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Exhibit 13
[LOGO] PVF CAPITAL CORP.
[LOGO]
ANNUAL REPORT
JUNE 30, 2001
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TABLE OF CONTENTS
Letter to Shareholders 1
New Corporate Center 4
Selected Consolidated Financial and Other Data 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Independent Auditors' Report 21
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[LOGO] PVF CAPITAL CORP.
TO OUR SHAREHOLDERS
We are pleased to announce that PVF Capital Corp. completed another successful
year in fiscal 2001. New market opportunities allowed us to achieve growth in
assets of $123.5 million, or 20.2 percent, and increase the loan and
mortgage-backed securities portfolios by $72.3 million, or 13.8 percent. During
the year, the Company successfully opened its new corporate headquarters along
with two new branch offices. Despite substantial costs incurred with our office
expansion, a weak economy, and sharply declining interest rates during much of
the year, the Company was able to improve on the prior year's operating results
due to the growth of our balance sheet, strong asset/liability management, and
our ability to limit the level of credit losses sustained.
Earnings were $6.6 million, or $1.27 basic earnings per share and $1.23 diluted
earnings per share, for the year ended June 30, 2001. Return on average assets
was 1.00 percent and return on average common equity was 14.6 percent for the
year.
Our stock repurchase program announced in June of 1999 was renewed for an
additional 12 months in April 2001. Pursuant to this plan and our cash dividend
policy, the Company repurchased 123,857 shares, or 2.3 percent, of its common
stock through June 30, 2001 and paid a $0.288 per share cash dividend for the
year. Continuation of the stock repurchase program and cash dividend policy will
be dependent on the Company's financial condition, earnings, capital needs,
regulatory requirements, and market conditions. Additionally, in July 2001, the
Company declared a 10 percent stock dividend.
The significant growth of the Company over the past year has been the result of
our corporate plan to identify markets in need of the types of
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personalized service and financial products available at a community bank. With
this in mind, we are optimistic about the future role of community banks and
will continue with our plan to restructure and expand our branch network into
new markets offering opportunity for future growth. Our basic strategy remains
to function as a niche lender, providing our customers a wide range of lending
products, collateralized by real estate, that may not be available to them at
larger banks.
In the past year, Park View Federal made the following changes to its branch
network.
In August 2000, Park View Federal relocated its North Moreland branch
office near Shaker Square in Cleveland, Ohio to Shaker Towne Centre in
Shaker Heights, Ohio. This move has provided our customers a more
spacious office in a more easily accessible location with ample parking
not available at the North Moreland facility. At June 30, 2001, this
branch had $49.5 million in deposits and generated substantial new loan
growth.
In August 2000, Park View Federal opened a new branch in Solon, Ohio.
This new full-service branch office is located at 34400 Aurora Road in
the Solar Shopping Center near the southeast corner of Aurora Road and
Route 91. At June 30, 2001, this branch had attracted $29.0 million in
new deposits and generated substantial new loan growth.
In November of 2000, Park View Federal began the move into a new
corporate headquarters in Solon, Ohio. This new corporate office is
located at 30000 Aurora Road near the southeast corner of Aurora Road
and Harper Road just south of Interstate 480. We are excited about this
move because it has given us the room necessary for our current
operations, it has united all of the Bank's internal departments under
one roof, and it will allow for future growth of the Company. The
Corporate Center will feature a full-service branch office that is
scheduled to open on or before November 30, 2001. This move has
resulted in the closing of our North Moreland and Rockside
administrative offices.
In the coming year, Park View Federal is planning to further expand its branch
network.
On or before March 31, 2002, Park View Federal will open a new branch
office in Strongsville, Ohio. This new full-service branch office will
be equipped with an ATM and will be located at 17780 Pearl Road at the
southwest corner of the intersection of Pearl and Drake Roads.
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2001 ANNUAL REPORT
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On or before March 31, 2002, Park View Federal will open a new branch
office in Avon, Ohio. This new full-service branch office will be
equipped with an ATM and will be located at 36311 Detroit Road.
The growth of our branch network has opened new markets to us in residential,
construction, multi-family, and commercial real estate lending and has also
increased our ability to attract consumer deposits. The opening of the Corporate
Center, Strongsville, and Avon, Ohio branch offices will bring the number of
full-service branch office locations we have located throughout greater
Cleveland to 15. We plan to continue our efforts to identify new locations for
the further expansion of our branch network.
Visit our Web site on the Internet at www.parkviewfederal.com. This Web site
provides information about our products and services, and provides access to
current loan and deposit rate information. We are working to enhance this site
so that it will provide a full line of home banking services to our customers.
We invite all shareholders to attend the Annual Meeting of Stockholders of PVF
Capital Corp. on Monday, October 22, 2001 at 10:00 a. m. at the Hilton Cleveland
East, 3663 Park East Drive, Beachwood, Ohio. We look forward to another
successful year of service and dedication to the community, its members, our
shareholders, and our customers.
Sincerely,
/s/ John R. Male
John R. Male
Chairman of the Board
and Chief Executive Officer
/s/ C. Keith Swaney
C. Keith Swaney
President
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
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NEW CORPORATE CENTER
As we complete our ninth year of operation as a publicly-traded company, we have
taken a large step in our long-term plan to improve our corporate infrastructure
in order to enhance our efficiency as a company and to make us more responsive
to the financial needs of our growing customer base. This large step was taken
in November of 2000, with the opening of our new corporate headquarters in
Solon, Ohio.
During the past two years, the Company has grown significantly. Total assets
have increased by over 60 percent from $449.2 million at June 30, 1999 to $736.5
million at June 30, 2001, while our employee base has increased by over 15
percent. The Company's internal operations had been housed at two separate
locations and space limitations, along with the expensive upkeep of two older
facilities and the inefficiencies involved with running our operations from two
separate locations, made it apparent that a change was necessary. With this in
mind, management adopted a long-term plan to reorganize the structure of the
Company that included a complete upgrade of our in-house technology, and the
acquisition of a corporate center that would house our current operations, allow
for future growth, and unite our internal operations under one roof.
A profile for our new corporate center was developed. This profile included
consideration of the ideal location to best meet the needs of our customers, the
size of the structure that would best match our corporate needs, and our ability
to afford the corporate center at a cost that would not negatively impact future
earnings. Our search led us to Solon, Ohio, where we identified the availability
of a corporate office that would serve as an ideal facility for the new Park
View Federal Corporate Center. The acquisition of our new facilities located at
30000 Aurora Road, Solon, Ohio, was concluded in September 2000. This office is
located at the intersection
[PICTURE OF BUILDING]
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
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of Aurora and Harper-Cochran Roads, approximately 1.9 miles east of our previous
corporate office on Rockside Road in Bedford Heights, which had been the
Company's primary administrative office for the past 29 years.
Our new Corporate Center office building is a four-story, 55,000 square-foot
facility that was originally built in 1980 as corporate offices for Agency
Rent-A-Car, Inc., and was thus easily adaptable to a corporate center that would
meet the needs of a bank. Management felt it was vital to invest the resources
necessary to improve, renovate, and update the building in order to make it into
a modern banking facility. We are, therefore, in the process of constructing a
two-story, glass tower at the front of the building that will serve as the
entrance to our corporate headquarters as well as the new retail branch, also
currently under construction. We hope to complete all improvements to the
building by the end of September and to have all department personnel situated
in place by the end of October. Adjacent to our new office building, we acquired
additional land that includes a beautiful water fountain and will provide a
park-like environment for employee lunches and other outdoor activities.
[PICTURE]
For the present, the first, third, and fourth floors of the building will serve
as the corporate headquarters for the management and staff of Park View Federal
Savings Bank. This space should provide ample room for the current operations of
the bank and allow for future growth. Since the property is prime rental real
estate, we intend to lease the entire second floor of the building on a
short-term basis. This will allow us to take advantage of the current rental
value of the property and will also make the space available to accommodate the
future expansion of the Company.
We are very excited about our new facility and cordially invite you, as a
shareholder of the Company, to visit us in the near future.
