SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20552
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2003.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to ________
Commission File Number 0-24948
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PVF Capital Corp.
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(Exact name of registrant as specified in its charter)
United States 34-1659805
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30000 Aurora Road, Solon, Ohio 44139
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(Address of principal executive offices) (Zip Code)
(440) 248-7171
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value 5,786,493
- ----------------------------- -------------------------------
(Class) (Outstanding at April 30, 2003)
PVF CAPITAL CORP.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial
Condition, March 31, 2003 (unaudited)
and June 30, 2002. 1
Consolidated Statements of Operations
for the three and nine months ended
March 31, 2003 and 2002 (unaudited). 2
Consolidated Statements of Cash Flows
for the nine months ended March 31,
2003 and 2002 (unaudited). 3
Notes to Consolidated Financial
Statements (unaudited). 4
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Item 3 Quantitative and Qualitative Disclosures
about Market Risk 15
Item 4 Controls and Procedures 15
Part II Other Information 15
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, JUNE 30,
ASSETS 2003 2002
------ UNAUDITED
---------- ----------
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 8,583,888 $ 4,526,976
Interest bearing deposits 1,468,452 1,736,712
Federal funds sold 3,050,000 8,050,000
------------ ------------
Total cash and cash equivalents 13,102,340 14,313,688
Securities held to maturity 30,049,621 55,121,211
Mortgage-backed securities held to maturity 3,632,326 7,297,206
Loans receivable, net 583,984,013 563,550,556
Loans receivable held for sale, net 34,539,862 11,679,735
Office properties and equipment, net 11,536,097 9,817,348
Real estate owned, net 533,798 564,316
Real estate held for investment 1,650,000 1,650,000
Stock in the Federal Home Loan Bank of Cincinnati 10,300,199 9,947,624
Prepaid expenses and other assets 6,572,305 5,678,431
------------ ------------
Total Assets $695,900,561 $679,620,115
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Deposits $488,263,091 $479,672,218
Advances from the Federal Home Loan Bank of Cincinnati 120,133,440 120,739,695
Notes payable 6,484,110 8,288,020
Advances from borrowers for taxes and insurance 4,352,544 7,320,613
Accrued expenses and other liabilities 19,697,943 11,300,991
------------ ------------
Total Liabilities 638,931,128 627,321,537
Stockholders' Equity
Serial preferred stock, none issued -- --
Common stock, $0.01 par value, 15,000,000 shares authorized;
6,088,469 and 6,064,809 shares issued, respectively 60,885 60,648
Additional paid-in-capital 37,452,758 37,412,482
Retained earnings-substantially restricted 22,439,883 17,627,665
Treasury Stock, at cost 301,976 and 286,276 shares, respectively (2,984,093) (2,802,217)
------------ ------------
Total Stockholders' Equity 56,969,433 52,298,578
------------ ------------
Total Liabilities and Stockholders' Equity $695,900,561 $679,620,115
============ ============
See accompanying notes to consolidated financial statements
PAGE 1
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-----------------------------------------------------
2003 2002 2003 2002
Interest income
Loans $ 9,888,547 $10,538,608 $30,809,110 $33,784,506
Mortgage-backed securities 59,648 159,278 235,632 595,037
Cash and securities 467,092 913,578 2,074,355 2,835,903
----------- ----------- ----------- -----------
Total interest income 10,415,287 11,611,464 33,119,097 37,215,446
----------- ----------- ----------- -----------
Interest expense
Deposits 3,403,048 4,810,408 11,756,659 16,452,972
Borrowings 1,336,654 1,420,781 4,125,325 4,667,692
----------- ----------- ----------- -----------
Total interest expense 4,739,702 6,231,189 15,881,984 21,120,664
----------- ----------- ----------- -----------
Net interest income 5,675,585 5,380,275 17,237,113 16,094,782
Provision for loan losses 0 50,000 0 403,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 5,675,585 5,330,275 17,237,113 15,691,782
----------- ----------- ----------- -----------
Noninterest income, net
Service and other fees 227,912 112,176 575,615 417,755
Mortgage banking activities, net 1,340,555 718,158 3,471,254 2,212,961
Other, net 28,481 39,964 138,169 90,853
----------- ----------- ----------- -----------
Total noninterest income, net 1,596,948 870,298 4,185,038 2,721,569
----------- ----------- ----------- -----------
Noninterest expense
Compensation and benefits 2,170,039 1,877,688 6,497,460 5,800,707
Office occupancy and equipment 838,755 692,972 2,361,199 1,959,502
Other 1,105,525 977,465 3,469,367 2,678,762
