losses: The allowance for loan losses is maintained at a level to absorb probable incurred losses in the portfolio as of the balance sheet date. The adequacy of the allowance for loan losses is periodically evaluated by the Bank based upon the overall portfolio composition and general market conditions as well as information about specific borrower situations and estimated collateral values. 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. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses.

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

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS(Continued)

collateral dependent, measurement of impairment is based on the fair value of the collateral. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment and accordingly, they are not separately identified for impairment disclosures.

The Bank’s loan portfolio is primarily secured by real estate. Collection of real estate secured loans in the portfolio is dependant on court proceedings, and as a result, loans may remain past due for an extended period before being collected, transferred to real estate owned, or charged off. Charge-off’s are recorded after the foreclosure process is complete for any deficiency between the Bank’s recorded investment in the loan and the fair value of the real estate acquired or sold, to the extent that such a deficiency exists.

Mortgage Banking Activities: Mortgage loans originated and intended for sale in the secondary market include deferred origination fees and costs and are carried at the lower of cost or fair value, determined on an aggregate basis. The fair value of mortgage loans held for sale is based on market prices and yields at period end in normal market outlets used by the Company. Net unrealized losses, if any, are recorded as valuation allowance and charged to earnings.

The Company sells the loans on either a servicing retained or servicing released basis. Servicing rights are recognized as assets for the allocated value of retained servicing rights on loans sold. The capitalized cost of loan servicing rights is amortized in proportion to and over the period of estimated net future servicing revenue. The expected period of the estimated net servicing income is based in part on the expected prepayment of the underlying mortgages.

Mortgage servicing rights are periodically evaluated for impairment. Impairment represents the excess of amortized cost over its estimated fair value. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate and original time to maturity. Any impairment is reported as a valuation allowance for an individual tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance will be recorded as an increase to income. The impairment charge reversed during the period ended June 30, 2004 as disclosed in Note 5 was a result of this process and the change in fair values during that period.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of outstanding principal and are recorded as income when earned.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS(Continued)

The Company is exposed to interest rate risk on loans held for sale and rate-locked loan commitments. As market interest rates increase or decrease, the fair value of loans held for sale and rate-lock commitments will decline or increase. The Company enters into derivative transactions principally to protect against the risk of adverse interest movements affecting the value of the Company’s committed loan sales pipeline. In order to mitigate the risk that a change in interest rates will result in a decline in value of the Company’s interest rate lock commitments (“IRLCs”) in the committed mortgage pipeline or its loans held for sale, the Company enters into mandatory forward loan sales contracts with secondary market participants.

Mandatory forward sales contracts and committed loans intended to be held for sale are considered free-standing derivative instruments and changes in fair value are recorded in current period earnings. For committed loans, fair value is measured using current market rates for the associated mortgage loans. For mandatory forward sales contracts, fair value is measured using secondary market pricing.

Office Properties and Equipment: Land is carried at cost. Buildings and equipment are stated at cost less accumulated depreciation. 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. Estimated lives for buildings are 40 years. Estimated lives for equipment range from 1 to 10 years.

Bank-Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at the lower of cost or fair value less estimated selling costs, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS(Continued)

Federal Home Loan Bank (FHLB) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Stock dividends are reported as income.

Long-Term Assets: Office properties and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

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. Net cash flows are reported for NOW and passbook savings accounts, short-term borrowings, and advances from borrowers.

Stock Compensation: Employee compensation expense under stock option plans is reported using the fair value recognition provisions under FASB Statement 123 (revised 2004) (FAS 123R), “Share Based Payment.” The Company has adopted FAS 123R using the modified prospective method. Under this method, compensation expense will be recognized for the unvested portion of previously issued awards that remained outstanding as of July 1, 2005 and for any future awards. Prior interim periods and fiscal year results will not be restated.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. The Company had no other comprehensive income in 2006, 2005, or 2004; therefore comprehensive income was equal to net income.

Earnings Per Share: Basic earnings per share is calculated by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. The additional potential common shares issuable under stock options are included in the calculation of diluted earnings per share.

The per share data for 2005 and 2004 is adjusted to reflect the 10% stock dividends declared June 2005, and 2004.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS(Continued)

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance-sheet credit instruments, such as commitments to make loans issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Restrictions on Cash: Cash on deposit with another institution of $662,000 and $402,000 was required to meet regulatory reserve requirements at June 30, 2006 and 2005 respectively. These balances do not earn interest.

Stockholders’ Equity: Stock dividends in excess of 20% are reported by transferring the par value of the stock issued from retained earnings to common stock. Stock dividends for 20% or less are reported by transferring the fair value, as of the ex-dividend date, of the stock issued from retained earnings to common stock and additional paid in capital. Fractional share amounts are paid in cash with a reduction in retained earnings.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividend paid by the Bank to the Company or by the Company to shareholders. These restrictions pose no practical limit on the ability of the Bank or Company to pay dividends at historical levels. See Note 13 for more specific disclosure related to federal savings banks.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments: While the Company’s chief decision-makers monitor the revenue streams of the various Company products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications: Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS(Continued)

New Accounting Standards: In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises’ financial statements in accordance with FSAB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management does not expect that the adoption of this standard will have a material impact on the Company’s financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicing of Financial Assets”, an amendment of SFAS No. 140, which changes the accounting for all loan servicing rights which are recorded as the result of selling a loan where the seller undertakes an obligation to service the loan, usually in exchange for compensation. SFAS No. 156 amends current accounting guidance by permitting the servicing right to be recorded initially at fair value and also permits the subsequent reporting of these assets at fair value. SFAS No. 156 is effective beginning January 1, 2007. Management does not expect that the adoption of this standard will have a material impact on the Company’s financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, an amendment of SFAS No. 133 and 140. This Statement changes the accounting for various derivatives and securitized financial assets. This Statement will be effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of 2007. Management does not expect that the adoption of this standard will have a material impact on the Company’s financial statements.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 2—SECURITIES