[PICTURE]
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FINANCIAL CONDITION DATA:
At June 30,
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2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(dollars in thousands)
Total assets.............................................. $736,525 $612,986 $449,201 $433,279 $373,081
Loans receivable and mortgage-backed
securities held for investment, net..................... 591,767 514,885 397,284 371,949 341,914
Loans receivable held for sale and
mortgage-backed securities available for sale, net...... 6,152 10,738 1,772 1,645 710
Cash equivalents and securities........................... 115,607 70,931 35,423 51,017 23,576
Deposits.................................................. 480,532 440,982 331,242 344,229 288,270
FHLB advances and notes payable........................... 185,867 114,974 66,041 47,384 49,715
Stockholders' equity...................................... 48,006 42,900 38,856 31,209 26,273
Number of:
Real estate loans outstanding.......................... 4,431 4,160 3,527 2,676 2,648
Savings accounts....................................... 30,567 28,915 24,346 25,122 23,190
Offices ............................................... 12 11 10 10 9
OPERATING DATA:
Year Ended June 30,
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2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(dollars in thousands except for earnings per share)
Interest income $53,962 $42,026 $35,347 $34,365 $30,963
Interest expense 34,118 23,972 19,863 19,558 16,561
------- ------- ------- ------- -------
Net interest income
before provision for loan losses 19,844 18,054 15,484 14,807 14,402
Provision for loan losses 225 850 0 246 187
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Net interest income
after provision for loan losses 19,619 17,204 15,484 14,561 14,215
Non-interest income 2,600 2,681 5,435 1,597 1,336
Non-interest expense 12,218 10,410 9,649 8,851 10,000
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Income before federal income taxes 10,001 9,475 11,270 7,307 5,551
Federal income taxes 3,365 3,163 3,551 2,379 1,904
Net income $ 6,636 $ 6,312 $ 7,719 $ 4,928 $ 3,647
Basic earnings per share $ 1.27 $ 1.20 $ 1.45 $ 0.94 $ 0.71
Diluted earnings per share $ 1.23 $ 1.16 $ 1.40 $ 0.90 $ 0.67
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2001 ANNUAL REPORT
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OTHER DATA:
At or For the Year Ended June 30,
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2001 2000 1999 1998 1997
------- ------- ------- ------- -------
Return on average assets 1.00% 1.21% 1.77% 1.23% 1.04%
Return on average equity 14.62% 15.45% 22.21% 17.11% 15.19%
Interest rate spread information:
Average during year 2.75% 3.21% 3.26% 3.38% 3.84%
Net interest margin 3.09% 3.59% 3.68% 3.78% 4.22%
Average interest-earning assets to
average interest-bearing liabilities 106.45% 107.98% 108.92% 107.93% 107.93%
Non-accruing loans (> 90 days) and
repossessed assets to total assets 0.91% 0.87% 0.85% 0.92% 1.11%
Stockholders' equity to total assets 6.52% 7.00% 8.65% 7.20% 7.04%
Ratio of average equity to
average assets 6.79% 7.80% 7.95% 7.18% 6.84%
Dividend payout ratio 20.78% 21.77% 0.00% 0.00% 0.00%
BANK REGULATORY CAPITAL RATIOS:
Ratio of tangible capital to
adjusted total assets 6.46% 6.68% 7.99% 7.21% 7.34%
Ratio of core capital to
adjusted total assets 6.46% 6.68% 7.99% 7.21% 7.34%
Ratio of Tier-1 risk-based capital to
risk-weighted assets 9.56% 9.24% 10.43% 10.11% 9.70%
Ratio of risk-based capital to
risk-weighted assets 10.26% 10.00% 11.17% 10.93% 10.62%
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2001 ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
PVF Capital Corp. ("PVF" or the "Company") owns and operates Park View Federal
Savings Bank ("Park View Federal" or the "Bank"), its principal and wholly-owned
subsidiary, PVF Service Corporation, a wholly-owned real estate subsidiary, and
Mid-Pines Land Co., a wholly-owned real estate subsidiary. Park View Federal has
12 offices located in Cleveland and surrounding communities, including recently
opened branches in North Royalton, Medina, Solon, and Shaker Heights, Ohio. 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
Portage, Lake, Geauga, Cuyahoga, 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, to a lesser extent, the Bank originates loans secured by second
mortgages, including equity line of credit loans secured by real estate and
loans secured by savings deposits. 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, 2001, 2000, AND 1999
PVF had total assets of $736.5 million, $613.0 million, and $449.2 million at
June 30, 2001, 2000, and 1999, respectively. The primary source of the Bank's
increase in total assets has been its loan portfolio. Net loans receivable and
mortgage-backed securities totaled $597.9 million, $525.6 million, and $399.1
million at June 30, 2001, 2000, and 1999, respectively. The increase of $72.3
million in net loans and mortgage-backed securities at June 30, 2001 resulted
primarily from increases in mortgage-backed securities of $16.9 million, real
estate development loans of $17.2 million, commercial real estate loans of $10.5
million, equity line of credit loans of $9.8 million, construction loans of $9.7
million, and one-to-four family residential loans of $5.3 million. The increase
in mortgage-backed securities resulted from the Bank's swapping of adjustable
one-to-four family mortgage loans with Freddie Mac for mortgage-backed
securities. In addition, securities totaled $50.2 million, $65.3 million, and
$25.3 million, and cash and cash equivalents totaled $65.4 million, $5.7
million, and $10.0 million at June 30, 2001, 2000, and 1999, respectively. The
increase in cash and cash equivalents of $59.7 million at June 30, 2001 was
primarily attributable to the maturity of a security for $50.0 million at the
end of the year. The increase of $72.3 million in net loans and mortgage-backed
securities and $59.7 million
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2001 ANNUAL REPORT
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in cash and cash equivalents were funded by increases of $70.9 million and $39.6
million in Federal Home Loan Bank ("FHLB") advances and deposits, respectively,
and a decrease of $15.0 million in securities.
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. The Bank has adopted a policy that permits investment only in U.S.
government and agency 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 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 deposits totaled $480.5 million, $441.0 million, and $331.2 million
at June 30, 2001, 2000, and 1999, respectively. Advances from the FHLB of
Cincinnati amounted to $185.9 million, $115.0 million, and $66.0 million at June
30, 2001, 2000, and 1999, respectively. Management's decision to borrow
utilizing attractive FHLB advance rates and to aggressively compete with market
savings rates resulted in increases in FHLB advances of $70.9 million and
savings deposits of $39.6 million for the year ended June 30, 2001.
CAPITAL
PVF's stockholders' equity totaled $48.0 million, $42.9 million, and $38.9
million at the years ended June 30, 2001, 2000, and 1999, respectively. The
increases were the result of the retention of net earnings.
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, 2001, 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
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GAAP capital $47,698 6.49% N/A
Tangible capital $47,489 6.46% N/A
Core capital $47,489 6.46% 5.00%
Tier-1 risk-based capital $47,489 9.56% 6.00%
Risk-based capital $50,984 10.26% 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 September 1997, a
three- for-two stock split effected in the form of a dividend was issued in
August 1998, a 10 percent stock dividend was issued in September 1999, a 10
percent stock dividend was issued in September 2000, and a 10 percent stock
dividend was issued in August 2001. As adjusted to reflect all stock dividends
and all stock splits, the Company had 5,337,029 shares of common stock
outstanding and approximately 324 holders of record of the common stock at
September 11, 2001. 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.
In June 1999, the Company announced a stock repurchase program to acquire
up to 5 percent of the Company's common stock and a quarterly cash dividend
policy. In April 2001, this program was renewed for an additional 12 months. The
stock repurchase program is dependent on market conditions with no guarantee as
to the exact number of shares to be repurchased. At June 30, 2001, the Company
had acquired 123,857 shares, or 2.3 percent, of the Company's common stock. The
cash dividend policy remains dependent upon the Company's financial condition,
earnings, capital needs, regulatory requirements, and economic conditions.
Beginning in the first quarter of fiscal 2000, a quarterly cash dividend of
$0.072 per share has been paid on the Company's outstanding common stock.
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2001 ANNUAL REPORT
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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 2001 Fiscal 2000
High Bid Low Bid High Bid Low Bid
------------------ -----------------
Fourth Quarter $10.23 $8.79 $ 8.26 $ 5.78
Third Quarter 9.09 8.18 9.40 6.82
Second Quarter 9.32 7.73 10.95 9.40
First Quarter 9.43 7.44 10.85 10.02
(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 and stock splits.
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 and mortgage-backed securities, 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 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 maturing certificates of deposit and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, maintain its
liquidity, and meet operating expenses. At June 30, 2001, the Bank had
commitments to originate loans totaling $55.9 million and had $53.8 million of
undisbursed loans in process. Scheduled maturities of certificates of deposit
during the 12 months following June 30, 2001 totaled $291.1 million. Management
believes that a significant portion of the amounts maturing during fiscal 2001
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 with original maturities equal to or less
than three months 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.
Park View Federal's daily liquidity ratio at June 30, 2001 was 14.67 percent.
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, 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.
PROFILE OF INTEREST SENSITIVE ASSETS
[PIE GRAPH]
7.3% Investment securities 60 months or less
0.9% Consumer loans
31.4% Adjustable-rate other mortgage loans
2.4% Adjustable-rate mortgage-backed securities
7.9% Overnight Fed funds
41.6% Adjustable-rate single-family mortgage loans
3.5% Fixed-rate other mortgage loans
5.0% Fixed-rate single-family mortgage loans
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PROFILE OF INTEREST SENSITIVE LIABILITIES
[PIE GRAPH]
0.6% Other borrowings 24 months or less
9.9% FHLB Advances 12 months or less
4.7% Passbook accounts
6.2% Transaction accounts
1.5% CDs over 36 months
13.4% CDs 13 to 24 months
18.4% FHLB Advances over 13 months
44.2% CDs 12 months or less
1.1% CDs 25 to 36 months
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 its 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, 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 off-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, 2001 and
2000. 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, 2001 June 30, 2000
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Change in Market Value of Dollar NPV Market Value of Dollar NPV
Interest Rates Portfolio Equity Change Ratio Portfolio Equity Change Ratio
-------------- ---------------- ------ ----- ---------------- ------ -----
+2% $ 54,695 $(12,267) 7.35% $ 35,620 $ (9,520) 5.95%
+1% 61,312 (5,650) 8.15 40,781 (4,359) 6.72
0 66,962 8.80 45,140 7.35
-1% 68,323 1,361 8.93 48,372 3,232 7.79
-2% 67,227 265 8.73 50,586 5,446 8.08
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The table illustrates that at June 30, 2001, 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 an immediate and sustained decrease in
market interest rates had little impact on the Bank's NPV ratio. While at June
30, 2000, 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 prevailing market 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, 2001, 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
decrease in prevailing market interest rates, but exceeded Board-approved target
levels in an increasing interest rate environment. The Bank's interest rate risk
("IRR") position currently exceeds Board-approved target levels in an increasing
interest rate environment because of the maturity and repricing characteristics
of assets and liabilities added to the balance sheet during the past year. The
significant growth of the balance sheet, $123.5 million, was accomplished with
the addition of interest-earning assets having a maturity and repricing period
of from three to five years. These assets were funded utilizing interest-bearing
liabilities having a final maturity of two years or less and advances
convertible at the option of the FHLB of Cincinnati. Management will carefully
monitor its IRR 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, 2001 and
2000, 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.
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 Bank 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 Bank's interest rate sensitivity gap analysis
at June 30, 2001. The table indicates that the Bank's one year and under ratio
of cumulative gap to total assets is negative 0.2 percent, one-to-three year
ratio of cumulative gap to total assets is
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
12
15
0.7 percent, and three-to-five year ratio of cumulative gap to total assets is
positive 16.8 percent. The well-balanced three-year and under cumulative gap
position of the Bank explains the change in the Bank's NPV ratio to an immediate
and sustained 1 and 2 percent increase in market interest rates.