----------- ----------- ----------- -----------
Total noninterest expense 4,114,319 3,548,125 12,328,026 10,438,971
----------- ----------- ----------- -----------
Income before federal income tax provision 3,158,214 2,652,448 9,094,125 7,974,380
Federal income tax provision 1,063,599 889,085 3,055,264 2,697,792
----------- ----------- ----------- -----------
Net income $ 2,094,615 $ 1,763,363 $ 6,038,861 $ 5,276,588
=========== =========== =========== ===========
Basic earnings per share $ 0.36 $ 0.30 $ 1.04 $ 0.91
=========== =========== =========== ===========
Diluted earnings per share $ 0.35 $ 0.30 $ 1.03 $ 0.90
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
PAGE 2
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
------------------------------
2003 2002
---- ----
OPERATING ACTIVITIES
Net income $ 6,038,861 $ 5,276,588
Adjustments to reconcile net income to net cash provided by
(from) operating activities
Depreciation and amortization 1,037,131 760,458
Provision for losses on loans 0 403,000
Accretion of unearned discount and deferred loan origination fees, net (928,800) (845,019)
Gain on sale of loans receivable held for sale, net (4,432,233) (2,240,945)
Gain on disposal of real estate owned, net 0 (15,006)
Federal Home Loan Bank stock dividends (352,575) (407,184)
Change in accrued interest on investments, loans, and borrowings, net 25,532 (1,529,328)
Origination of loans receivable held for sale, net (286,234,946) (227,396,842)
Sale of loans receivable held for sale, net 267,807,051 232,588,677
Change in other, net 4,579,569 (3,219,427)
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Net cash provided by (from) operating activities (12,460,410) 3,374,972
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INVESTING ACTIVITIES
Loan and mortgage-backed securities repayments and originations, net (15,902,129) (1,864,772)
Disposals of real estate owned 22,779 283,139
Securities purchased (30,000,000) (10,000,000)
Securities maturities 55,071,590 67,264
Additions to office properties and equipment, net (2,755,880) (2,036,850)
Increase in real estate held for investment 0 (350,000)
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Net cash used by (from) investing activities 6,436,360 (13,901,219)
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FINANCING ACTIVITIES
Net increase in demand deposits, NOW, and passbook savings 12,991,354 17,845,976
Net decrease in time deposits (4,400,481) (11,926,673)
Net decrease in Federal Home Loan Bank advances (606,255) (45,113,028)
Increase in notes payable 0 650,000
Decrease in notes payable (1,803,910) 0
Purchase of treasury stock (181,876) (92,675)
Proceeds from exercise of stock options 40,513 82,353
Cash dividend paid (1,226,643) (1,134,804)
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Net cash provided by (from) financing activities 4,812,702 (39,688,851)
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Net increase (decrease) in cash and cash equivalents (1,211,348) (50,215,098)
Cash and cash equivalents at beginning of period 14,313,688 65,395,118
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Cash and cash equivalents at end of period $ 13,102,340 $ 15,180,020
============= =============
Supplemental disclosures of cash flow information:
Cash payments of interest expense $ 15,949,322 $ 22,616,019
Cash payments of income taxes $ 3,070,000 $ 2,450,000
Supplemental noncash investing activity:
Transfer of loans to real estate owned $ 0 $ 283,332
See accompanying notes to consolidated financial statements
PAGE 3
PART I FINANCIAL INFORMATION
ITEM 1
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
(UNAUDITED)
1. The accompanying consolidated interim financial statements were prepared in
accordance with regulations of the Securities and Exchange Commission for
Form 10-Q. All information in the consolidated interim financial statements
is unaudited except for the June 30, 2002 consolidated statement of
financial condition which was derived from the Corporation's audited
financial statements. Certain information required for a complete
presentation in accordance with generally accepted accounting principles
has been condensed or omitted. However, in the opinion of management, these
interim financial statements contain all adjustments, consisting only of
normal recurring accruals, necessary to fairly present the interim
financial information. The results of operations for the three and nine
months ended March 31, 2003 are not necessarily indicative of the results
to be expected for the entire year ending June 30, 2003. The results of
operations for PVF Capital Corp. ("PVF" or the "Company") for the periods
being reported have been derived primarily from the results of operation of
Park View Federal Savings Bank (the "Bank"). PVF Capital Corp.'s common
stock is traded on the NASDAQ SMALL-CAP ISSUES under the symbol PVFC.