Securities held to maturity at June 30, 2006 and 2005 are summarized as follows:


	2006
			Gross		Gross			Estimated
	Carrying		Unrecognized		Unrecognized			Fair
	Amount		Gain		Loss			Value
U.S. government-sponsored enterprise securities	$	58,000,000	$	—	$	(743,358	)	$	57,256,642


Due after one year through five years	$	58,000,000	$	—	$	(743,358	)	$	57,256,642


	2005
			Gross		Gross			Estimated
	Carrying		Unrecognized		Unrecognized			Fair
	Amount		Gain		Loss			Value
U.S. government-sponsored enterprise securities	$	57,500,000	$	43,750	$	(198,325	)	$	57,345,425


Due after one year through five years	$	57,500,000	$	43,750	$	(198,325	)	$	57,345,425

There were no sales of securities for the years ended June 30, 2006, 2005 or 2004.

At year end 2006 and 2005, the Company held $43,000,000 and $42,500,000 respectively, of secured debentures of the FHLB, $10,000,000 of unsecured debentures of the Federal Home Loan Mortgage Corporation (FHLMC), and $5,000,000 of unsecured debentures of the Federal National Mortgage Association (FNMA). At June 30, 2006, $500,000 of securities were pledged to the Department of Energy to serve as collateral for deposits.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 2—SECURITIES(Continued)

Securities with continuous unrecognized losses at year-end 2006 and 2005 not recognized in income aggregated by length of time that individual securities have been in a continuous unrealized loss position are as follows:


2006	Less than 12 Months					More than 12 Months					Total
			Gross					Gross					Gross
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. government-sponsored enterprise securities	$	5,398,720	$	(101,280	)	$	51,857,922	$	(642,078	)	$	57,256,642	$	(743,358	)

Securities with unrealized losses at year end 2005 not recognized in income are as follows:


2005	Less than 12 Months					More than 12 Months					Total
			Gross					Gross					Gross
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
U.S. government-sponsored enterprise securities	$	34,843,100		(156,900	)	$	17,458,575	$	(41,425	)	$	52,301,675	$	(198,325	)

At June 30, 2006, $52,500,000 of U.S. government-sponsored enterprise securities were in a continuous unrecognized loss for more than one year. Management considered whether these unrecognized losses represented other-than-temporary impairment of these securities, which are unsecured debentures issued by these entities. Management determined that the issuers maintained investment-grade bond ratings and that declines in fair value have been driven primarily by increases in market interest rates. As such, management concluded that the unrecognized losses do not represent other-than-temporary impairment as of June 30, 2006.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 3—MORTGAGE-BACKED SECURITIES

Mortgage-backed securities held to maturity at June 30, 2006 and 2005 are summarized as follows:


	2006
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Estimated
	Amount		Gain		Loss			Fair Value
FNMA mortgage-backed securities	$	27,023,693	$	—	$	(1,823,784	)		25,199,909
FHLMC mortgage-backed securities		554,230		7,674		—			561,904


	$	27,577,923	$	7,674	$	(1,823,784	)	$	25,761,813


	2005
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Estimated
	Amount		Gain		Loss			Fair Value
FNMA mortgage-backed securities	$	30,964,609	$	16,375	$	(266,192	)	$	30,714,792
FHLMC mortgage-backed securities		755,424		17,556		—			772,980


	$	31,720,033	$	33,931	$	(266,192	)	$	31,487,772

There were no sales of mortgage-backed securities for the years ended June 30, 2006, 2005 or 2004.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 3—MORTGAGE-BACKED SECURITIES(Continued)

Mortgage-backed securities with unrecognized losses at year end 2006 and 2005 not recognized in income aggregated by the length of time that the individual securities have been in a continuous unrealized loss position are as follows:


2006	Less than 12 Months					More than 12 Months					Total
Description of			Gross					Gross					Gross
Mortgage-backed	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
Securities	Value		Loss			Value		Loss			Value		Loss
FNMA mortgage-backed securities	$	1,985,731		(84,232	)	$	23,214,178	$	(1,739,552	)	$	25,199,909	$	(1,823,784	)


2005	Less than 12 Months				More than 12 Months					Total
Description of			Gross				Gross					Gross
Mortgage-backed	Fair		Unrecognized		Fair		Unrecognized			Fair		Unrecognized
Securities	Value		Loss		Value		Loss			Value		Loss
FNMA mortgage-backed securities	$	—	$	—	$	23,234,790	$	(266,192	)	$	23,234,790	$	(266,192	)

At June 30, 2006, a FNMA mortgage-backed security with a carrying amount of $24,714,338 was in a continuous unrecognized loss for more than one year. Management considered whether this unrecognized loss represented other-than-temporary impairment of this security. Management determined that the security was backed by performing assets and that timely repayment of principal and interest is guaranteed by FNMA. The decline in fair value is largely driven by increases in market interest rates. As such, management concluded that the unrecognized loss did not represent other-than-temporary impairment of the security as of June 30, 2006.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 4—LOANS RECEIVABLE

Loans receivable at June 30, 2006 and 2005, consist of the following:


	2006			2005
Real estate mortgages:
One-to-four family residential	$	174,574,861		$	148,955,669
Home equity line of credit		94,449,845			97,691,917
Multi-family residential		45,715,780			33,504,667
Commercial		170,392,400			171,331,117
Commercial equity line of credit		34,063,990			31,875,316
Land		77,242,222			68,164,662
Construction — residential		84,146,125			75,459,676
Construction — commercial		41,712,042			24,355,272