Greater than
Within 1-3 3-5 5
(dollars in thousands) 1 Year Years Years Years Total
-------------------------------------------------------------------------------------------------------------------------
Total interest-rate-sensitive assets......................... $354,695 $149,656 $143,320 $ 57,710 $705,381
Total interest-rate-sensitive liabilities.................... 356,120 143,313 24,717 134,366 658,516
Periodic GAP................................................. (1,425) 6,343 118,603 (76,656) 46,865
Cumulative GAP............................................... (1,425) 4,918 123,521 46,865
Ratio of cumulative GAP to total assets...................... (0.2)% 0.7% 16.8% 6.4%
RESULTS OF OPERATIONS
GENERAL
PVF Capital Corp.'s net income for the year ended June 30, 2001 was $6.6
million, or $1.27 basic earnings per share and $1.23 diluted earnings per share
as compared to $6.3 million, or $1.20 basic earnings per share and $1.16 diluted
earnings per share for fiscal 2000, and $7.7 million, or $1.45 basic earnings
per share and $1.40 diluted earnings per share for fiscal 1999. All per share
amounts have been adjusted for stock dividends and stock splits.
Net income for the current year increased by $0.3 million from the prior fiscal
year and was $1.1 million less than net income for fiscal 1999. In fiscal 1999,
the Company recorded an after-tax gain of approximately $2.5 million as a result
of the closing on the sale by PVF Service Corporation of its 250-acre parcel of
land in Solon, Ohio.
NET INTEREST INCOME
Net interest income amounted to $19.8 million for the year ended June 30, 2001,
as compared to $18.1 million and $15.5 million for the years ended June 30, 2000
and 1999, 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 Bank's net interest income.
Table 1 sets forth certain information relating to the Bank'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-accrual loans are included in the net 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.
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
13
16
Table 1
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
FOR THE YEAR ENDED JUNE 30,
2001 2000
----------------------------------------------------------
Average Yield/ Average
(dollars in thousands) Balance Interest Cost Balance Interest
-------- -------- ---- -------- --------
Interest-earning assets:
Loans......................................... $551,424 $ 48,101 8.72% $448,163 $ 38,390
Mortgage-backed securities.................... 16,059 1,189 7.40 1,401 90
Securities and other interest-earning assets.. 74,046 4,672 6.31 53,808 3,546
-------- -------- -------- --------
Total interest-earning assets............ 641,529 53,962 8.41 503,372 42,026
-------- --------
Non-interest-earning assets................... 26,786 20,251
------ ------
Total assets............................. $668,315 $523,623
======== ========
Interest-bearing liabilities:
Deposits...................................... $480,692 $ 27,080 5.63 $386,242 $ 19,409
FHLB advances................................. 117,624 6,682 5.68 79,862 4,558
Notes payable................................. 4,331 356 8.22 53 5
-------- -------- -------- ------
Total interest-bearing liabilities....... 602,647 34,118 5.66 466,157 23,972
-------- ---- ------
Non-interest-bearing liabilities.............. 20,267 16,604
------ ------
Total liabilities........................ 622,914 482,761
Stockholders' equity............................ 45,401 40,862
------ ------
Total liabilities and
stockholders' equity............... $668,315 $523,623
======== ========
Net interest income............................. $ 19,844 $ 18,054
======== ========
Interest rate spread............................ 2.75%
====
Net yield on interest-earning assets............ 3.09%
====
Ratio of average interest-earning assets
to average interest-bearing liabilities....... 106.43% 107.98%
====== ======
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
FOR THE YEAR ENDED JUNE 30,
1999
---------------------------------------------------
Yield/ Average Yield/
(dollars in thousands) Cost Balance Interest Cost
---- -------- -------- ----
Interest-earning assets:
Loans........................................... 8.57% $384,420 $ 33,146 8.62%
Mortgage-backed securities...................... 6.42 2,338 147 6.29
Securities and other interest-earning assets.... 6.59 34,500 2,054 5.95
-------- --------
Total interest-earning assets.............. 8.35 421,258 35,347 8.39
--------
Non-interest-earning assets..................... 16,071
------
Total assets............................... $437,329
========
Interest-bearing liabilities:
Deposits........................................ 5.03 $334,530 $ 16,961 5.07
FHLB advances................................... 5.71 52,102 2,891 5.55
Notes payable................................... 9.50 122 11 9.02
-------- --------
Total interest-bearing liabilities......... 5.14 386,754 19,863 5.14
---- -------- ----
Non-interest-bearing liabilities................ 15,818
------
Total liabilities.......................... 402,572
Stockholders' equity.............................. 34,757
------
Total liabilities and
stockholders' equity................. $437,329
========
Net interest income............................... $15,484
=======
Interest rate spread.............................. 3.21% 3.26%
==== ====
Net yield on interest-earning assets.............. 3.59% 3.68%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities......... 108.92%
======
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.
As is evidenced by these tables, interest rate changes had a slightly positive
effect on the Bank's net interest income for the year ended June 30, 2000, and
unfavorably affected the Bank's net interest income for the year ended June 30,
2001. Due to the repricing characteristics of the Bank's loan portfolio and
short-term nature of its deposit portfolio, along with declining interest rates
during much of the year ended June 30, 2001 and a relatively flat yield curve
during much of the year ended June 30, 2000, the Bank experienced a decrease of
46 basis points in its interest rate spread to 2.75 percent for fiscal 2001 from
3.21 percent for fiscal 2000, and during fiscal 2000 its interest rate spread
decreased 5 basis points from 3.26 percent for fiscal 1999. These changes in
average interest rate spread contributed to a decrease in net interest income
for the year ended June 30, 2001 of $1.7 million, and a slight increase in net
interest income for the year ended June 30, 2000 of $48,000 due to interest rate
changes.
Net interest income was favorably affected by volume changes during the years
ended June 30, 2001 and 2000. Accordingly, net interest income grew by $3.5
million and $2.5 million due to volume changes for the years ended June 30, 2001
and 2000, respectively.
The rate/volume analysis illustrates the effect that volatile interest rate
environments can have on a financial institution. Increasing interest rates or a
flattening yield curve will both have a negative effect on net interest income,
while decreasing interest rates or a steepening yield curve will both have a
positive effect on net interest income.
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
14
17
<Table>
<Caption>
Table 2 YEAR ENDED JUNE 30,
-----------------------------------------------------------------
2001 vs. 2000 2000 vs. 1999
------------------------------ -------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------ -------------------------------
(dollars in thousands) Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
Interest income:
Loans.......................................... $ 9,006 $ 704 $ 9,710 $ 5,460 $ (216) $ 5,244
Mortgage-backed securities..................... 1,086 14 1,100 (60) 3 (57)
Securities and other interest-earning assets... 1,241 (115) 1,126 1,297 195 1,492
------- ------- ------- ------- ------- -------
Total interest-earning assets.............. 11,333 603 11,936 6,697 (18) 6,679
------- ------- ------- ------- ------- -------
Interest expense:
Deposits....................................... 5,321 2,350 7,671 2,599 (151) 2,448
FHLB advances.................................. 2,144 (22) 2,122 1,582 84 1,666
Notes payable.................................. 352 1 353 (6) 1 (5)
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities......... 7,817 2,329 10,146 4,175 (66) 4,109
------- ------- ------- ------- ------- -------
Net interest income.............................. $ 3,516 $(1,726) $ 1,790 $ 2,522 $ 48 $ 2,570
======= ======= ======= ======= ======= =======
PROVISION FOR LOAN LOSSES
The Bank carefully monitors its loan portfolio and establishes levels of
unallocated and specific reserves for loan losses. Provisions for loan losses
are charged to earnings to bring the total allowances for loan losses to a level
considered adequate by management to provide for probable 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'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 loan is deemed to be uncollectible in
an amount equal to the net book value of the loan or to any portion of the loan
deemed uncollectible. 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
unallocated allowances based upon the establishment of a risk category for each
type of loan in the Bank's 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. During the year ended June 30, 2000, management conducted a
review of the established reserve percentages used in calculating the required
loan loss allowance. This review was conducted using the most currently
available national and regional aggregate thrift industry data on charge-offs
along with an analysis of historical losses experienced by the Bank according to
type of loan. As a result of this analysis, management made moderate adjustments
to the required reserve percentages on various loan categories to more
accurately reflect probable losses. 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.
During 2001, the Bank experienced growth in the loan portfolio of $55.4 million,
or 10.6 percent, while maintaining the composition of the loan portfolio. In
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
15
18
addition, the level of impaired loans increased from $4.8 million to $5.4
million, while allowance related to impaired loans increased from $1,000 to
$25,000. The decrease in the level of impaired loans to total loans caused the
percentage of allowance for loan losses to impaired loans to decrease from 70 to
65 percent. Net charge-offs increased from $92,000 in 2000 to $93,000 in 2001.
Therefore, taking into consideration the growth of the portfolio, the higher
level of impaired loans, as well as net charge-offs and the overall performance
of the portfolio, the Bank provided $225,000 of additional provision to maintain
the allowance at a level deemed appropriate of $3.5 million.
During 2000, the Bank experienced growth in the loan portfolio of $127.1
million, or 32 percent, while maintaining the composition of the loan portfolio.
In addition, the level of impaired loans increased from $3.6 million to $4.8
million, while allowance related to impaired loans decreased from $55,000 to
$1,000. The decrease in the level of impaired loans to total loans caused the
percentage of allowance for loan losses to impaired loans to decrease from 72 to
70 percent. Net charge-offs increased from $57,000 in 1999 to $92,000 in 2000.
Therefore, taking into consideration the growth of the portfolio, the higher
level of impaired loans, as well as the higher level of net charge-offs and the
overall performance of the portfolio, the Bank provided $850,000 of additional
provision to maintain the allowance at a level deemed appropriate of $3.4
million.
NON-INTEREST INCOME
Non-interest income amounted to $2.6 million, $2.7 million, and $5.4 million for
the years ended June 30, 2001, 2000, and 1999, respectively. The fluctuations in
non-interest income are due primarily to fluctuations in income derived from
mortgage banking activities, fee income on deposit accounts, gain on sale of
real estate, and rental income. Income attributable to mortgage banking
activities consists of loan servicing income, gains and losses on the sale of
loans and mortgage-backed securities, and market valuation provisions and
recoveries. Income from mortgage banking activities amounted to $1,135,000,
$718,000, and $1,023,000 for the years ended June 30, 2001, 2000, and 1999,
respectively. The increase in income from mortgage banking activities of
$417,000 from the year ended June 30, 2000 to 2001 is primarily due to an
increase in net profit realized on the sale of loans. The decrease in income
from mortgage banking activities of $305,000 from the year ended June 30, 1999
to 2000 is primarily due to a decrease in net profit realized on the sale of
loans. Gain on the sale of real estate amounted to $301,000, $207,000, and
$3,800,000 for the years ended June 30, 2001, 2000, and 1999, respectively.