2. Recently Issued Accounting Standards
In November 2002, FASB issued Interpretation (FIN) No. 45, Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which requires new disclosures for
guarantees for beginning in the interim period ended March 31, 2003. FIN 45
applies to standby letters of credit but not to commercial letters of
credit or loan commitments. Beginning January 1, 2003, any fees received
for a new or modified standby letter of credit are recorded as a liability
to reflect the fair value of the guarantee and not as income. If no fee is
received, then a fair value of that guarantee must be determined and
recorded. The liability is reduced as the guaranteed is released.
Page 4
PART I FINANCIAL INFORMATION
ITEM 1
SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and
Disclosure-an amendment of FASB Statement 123" was issued in December 2002
and amends SFAS No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. This Statement also requires prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results.
Stock Compensation: Employee compensation expense under stock is reported
using the intrinsic valuation method. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal
to or greater than the market price of the underlying common stock at 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."
Three months ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
Net income as reported $2,094,615 $1,763,363 $6,038,861 $5,276,588
Less: Pro forma compensation
expense, net of tax $ 35,982 $ 13,009 $ 107,948 $ 39,026
Pro forma net income $2,058,633 $1,750,354 $5,930,913 $5,237,562
Basic earnings per share $ 0.36 $ 0.30 $ 1.04 $ 0.91
Pro forma basic earnings per share $ 0.36 $ 0.30 $ 1.02 $ 0.91
Diluted earnings per share $ 0.35 $ 0.30 $ 1.03 $ 0.90
Pro forma diluted earnings per share $ 0.35 $ 0.29 $ 1.01 $ 0.89
Page 5
PART I FINANCIAL INFORMATION
ITEM 1
3. The following table discloses Earnings Per Share for the three and nine
months ended March 31, 2003 and March 31, 2002.
Three months ended March 31,
2003 2002
--------------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ----------
BASIC EPS
Net Income $2,094,615 5,790,026 $ 0.36 $1,763,363 5,833,013 $ 0.30
EFFECT OF STOCK OPTIONS 114,117 0.01 104,916 0.00
DILUTED EPS
Net Income $2,094,615 5,904,143 $ 0.35 $1,763,363 5,937,929 $ 0.30
Nine months ended March 31,
2003 2002
--------------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ----------
BASIC EPS
Net Income $6,038,861 5,791,400 $ 1.04 $5,276,588 5,777,858 $ 0.91
EFFECT OF STOCK OPTIONS 85,010 0.01 106,102 0.01
DILUTED EPS
Net Income $6,038,861 5,876,410 $ 1.03 $5,276,588 5,883,960 $ 0.90
Note - Shares represent average shares for the period adjusted for Treasury
Stock. Stock options for 89,809 and 89,809 shares of common stock were not
considered in computing dilutive earnings per common share for the three
and nine month periods ended March 31, 2002 because they were
anti-dilutive.