Total real estate mortgages		722,297,265			651,338,296
Non real estate loans		21,824,041			17,300,500

Total loans receivable		744,121,306			668,638,796
Net deferred loan origination fees		(3,381,630	)		(3,832,378	)
Allowance for loan losses		(4,674,681	)		(4,312,274	)

Loans receivable, net	$	736,064,995		$	660,494,144

A summary of the changes in the allowance for loan losses for the years ended June 30, 2006, 2005, and 2004, is as follows:


	2006			2005			2004
Beginning balance	$	4,312,274		$	4,376,704		$	3,882,839
Provision for loan losses		826,300			111,000			597,300
Charge-offs		(463,893	)		(175,430	)		(132,435	)
Recoveries		—			—			29,000

Ending balance	$	4,674,681		$	4,312,274		$	4,376,704

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 4—LOANS RECEIVABLE(Continued)

The following is a summary of the principal balances of nonperforming loans at June 30:


	2006		2005
Loans on non-accrual status:
Real estate mortgages:
One-to-four family residential	$	7,586,930	$	7,459,761
Commercial		2,972,146		3,518,484
Multi-family residential		21,300		21,300
Construction and land		4,876,009		750,650

Total loans on non-accrual status		15,456,385		11,750,195

Loans past due 90 days, still on accrual status:
Real estate mortgages:
One-to-four family residential		—		162,975
Construction and land		—		445,000

Total non-accrual and past due loans	$	15,456,385	$	12,358,170

At June 30, 2006 and 2005, the recorded investment in loans, which have individually been identified as being impaired, totaled $7,869,455 and $4,290,434, respectively. Included in the impaired amount at June 30, 2006 and 2005, is $7,869,455 and $4,290,430, respectively, related to loans with a corresponding valuation allowance of $902,267 and $599,459, respectively.

Average impaired loans for the years ended June 30, 2006, 2005 and 2004 amounted to $5,675,718, $5,521,063, and $4,985,439, respectively. Interest recognized on impaired loans in 2006, 2005, and 2004 was not material.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 5—MORTGAGE BANKING ACTIVITIES

Mortgage banking activities, net, including gains and losses on sales of loans, for each of the years in the three-year period ended June 30, 2006, consist of the following:


	2006			2005			2004
Mortgage loan servicing fees	$	1,954,692		$	1,872,974		$	1,761,286
Amortization and changes in valuation allowance for mortgage servicing rights		(1,359,003	)		(1,641,778	)		(2,388,888	)
Market adjustment for loans held for sale		(156,000	)		—			—
Change in fair value of mortgage banking derivatives		(239,000	)		(15,000	)		—
Gross realized:
Gains on sales of loans		1,830,073			2,222,305			6,930,590
Losses on sales of loans		(1,196,291	)		(1,127,266	)		(1,670,427	)

	$	834,471		$	1,311,235		$	4,632,561

At June 30, 2006 and 2005, the Company was servicing whole and participation mortgage loans for others aggregating $776,423,332 and $764,871,107, respectively. These loans are not reported as assets. The Company had $7,625,993 and $9,247,978, at June 30, 2006 and 2005, respectively, of funds collected on mortgage loans serviced for others which is included in accrued expenses and other liabilities.

Originated mortgage servicing rights capitalized and amortized during the years ended June 30, 2006, 2005 and 2004 were as follows:


	2006			2005			2004
Beginning balance	$	5,001,474		$	5,358,845		$	4,655,182
Originated		1,164,365			1,284,407			3,762,551
Amortized		(1,359,003	)		(1,641,778	)		(3,058,888	)

Ending balance	$	4,806,836		$	5,001,474		$	5,358,845


Valuation Allowance
Beginning balance	$	—		$	—		$	670,000
Additions expensed		—			—			—
Reductions credited to expense		—			—			(670,000	)

Ending balance	$	—		$	—		$	—

The fair value of capitalized mortgage servicing rights was $8,928,868 and $7,495,736 at June 30, 2006 and 2005. Fair value was determined using discount rates ranging from 9.0% to 11.0% and prepayment speeds ranging from 6.3% to 57.6%, depending on the stratification of the specific rights. The preponderance of the servicing rights was determined using prepayment speeds ranging from 6.3% to 20.7%.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 6 — OFFICE PROPERTIES AND EQUIPMENT

Office properties and equipment at cost, less accumulated depreciation and amortization at June 30, 2006 and 2005 are summarized as follows:


	2006			2005
Land and land improvements	$	1,034,892		$	1,034,892
Building and building improvements		5,553,076			5,563,598
Leasehold improvements		5,943,807			5,862,620
Furniture and equipment		12,124,539			11,758,159

		24,656,314			24,219,269
Less accumulated depreciation and amortization		(12,623,622	)		(10,806,038	)

	$	12,032,692		$	13,413,231

NOTE 7—DEPOSITS

Scheduled maturities of time deposits were as follows:


	2006					2005
	Amount		%			Amount		%
12 months or less	$	441,726,006		87.6	%	$	371,245,515		79.1	%
13 to 24 months		38,845,591		7.7			56,248,773		12.0
25 to 36 months		8,087,568		1.6			24,524,716		5.2
37 to 48 months		15,476,643		3.1			17,562,890		3.7


	$	504,135,808		100.0	%	$	469,581,894		100.0	%


Weighted average rate on certificates of deposit				4.57	%				3.33	%

Time deposits in amounts of $100,000 or more totaled approximately $164,445,000 and $146,802,000 at June 30, 2006 and 2005, respectively.

