UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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 December 31, 2003.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
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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)
Ohio 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 6,387,037
- ------------------------------ -----------------------------------------------
(Class) (Outstanding at January 31, 2004)
PVF CAPITAL CORP.
INDEX
Page
Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial
Condition, December 31, 2003
(unaudited) and June 30, 2003. 1
Consolidated Statements of Operations
for the three and six
months ended December 31, 2003 and 2002 (unaudited) 2
Consolidated Statements of Cash Flows
For the six months ended December 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 Liquidity and Capital Resources 14
Item 4 Quantitative and Qualitative Disclosures
about Market Risk 14
Item 5 Controls and Procedures 14
Part II Other Information 15
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, JUNE 30,
ASSETS 2003 2003
------ ------------ --------
unaudited
Cash and cash equivalents:
Cash and amounts due from depository institutions $5,246,925 $9,755,224
Interest bearing deposits 2,404,523 3,946,019
Federal funds sold 50,000 83,050,000
------------ ------------
Total cash and cash equivalents 7,701,448 96,751,243
Securities held to maturity 0 33,252
Mortgage-backed securities held to maturity 40,801,622 2,964,798
Loans receivable held for sale, net 9,924,234 33,603,895
Loans receivable, net of allowance of
$4,179,793 and $3,882,839 596,748,604 579,670,681
Office properties and equipment, net 12,566,491 11,555,919
Real estate owned, net 0 448,865
Federal Home Loan Bank stock 10,606,918 10,396,399
Prepaid expenses and other assets 9,052,877 7,978,751
------------ ------------
Total Assets $687,402,194 $743,403,803
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Deposits $475,258,642 $526,428,927
Advances from the Federal Home Loan Bank of Cincinnati 122,102,310 120,123,220
Notes payable 4,776,240 5,815,150
Advances from borrowers for taxes and insurance 8,373,969 7,964,653
Accrued expenses and other liabilities 15,351,731 24,468,717
------------ ------------
Total Liabilities 625,862,892 684,800,667
Stockholders' Equity
Serial preferred stock, none issued -- --
Common stock, $0.01 par value, 15,000,000 shares authorized;
6,727,367 and 6,717,283 shares issued, respectively 67,274 67,173
Additional paid-in-capital 47,207,212 47,176,696
Retained earnings 17,392,009 14,486,460
Treasury Stock, at cost 343,519 shares (3,127,193) (3,127,193)
------------ ------------
Total Stockholders' Equity 61,539,302 58,603,136
------------ ------------
Total Liabilities and Stockholders' Equity $687,402,194 $743,403,803
============ ============
Page 1
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-----------------------------------------------------------
2003 2002 2003 2002
Interest income
Loans $9,220,741 $10,486,097 $18,684,269 $20,920,563
Mortgage-backed securities 489,656 75,652 933,098 175,984
Cash and securities 119,349 737,575 270,740 1,607,263
---------- ----------- ----------- ----------
Total interest income 9,829,746 11,299,324 19,888,107 22,703,810
---------- ----------- ----------- ----------
Interest expense
Deposits 2,720,009 3,923,304 5,650,188 8,353,611
Borrowings 1,357,694 1,393,667 2,738,405 2,788,671
---------- ----------- ----------- ----------
Total interest expense 4,077,703 5,316,971 8,388,593 11,142,282
---------- ---------- ---------- ----------
Net interest income 5,752,043 5,982,353 11,499,514 11,561,528
Provision for loan losses 192,000 0 292,000 0
---------- ----------- ----------- ----------
Net interest income after provision
for loan losses 5,560,043 5,982,353 11,207,514 11,561,528
---------- ---------- ----------- ----------
Noninterest income, net
Service and other fees 157,564 218,279 304,210 347,703
Mortgage banking activities, net 604,707 1,534,385 3,277,954 2,130,699
Other, net 105,506 85,598 596,969 109,688
---------- ----------- ----------- ----------
Total noninterest income, net 867,777 1,838,262 4,179,133 2,588,090
-------- ---------- ---------- ---------
Noninterest expense
Compensation and benefits 2,346,503 2,223,861 4,852,899 4,327,421
Office occupancy and equipment 806,681 775,274 1,604,405 1,522,444
Other 1,208,498 1,413,130 2,442,423 2,363,842
---------- ----------- ----------- ----------
Total noninterest expense 4,361,682 4,412,265 8,899,727 8,213,707