Stock options for -0- and 7,000 shares of common stock were not considered
in computing dilutive earnings per common share for the nine month period
ended March 31, 2003 because they were anti-dilutive.
Page 6
Part I Financial Information
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis discusses changes in financial condition and results of
operations at and for the three-month and nine-month periods ended March 31,
2003 for PVF Capital Corp. ("PVF" or the "Company"), Park View Federal Savings
Bank (the "Bank"), its principal and wholly-owned subsidiary, PVF Service
Corporation ("PVFSC"), a wholly-owned real estate subsidiary, Mid Pines Land
Co., a wholly-owned real estate subsidiary, and PVF Holdings, Inc., PVF
Community Development, and PVF Mortgage Corporation, three wholly-owned and
currently inactive subsidiaries.
FORWARD-LOOKING STATEMENTS
- --------------------------
When used in this Form 10-Q, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the results of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
FINANCIAL CONDITION
- -------------------
Consolidated assets of PVF were $695.9 million as of March 31, 2003, an increase
of approximately $16.3 million, or 2.4%, as compared to June 30, 2002. The Bank
remained in regulatory capital compliance for a well capitalized institution
with tangible, core, and risk-based capital levels on a fully phased-in basis of
8.17%, 8.17% and 11.55%, respectively at March 31, 2003.
During the nine months ended March 31, 2003, the Company's cash and cash
equivalents, which consist of cash, interest-bearing deposits and federal funds
sold, decreased $1.2 million, or 8.5%, as compared to
Page 7
Part I Financial Information
Item 2
FINANCIAL CONDITION CONTINUED
- -----------------------------
June 30, 2002. The change in the Company's cash and cash equivalents consisted
of decreases in interest-bearing deposits and federal funds sold of $5.3 million
and an increase in cash of $4.1 million.
The net $39.6 million, or 6.8%, increase in loans receivable, loans receivable
held for sale and mortgage-backed securities during the nine months ended March
31, 2003, resulted from increases in loans receivable of $20.4 million and loans
receivable held for sale of $22.9 million and a decrease in mortgage-backed
securities of $3.7 million. The increase of $20.4 million in loans receivable
included increases of $12.7 million in home equity loans, $12.0 million in
commercial real-estate loans, $9.0 million in commercial equity line of credit
loans, $2.4 million in construction and land loans, net, and $1.5 million in
consumer loans. These increases were offset by decreases of $13.3 million in
single-family mortgage loans, and $3.9 million in multi-family loans. The
increase of $22.9 million in loans receivable held for sale is attributable to
timing differences between the origination and sale of loans originated for
sale. The Bank typically originates single-family fixed-rate loans for sale,
while retaining single-family adjustable-rate loans for investment. During
periods of lower interest rates borrowers are generally attracted to fixed-rate
financing, while the reverse is true during periods of higher interest rates.
The decrease in mortgage-backed securities resulted from both scheduled
principal payments and pre-payments received of $3.7 million. There were no
material changes to the composition of the mortgage loan portfolio.
Securities decreased by $25.0 million, or 45.5%, as the result of the purchase
of $30.0 million in newly issued securities and call options exercised on $55.0
million in securities held to maturity.
The increase of $1.7 million, or 17.5%, in office properties and equipment is
the result of capital improvements to our Corporate Center office in Solon,
Ohio, in addition to the opening of two new branch offices and the relocation of
one branch office. The decrease of $30,500 in real estate owned properties
resulted from proceeds received on the sale of two developed building lots.
Investment in stock with the Federal Home Loan Bank of Cincinnati increased by
$0.4 million due to the receipt of stock dividends. The increase in prepaid
expenses and other assets of $0.9 million, or 15.7%, is primarily attributable
to an increase in the book value of mortgage servicing rights of $0.5 million
that was the result of the high volume of loan sales during the current period.
At March 31, 2003, the Company serviced $578.8 million in single-family mortgage
loans, and carried an asset for mortgage servicing rights totaling $3.8 million,
or 65 basis points, of total serviced loans.