Other non-interest income amounted to $1,164,000, $1,755,000, and $611,000 for
the years ended June 30, 2001, 2000, and 1999, respectively. The decrease in
other non-interest income of $591,000 from the year ended June 30, 2000 to June
30, 2001 is attributable to insurance proceeds of $672,000 received in 2000
offset by an increase in service and other fees of $80,000 in 2001. The increase
in other non-interest income of $1.1 million from the year ended June 30, 1999
to June 30, 2000 is primarily due to an insurance payment of $672,000 for legal
costs previously incurred relating to the settlement of a lawsuit by PVF
Holdings, Inc., a wholly-owned subsidiary of PVF Capital Corp. In addition,
rental income increased by $220,000, and gain on the disposal of real estate
owned properties increased by $161,000 in the year ended June 30, 2000. 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 $12.2 million, $10.4 million, and $9.6 million
for the years ended June 30, 2001, 2000, and 1999, respectively. The principal
component of non-interest expense is compensation and related benefits which
amounted to $6.5 million, $5.7 million, and $4.8 million for the years ended
June 30, 2001, 2000, and 1999, respectively. The increase in compensation for
the years ended June 30, 2001 and 2000 is due primarily to growth in the staff,
the opening of a new branch in fiscal 2001, employee 401K benefits, a
compensation incentive plan for both management and loan originators, and
inflationary salary and wage adjustments to employees. Office occupancy totaled
$2.6 million, $2.0 million, and $1.8 million for the years ended June 30, 2001,
2000, and 1999, respectively. The increased occupancy expense is attributable to
the cost of opening and operating our new corporate center in Solon, Ohio,
maintenance and repairs to office buildings, the relocation of an existing
branch office, and the cost of opening and operating an additional branch
office. Other non-interest expense totaled $3.1 million, $2.7 million, and $3.0
million for the years ended June 30, 2001, 2000,
[LOGO] PVF CAPITAL CORP.
2001 ANNUAL REPORT
16
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and 1999, respectively. Changes in other non-interest expense are primarily the
result of advertising, professional and legal services, regulatory and insurance
expenses, and franchise tax expense.
FEDERAL INCOME TAXES
The Company's federal income tax expense was $3.4 million, $3.2 million, and
$3.6 million for the years ended June 30, 2001, 2000, and 1999, respectively.
Due to the availability of tax credits for the years ended June 30, 2001, 2000,
and 1999, 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 34, 33, and 32 percent for the years ended June 30, 2001, 2000, and
1999, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
requires 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 Bank are monetary in
nature. As a result, interest rates have a more significant impact on the Bank'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 Bank, see "Market Risk Management."
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
On July 20, 2001, The Financial Accounting Standards Board issued Statements No.
141, "Business Combinations" and No. 142, "Goodwill and Other Intangible
Assets." Statement 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method. Poolings initiated prior
to June 30, 2001 are grandfathered. Statement 142 replaces the requirement to
amortize intangible assets with indefinite lives and goodwill with a requirement
for an impairment test. Statement 142 also requires an evaluation of intangible
assets and their useful lives and a transitional impairment test for goodwill
and certain intangible assets. After transition, the impairment tests will be
performed annually. A company must adopt Statement 142 at the beginning of the
fiscal year. PVF Capital Corp. will adopt Statement 141 as of July 1, 2001 and
Statement 142 as of January 1, 2002. Management is currently analyzing the
effect Statement 142 will have on our financial statements.
[LOGO] PVF CAPITAL CORP.
17
20
[LOGO] PARK VIEW FEDERAL
SAVINGS BANK
BOARD OF DIRECTORS
JOHN R. MALE
Chairman of the Board and
Chief Executive Officer
C. KEITH SWANEY
President, Chief Operating Officer
and Chief Financial Officer
ROBERT K. HEALEY
Retired
STANLEY T. JAROS
Partner
Moriarty & Jaros, P.L.L.
CREIGHTON E. MILLER
Partner
Miller, Stillman & Bartel
STUART D. NEIDUS
Chairman and
Chief Executive Officer
Anthony & Sylvan Pools Corporation
ROBERT F. URBAN
Retired
Officers
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
ANNE M. JOHNSON
Senior Vice President
Operations
CAROL S. PORTER
Corporate Secretary and
Marketing Director
EDWARD B. DEBEVEC
Treasurer
MARK E. FOSNAUGHT
Vice President
Branch Coordinator
WILLIAM J. HARR, JR.
Vice President
ADELINE NOVAK
Vice President
Human Resources
ROBERT J. PAPA
Vice President
Construction Lending
JOHN E. SCHIMMELMANN
Vice President
Deposit Operations
KENNAIRD H. STEWART
Vice President
Commercial Real Estate Lending
ROBERT D. TOTH
Vice President
Information Systems
18
21
Office Locations and Hours
BAINBRIDGE OFFICE
8500 Washington Street
Chagrin Falls, Ohio 44023
440-543-8889
BEDFORD HEIGHTS OFFICE
25350 Rockside Road
Bedford Hts., Ohio 44146
440-439-2200
CHARDON OFFICE
408 Water Street
Chardon, Ohio 44024
440-285-2343
MACEDONIA OFFICE
497 East Aurora Road
Macedonia, Ohio 44056
330-468-0055
MAYFIELD HEIGHTS OFFICE
1456 SOM Center Road
Mayfield Hts., Ohio 44124
440-449-8597
MEDINA OFFICE
3613 Medina Road
Medina, Ohio 44256
330-721-7484
MENTOR OFFICE
6990 Heisley Road
Mentor, Ohio 44060
440-944-0276
NORTH ROYALTON OFFICE
13901 Ridge Road
North Royalton, Ohio 44133
440-582-7417
SOLON OFFICE
34400 Aurora Road
Solon, Ohio 44139
440-542-6070
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
BEACHWOOD OFFICE
La Place
2111 Richmond Road
Beachwood, Ohio 44122
216-831-6373
LAKEWOOD-CLEVELAND OFFICE
11010 Clifton Blvd.
Cleveland, Ohio 44102
216-631-8900
LOBBY
MON., TUES., THURS.:
9:00 am - 4:30 pm
FRIDAY: 9:00 am - 5:30 pm
SATURDAY: 9:00 am - 1:00 pm
CLOSED WEDNESDAY
AUTO TELLER
MON., TUES., THURS.:
9:00 am - 5:00 pm
FRIDAY: 9:00 am - 6:00 pm
SATURDAY: 9:00 am - 1:00 pm
CLOSED WEDNESDAY
SHAKER HEIGHTS OFFICE
Shaker Towne Centre
16909 Chagrin Blvd.
Shaker Hts., Ohio 44120
216-283-4003
LOBBY
MON., TUES., WED., THURS:
9:00 am -D 4:30pm
FRIDAY: 9:00 am -D 6:00 pm
SATURDAY: 9:00 am -D 1:00 pm
CORPORATE CENTER
30000 Aurora Road
Solon, Ohio 44139
440-248-7171
MONDAY - FRIDAY:
9:00 am -D 5:00pm
19
22
[LOGO] PVF CAPITAL CORP.
[PICTURE OF BUILDING]
23
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PVF Capital Corp.:
We have audited the accompanying consolidated statements of financial condition
of PVF Capital Corp. and subsidiaries (Company) as of June 30, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 PVF Capital Corp.
and subsidiaries as of June 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
Cleveland, Ohio
July 27, 2001
21
24
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 2001 and 2000
ASSETS 2001 2000
------------- -------------
Cash and amounts due from depository institutions $ 8,144,926 3,806,575
Interest bearing deposits 1,200,192 815,280
Federal funds sold 56,050,000 1,050,000
------------- -------------
Cash and cash equivalents 65,395,118 5,671,855
Securities held to maturity (fair values
of $50,211,605 and $63,853,318, respectively) 50,211,605 65,258,853
Mortgage-backed securities held to maturity (fair values
of $18,585,184 and $1,200,418, respectively) 18,123,936 1,215,045
Loans receivable held for long-term
investment, net of allowance for loan losses of $3,520,198 and
$3,387,474, respectively 573,643,498 513,669,748
Loans receivable held for sale, net 6,151,814 10,737,721
Office properties and equipment, net 7,783,457 1,857,344
Real estate held for investment 1,300,000 4,094,020
Real estate owned 547,279 488,461
Investment required by law -
stock in the Federal Home Loan Bank
of Cincinnati 9,442,305 5,841,227
Prepaid expenses and other assets 3,925,903 4,151,852
------------- -------------
Total assets $ 736,524,915 612,986,126
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 480,532,150 440,981,859
Advances from the Federal Home Loan
Bank of Cincinnati 185,866,855 114,973,840
Notes payable 4,700,000 1,000,000
Advances from borrowers for taxes and
insurance 6,469,061 6,175,119
Accrued expenses and other liabilities 10,950,714 6,955,245
------------- -------------
Total liabilities 688,518,780 570,086,063
------------- -------------
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;
5,331,314 and 4,833,333 shares
issued, respectively 53,313 48,333
Additional paid-in capital 31,237,583 24,785,254
Retained earnings (substantially
restricted) 17,877,854 19,039,654
Treasury stock, at cost, 123,857 and
102,369 shares, respectively (1,162,615) (973,178)
------------- -------------
Total stockholders' equity 48,006,135 42,900,063
------------- -------------
Total liabilities and stockholders' equity $ 736,524,915 612,986,126
============= =============
See accompanying notes to consolidated financial statements.