---------- ---------- ---------- ---------
Income before federal income tax provision 2,066,138 3,408,350 6,486,920 5,935,911
Federal income tax provision 716,400 1,151,190 2,205,100 1,991,665
---------- ----------- ----------- ----------
Net income $1,349,738 $2,257,160 $4,281,820 $3,944,246
=========== =========== =========== ==========
Basic earnings per share $0.21 $0.35 $0.67 $0.62
====== ====== ====== =====
Diluted earnings per share $0.21 $0.35 $0.66 $0.61
====== ====== ====== =====
Dividends declared per common share $0.074 $0.067 $0.148 $0.134
======= ======= ======= ======
See accompanying notes to consolidated financial statements
Page 2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
---------------------------------
2003 2002
---- ----
OPERATING ACTIVITIES
Net income $4,281,820 $3,944,246
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization 791,822 664,097
Provision for losses on loans 292,000 0
Accretion of unearned discount and deferred loan origination fees, net (610,458) (608,691)
Gain on sale of loans receivable held for sale, net (3,716,289) (2,502,412)
Gain on disposal of real estate owned, net (488,839) 0
Federal Home Loan Bank stock dividends (210,519) (252,068)
Change in accrued interest on investments, loans, and borrowings, net (174,517) 66,056
Origination of loans receivable held for sale, net (177,798,831) (188,241,355)
Sale of loans receivable held for sale, net 205,194,781 171,114,985
Increase (decrease) in other, net (10,697,920) 3,302,134
----------- -----------
Net cash from operating activities 16,863,050 (12,513,008)
----------- ------------
INVESTING ACTIVITIES
Loan and mortgage-backed securities repayments and originations, net (14,124,845) (20,822,222)
Purchase of mortgage-backed securities held for investment (39,853,303) 0
Disposals of real estate owned 937,704 22,779
Securities purchased 0 (30,000,000)
Maturities of securities held to maturity 33,252 50,047,354
Additions to office properties and equipment, net (1,802,394) (1,923,373)
----------- ----------
Net cash used in investing activities (54,809,586) (2,675,462)
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FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW, and passbook savings (1,858,010) 13,483,132
Net increase (decrease) in time deposits (49,312,275) 5,774,074
Net increase (decrease) in Federal Home Loan Bank advances 1,979,090 (28,914)
Net decrease in notes payable (1,038,910) (1,035,940)
Purchase of treasury stock 0 (110,114)
Proceeds from exercise of stock options 30,617 33,716
Cash dividend paid (903,771) (798,112)
----------- ----------
Net cash from financing activities (51,103,259) 17,317,842
----------- ----------
Net increase (decrease) in cash and cash equivalents (89,049,795) 2,129,372
Cash and cash equivalents at beginning of period 96,751,243 14,313,688
----------- -----------
Cash and cash equivalents at end of period $ 7,701,448 $16,443,060
=========== ===========
Supplemental disclosures of cash flow information:
Cash payments of interest expense $8,393,834 $11,191,880
Cash payments of income taxes $1,760,000 $2,195,000
See accompanying notes to consolidated financial statements.
Page 3
Part I Financial Information
Item 1
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
(Unaudited)
1. The accompanying condensed 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, 2003 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 six months ended December 31, 2003 are
not necessarily indicative of the results to be expected for the entire year
ending June 30, 2004. 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. 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 Six Months Ended
December 31, December 31,
2003 2002 2003 2002
---------------- ----------------- ------------------ ------------------
Net Income as reported $1,349,738 $2,257,160 $4,281,820 $3,944,246
Less: Pro forma compensation
expense, net of tax $ 23,383 $ 31,034 $ 49,513 $ 62,068
---------- ---------- ---------- ----------
Pro forma net income $1,326,355 $2,226,126 $4,232,307 $3,882,178
========== ========== ========== ==========
Basic earnings per share $ 0.21 $ 0.35 $ 0.67 $ 0.62
Pro forma basic earnings per share $ 0.21 $ 0.35 $ 0.66 $ 0.61
Diluted earnings per share $ 0.21 $ 0.35 $ 0.66 $ 0.61
Pro forma diluted earnings per share $ 0.20 $ 0.34 $ 0.65 $ 0.60
Page 4
Part I Financial Information
Item 1
3. The following table discloses earnings per share for the three and six
months ended December 31, 2003 and December 31, 2002.