Deposits increased by $8.6 million, or 1.8%, as a result of special promotional
rates offered with the opening of two new branch offices. The Company will
consider the use of special promotional rates in the future to attract new
deposits or to establish a deposit base when opening new branches. The increase
in accrued expenses and other liabilities of $8.4 million, or 74.3%, is
primarily the result of timing differences between the collection and remittance
of payments received on loans
Page 8
Part I Financial Information
Item 2
FINANCIAL CONDITION CONTINUED
- -----------------------------
serviced for others.
Notes payable decreased by $1.8 million, or 21.8%, as a result of principal
repayments. The decrease in advances from borrowers for taxes and insurance of
$3.0 million, or 40.5%, is due to timing differences between the collection and
payment of escrow funds. The decrease of $0.6 million, or 0.5%, in advances from
the Federal Home Loan Bank was the result of the repayment of maturing advances.
The increase in deposits of $8.6 million, funds from the decrease of $25.0
million in securities held to maturity, the repayment of $3.7 million in
mortgage-backed securities, the decrease of $1.2 million in cash and cash
equivalents, funds of $8.4 million collected on serviced loans, and earnings of
$6.0 million were used to fund the increase of $43.3 million in total loans
receivable, the increase of $1.7 million in office properties and equipment, the
increase of $0.9 million in prepaid expenses and other assets, the increase of
$0.4 million of stock in the Federal Home Loan Bank of Cincinnati, the decrease
of $3.0 million from borrowers for taxes and insurance, repay $1.8 million in
notes payable, repay $0.6 million in advances, and pay a dividend of $1.2
million.
RESULTS OF OPERATIONS Three months ended March 31, 2003,
- --------------------- compared to three months ended
March 31, 2002.
PVF's net income is dependent primarily on its net interest income, which is the
difference between interest earned on its loans and investments and interest
paid on interest-bearing liabilities. Net interest income also includes
amortization of loan origination fees, net of origination costs.
PVF's net income is also affected by the generation of non-interest income,
which primarily consists of loan servicing income, service fees on deposit
accounts, and gains on the sale of loans held for sale. Net interest income is
determined by (i) the difference between yields earned on interest-earning
assets and rates paid on interest-bearing liabilities ("interest-rate spread")
and (ii) the relative amounts of interest-earning assets and interest-bearing
liabilities. The Company's interest-rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit flows. In addition, net income is affected by the level of operating
expenses and loan loss provisions.
The Company's net income for the three months ended March 31, 2003 was
$2,094,600 as compared to $1,763,400 for the prior year comparable period. This
represents an increase of $331,200, or 18.8%, when compared with the prior year
comparable period.
Net interest income for the three months ended March 31, 2003 increased by
$295,300, or 5.5%, as compared to the prior year comparable period. This
resulted from a decrease of $1,196,200, or 10.3%, in interest income and a
$1,491,500, or 23.9%, decrease in
Page 9
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
- -------------------------------
interest expense, both of which resulted from historically low market interest
rates during the current period. The decrease in interest income resulted from a
decrease of 70 basis points in the return on interest-earning assets in the
current period. The decrease in yield, in addition to a modest decrease of $1.3
million in the average balance of interest-earning assets, resulted in an
overall decrease to interest income of $1,196,200 in the current period. The
decrease in interest expense resulted from a decrease of 97 basis points in the
cost of funds on interest-bearing liabilities in the current period. The
decrease in cost of funds, in addition to a decrease of $4.5 million in the
average balance on interest-bearing liabilities, resulted in an overall decrease
to interest expense of $1,491,500 in the current period. The Company's net
interest income increased due to an increase of 27 basis points in the Company's
interest-rate spread during the current period as compared to the prior year
comparable period. A continued decline in market interest rates could result in
a negative impact to net interest income.