Deposits of related parties totaled $2,888,506 and $381,394 at June 30, 2006 and June 30, 2005.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 8 — ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI

Short-Term Advances: The Bank maintains two lines of credit totaling $230,000,000 with the FHLB. The $200,000,000 repurchase line matures in February 2007. At June 30, 2006 and 2005, $75,000,000 and $15,000,000 was drawn on the repurchase line of credit, respectively. The Bank has chosen to take daily advances from this line, with the interest rate set daily. The interest rate as of June 30, 2006 and June 30, 2005 was 5.31% and 3.38%. The $30,000,000 cash management line matures in October 2006. No borrowings were outstanding on the cash management line as of June 30, 2006 or 2005.

In order to secure these advances, the Bank has pledged mortgage loans with unpaid principal balances aggregating approximately $326,862,000 and $296,254,000 at June 30, 2006 and 2005, respectively, and mortgage-backed securities aggregating approximately $27,577,923 and $31,720,033 at June 30, 2006 and 2005, respectively, plus FHLB stock. The Bank also pledged $57,500,000 of securities as of June 30, 2005 but these securities were released from the pledge in 2006.

Long-Term Advances: Long-term advances from the Federal Home Loan Bank of Cincinnati (“FHLB”), with maturities and interest rates thereon at June 30, 2006 and 2005, were as follows:


Maturity	Interest rate			2006			2005
February 2006		6.05	%	$	—		$	12,018
February 2008		5.37			10,000,000			10,000,000
March 2008		5.64			10,000,000			10,000,000
March 2011		3.94			—			50,000,000
May 2011		4.16			—			50,000,000

				$	20,000,000		$	120,012,018

Weighted average interest rate					5.51	%		4.29	%

In 2006, the FHLB exercised their option to convert the two advances with maturity dates in 2011 to LIBOR. The Bank repaid the advances at that time without penalty. Each of the remaining advances is a convertible fixed-rate advance. Each of these is convertible at the option of the FHLB to LIBOR. Alternatively, if the conversion option is exercised, the Bank could repay these advances without prepayment penalty.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 9 — SUBORDINATED DEBENTURES, NOTES PAYABLE AND OTHER BORROWINGS

Line of Credit: On February 23, 2006, one of the Company’s subsidiaries obtained a $4.0 million dollar line of credit from another financial institution with a drawn principal balance of $1,772,871 as of June 30, 2006. The line is collateralized by the Company’s Solon headquarters building. The note carries a variable interest rate that adjusts to The Wall Street Journal published prime lending rate minus 75 basis points. The loan is due on demand. At June 30, 2006, the interest rate was 7.25%. Proceeds from this line of credit were used to repay the note payable formerly secured by the Company’s headquarters building.

Subordinated Debt: In June 2004, the Company formed a special purpose entity, PVF Capital Trust I (“Trust”), for the sole purpose of issuing $10,000,000 of variable-rate trust preferred securities. The Company issued Subordinated Deferrable Interest Debentures (“subordinated debentures”) to the Trust in exchange for the proceeds of the offering of the trust preferred securities. The trust preferred security carries a variable interest rate that adjusts to three month LIBOR plus 260 basis points. At June 30, 2006 and 2005 the interest rate was 7.69% and 6.25%.

The subordinated debentures are the sole asset of the trust. The trust preferred securities will mature June 29, 2034 but may be redeemed by the Trust at par, at its option, starting June 29, 2009.

Repurchase Agreement: In March 2006, the Bank entered into a $50 million repurchase agreement (“Repo”) with another institution (Citigroup) collateralized by $57.5 million in securities. The Repo is for a five year term and interest is adjustable quarterly during the first year based on the 3 month LIBOR rate minus 100 basis points. After year one, the rate will adjust to 4.99% and the Repo will become callable quarterly at the option of the issuer. The interest rate as of June 30, 2006 was 4.42%.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 10 — FEDERAL INCOME TAXES

The provision for federal income taxes differs from the amounts computed by applying the U.S. federal income tax statutory rate to income before federal income taxes. These differences are reconciled as follows:


	2006						2005						2004
	Amount			%			Amount			%			Amount			%
Computed expected tax	$	2,413,425			35.0		$	2,840,290			35.0	%	$	3,616,061			35.0	%
Increase (decrease) in tax resulting from:
Benefit of graduated rates		(68,955	)		(1.0	)		(81,151	)		(1.0	)		(103,316	)		(1.0	)
Affordable housing tax credit		(111,645	)		(1.6	)		(111,645	)		(1.4	)		(111,646	)		(1.1	)
Bank-owned life insurance		(203,132	)		(2.9	)		(188,498	)		(2.3	)		(63,761	)		(0.6	)
Stock compensation		51,757			0.8			0			0.0			0			0.0
Other, net		(28,951	)		(0.5	)		71,996			0.9			84,211			0.8


	$	2,052,499			29.8	%	$	2,530,992			31.2	%	$	3,421,549			33.1	%

The net tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 2006 and 2005 are:


	2006			2005
Deferred tax assets:
Loan loss reserves	$	1,500,803		$	1,331,863
Deferred compensation		836,743			716,310
Unrealized gains on loans held for sale		—			26,208
Mortgage banking reserves		139,400			5,100
Other		135,847			61,310

Total gross deferred tax assets		2,612,793			2,140,791

Deferred tax liabilities:
Deferred loan fees, net		(337,289	)		(364,432	)
FHLB stock dividend		(1,750,269	)		(1,533,145	)
Originated mortgage servicing asset		(1,634,324	)		(1,700,501	)
Fixed assets		(1,184,677	)		(1,245,855	)
Prepaid franchise tax		(163,549	)		(133,400	)
Unrealized losses on loans held for sale		(75,971	)		—
Other		(142,608	)		(110,545	)