Three months ended December 31,
2003 2002
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Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
BASIC EPS
Net Income $1,349,738 6,379,917 $0.21 $2,257,160 6,371,460 $0.35
EFFECT OF STOCK
OPTIONs 158,669 0.00 87,838 0.00
DILUTED EPS
Net Income $1,349,738 6,538,586 $0.21 $2,257,160 6,459,298 $0.35
Six months ended December 31,
2003 2002
----------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
BASIC EPS
Net Income $4,281,820 6,377,414 $0.67 $3,944,246 6,366,542 $0.62
EFFECT OF
STOCK OPTIONS 155,188 0.01 78,274 0.01
DILUTED EPS
Net Income $4,281,820 6,532,602 $0.66 $3,944,246 6,444,816 $0.61
Page 5
Part I Financial Information
Item 1
4. Mortgage Banking Activities: The Company services real estate loans for
investors that are not included in the accompanying condensed consolidated
financial statements. Mortgage servicing rights are established based on the
allocated fair value of servicing rights retained on loans originated by the
Bank and subsequently sold in the secondary market. Mortgage servicing rights
are included in the consolidated statement of financial condition under the
caption "Prepaid expenses and other assets."
2003 2002
------------------ ------------------
Servicing rights:
Beginning of period $4,655,182 $3,255,147
Additions 2,643,810 1,587,045
Amortized to expense (1,963,212) (1,068,282)
---------- ----------
End of period $5,335,780 $3,773,910
========== ==========
Valuation allowance:
Beginning of period $ 670,000 $ 0
Reductions credited to expense 670,000 0
---------- ----------
End of period $ 0 $ 0
========== ==========
Mortgage banking activities, net consists of the following:
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
---------------- ------------------- ------------------- ------------------
Mortgage Loan Servicing Fees $ 447,260 $ 375,556 $ 854,877 $ 696,569
Amortization and impairment of
mortgage loan servicing fees $(442,289) $ (695,585) $(1,293,212) $(1,068,282)
Gross realized:
Gain on sales of loans $ 913,530 $2,121,156 $ 4,821,188 $ 3,149,812
Losses on sales of loans $(313,794) $ (266,742) $(1,104,899) $ (647,400)
--------- ---------- ----------- -----------
Mortgage banking activities, net $ 604,707 $1,534,385 $ 3,277,954 $ 2,130,699
========= ========== =========== ===========
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 six-month periods ended December 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., a
wholly-owned and currently inactive subsidiary.
FORWARD-LOOKING STATEMENTS
- --------------------------
When used in this Form 10-Q, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, 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 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 $687.4 million as of December 31, 2003, a
decrease of approximately $56.0 million, or 7.5%, as compared to June 30, 2003.
The Bank remained in regulatory capital compliance for tangible, core, and
risk-based capital on a fully phased-in basis with capital levels of 8.66%,
8.66%, and 10.83%, respectively, at December 31, 2003.
During the six months ended December 31, 2003, the Company's cash and cash
equivalents, which consist of cash, interest-bearing deposits, and federal funds
sold, decreased $89.0 million, or 92.0%, as compared to June 30, 2003. The
change in the Company's cash and cash equivalents consisted of a decrease in
cash and interest-bearing
Page 7
Part I Financial Information
Item 2
FINANCIAL CONDITION continued
- -----------------------------
deposits of $6.0 million and a decrease in federal funds sold of $83.0 million.