For the three months ended March 31, 2003, no provision for general loan losses
was recorded, while a $50,000 provision for general loan losses was recorded in
the prior year comparable period. The Company uses a systematic approach to
determine the adequacy of its loan loss allowance and the necessary provision
for loan losses. The loan portfolio is reviewed and delinquent loan accounts are
analyzed individually on a monthly basis with respect to payment history,
ability to repay, probability of repayment, and loan-to-value percentage.
Consideration is given to the types of loans in the portfolio and the overall
risk inherent in the portfolio. After reviewing current economic conditions,
changes to the size and composition of the loan portfolio, changes in
delinquency status, levels of non-accruing loans, non-performing assets,
impaired loans, and actual loan losses incurred by the Company, management
establishes an appropriate reserve percentage applicable to each category of
loans, and a provision for loan losses is recorded when necessary to bring the
allowance to a level consistent with this analysis. Management believes it uses
the best information available to make a determination as to the adequacy of the
allowance for loan losses.
During the three months ended March 31, 2003, the Company experienced a decrease
in the loan portfolio of $0.5 million. In addition, the level of impaired loans
and classified assets increased by $325,000 and $1.0 million, respectively,
while $19,000 in loans were charged off. Management determined it was not
necessary to record a provision for loan losses in the current period due to the
application of revised reserve percentages, reflecting the Company's historic
loss experience to certain loan categories. At March 31, 2003, the allowance for
loan losses was $3.9 million, which represented 52.7% of non-performing loans
and 0.63% of loans. During the three months ended March 31, 2002, the Company
experienced a decrease in the loan portfolio of $17.5 million, increases in the
level of impaired loans and classified assets of $0.9 million each, and had
$13,000 in loans charged off. Due to increases in impaired loans and classified
assets, along with loans charged off during the period, management determined
Page 10
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
- -------------------------------
it was necessary to record a provision for general loan losses of $50,000 in the
prior period. At March 31, 2002, the allowance for loan losses was $3.9 million,
which represented 64.1% of non-performing loans and 0.67% of loans.
For the three months ended March 31, 2003, non-interest income increased by
$726,600, or 83.5%, from the prior year comparable period. This resulted
primarily from an increase of $622,400, or 86.7%, in mortgage-banking activities
that resulted from an increase of $1,185,400 in profit on loan sales in the
current period offset by a decrease of $563,000 in loan servicing income. The
decrease in loan servicing income is attributable to the accelerated write-down
of mortgage loan servicing rights resulting from declining market interest rates
and increased prepayment speed on loans serviced for others. The write-down to
mortgage loan servicing rights for the three months ended March 31, 2003 was
$957,100, representing an increase of $633,900 as compared to the prior year
comparable period. Included in the write-down to mortgage loan servicing rights
in the current period is a $370,000 write-down for impairment to the fair market
value of mortgage loan servicing rights. During these periods, PVF pursued a
strategy of originating long-term, fixed-rate loans pursuant to Federal Home
Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association
("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while
retaining the servicing. The results of operations from mortgage-banking
activity for the three months ended March 31, 2003 are attributable in large
part to historically low market interest rates and are not necessarily
indicative of expected future results.
Service and other fees increased by $115,700, or 103.2%, in the current period,
primarily due to increases in loan prepayment penalties and late charge fee
income.
Non-interest expense for the three months ended March 31, 2003 increased by
$566,200, or 16.0%, from the prior year comparable period. This was primarily
the result of an increase in compensation and benefits of $292,400, or 15.6%, as
the result of increased staffing, incentive bonuses paid, and salary and wage
adjustments. Office occupancy and equipment increased $145,800, or 21.0%, due to
the operation of two additional branch offices along with repairs and
maintenance costs to our Corporate Center office. The increase of $128,000, or
13.1%, in other non-interest expense was attributable to increases in telephone
line costs resulting from an upgrade to our computer network, costs of outside
services attributable to the opening of two new branch offices and the
relocation of an existing branch office, and real estate owned expense.