Total gross deferred tax liabilities		(5,288,687	)		(5,087,878	)

Net deferred tax liability	$	(2,675,894	)	$	(2,947,087	)

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, 2006 or 2005.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 10 — FEDERAL INCOME TAXES(Continued)

Retained earnings at June 30, 2006 and 2005 include approximately $4,516,000 for which no provision for federal income tax has been made. The related unrealized deferred tax liability was approximately $1,535,000 at June 30, 2006 and 2005. This amount represents allocations of income during years prior to 1988 to bad debt deductions for tax purposes only. These qualifying and non-qualifying base year reserves and supplemental reserves will be recaptured into income in the event of certain distributions and redemptions. Such recapture would create income expense for tax purposes only, which would be subject to the then current corporate income tax rate. Recapture would not occur upon the reorganization, merger, or acquisition of the Bank, nor if the Bank is merged or liquidated tax-free into a bank or undergoes a charter change. If the Bank fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into income.

NOTE 11 — LEASES

The Company leases certain premises from unrelated and related parties. Future minimum payments under noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at June 30, 2006:


	Leases With		Leases With
	Unrelated		Related		Total
Year ending June 30,	Parties		Parties		Leases
2007	$	715,464	$	168,145	$	883,609
2008		695,496		147,592		843,088
2009		621,458		147,592		769,050
2010		500,993		147,592		648,585
2011		206,380		147,592		353,972
Thereafter		202,884		324,656		527,540

Total minimum lease payments	$	2,942,675	$	1,083,169	$	4,025,844

During the years ended June 30, 2006, 2005, and 2004, rental expense was $898,448, $799,725, and $695,307, respectively. Rental expense related to related party leases was $204,031, $134,034, and $85,941 for the years ended June 30, 2006, 2005, and 2004, respectively.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 12 — LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

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, 2006 and 2005, the Bank had the following commitments to originate loans intended to be held in the portfolio:


	2006		2005
Commitments to fund variable-rate mortgage loans	$	48,287,000	$	10,130,000
Commitments to fund equity lines of credit		92,901,000		79,452,000
Undisbursed portion of loan proceeds		66,749,000		69,715,000

The Bank has a program to reduce interest rate risk associated with the interest rate-lock commitment made to borrowers for mortgage loans intended to be sold in the secondary market. The Bank enters into commitments to sell loans to limit exposure to potential movements in market interest rates. At June 30, 2006 and 2005, the Bank had interest rate-lock commitments on $31,524,000 and $43,293,000 of loans intended for sale in the secondary market. These commitments are considered to be free-standing derivatives and the change in fair value is

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 12 — LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES(Continued)

recorded in the financial statements. The fair value of these commitments as of June 30, 2006 and 2005 was estimated to be ($321,000) and $19,000, respectively. The Bank entered into contracts to sell mortgage loans of $13,250,000 and $17,881,000 as of June 30, 2006 and 2005. These contracts are considered to be free-standing derivatives and the change in fair value also is recorded in the financial statements. The fair value of these contracts at June 30, 206 and 2005 was estimated to be $67,000 and ($34,000), respectively.

NOTE 13 — REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Office of Thrift Supervision (“OTS”) regulations requires savings institutions to maintain certain minimum levels of regulatory capital. An institution that fails to comply with its regulatory capital requirements must obtain OTS approval of a capital plan and can be subject to a capital directive and certain restrictions on its operations. At June 30, 2006, the adjusted total minimum regulatory capital regulations require institutions to have tangible capital to adjusted total assets of 1.5%; a minimum leverage ratio of core (Tier 1) capital to adjusted total assets of 4.0%; and a minimum ratio of total capital to risk weighted assets of 8.0%. At June 30, 2006 and 2005, the Bank exceeded all of the aforementioned regulatory capital requirements.

Regulations limit capital distributions by savings institutions. Generally, capital distributions are limited to undistributed net income for the current and prior two years. At June 30, 2006, this limitation was $10,947,373. This limitation on the Bank is not expected to prevent the Company from paying its normal cash dividends.

The most recent notification from the OTS categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Total risk-based and Tier 1 risk-based ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 13 — REGULATORY CAPITAL(Continued)

At June 30, 2006 and 2005, the Bank was in compliance with regulatory capital requirements as set forth below (dollars in thousands):


				Tier-1			Tier-1			Total
	Tangible			Core			Risk-Based			Risk-Based
	Capital			Capital			Capital			Capital
June 30, 2006
GAAP capital	$	75,827		$	75,827		$	75,827		$	75,827
General loan valuation allowances		—			—			—			4,414

Regulatory capital	$	75,827		$	75,827		$	75,827		$	80,241


Total assets	$	910,776		$	910,776		$	910,776		$	910,776
Adjusted total assets		910,776			910,776			—			—
Risk-weighted assets		—			—			780,203			780,203

Actual capital ratio		8.33	%		8.33	%		9.72	%		10.28	%
Regulatory requirement for capital adequacy purposes		1.50	%		4.00	%		4.00	%		8.00	%
Regulatory capital category —well-capitalized — equal to or greater than		N/A			5.00	%		6.00	%		10.00	%


				Tier-1			Tier-1			Total
	Tangible			Core			Risk-Based			Risk-Based
	Capital			Capital			Capital			Capital
June 30, 2005
GAAP capital	$	72,751		$	72,751		$	72,751		$	72,751
Nonallowable component		(7	)		(7	)		(7	)		(7	)
General loan valuation allowances		—			—			—			3,917

Regulatory capital	$	72,744		$	72,744		$	72,744		$	76,661


Total assets	$	829,818		$	829,818		$	829,818		$	829,818
Adjusted total assets		829,811			829,811			—			—
Risk-weighted assets		—			—			698,777			698,777

Actual capital ratio		8.77	%		8.77	%		10.41	%		10.97	%
Regulatory requirement for capital adequacy purposes		1.50	%		4.00	%		4.00	%		8.00	%
Regulatory capital category — well-capitalized — equal to or greater than		N/A			5.00	%		6.00	%		10.00	%

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 14—RELATED PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates in 2006 were as follows.