The net $31.2 million, or 5.1%, increase in loans receivable and mortgage-backed
securities during the six months ended December 31, 2003, resulted from an
increase in loans receivable held for investment of $17.1 million, a decrease in
loans receivable held for sale of $23.7 million, and an increase in
mortgage-backed securities of $37.8 million. The increase of $17.1 million in
loans receivable held for investment included increases of $10.2 million in home
equity line of credit loans, $2.3 million in commercial line of credit loans,
$8.7 million in commercial real estate loans, $10.7 million in construction
loans, and $0.2 million in multi-family loans, offset by decreases of $12.2
million in one-to-four family residential loans held for investment and $2.8
million in land loans. The increase of $37.8 million in mortgage-backed
securities resulted from the purchase of $39.9 million in mortgage-backed
securities less payments received of $2.1 million. The decrease of $23.7 million
in loans receivable held for sale is attributable to a slowdown in refinancing
activity during the period.
The increase of $1.0 million in office properties and equipment is the result of
capital improvements to our Corporate Center office in Solon, Ohio, investment
in new technology, and the opening of a new branch office. The increase in
prepaid expenses and other assets of $1.1 million, or 13.5%, is primarily
attributable to an increase of $0.7 million in the mortgage servicing asset that
resulted from the reversal of the impairment charge in the six months ended
December 31, 2003. The decrease of $0.4 million in real estate owned properties
is attributable to the sale of real estate owned.
As a result of management's decision not to match market certificate of deposit
rates, management allowed deposits to decrease by $51.2 million, or 9.7%. The
decrease in notes payable of $1.0 million, or 17.9%, is the result of payments
made on notes payable. Advances increased by $2.0 million as a result of
short-term borrowings from the Federal Home Loan Bank of Cincinnati.
The decrease in accrued expenses and other liabilities of $9.1 million, or
37.3%, is primarily the result of timing differences between the collection and
remittance of payments received on loans serviced for investors.
The decrease in cash and cash equivalents of $89.0 million, proceeds from the
sale and repayment of loans receivable of $6.6 million, earnings of $4.3
million, advances of $2.0 million, and proceeds of $0.4 million from the sale of
real estate owned, were used to repay maturing deposits of $51.2 million, fund
the net increase of $37.8 million in mortgage-backed securities, fund the
decrease in accrued expenses and other liabilities of $9.1 million, fund the
increase of
Page 8
Part I Financial Information
Item 2
FINANCIAL CONDITION continued
- -----------------------------
$1.1 million in prepaid expenses and other assets and $1.0 million in office
properties and equipment, repay $1.0 million in notes payable and pay a cash
dividend of $0.9 million to stockholders.
RESULTS OF OPERATIONS Three months ended December 31, 2003,
- --------------------- compared to three months ended December 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 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. 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. 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 December 31, 2003 was
$1,349,700 as compared to $2,257,100 for the prior year comparable period. This
represents a decrease of $907,400, or 40.2%, when compared with the prior year
comparable period.
Net interest income for the three months ended December 31, 2003 decreased by
$230,300, or 3.8%, as compared to the prior year comparable period. This
resulted from a decrease of $1,469,600, or 13.0%, in interest income and a
decrease of $1,239,300, or 23.3%, in interest expense. The decrease in interest
income resulted primarily from a decrease of 80 basis points in the return on
interest-earning assets in the current period. This decrease in yield along with
a decrease of $24.1 million in the average balance of interest-earning assets
resulted in an overall decrease to interest income of $1,469,600 in the current
period. The average balance on interest-bearing liabilities decreased by $20.8
million from the prior year comparable period. The average cost of funds on
interest-bearing liabilities decreased by 65 basis points in the current period,
as a result of declining market interest rates, resulting in an overall decrease
in interest expense of $1,239,300. The Company's net interest income decreased
by $230,300 due to a decline in the average balances of both interest-earning
assets and interest-bearing liabilities, in addition to a decrease of 15 basis
points in the Company's interest-rate spread during the current period as
compared to the prior year comparable period.
Page 9
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
- -------------------------------
For the three months ended December 31, 2003, a provision for loan losses of
$192,000 was recorded, while no provision for loan losses was recorded in the
prior year comparable period. The Company uses a systematic approach to
determine the adequacy of its loan loss allowance and the necessary provision
for loan losses. The loan portfolio is reviewed and delinquent loan accounts are
analyzed individually on a monthly basis, with respect to payment history,
ability to repay, probability of repayment, and loan-to-value percentage.