The federal income tax provision for the three-month period ended March 31, 2003
increased to an effective rate of 33.7% for the current period from an effective
rate of 33.5% for the prior year comparable period.
Page 11
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
- -------------------------------
RESULTS OF OPERATIONS Nine months ended March 31, 2003,
- --------------------- compared to nine months ended
March 31, 2002.
The Company's net income for the nine months ended March 31, 2003 was $6,038,900
as compared to $5,276,600 for the prior year comparable period. This represents
an increase of $762,300, or 14.4%, when compared with the prior year comparable
period.
Net interest income for the nine months ended March 31, 2003 increased by
$1,142,300, or 7.1%, as compared to the prior year comparable period. This
resulted from a decrease of $4,096,400, or 11.0%, in interest income and a
$5,238,700, or 24.8%, decrease in interest expense, both of which resulted from
historically low market interest rates during the current period. The decrease
in interest income resulted from a decrease of 85 basis points in the return on
interest-earning assets in the current period. The decrease in yield on
interest-earning assets, resulted in an overall decrease to interest income of
$4,096,400 in the current period. The decrease in interest expense resulted from
a decrease of 114 basis points in the cost of funds on interest-bearing
liabilities in the current period. The decrease in cost of funds, in addition to
a decrease of $3.0 million in the average balance on interest-bearing
liabilities, resulted in an overall decrease to interest expense of $5,238,700
in the current period. The Company's net interest income increased due to an
increase of 29 basis points in the Company's interest-rate spread during the
current period as compared to the prior year comparable period. A continued
decline in market interest rates could result in a negative impact to net
interest income.
For the nine months ended March 31, 2003, no provision for general loan losses
was recorded, while a $403,000 provision for general loan losses was recorded in
the prior year comparable period. The Company uses a systematic approach to
determine the adequacy of its loan loss allowance and the necessary provision
for loan losses. The loan portfolio is reviewed and delinquent loan accounts are
analyzed individually on a monthly basis with respect to payment history,
ability to repay, probability of repayment, and loan-to-value percentage.
Consideration is given to the types of loans in the portfolio and the overall
risk inherent in the portfolio. After reviewing current economic conditions,
changes to the size and composition of the loan portfolio, changes in
delinquency status, levels of non-accruing loans, non-performing assets,
impaired loans, and actual loan losses incurred by the Company, management
establishes an appropriate reserve percentage applicable to each category of
loans, and a provision for loan losses is recorded when necessary to bring the
allowance to a level consistent with this analysis. Management believes it uses
the best information available to make a determination as to the adequacy of the
allowance for loan losses.
During the nine months ended March 31, 2003, the Company experienced growth in
the loan portfolio of $43.3 million, a decrease in the level of impaired loans
of $433,000, an increase in classified assets of
Page 12
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
- -------------------------------
$115,000, and had $19,000 in loans charged off. Management determined it was not
necessary to record a provision for loan losses in the current period due to the
application of revised reserve percentages, reflecting the Company's historic
loss experience to certain loan categories, along with a decrease to impaired
loans. At March 31, 2003, the allowance for loan losses was $3.9 million, which
represented 52.7% of non-performing loans and 0.63% of loans. During the nine
months ended March 31, 2002, the Company experienced growth in the loan
portfolio of $8.6 million, increases in the level of impaired loans and
classified assets of $0.7 million each, and had $40,000 in loans charged off.
Due to the growth of the loan portfolio, increases in the level of impaired
loans and classified assets, along with loans charged off during the period and
changes to the overall composition of the loan portfolio, management determined
it was necessary to record a provision for general loan losses of $403,000 in
the prior period. At March 31, 2002, the allowance for loan losses was $3.9
million, which represented 64.1% of non-performing loans and 0.67% of loans.
For the nine months ended March 31, 2003, non-interest income increased by
$1,463,500, or 53.8%, from the prior year comparable period. This resulted
primarily from an increase of $1,258,300, or 56.9%, in mortgage-banking
activities that resulted from an increase of $2,191,300 in profit on loan sales
in the current period offset by a decrease of $933,000 in loan servicing income.