22
25
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 2001, 2000, and 1999
2001 2000 1999
----------------- ----------------- -----------------
Interest income:
Loans $ 48,100,662 38,390,556 33,145,769
Mortgage-backed securities 1,189,468 89,987 146,865
Cash and securities 4,671,814 3,545,785 2,054,310
----------------- ----------------- -----------------
Total interest income 53,961,944 42,026,328 35,346,944
----------------- ----------------- -----------------
Interest expense:
Deposits 27,079,731 19,409,126 16,960,961
Short-term borrowings 7,038,219 4,563,252 2,901,621
----------------- ----------------- -----------------
Total interest expense 34,117,950 23,972,378 19,862,582
----------------- ----------------- -----------------
Net interest income 19,843,994 18,053,950 15,484,362
Provision for loan losses 225,000 850,000 --
----------------- ----------------- -----------------
Net interest income after provision for loan losses 19,618,994 17,203,950 15,484,362
----------------- ----------------- -----------------
Noninterest income:
Service and other fees 562,613 482,208 492,316
Mortgage banking activities, net 501,143 547,787 422,304
Gain on sale of loans, net 633,362 170,199 601,056
Gain on sale of real estate 300,790 207,165 3,800,696
Rental income 270,528 301,426 81,779
Insurance proceeds -- 672,243 --
Other, net 331,150 299,952 37,311
----------------- ----------------- -----------------
Total noninterest income 2,599,586 2,680,980 5,435,462
----------------- ----------------- -----------------
Noninterest expense:
Compensation and benefits 6,493,661 5,659,378 4,848,030
Office, occupancy, and equipment 2,586,580 2,002,573 1,783,631
Insurance 208,279 232,491 272,607
Professional and legal 344,849 331,103 921,664
Other 2,584,041 2,183,795 1,823,225
----------------- ----------------- -----------------
Total noninterest expense 12,217,410 10,409,340 9,649,157
----------------- ----------------- -----------------
Income before federal income taxes 10,001,170 9,475,590 11,270,667
Federal income taxes:
Current 3,128,578 3,099,581 2,437,926
Deferred 236,714 63,679 1,113,454
----------------- ----------------- -----------------
3,365,292 3,163,260 3,551,380
----------------- ----------------- -----------------
Net income $ 6,635,878 6,312,330 7,719,287
================= ================= =================
Basic earnings per share $ 1.27 1.20 1.45
================= ================= =================
Diluted earnings per share $ 1.23 1.16 1.40
================= ================= =================
See accompanying notes to consolidated financial statements.
23
26
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 2001, 2000, and 1999
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 $ 39,908 14,517,452 16,651,350 -- 31,208,710
Net income -- -- 7,719,287 -- 7,719,287
Cash paid in lieu of fractional shares -- -- (939) -- (939)
Stock dividend issued, 398,934 shares 3,989 5,730,687 (5,734,676) -- --
Purchase of 6,050 shares of
Treasury stock -- -- -- (71,250) (71,250)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 43,897 20,248,139 18,635,022 (71,250) 38,855,808
Net income -- -- 6,312,330 -- 6,312,330
Stock options exercised,
3,982 shares 40 8,043 -- -- 8,083
Cash paid in lieu of fractional shares -- -- (2,110) -- (2,110)
Stock dividend issued, 439,609 shares 4,396 4,529,072 (4,533,468) -- --
Cash dividend -- -- (1,372,120) -- (1,372,120)
Purchase of 87,013 shares of
Treasury stock -- -- -- (901,928) (901,928)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 48,333 24,785,254 19,039,654 (973,178) 42,900,063
Net income -- -- 6,635,878 -- 6,635,878
Stock options exercised,
20,384 shares 204 38,201 -- -- 38,405
Cash paid in lieu of fractional shares -- -- (1,840) -- (1,840)
Stock dividend issued, 477,597 shares 4,776 6,414,128 (6,418,904) -- --
Cash dividend -- -- (1,376,934) -- (1,376,934)
Purchase of 21,488 shares of
Treasury stock -- -- -- (189,437) (189,437)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2001 $ 53,313 31,237,583 17,877,854 (1,162,615) 48,006,135
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
24
27
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2001, 2000, and 1999
2001 2000 1999
------------- ------------- -------------
Operating activities:
Net income $ 6,635,878 6,312,330 7,719,287
Adjustments required to reconcile net income to net cash
provided by (used in) operating activities:
Accretion of discount on securities (618,845) (9,297) (1,458)
Depreciation and amortization 710,375 587,993 605,453
Provision for loan losses 225,000 850,000 --
Accretion of unearned discount and deferred loan
origination fees, net (1,132,931) (1,085,706) (1,263,266)
Deferred income tax provision (236,714) (63,679) (1,113,454)
Proceeds from loans held for sale 106,047,642 37,826,392 107,977,623
Originations of loans held for sale (101,461,735) (46,791,937) (108,105,064)
Gain on the sale of loans, net (633,362) (170,199) (601,056)
Net change in other assets and other liabilities 4,356,135 48,841 (649,409)
------------- ------------- -------------
Net cash provided by (used in) operating activities 13,891,443 (2,495,262) 4,568,656
------------- ------------- -------------
Investing activities:
Loans originated (226,319,550) (236,094,858) (157,546,496)
Principal repayments on loans 147,331,835 117,791,239 132,682,883
Principal repayments on mortgage-backed securities
held to maturity 3,926,715 522,969 1,223,417
Purchase of mortgage-backed securities held to maturity (977,611) -- --
Purchase of securities held to maturity (99,918,836) (39,995,313) (25,389,250)
Maturities and calls of securities held to maturity 115,584,929 79,798 27,856,667
Federal Home Loan Bank (FHLB) stock purchased, net (3,601,078) (2,081,775) (251,888)
Additions to office properties and equipment (6,636,488) (442,127) (295,118)
Disposals of real estate owned 740,442 478,410 752,636
(Additions) disposal of real estate
held for investment, net 2,794,020 (297,168) (2,858,782)
------------- ------------- -------------
Net cash used in investing activities (67,075,622) (160,038,825) (23,825,931)
------------- ------------- -------------
(Continued)
25
28
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2001, 2000, and 1999
2001 2000 1999
------------- ------------- -------------
Financing activities:
Payments on FHLB advances $ (89,106,985) (124,066,896) (10,283,720)
Proceeds from FHLB advances 160,000,000 173,000,000 30,000,000
Proceeds from notes payable 4,700,000 1,000,000 --
Repayment of notes payable (1,000,000) -- (1,060,000)
Net increase in NOW and passbook savings 2,913,422 10,847,871 7,719,664
Proceeds from issuance of certificates of deposit 124,038,791 160,039,738 46,744,489
Payments on maturing certificates of deposit (87,401,922) (61,147,486) (67,451,145)
Payment of cash dividend (1,378,774) (1,374,230) (939)
Purchase of Treasury stock (189,437) (901,928) (71,250)
Other 332,347 719,541 532,546
------------- ------------- -------------
Net cash provided by financing activities 112,907,442 158,116,610 6,129,645
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 59,723,263 (4,417,477) (13,127,630)
Cash and cash equivalents at beginning of year 5,671,855 10,089,332 23,216,962
------------- ------------- -------------
Cash and cash equivalents at end of year $ 65,395,118 5,671,855 10,089,332
============= ============= =============
Supplemental disclosures of cash flow information:
Cash payments of interest $ 32,577,423 23,766,847 19,922,567
Cash payments of income taxes 3,399,482 2,780,000 2,480,000
============= ============= =============
Supplemental schedule of noncash investing and financing activities:
Transfers to real estate owned $ 742,980 585,226 170,000
Loans securitized into mortgage-backed securities 16,400,000 -- --
============= ============= =============
See accompanying notes to consolidated financial statements.
26
29
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
The accounting and reporting policies of PVF Capital Corp. and its
subsidiaries (Company) conform to 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 and
eastern Lorain Counties, Ohio. The deposit accounts of the Bank are
insured under the Savings Association Insurance Fund (SAIF) of 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.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PVF
Capital Corp. and its wholly owned subsidiaries, Park View Federal
Savings Bank and PVF Service Corporation. All significant
intercompany transactions and balances are eliminated in
consolidation.
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.
(C) ALLOWANCE FOR 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 collateral dependent, measurement of impairment is
based on the fair value of the collateral.
The allowance for loan losses is maintained at a level to absorb
probable losses inherent 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. 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. Future adjustments to the
allowance may also be required by regulatory examiners based on
their judgments about information available to them at the time of
their examination.
Uncollectible interest on loans that are contractually 90 days or
more past due is charged off, or an allowance is established. The
allowance is established by a charge to interest income equal to
all interest previously accrued, and 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.
27
30
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(D) MORTGAGE BANKING ACTIVITIES
Mortgage loans held for sale are carried at the lower of cost or
market value, determined on an aggregate basis.
The Company retains servicing on loans that are sold. The Company
recognizes an asset for mortgage servicing rights based on an
allocation of total loan cost using relative fair values, or a
liability for mortgage servicing rights based on fair value, if
the benefits of servicing are not expected to adequately
compensate the Company. The cost of mortgage servicing rights is
amortized in proportion to, and over the period of, estimated net
servicing revenues. Impairment of mortgage servicing rights is
assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on current market
interest rates and prepayment assumptions. For purposes of
measuring impairment, the rights are stratified based on
predominant risk characteristics of the underlying loans such as
interest rates and scheduled maturity. The amount of impairment
recognized is the amount by which the capitalized mortgage
servicing rights exceed their fair value. The Company monitors
prepayments, and in the event that actual prepayments exceed
original estimates, amortization is adjusted accordingly.
(E) INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company classifies all securities as held to maturity or
available for sale. 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 available for sale consist of all other
securities; these securities are reported at fair value, and
unrealized gains and losses are not reflected in earnings but are
reflected as a component of accumulated other comprehensive
income, net of tax. Investment and mortgage-backed securities that
could be sold in the future because of changes in interest rates
or other factors are not be classified as held to maturity.
Gains or losses on the sales of all securities are recognized at
the date of sale (trade date). Premiums and discounts are
amortized or accredited over the life of the related security as
an adjustment to yield. Dividends and interest income are
recognized when earned.
A decline in fair value of any available for sale or 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.
(F) OFFICE PROPERTIES AND EQUIPMENT
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.
28
31
' PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(G) FEDERAL INCOME TAXES
The Company files a consolidated tax return with its wholly owned
subsidiaries and provides deferred federal income taxes in
recognition of temporary differences between financial statement
and income tax reporting. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled, and the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.