Consideration is given to the types of loans in the portfolio and the overall
risk inherent in the portfolio. After reviewing current economic conditions,
changes to the size and composition of the loan portfolio, changes in
delinquency status, levels of non-accruing loans, non-performing assets,
impaired loans, and actual loan losses incurred by the Company, management
establishes an appropriate reserve percentage applicable to each category of
loans, and a provision for loan losses is recorded when necessary to bring the
allowance to a level consistent with this analysis. Management believes it uses
the best information available to make a determination as to the adequacy of the
allowance for loan losses.
During the three months ended December 31, 2003, the Company experienced an
increase in loans held for investment of $24.9 million and an increase in the
level of impaired loans of $1.3 million. Due to the increase in loans held for
investment along with an increase in the level of impaired loans and recognition
of specific loan losses, management determined it was necessary to record a
provision for loan losses of $192,000 in the current period. During the three
months ended December 31, 2002, the Company experienced an increase in loans
held for investment of $0.6 million. In addition, the level of impaired loans
and classified assets decreased by $541,000 and $3.4 million, respectively.
Management determined it was not necessary to record a provision for loan losses
in the prior period due to the application of revised reserve percentages
reflecting the Company's historic loss experience to certain loan categories,
along with decreases to impaired loans and classified assets. At December 31,
2003, the allowance for loan losses was $4.2 million, which represented 46.9% of
non-performing loans and 0.69% of net loans. At June 30, 2003, the allowance for
loan losses was $3.9 million, which represented 52.2% of non-performing loans
and 0.63% of net loans.
Page 10
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
- -------------------------------
At December 31, June 30,
2003 2003
----------------------------------------------
(Dollars in thousands)
Non-accruing loans (1):
Real estate.................................... $8,919 $7,437
------ ------
Accruing loans which are contractually past due
90 days or more:
Real estate.................................... $ 124 $ 275
--------- ---------
Total non-accrual and 90 days
past due loans.............................. $ 9,043 $ 7,712
========= =========
Ratio of non-performing loans to total loans
and mortgage-backed securities..................... 1.40% 1.26%
======== ========
Other non-performing assets (2)...................... $ 0 $ 449
========= =========
Total non-performing assets.......................... $ 9,043 $ 8,161
========= =========
Total non-performing assets to
total assets....................................... 1.32% 1.10%
======== ========
(1) Non-accrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely, or loans that meet the
non-accrual criteria established by regulatory authorities. Non-accrual
loans include all loans classified as doubtful or loss, loans in
foreclosure, and all loans greater than 90 days past due. Payments received
on a non-accrual loan are either applied to the outstanding principal
balance or recorded as interest income, depending on an assessment of the
collectibility of the principal balance of the loan.
(2) Other non-performing assets represent property acquired by the Bank through
foreclosure or repossession.
For the three months ended December 31, 2003, non-interest income decreased by
$970,500, or 52.8%, from the prior year comparable period. This resulted
primarily from a decrease of $929,700, or 60.6%, in mortgage-banking activities
that resulted from a decrease of $1,254,400 in profit on loan sales in the
current period offset by an increase of $324,700 in loan servicing income. The
increase in loan servicing income is attributable to an increase in the volume
of loans serviced for others along with a slowdown in the amortization of
mortgage loan servicing rights that resulted from increasing market interest
rates and decreased prepayment speed on loans serviced for others. 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 reduction in profit on
loan sales for the quarter is the direct result of a slowdown in refinancing
activities. Those gains are expected to remain soft for at least the rest of the
fiscal year.
In addition, service and other fees decreased by $60,700, or 27.8%, primarily
due to decreases in loan prepayment penalties and late charge fee income. Other
non-interest income, net, increased by $19,900, or 23.3%, in the current period
primarily due to an increase in gains on the sale of real estate owned.
Non-interest expense for the three months ended December 31, 2003 decreased by
$50,600, or 1.1%, from the prior year comparable period.