The decrease in loan servicing income is attributable to the accelerated
write-down of mortgage loan servicing rights resulting from declining market
interest rates and increased prepayment speed on loans serviced for others. The
write-down to mortgage loan servicing rights for the nine months ended March 31,
2003 was $2,025,300, representing an increase of $1,196,800 as compared to the
prior year comparable period. Included in the write-down to mortgage loan
servicing rights in the current period is a $370,000 write-down for impairment
to the fair market value of mortgage loan servicing rights. During these
periods, PVF pursued a strategy of originating long-term, fixed-rate loans
pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal
National Mortgage Association ("FNMA") guidelines and selling such loans to the
FHLMC or the FNMA, while retaining the servicing. The results of operations from
mortgage-banking activity for the nine months ended March 31, 2003 are
attributable in large part to historically low market interest rates and are not
necessarily indicative of expected future results.
Service and other fees increased by $157,900, or 37.8%, primarily due to
increases in loan prepayment penalties and late charge fee income. In addition,
other non-interest income, net, increased by $47,300 in the current period,
primarily due to recoveries of amounts previously charged off.
Non-interest expense for the nine months ended March 31, 2003 increased by
$1,889,100, or 18.1%, from the prior year comparable period. This was primarily
the result of an increase in compensation and benefits of $696,800, or 12.0%, as
the result of increased
Page 13
Part I Financial Information
Item 2
RESULTS OF OPERATIONS CONTINUED
- -------------------------------
staffing, incentive bonuses paid, and salary and wage adjustments. Office
occupancy and equipment increased $401,700, or 20.5%, due to the operation of
two additional branch offices along with repairs and maintenance costs to our
Corporate Center office. The increase of $790,600, or 29.5%, in other
non-interest expense was attributable to increases in legal fees, costs of
outside services attributable to the opening of two new branch offices and the
relocation of an existing branch office, increased telephone line costs
resulting from an upgrade to our computer network, stationery, printing and
supplies, postage and special mail.
The federal income tax provision for the nine-month period ended March 31, 2002
decreased to an effective rate of 33.6% for the current period from an effective
rate of 33.8% for the prior year comparable period.
Page 14
Part I Financial Information
Item 2
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. Management
believes the Company maintains sufficient liquidity to meet its operational
needs.
Part I Financial Information
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
There have been no significant changes to the Company's interest rate risk
position or any changes to how the Company manages its Asset/Liability position
since June 30, 2002. This is attributable to the Company's Asset/Liability
Management policy of monitoring and matching the maturity and re-pricing
characteristics of its interest-earning assets and interest-bearing liabilities,
while remaining short-term with the weighted-average maturity and re-pricing
periods.
Part I Financial Information
Item 4
CONTROLS AND PROCEDURES
- -----------------------
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic SEC reports.
In addition, there have been no significant changes in our internal controls or
in other factors that could significantly affect those controls subsequent to
the date of their last evaluation.
Part II OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in Securities and Use of Proceeds. N/A
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K.
Page 15
Part II Other Information continued
(a) Exhibits
The following exhibit is filed herewith:
Exhibit Title
Number -----
------
99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
Page 16
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PVF Capital Corp.
----------------
(Registrant)
Date: May 14, 2003 /s/ C. Keith Swaney
------------ -------------------------------
C. Keith Swaney
President, Chief Operating
Officer and Treasurer
(Only authorized officer and
Principal Financial Officer)
Certification
I, John R. Male, Chairman of the Board and Chief Executive Officer of PVF
Capital Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of PVF Capital Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ John R. Male
----------------------------------
John R. Male
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
I, C. Keith Swaney, President, Chief Operating Officer and Treasurer of PVF
Capital Corp., certify that:
1. I have reviewed this quarterly report on Form 10-Q of PVF Capital Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ C. Keith Swaney
------------------------------
C. Keith Swaney
President, Chief Operating
Officer and Treasurer