(H) LOAN ORIGINATION AND COMMITMENT FEES
The Company defers loan origination and commitment fees and
certain direct loan origination costs and amortizes the net amount
over the lives of the related loans as a yield adjustment if the
loans are held for investment, or recognizes the net fees as
mortgage banking income when the loans are sold.
(I) REAL ESTATE OWNED
Real estate owned is carried at the lower of cost, including
capitalized holding costs, or fair value less estimated selling
costs.
(J) 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.
(K) EARNINGS PER SHARE
Earnings per share are calculated by dividing net income for the
period by the weighted average number of shares of common stock
outstanding during the period. The assumed exercise of stock
options is included in the calculation of diluted earnings per
share.
The per share data for 2001, 2000 and 1999 are adjusted to reflect
the 10% stock dividends declared July 1999, July 2000 and July
2001.
(L) RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts
to conform to the current year presentation.
29
32
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(2) SECURITIES
Securities held to maturity at June 30, 2001 and 2000, are summarized as
follows:
2001
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
---------------- --------------- --------------------------------
United States Government and agency
securities
$ 50,000,000 -- -- 50,000,000
Municipal bond 211,605 211,605
---------------- --------------- -------------- ------------
Total $ 50,211,605 -- -- 50,211,605
================ =============== ============== ============
Due after one year through five years $ 50,211,605 -- -- 50,211,605
================ =============== ============== ============
2000
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
---------------- --------------- --------------------------------
United States Government and agency
securities
$ 64,962,318 -- (1,405,535) 63,556,783
Municipal bond 296,535 -- -- 296,535
---------------- --------------- -------------- ------------
Total $ 65,258,853 -- (1,405,535) 63,853,318
================ =============== ============== ============
Due after one year through five years $ 65,258,853 -- (1,405,535) 63,853,318
================ =============== ============== ============
There were no sales of securities for the years ended June 30, 2001, 2000
or 1999.
In both fiscal years ended June 30, 2001 and 2000, all United States
Government and agency securities are callable.
30
33
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(3) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity at June 30, 2001 and 2000, are
summarized as follows:
2001
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
---------------- --------------- --------------------------------
FNMA mortgage-backed securities $ 873,612 28,667 -- 902,279
FHLMC mortgage-backed securities 17,038,537 432,581 -- 17,471,118
Accrued interest receivable 211,787 -- -- 211,787
---------------- --------------- -------------- ------------
18,123,936 461,248 -- 18,585,184
================ =============== ============== ============
Due in less than one year 832,698 465 -- 833,163
Due after five years 17,291,238 460,783 -- 17,752,021
---------------- --------------- -------------- ------------
$ 18,123,936 461,248 -- 18,585,184
================ =============== ============== ============
2000
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
---------------- --------------- --------------------------------
FHLMC mortgage-backed securities $ 1,207,804 -- (14,627) 1,193,177
Accrued interest receivable 7,241 -- -- 7,241
---------------- --------------- -------------- ------------
$ 1,215,045 -- (14,627) 1,200,418
================ =============== ============== ============
Due after one year through five years 1,057,919 -- (14,627) 1,043,292
Due after five years 157,126 -- -- 157,126
---------------- --------------- -------------- ------------
$ 1,215,045 -- (14,627) 1,200,418
================ =============== ============== ============
There were no sales of mortgage-backed securities for the years ended June
30, 2001, 2000 or 1999.
31
34
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(4) LOANS RECEIVABLE HELD FOR LONG-TERM INVESTMENT
Loans receivable held for long-term investment at June 30, 2001 and 2000,
consist of the following:
2001 2000
------------- ------------
Real estate mortgages:
One-to-four family residential $ 207,345,895 197,226,816
Home equity line of credit 37,596,975 30,978,348
Multifamily residential 43,771,548 42,503,308
Commercial 125,769,417 115,226,307
Commercial equity line of credit 15,232,077 12,078,863
Land 58,833,273 41,583,317
Construction - residential 106,275,470 106,706,249
Construction - multi-family 306,000 --
Construction - commercial 28,962,103 21,603,903
------------- ------------
Total real estate mortgages 624,092,758 567,907,111
Consumer 5,773,178 4,390,647
------------- ------------
629,865,936 572,297,758
Accrued interest receivable 3,415,327 3,019,724
Deferred loan origination fees (2,318,127) (1,956,826)
Unearned discount (4,072) (15,529)
Undisbursed portion of loan proceeds (53,795,368) (56,287,905)
Allowance for loan losses (3,520,198) (3,387,474)
------------- ------------
$ 573,643,498 513,669,748
============= ============
A summary of the changes in the allowance for loan losses for the
years ended June 30, 2001, 2000, and 1999, is as follows:
2001 2000 1999
----------- ---------- ----------
Beginning balance $ 3,387,474 2,629,743 2,686,521
Provision charged to operations 225,000 850,000 --
Charge-offs (112,435) (92,855) (62,097)
Recoveries 20,159 586 5,319
----------- ---------- ----------
Ending balance $ 3,520,198 3,387,474 2,629,743
=========== ========== ==========
32
35
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
The following is a summary of the principal balances of loans on nonaccrual
status, and loans past due 90 days or more which were on accrual status, at
June 30:
2001 2000
---------- ---------
Loans on nonaccrual status:
Real estate mortgages:
One-to-four family residential $1,491,000 1,254,000
Commercial 1,016,000 69,000
Multi-family residential 115,000 253,000
Construction and land 2,763,000 3,266,000
---------- ---------
Total loans on nonaccrual status 5,385,000 4,842,000
---------- ---------
Past due loans on accrual status -
real estate mortgages -
construction and land 20,000 935,000
---------- ---------
Total past due loans $5,405,000 5,777,000
========== =========
During the years ended June 30, 2001, 2000 and 1999, gross interest income
of $769,931, $502,840 and $349,539, respectively, would have been recorded
on loans accounted for on a nonaccrual basis if the loans had been current
throughout the period.
At June 30, 2001 and 2000, the recorded investment in loans, which have
been identified as being impaired, totaled $5,385,000 and $4,842,000,
respectively. Included in the impaired amount at June 30, 2001 and 2000, is
$237,338 and $188,966, respectively, related to loans with a corresponding
valuation allowance of $47,746 and $150,506, respectively. The Company
recognized no interest on impaired loans in 2001, 2000, and 1999 (during
the portion of the respective years that they were impaired).
Average impaired loans for the years ended June 30, 2001 and 2000 amounted
to $5,504,500 and $4,240,500, respectively.
(5) LOANS RECEIVABLE HELD FOR SALE
Loans receivable held for sale at June 30, 2001 and 2000, consist of the
following:
2001
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
----------- ------ --------- ----------
Real estate mortgages $ 6,178,875 46,933 -- 6,225,808
Deferred loan origination fees (27,061) -- -- (27,061)
----------- ------ --------- ----------
$ 6,151,814 46,933 -- 6,198,747
=========== ====== ========= ==========
33
36
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
2000
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
----------- ------ --------- -----------
Real estate mortgages $ 10,956,179 -- (45,000) 10,911,179
Deferred loan origination fees (173,458) -- -- (173,458)
------------ ------- ---------- -----------
$ 10,782,721 -- (45,000) 10,737,721
============ ======= ========== ===========
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,
2001, consist of the following:
2001 2000 1999
----------- ---------- ----------
Mortgage loan servicing fees $ 810,567 755,705 702,645
Amortization of mortgage servicing rights (354,424) (162,918) (280,341)
Gross realized:
Gains on sales of loans 1,766,805 613,584 1,506,985
Losses on sales of loans (1,133,443) (443,385) (905,929)
Market valuation provision for losses on loans
receivable held for sale -- (45,000) --
Market valuation recoveries 45,000 -- --
----------- ---------- ----------
$ 1,134,505 717,986 1,023,360
=========== ========== ==========
The allowance for mortgage banking market value losses was $0, $45,000,
and $0 for the years ended June 30, 2001, 2000 and 1999.
At June 30, 2001 and 2000, the Bank was servicing whole and
participation mortgage loans for others aggregating approximately
$351,657,535 and $288,249,513, respectively. The Bank had $4,817,581 and
$3,411,372 at June 30, 2001 and 2000, respectively, of funds collected
on mortgage loans serviced for others due to investors, which is
included in accrued expenses and other liabilities.
34
37
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
Originated mortgage servicing rights capitalized and amortized during
the years ended June 30, 2001, 2000 and 1999 were as follows:
2001 2000 1999
----------- ---------- ----------
Beginning balance $ 833,558 798,973 606,200
Originated 805,544 197,503 473,114
Amortized (354,424) (162,918) (280,341)
----------- ---------- ----------
Ending balance $ 1,284,678 833,558 798,973
=========== ========== ==========
Estimated fair value $ 3,548,783 2,349,255 2,334,665
=========== ========== ==========
No valuation allowance has been established for mortgage servicing rights,
as there has been no impairment on those rights.