Page 11
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
- -------------------------------
This was primarily the result of a decrease of $204,600, or 14.5%, in other
non-interest expense that was primarily attributable to decreases in legal fees
and advertising expenses. Compensation and benefits increased $122,600, or 5.5%,
as the result of increased staffing, incentive bonuses paid, and salary and wage
adjustments. Office occupancy and equipment increased $31,400, or 4.1%, due to
the operation of one additional branch office along with repairs and maintenance
costs to our Corporate Center office.
The federal income tax provision for the three-month period ended December 31,
2003 increased to an effective rate of 34.7% for the current period from an
effective rate of 33.8% for the prior year comparable period.
RESULTS OF OPERATIONS Six months ended December 31, 2003,
- --------------------- compared to six months ended December 31, 2002.
The Company's net income for the six months ended December 31, 2003 was
$4,281,800 as compared to $3,944,200 for the prior year comparable period. This
represents an increase of $337,600, or 8.6%, when compared with the prior year
comparable period.
Net interest income for the six months ended December 31, 2003 decreased by
$62,000, or 0.5%, due to a decrease of $2,815,700, or 12.4%, in interest income
and a $2,753,700, or 24.7%, decrease in interest expense. The decrease in
interest income resulted primarily from a decrease of 91 basis points in the
return on interest-earning assets in the current period. This decrease in yield
along with a decrease of $0.5 million in the average balance of interest-earning
assets resulted in an overall decrease to interest income of $2,815,700 in the
current period. The average balance on interest-bearing liabilities decreased by
$14.0 million from the prior year comparable period. The average cost of funds
on interest-bearing liabilities decreased by 84 basis points in the current
period, as a result of declining market interest rates, resulting in an overall
decrease in interest expense of $2,753,700. The Company's net interest income
decreased by $62,000 due to a decrease of 7 basis points in the Company's
interest-rate spread during the current period as compared to the prior year
comparable period.
For the six months ended December 31, 2003, a provision for loan losses of
$292,000 was recorded, while no provision for loan losses was recorded in the
prior year comparable period.
During the six months ended December 31, 2003, the Company experienced an
increase in loans held for investment of $17.1 million and an increase in the
level of impaired loans of $1.5 million. Due to the increase in loans receivable
held for investment along with an increase in the level of impaired loans and
recognition of specific loan losses, management determined it was necessary to
record a provision for loan losses of $292,000 in the current period. During the
six months ended December 31, 2002, the Company experienced an
Page 12
Part I Financial Information
Item 2
RESULTS OF OPERATIONS continued
- -------------------------------
increase in loans receivable held for investment of $24.2 million. In addition,
the level of impaired loans and classified assets decreased by $758,000 and
$934,000, respectively. Management determined it was not necessary to record a
provision for loan losses in the prior period due to the application of revised
reserve percentages reflecting the Company's historic loss experience to certain
loan categories, along with decreases to impaired loans and classified assets.
At December 31, 2003, the allowance for loan losses was $4.2 million, which
represented 46.9% of non-performing loans and 0.69% of net loans. At June 30,
2003, the allowance for loan losses was $3.9 million, which represented 52.2% of
non-performing loans and 0.63% of net loans.
For the six months ended December 31, 2003, non-interest income increased by
$1,591,000, or 61.5%, from the prior year comparable period. This resulted
primarily from an increase of $1,147,200, or 53.8%, in mortgage-banking
activities that resulted from an increase of $1,213,900 in profit on loan sales
in the current period offset by a decrease of $66,700 in loan servicing income.
The decrease in loan servicing income is attributable to an increase in the
amortization of mortgage loan servicing rights that resulted from declining
market interest rates and increased prepayment speed on loans serviced for
others. 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.
In addition, other non-interest income, net, increased by $487,300 in the
current period primarily due to increased gains on the sale of real estate
owned. Service and other fees decreased by $43,500, or 12.5%, primarily due to
decreases in loan prepayment penalties and late charge fee income.
Non-interest expense for the six months ended December 31, 2003 increased by
$686,000, or 8.4%, from the prior year comparable period. This was primarily the
result of an increase in compensation and benefits of $525,500, or 12.1%, as the
result of increased staffing, incentive bonuses paid, and salary and wage
adjustments. Office occupancy and equipment increased by $81,900, or 5.4%, due
to the operation of one additional branch office along with repairs and
maintenance costs to our Corporate Center office. Other non-interest expense
increased by $78,600, or 3.3%, primarily as the result of increases in outside
services and charitable contributions.