Beginning balance	$	7,018,000
New Loans		2,500,000
Repayments		(895,000	)

Ending balance	$	8,623,000

NOTE 15—STOCK OPTIONS

The Company offered stock options to the directors and officers of the Bank under various option plans.

All of the options authorized under the 1992 plan have been granted and exercised. The options granted under the 1996 plan are exercisable over a ten-year period, with vesting ranging from zero to five years as stated in the individual option agreements. Incentive stock options granted under the 2000 plan are exercisable over a ten-year period, with vesting ranging from four to nine years as stated in the individual option agreements.

Nonqualified stock options are granted to directors and typically vest immediately. The option period expires ten years from the date of grant and the exercise price is the market price at the date of grant.

Options outstanding at June 30, 2006 were as follows:


	Outstanding				Exercisable
			Weighted Average				Weighted
Range of			Remaining				Average
Exercise			Contractual				Exercise
Price	Number		Life		Number		Price

$4.65 - $6.10		101,089		3.38		101,089	$	5.65
$6.72 - $7.77		190,531		3.55		190,531	$	7.26
$8.32 - $13.64		266,854		7.52		132,709	$	10.65

Total		558,474		5.41		424,329	$	7.94

There were 183,228 shares available for future issuance under existing stock option plans.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 15—STOCK OPTIONS(Continued)

A summary of the activity in the plan is as follows:


	2006					2005					2004
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding beginning of year		470,312		$	8.01		451,530		$	7.50		444,579		$	6.83
Forfeited		(12,250	)		11.10		(293	)		7.59		—			—
Exercised		(26,038	)		5.55		(24,045	)		6.58		(40,965	)		6.07
Granted		126,450			11.16		43,120			12.62		47,916			12.53

Outstanding end of year		558,474		$	8.77		470,312		$	8.01		451,530		$	7.50

Exercisable end of year		424,329		$	7.94		388,446		$	7.41		352,108		$	7.06

As discussed in Note 1, compensation expense will be recognized for the vested portion of previously issued awards that remained outstanding as of July 1, 2005 and for any future awards under the fair value recognition provisions of FAS 123R. For the year ended June 30, 2006, compensation expense of $214,761 was recognized in the income statement related to the vesting of previously issued awards plus vesting of new awards. An income tax benefit of $21,262 was recognized related to this expense.

Prior to the adoption of FAS 123R, employee compensation expense under stock option plans was reported using the intrinsic value method. No stock-based compensation cost was reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying stock on the date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123,Accounting for Stock-Based Compensation.


	2005			2004
Net income as reported	$	5,584,121		$	6,910,054
Stock-based compensation expense determined under fair value based method		147,160			115,581
Income tax effect		(8,160	)		(15,446	)

		139,000			100,135

Pro forma net income	$	5,445,121		$	6,809,919


Basic earnings per share as reported	$	0.72		$	0.89
Pro forma basic earnings per share	$	0.70		$	0.88

Diluted earnings per share as reported	$	0.71		$	0.87
Pro forma diluted earnings per share	$	0.69		$	0.86

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 15—STOCK OPTIONS(Continued)

As of June 30, 2006, there was $396,010 of compensation expense related to unvested awards not yet recognized in the financial statements. The weighted-average period over which this expense is to be recognized is 3.9 years. All outstanding and unvested options are expected to vest.

The aggregate intrinsic value of all options outstanding at June 30, 2006 was $1,084,845. The aggregate intrinsic value of all options that were exercisable at June 30, 2006 was $1,071,837.

The fair value of each option grant was estimated on the date of grant using the Black Scholes option pricing model. The following weighted-average assumptions were used for grants in each of the respective years.


	2006			2005			2004
Risk-free interest rate		4.57	%		3.75	%		3.76	%
Dividend yield		2.67	%		2.21	%		1.99	%
Expected volatility		31.56			29.29			29.78
Expected life in years		9.72			7.00			7.00

The weighted average fair value of options granted in each of the past three years was as follows:


2006	2005	2004
$3.69	$3.57	$3.35

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 16 — EARNINGS PER SHARE

The following is a reconciliation of basic earnings per share to diluted earnings per share for the years ended June 30:


			2006		Per-Share
	Net Income		Shares		Amount
Basic EPS:
Income available to common shareholders	$	4,843,001		7,716,770	$	0.63
Dilutive effect of assumed exercises of stock options		—		129,199		(0.01	)

Diluted EPS:
Income available to common shareholders	$	4,843,001		7,845,969	$	0.62


			2005		Per-Share
	Net Income		Shares		Amount
Basic EPS:
Income available to common shareholders	$	5,584,121		7,734,136	$	0.72
Dilutive effect of assumed exercises of stock options		—		172,610		(0.01	)

Diluted EPS:
Income available to common shareholders	$	5,584,121		7,906,746	$	0.71


			2004		Per-Share
	Net Income		Shares		Amount
Basic EPS:
Income available to common shareholders	$	6,910,054		7,723,543	$	0.89
Dilutive effect of assumed exercises of stock options				187,006		(0.02	)

Diluted EPS:
Income available to common shareholders	$	6,910,054		7,910,549	$	0.87