(6) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at cost, less accumulated depreciation and
amortization at June 30, 2001 and 2000 are summarized as follows:
2001 2000
------------ ----------
Land and land improvements $ 682,500 --
Building and building improvements 4,217,307 23,747
Leasehold improvements 2,446,845 2,042,976
Furniture and equipment 5,450,947 4,378,276
------------ ----------
12,797,599 6,444,999
Less accumulated depreciation and amortization (5,014,142) (4,587,655)
------------ ----------
$ 7,783,457 1,857,344
============ ==========
35
38
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(7) DEPOSITS
Deposit balances at June 30, 2001 and 2000 are summarized by interest
rate as follows:
2001 2000
-------------------------- --------------------------
AMOUNT % AMOUNT %
---------------- --------- ---------------- ---------
NOW and money market accounts
Noninterest bearing $ 12,131,093 2.5% $ 10,681,710 2.4%
2.00 - 5.00% 40,968,105 8.5 38,611,269 8.8
---------------- --------- ---------------- ---------
53,099,198 11.0 49,292,979 11.2
Passbook savings 3.00 - 5.00% 31,244,931 6.5 32,137,728 7.3
Certificates of deposit 2.50 - 2.99% 253,089 .1 721,663 .2
3.00 - 3.99 11,015,229 2.3 -- --
4.00 - 4.99 58,371,097 12.1 20,079,686 4.5
5.00 - 5.99 73,859,206 15.4 108,986,262 24.7
6.00 - 6.99 154,064,360 32.1 214,068,573 48.5
7.00 - 7.99 98,547,027 20.5 15,413,432 3.5
8.00 - 8.99 78,013 0.0 281,536 .1
---------------- --------- ---------------- ---------
396,188,021 82.5 359,551,152 81.5
---------------- --------- ---------------- ---------
$ 480,532,150 100.0% $ 440,981,859 100.0%
================ ========= ================ =========
Weighted average rate on deposits 5.53% 5.49%
========= =========
2001 2000
-------------------------- --------------------------
AMOUNT % AMOUNT %
---------------- --------- ---------------- ---------
Remaining term to maturity of certificates of deposit:
12 months or less $ 291,120,701 73.5 $ 277,540,274 77.2%
13 to 24 months 88,000,633 22.2 43,853,077 12.2
25 to 36 months 7,055,108 1.8 28,263,017 7.9
Over 36 months 10,011,579 2.5 9,894,784 2.7
---------------- --------- ---------------- ---------
$ 396,188,021 100.0% $ 359,551,152 100.0%
================ ========= ================ =========
Weighted average rate on certificates of deposit 6.23% 6.17%
========= =========
Time deposits in amounts of $100,000 or more totaled $119,309,822 and
$99,473,486 at June 30, 2001 and 2000, respectively.
36
39
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
Interest expense on deposits is summarized as follows:
2001 2000 1999
----------- ---------- ----------
NOW accounts $ 1,292,321 978,645 730,099
Passbook accounts 771,793 812,545 832,070
Certificates of deposit 25,015,617 17,617,936 15,398,792
----------- ---------- ----------
$27,079,731 19,409,126 16,960,961
=========== ========== ==========
(8) ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI
Advances from the Federal Home Loan Bank of Cincinnati, with maturities
and interest rates thereon at June 30, 2001 and 2000, were as follows:
MATURITY INTEREST RATE 2001 2000
-------- ------------- ---------------- ---------------
June 2002 5.37%for 2001 and
6.60% for 2000 $ 65,000,000 89,000,000
March 2001 5.93 -- 5,000,000
February 2003 6.00 500,000 500,000
February 2006 6.05 366,855 473,840
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 --
---------------- ---------------
$ 185,866,855 114,973,840
================ ===============
Weighted average interest rate 4.68% 6.38%
================ ===============
The Bank maintains two lines of credit, totaling $122,500,000, with the
Federal Home Loan Bank of Cincinnati (FHLB). The $100,000,000 repurchase
line matures in June 2001. The Bank has chosen to take daily advances
from this line, with the interest rate set daily. The $22,500,000 cash
management line matures in October 2000. Serving as collateral for such
advances, the Bank has pledged mortgage loans with unpaid principal
balances aggregating approximately $191,095,000 and $172,460,760 at June
30, 2001 and 2000, respectively. In addition, stock in the FHLB is
pledged for such advances.
37
40
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(9) NOTES PAYABLE
On April 12, 2000, PVF Service Corporation, a wholly owned subsidiary of
the Company, secured a mortgage note from another federally insured
institution at a variable interest rate that adjusts to prime without
notice on the effective date of each change in the lender's prime rate.
The balance at June 30, 2001 and 2000 was $0 and $1,000,000,
respectively. The note was to mature in April of 2002, but was paid in
full during the year ended June 30, 2001.
On July 26, 2000, PVF Capital Corp. secured a $5 million line of credit
from another federally insured institution at a variable interest rate
that adjusts to LIBOR plus 200 basis points. Each draw is separately
negotiated with respect to rate and term. The outstanding balance at
June 30, 2001 was $4,700,000. The line matures on July 31, 2002, but can
be extended indefinitely in 2-year increments.
(10) FEDERAL INCOME TAXES AND RETAINED EARNINGS
The accompanying consolidated financial statements reflect provisions
for federal income taxes differing 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:
2001 2000 1999
------------------------- ---------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
-------------- ----- ------------- ------ -------------- ------
Computed expected tax $3,500,410 35.0% $ 3,316,457 35.0% $ 3,944,733 35.0%
Decrease in tax resulting from:
Benefit of graduated rates (100,000) (1.0) (94,756) (1.0) (112,706) (1.0)
Tax credits (111,646) (1.1) (111,774) (1.2) (219,332) (2.0)
Other, net 76,528 0.8 53,333 0.6 (61,315) (0.5)
---------- ----- -------------- ------ -------------- ------
$3,365,292 33.7% $ 3,163,260 33.4% $ 3,551,380 31.5%
========== ===== ============== ====== ============== =====
38
41
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
The net tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at June
30, 2001 and 2000 are:
2001 2000
--------------- --------------
Deferred tax assets:
Loan loss and other reserves $ 1,188,320 1,166,543
Other 206,027 151,741
-------------- -------------
Total gross deferred tax assets 1,394,347 1,318,284
Less valuation allowance -- --
-------------- -------------
Net deferred tax assets 1,394,347 1,318,284
-------------- -------------
Deferred tax liabilities:
Deferred loan fees, net 421,069 411,289
FHLB stock dividend 845,427 717,315
Unrealized gains on loan sales, net 116,711 192,334
Originated mortgage servicing asset 436,791 283,396
Basis differences - fixed assets 874,116 797,507
Other 199,094 178,590
-------------- -------------
Total gross deferred tax liabilities 2,893,208 2,580,431
-------------- -------------
Net deferred tax liability $ (1,498,861) (1,262,147)
============== =============
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, 2001 or 2000.
Retained earnings at June 30, 2001 include approximately $4,516,000 for
which no provision for federal income tax has been made. This amount
represents allocations of income during years prior to 1988 to bad debt
deductions for tax purposes only. These qualifying and nonqualifying
base year reserves and supplemental reserves will be recaptured into
income in the event of certain distributions and redemptions. Such
recapture would create income 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.
The favorable reserve method previously afforded to thrifts was repealed
for tax years beginning after December 31, 1995. Large thrifts were
required to switch to the specific charge-off method of section 166. In
general, a thrift is required to recapture the amount of its qualifying
and nonqualifying reserves in excess of its qualifying and nonqualifying
base year reserves. The Bank has no such excess reserves to recapture.
39
42
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(11) LEASES
Future minimum payments under noncancelable operating leases with
initial or remaining terms of one year or more consisted of the
following at June 30, 2001:
YEAR ENDING JUNE 30,
2002 $ 934,688
2003 883,149
2004 778,773
2005 642,531
2006 546,700
Thereafter 1,115,300
-------------
Total minimum lease payments $ 4,901,141
=============
During the years ended June 30, 2001, 2000, and 1999, rental expense
was $809,169, $593,331 and $460,313, respectively.
(12) COMMITMENTS AND CONTINGENCIES
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.
40
43
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
At June 30, 2001 and 2000, the Bank had the following commitments:
2001 2000
----------------- ----------------
Commitments to sell mortgage loans in the secondary market $ 100,000 1,024,479
Commitments to fund variable mortgage loans 37,223,216 28,615,700
Commitments to fund fixed mortgage loans 18,667,550 4,304,905
There are pending against the Company various lawsuits and claims which
arise in the normal course of business. In the opinion of management,
any liabilities that may result from pending lawsuits and claims will
not materially affect the financial position of the Company.
(13) REGULATORY CAPITAL
The Company 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 Company must meet specific
capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company'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, 2001, the minimum regulatory capital regulations
require institutions to have equity capital to total tangible assets of
1.5%; a minimum leverage ratio of core (Tier 1) capital to total
adjusted tangible assets of 3%; and a minimum ratio of total capital to
risk weighted assets of 8%. At June 30, 2001, the Bank exceeded all of
the aforementioned regulatory capital requirements.
41
44
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
The most recent notification from the Office of Thrift Supervision
categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Company must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage 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.
At June 30, 2001 and 2000, the Bank was in compliance with regulatory
capital requirements as set forth below (dollars in thousands):
CORE/ TIER-1 TOTAL
EQUITY LEVERAGE RISK-BASED RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
--------------- -------------- -------------- --------------
June 30, 2001:
GAAP capital $ 47,698 47,698 47,698 47,698
Nonallowable component (209) (209) (209)
General loan valuation allowances -- -- 3,495
-------------- -------------- --------------
Regulatory capital 47,489 47,489 50,984
Total assets 735,500
Adjusted total assets 735,291
Risk-weighted assets 496,709 496,709
Actual capital ratio 6.49% 6.46% 9.56% 10.26%
Regulatory requirement 1.50% 3.00% 8.00%
Regulatory capital category -
well-capitalized -
equal to or greater than 5.00% 6.00% 10.00%
42
45
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
CORE/ TIER-1 TOTAL
EQUITY LEVERAGE RISK-BASED RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
--------------- -------------- -------------- --------------
June 30, 2000:
GAAP capital $ 40,994 40,994 40,994 40,994
General loan valuation allowances -- -- 3,386
------------- -------------- -------------- --------------
Regulatory capital 40,994 40,994 44,380
Total assets 613,695
Adjusted total assets 613,695
Risk-weighted assets 443,612 443,612
Actual capital ratio 6.68% 6.68% 9.24% 10.00%
Regulatory requirement 1.50% 3.00% 8.00%
Regulatory capital category -
well-capitalized -
equal to or greater than 5.00% 6.00% 10.00%
(14) STOCK OPTIONS
The Bank offered stock options to the directors and officers of the bank
under a 1992 plan, a 1996 plan, and a 2000 plan.
Under the 1992 plan 85,000 options were originally authorized and
granted, which are exercisable for a ten-year period and can be
exercised at any time. All options under the 1992 plan have been both
issued and granted, and 202, 482 options, adjusted to reflect all stock
dividends, remain outstanding at June 30, 2001.
Under the 1996 plan, in fiscal year 1997, 21,400 options were originally
authorized and granted, in fiscal year 1998, 21,700 options were
originally authorized and granted, in fiscal year 1999, 21,700 options
were originally authorized and granted, in fiscal year 2000, 53,300
options were originally authorized and granted and in fiscal year 2001,
64,700 options were originally authorized and granted. The options are
exercisable for a ten-year period, with a vesting period ranging from
zero to five years as stated in the individual option agreements. As of
June 30, 2001, 254,583 options, adjusted to reflect all stock dividends,
remain as issued but outstanding, and 74, 839 options are still
available to be issued.