The federal income tax provision for the six-month period ended December 31,
2003 increased to an effective rate of 34.0% for the current period from an
effective rate of 33.6% for the prior year comparable period.
Page 13
Part I Financial Information
Item 3
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity measures its ability to generate adequate amounts of
funds to meet its cash needs. Adequate liquidity guarantees that sufficient
funds are available to meet deposit withdrawals, fund loan commitments, purchase
securities, maintain adequate reserve requirements, pay operating expenses,
provide funds for debt service, pay dividends to stockholders and meet other
general commitments in a cost-effective manner.
Our primary source of funds are deposits, principal and interest payments on
loans, proceeds from the sale of loans, and advances from the Federal Home Loan
Bank of Cincinnati ("FHLB"). While maturities and scheduled amortization of
loans are predictable sources of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and local
competition.
Our most liquid assets are cash and cash equivalents. The levels of these assets
are dependent on our operating, financing, lending and investing activities
during any given period. Additional sources of funds include lines of credit
available from the FHLB.
Management believes the Company maintains sufficient liquidity to meet current
operational needs.
Part I Financial Information
Item 4
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, 2003. 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 5
CONTROLS AND PROCEDURES
- -----------------------
As of the end of the period covered by this report, management of the Company
carried out an evaluation, under the supervision and with the participation of
the Company's principal executive officer and principal financial officer, of
the effectiveness of the Company's disclosure controls and procedures. Based on
this evaluation, the Company's principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized
Page 14
Part I Financial Information
Item 5
CONTROLS AND PROCEDURES continued
- ---------------------------------
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. It should be noted that the design of the
Company's disclosure controls and procedures is based in part upon certain
reasonable assumptions about the likelihood of future events, and there can be
no reasonable assurance that any design of disclosure controls and procedures
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote, but the Company's principal executive and
financial officers have concluded that the Company's disclosure controls and
procedures are, in fact, effective at a reasonable assurance level.
There have been no changes in the Company's internal control over financial
reporting (to the extent that elements of internal control over financial
reporting are subsumed within disclosure controls and procedures) identified in
connection with the evaluation described in the above paragraph that occurred
during the Company's last fiscal quarter, that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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.
The Company's Annual Meeting of Stockholders was held on October 20, 2003. A
total of 5,752,109 shares of the Company's common stock were represented at the
Annual Meeting in person or by proxy.
Stockholders voted in favor of the election of four nominees for director. The
voting results for each nominee were as follows:
Votes in Favor
Nominee of election Votes Against
- --------------------- --------------- -------------
John R. Male 5,612,892 -0-
Stanley T. Jaros 5,612,121 -0-
Raymond J. Negrelli 5,662,975 -0-
Ronald D. Holman, II 5,672,637 -0-
Page 15
Part II Other Information continued
Proposal to ratify the appointment of Crowe, Chizek and Company LLP as
independent certified public accountants of the Company for the fiscal year
ending June 30, 2004.
Votes For Votes against Abstain Not Voting
- --------- ------------- ------- ----------
5,610,867 120,942 20,300 -0-
There were no broker non-votes.
Approval of the amendment and restatement of the PVF Capital Corp. 2000
Incentive Stock Option Plan as the PVF Capital Corp. 2000 Incentive Stock Option
and Deferred Compensation Plan.
Votes For Votes against Abstain Not Voting
- --------- ------------- ------- ----------
3,290,945 213,106 22,826 2,225,232
Item 5. Other Information. N/A
Item 6. (a) Exhibits
--------
The following exhibits are filed herewith:
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32 Section 1350 Certification
(b) Reports on Form 8-K
The Registrant filed the following Current Reports on Form
8-K during the quarter ended December 31, 2003:
Date of Report Item(s) Reported Financial Statements Filed
---------------- ---------------- --------------------------
October 15, 2003 7, 12 N/A
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: February 11, 2004 /s/ C. Keith Swaney
------------------- ------------------------------
C. Keith Swaney
President, Chief Operating
Officer and Treasurer
(Only authorized officer and
Principal Financial Officer)