There were 205,236, 43,120, and 47,916 options not considered in the diluted earnings per share calculation for the years ended June 30, 2006, 2005, and 2004 respectively because they were not dilutive.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 17 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair values of financial instruments at year end were as follows:


	June 30, 2006						June 30, 2005
	Carrying			Estimated			Carrying			Estimated
	Amount			Fair Value			Amount			Fair Value
	(in thousands)
Assets:
Cash and amounts due from depository institutions	$	6,614		$	6,614		$	4,034		$	4,034
Interest-bearing deposits		1,804			1,804			2,181			2,181
Federal funds sold		11,320			11,320			4,875			4,875
Securities held to maturity		58,000			57,257			57,500			57,345
Mortgage-backed securities held to maturity		27,578			25,762			31,720			31,488
Loans receivable		731,997			725,155			660,494			671,554
Loans receivable held for sale, net		10,698			10,698			9,060			9,165
Federal Home Loan Bank stock		11,955			11,955			11,316			11,316
Accrued interest receivable		4,068			4,068			3,682			3,682
Mandatory forward sales contracts		67			67			(34	)		(34	)

Liabilities:
Demand deposits and passbook savings		(152,728	)		(152,728	)		(121,644	)		(121,644	)
Time deposits		(504,136	)		(500,537	)		(469,582	)		(468,816	)
Line of credit		(1,773	)		(1,773	)		—			—
Advances from the Federal Home Loan Bank of Cincinnati		(95,000	)		(95,021	)		(135,012	)		(137,719	)
Repurchase agreement		(50,000	)		(50,000	)		—			—
Subordinated debentures		(10,000	)		(10,000	)		(10,000	)		(10,000	)
Notes payable		—			—			(1,401	)		(1,401	)
Accrued interest payable		(350	)		(350	)		(489	)		(489	)
Commitments to make loans Intended to be sold		(321	)		(321	)		19			19

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company 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.

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.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 17—FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)

Securities and mortgage-backed securities. Estimated fair value for securities and mortgage-backed securities is based on quoted market prices.

Loans receivable and loans receivable held for sale. For loans receivable held for sale, fair value is estimated using the quoted market prices for similar loans, adjusted for differences in loan characteristics. For performing loans receivable, 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.

Fair value for significant nonperforming loans is based on recent external appraisals of underlying collateral. 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.

Federal Home Loan Bank stock.This item is valued at cost, which represents redemption value and approximates fair value.

Mandatory forward sales contracts.These contracts are valued by reference to Secondary Market indicators of pair-off fees receivable or payable to terminate the contracts.

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.

Line of credit.The carrying amount is a reasonable estimate of the fair value.

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 and subordinated debentures. The carrying value of the Company’s variable-rate note payable is a reasonable estimate of fair value based on the current incremental borrowing rate for similar types of borrowing arrangements.

Accrued interest receivable and accrued interest payable. The carrying amount is a reasonable estimate of the fair value.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 17—FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)

Commitments to make loans intended for sale. These commitments are valued according to changes in secondary market pricing for similar loans with similar delivery dates fro the date of interest rate lock until the balance sheet date.

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, 2006 and 2005.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 18 — PARENT COMPANY

The following are condensed statements of financial condition as of June 30, 2006 and 2005 and related condensed statements of operations and cash flows for the years ended June 30, 2006, 2005 and 2004 for PVF Capital Corp.

CONDENSED STATEMENTS OF FINANCIAL CONDITION


	2006		2005
Cash and amounts due from depository institutions	$	55,404	$	221,263
Prepaid expenses and other assets		1,823,057		1,564,558
Investment in Bank subsidiary		75,827,227		72,750,959
Investment in non-Bank subsidiaries		2,887,345		2,713,536

Total assets	$	80,593,033	$	77,250,316


Accrued expenses and other liabilities	$	1,619,893	$	797,137
Subordinated debentures		10,000,000		10,000,000
Stockholders’ equity		68,973,140		66,453,179

Total liabilities and stockholders’ equity	$	80,593,033	$	77,250,316

CONDENSED STATEMENTS OF OPERATIONS


	2006		2005		2004
Income:
Mortgage banking activities	$	9,055	$	11,811	$	16,210
Dividends from Bank subsidiary		2,400,000		1,000,000		3,500,000
Interest Income		—		432		—

		2,409,055		1,012,243		3,516,210


Expenses:
Interest expense		693,292		503,190		46,847
General and administrative		213,035		195,570		278,931

		906,327		698,760		325,778

Income before federal income taxes and equity in undistributed net income of subsidiaries		1,502,728		313,483		3,190,432
Federal income tax benefit		304,956		233,018		105,204

Income before equity in undistributed net income of subsidiaries		1,807,684		546,501		3,295,636
Equity in undistributed net income of subsidiaries		3,035,317		5,037,620		3,614,418

Net income	$	4,843,001	$	5,584,121	$	6,910,054

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 18 — PARENT COMPANY(Continued)

CONDENSED STATEMENTS OF CASH FLOWS


	2006			2005			2004
Operating activities:
Net income	$	4,843,001		$	5,584,121		$	6,910,054
Equity in undistributed net income of subsidiaries		(3,035,317	)		(5,037,620	)		(3,614,418	)
Other, net		(285,743	)		(194,216	)		(149,706	)

Net cash from (used in) operating activities		1,521,941			352,3285			3,145,930

Investing activities:
Advance to subsidiary		800,000			(805,500	)		1,140,000
Investment in subsidiary		—			(7,001,000	)		—

Net decrease in cash from investing activities		800,000			(7,806,500	)		1,140,000

Financing activities:
Repayment on note payable		—			—			(2,500,000	)
Proceeds from subordinated debentures		—			—			10,000,000
Proceeds from exercise of stock options		144,737			160,468			256,793
Stock purchased and retired		(141,104	)		(123,024	)		(94,211	)
Dividends paid		(2,235,692	)		(2,034,595	)		(1,841,130	)
Purchase of treasury stock		(255,742	)		(454,212	)		—

Net cash from (used in) financing activities		(2,487,800	)		(2,451,363	)		5,821,452

Net increase (decrease) in cash and cash-equivalents		(165,859	)		(9,905,578	)		10,107,382
Cash and cash equivalents at beginning of year		221,263			10,126,841			19,459

Cash and cash equivalents at end of year	$	55,404		$	221,263		$	10,126,841


Supplemental schedule of non-cash financing activities:

Income tax benefit from exercise of options	$	—		$	5,778		$	—

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 19—EMPLOYEE BENEFIT PLANS

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 50% of their compensation with the Company matching up to 50% of the first 4% 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% of the employee’s compensation. Participants vest in the Company’s contributions ratably over six years.

The total of the Company’s matching and profit sharing contribution cost related to the plan for the years ended June 30, 2006, 2005, and 2004 was $127,093, $122,750, and $120,722, respectively.

Supplemental Executive Retirement Plan: During fiscal year 2000, the Company established a Supplemental Executive Retirement Plan (“SERP”) to provide additional retirement benefits to participating executive officers. The SERP was adopted in order to provide benefits to such executives whose benefits are reduced under the Company’s tax-qualified benefit plans pursuant to limitations under the Internal Revenue Code. The SERP is subject to certain vesting provisions, and provides that the executives shall receive a supplemental retirement benefit if the executive’s employment is terminated after reaching the normal retirement. For the years ended June 30, 2006, 2005, and 2004, the Company recognized expense under the SERP of $450,000, $395,500, and $445,775, respectively. The accrued SERP liability at June 30, 2006 and 2005 included in accrued expenses and other liabilities totaled $2,507,475 and $2,057,475.

(Continued)

PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2006, 2005 and 2004

NOTE 20 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the unaudited consolidated quarterly results of operations for 2006 and 2005 (in thousands of dollars, except per share data):⁽¹⁾


	Quarters for the year ended June 30, 2006
	First		Second		Third		Fourth
Interest income	$	12,583	$	13,283	$	14,328	$	14,986
Interest expense		6,048		6,676		7,392		8,292

Net interest income		6,535		6,607		6,936		6,694
Provision for loan losses		37		257		352		180
Non-interest income		779		561		535		625
Non-interest expense		5,374		5,443		5,297		5,436

Income before Federal income taxes		1,903		1,468		1,822		1,703
Federal income taxes		551		441		555		506

Net income	$	1,352	$	1,027	$	1,267	$	1,197

Basic earnings per share	$	0.18	$	0.13	$	0.16	$	0.16

Diluted earnings per share	$	0.17	$	0.13	$	0.16	$	0.16


	Quarters for the year ended June 30, 2005
	First		Second		Third		Fourth
Interest income	$	10,034	$	10,519	$	10,941	$	12,101
Interest expense		4,424		4,737		5,103		5,537

Net interest income		5,610		5,782		5,838		6,564
Provision for loan losses		136		—		75		(100	)
Non-interest income		685		859		939		891
Non-interest expense		4,324		4,577		4,787		5,254

Income before Federal income taxes		1,835		2,064		1,915		2,301
Federal income taxes		568		642		602		719

Net Income	$	1,267	$	1,422	$	1,313	$	1,582

Basic earnings per share	$	0.16	$	0.18	$	0.17	$	0.20

Diluted earnings per share	$	0.16	$	0.18	$	0.17	$	0.20


⁽¹⁾		The total of the four quarterly amounts may not equal the full year amount due to rounding.

B o a r d o f D i r e c t o r s

John R. Male
Chairman of the Board and
Chief Executive Officer

C. Keith Swaney
President, Chief Operating
Officer and Treasurer

Gerald A. Fallon
Retired

Robert K. Healey
Retired

Ronald D. Holman, II
Partner
Cavitch, Familo, Durkin & Frutkin

Stanley T. Jaros
Partner
Moriarty & Jaros, P.L.L.

Raymond J. Negrelli
President
Raymond J. Negrelli, Inc.

Stuart D. Neidus
Chairman and
Chief Executive Officer
Anthony & Sylvan Pools Corporation

E x e c u t i v e O f f i c e r s

John R. Male
Chairman of the Board and
Chief Executive Officer

C. Keith Swaney
President, Chief Operating
Officer and Treasurer

Jeffrey N. Male
Vice President and Secretary

G e n e r a l I n f o r m a t i o n

Independent
Certified Accountants
Crowe Chizek and Company LLC
Landerbrook Corporate Center One
5900 Landerbrook Drive
Suite 205
Cleveland, Ohio 44124

General Counsel
Moriarty & Jaros, P.L.L.
30000 Chagrin Boulevard
Suite 200
Pepper Pike, Ohio 44124

Transfer Agent and Registrar
National City Bank, Dept. 5352
Corporate Trust Operations
P.O. Box 92301
Cleveland, Ohio 44193-0900

Special Counsel
Muldoon Murphy & Aguggia LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016

Stock Listing
NASDAQ Small-Cap Market
Symbol: PVFC

Annual Meeting
The 2006 Annual Meeting of Stockholders will be held on October 23, 2006 at 10:00 a.m. at the Company’s Corporate Center, 30000 Aurora Road, Solon, 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, 2006 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., 30000 Aurora Road, Solon, Ohio 44139.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Bad

PVF Capital (PVFC) Inactive 10-K2006 FY Annual report

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