43
46
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
As of June 30, 2001, no options have been issued under the 2000 plan.
Options were granted at fair market value and, accordingly, no charges
were reflected in compensation and benefits expense due to the granting
of stock options. The excess of the option price over the par value of
the shares purchased through the exercise of stock options is credited
to additional capital:
2001 2000 1999
---------------------- ----------------------- -----------------------
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
-------- ------- -------- ------- ------- -------
Outstanding beginning of
year 405,748 5.09 346,073 $ 3.95 317,190 $ 3.51
Exercised (22,878) 1.68 (4,818) 1.68 -- --
Expired -- -- -- -- -- --
Granted 74,195 9.02 64,493 10.69 28,883 8.72
-------- ------- -------- ------- ------- -------
Outstanding end of year 457,065 5.93 405,748 $ 5.09 346,073 $ 3.95
======== ======= ======== ======= ======= =======
Exercisable end of year 367,032 4.99 310,083 $ 5.09 279,216 $ 3.95
======== ======= ======== ======= ======= =======
As of June 30, 2001, options outstanding have exercise prices between
$1.68 and $11.36 and a weighted average remaining contractual life of
4.5 years.
The Company has elected to disclose pro forma net income and net income
per share as if the fair-value-based method had been applied in
measuring compensation costs. The Company's pro forma information for
the years ended June 30:
2001 2000 1999
------------- ------------- -------------
Net income $ 6,635,878 6,312,330 7,719,287
Less: Pro forma compensation expense, net of tax 129,146 90,372 48,427
------------- ------------- -------------
Pro forma earnings $ 6,506,732 6,221,958 7,670,860
============= ============= =============
Basic earnings per share $ 1.27 1.20 1.45
============= ============= =============
Pro forma basic earnings per share $ 1.25 1.18 1.44
============= ============= =============
Diluted earning per share $ 1.23 1.16 1.40
============= ============= =============
Pro forma diluted earnings per share $ 1.21 1.15 1.39
============= ============= =============
The above results may not be representative of the effects of SFAS No. 123 on
net income for future years.
44
47
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 2001, 2000, and 1999; expected dividend
yield of 2%, and expected option lives of 7 years; expected volatility
of 30% in 2001, 2000 and 1999 and average risk free interest rates of
5.71 %, 6.14 %, and 4.33 %, respectively.
Pursuant to the terms of the plans, share information and exercise
prices have been adjusted to reflect the impact of stock splits and
dividends subsequent to the granting dates of the options.
(15) EARNINGS PER SHARE
Reconciliation of basic earnings per share to diluted earnings per share
for the years ended June 30:
2001
------------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ---------- ----------
Basic EPS
Income available to common shareholders $6,635,878 5,214,672 1.27
Effect of stock options -- 177,035 0.04
---------- ---------- ----------
Diluted EPS
Income available to common shareholders $6,635,878 5,391,707 1.23
========== ========== ==========
2000
------------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ---------- ----------
Basic EPS
Income available to common shareholders $6,312,330 5,261,209 1.20
Effect of stock options -- 195,747 0.04
---------- ---------- ----------
Diluted EPS
Income available to common shareholders $6,312,330 5,456,956 1.16
========== ========== ==========
1999
------------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ---------- ----------
Basic EPS
Income available to common shareholders $7,719,287 5,311,765 1.45
Effect of stock options -- 195,117 0.05
---------- ---------- ----------
Diluted EPS
Income available to common shareholders $7,719,287 5,506,882 1.40
========== ========= ==========
45
48
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Bank using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts
the Bank 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.
JUNE 30, 2001 JUNE 30, 2000
----------------------------------------------------------------
CARRYING ESTIMATED FAIR CARRYING AMOUNT ESTIMATED
AMOUNT VALUE FAIR VALUE
--------------- -------------------------------- ---------------
Assets:
Cash and amounts due from depository
institutions $ 8,144,926 8,144,926 3,806,575 3,806,575
Interest-bearing deposits 1,200,192 1,200,192 815,280 815,280
Federal funds sold 56,050,000 56,050,000 1,050,000 1,050,000
Securities held to maturity 50,211,605 50,211,605 65,258,853 63,853,318
Mortgage-backed securities held to maturity
18,123,936 18,585,184 1,215,045 1,200,418
Loans receivable held for:
Long-term investment, net 573,643,498 580,385,000 513,669,748 511,085,000
Sale, net 6,151,814 6,198,747 10,737,721 10,737,721
Stock in the Federal Home Loan Bank of
Cincinnati 9,442,305 9,442,305 5,841,227 5,841,227
Liabilities:
Demand deposits and passbook savings $ 84,344,129 84,344,129 81,430,707 81,430,707
Time deposits 396,188,021 401,746,000 359,551,152 359,551,152
Advances from the Federal Home loan Bank of
Cincinnati 185,866,855 186,563,000 114,973,840 114,334,000
Notes payable 4,700,000 4,700,000 1,000,000 1,000,000
46
49
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
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.
Securities and mortgage-backed securities. Estimated fair value for
securities and mortgage-backed securities is based on quoted market
prices.
Loans receivable held for investment and held for sale. For loans
receivable held for sale, fair value is estimated using the quoted
market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. For performing loans receivable
held for investment, 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. For other loans, cash flows and maturities are
estimated based on contractual interest rates and historical experience
and are discounted using secondary market rates adjusted for differences
in servicing and credit costs.
Fair value for significant nonperforming loans is based on recent
external appraisals. 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.
Stock in the Federal Home Loan Bank of Cincinnati. This item is valued
at cost, which represents redemption value and approximates fair value.
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.
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. 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.
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, 2001 and 2000.
47
50
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results
of operations for 2001 and 2000 (in thousands of dollars, except per share
data): (1)
QUARTERS FOR THE YEAR ENDED JUNE 30, 2001
------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------ ------ ------
Interest income $13,202 13,856 13,266 13,639
Interest expense 8,365 8,931 8,256 8,567
------- ------ ------ ------
Net interest income 4,837 4,925 5,010 5,072
Provision for losses on loans -- -- 75 150
Noninterest income 441 589 566 1,108
Noninterest expense 2,841 3,043 3,222 3,215
------- ------ ------ ------
Income before taxes 2,437 2,471 2,279 2,815
Federal income taxes 808 829 771 957
------- ------ ------ ------
Net income $ 1,629 1,642 1,508 1,858
======= ====== ====== ======
Basic earnings per share (2) $ 0.31 0.31 0.29 0.36
======= ====== ====== ======
Diluted earnings per share (2) $ 0.30 0.30 0.28 0.35
======= ====== ====== ======
48
51
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
QUARTERS FOR THE YEAR ENDED JUNE 30, 2000
------------------------------------------
FIRST SECOND THIRD FOURTH
------ ----- ------ ------
Interest income $9,112 9,930 10,840 12,144
Interest expense 4,900 5,437 6,421 7,215
------ ----- ------ ------
Net interest income 4,212 4,493 4,419 4,929
Provision for losses on loans 350 100 -- 400
Noninterest income 1,016 657 327 681
Noninterest expense 2,551 2,598 2,631 2,630
------ ----- ------ ------
Income before taxes 2,327 2,452 2,115 2,580
Federal income taxes 775 818 702 867
------ ----- ------ ------
Net income $1,552 1,634 1,413 1,713
====== ===== ====== ======
Basic earnings per share (2) $ 0.29 0.31 0.27 0.33
====== ===== ====== ======
Diluted earnings per share (2) $ 0.28 0.30 0.25 0.32
====== ===== ====== ======
--------------------------------------------------
(1) The total of the four quarterly amounts may not equal the full year amount
due to rounding.
(2) After giving effect to a 10% stock dividend, declared on July 25, 2000 and
issued on September 1, 2000 and a 10% stock dividend, declared on July 25,
2001 and issued on August 31, 2001.
49
52
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(18) PARENT COMPANY
The following condensed statements of financial condition as of June 30,
2001 and 2000, and related condensed statements of operations and cash
flows for the years ended June 30, 2001, 2000 and 1999 for PVF Capital
Corp. should be read in conjunction with the consolidated financial
statements and the notes thereto.
CONDENSED STATEMENTS OF FINANCIAL CONDITION 2001 2000
------------------------------------------- ----------- ----------
Cash and amounts due from depository institutions $ 44,578 21,689
Prepaid expenses and other assets 3,279,888 492,305
Investment in subsidiaries, at equity in underlying value of net assets 49,396,610 42,428,540
----------- ----------
Total assets $52,721,076 42,942,534
=========== ==========
Accrued expenses and other liabilities 14,941 42,471
Note payable 4,700,000 --
Stockholders' equity 48,006,135 42,900,063
----------- ----------
Total liabilities and stockholders' equity $52,721,076 42,942,534
=========== ==========
CONDENSED STATEMENTS OF OPERATIONS 2001 2000 1999
---------------------------------- ----------- --------- ---------
Income:
Mortgage banking activities $ 213,171 251,349 310,930
Other, net -- 12,261 --
----------- --------- ---------
213,171 263,610 310,930
----------- --------- ---------
Expenses:
Interest expense 304,688 -- --
General and administrative 184,532 206,579 249,630
----------- --------- ---------
489,220 206,579 249,630
----------- --------- ---------
(Loss) income before federal income taxes and
equity in undistributed net income of
subsidiaries (276,049) 57,031 61,300
Federal income taxes 93,856 20,267 20,950
----------- --------- ---------
(Loss) income before equity in undistributed
net income of subsidiaries (182,193) 36,764 40,350
Equity in undistributed net income of subsidiaries 6,818,071 6,275,566 7,678,937
----------- --------- ---------
Net income $ 6,635,878 6,312,330 7,719,287
=========== ========= =========
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53
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
CONDENSED STATEMENTS OF CASH FLOWS 2001 2000 1999
---------------------------------- --------------- -------------- ------------------
Operating activities:
Net income $ 6,635,878 6,312,330 7,719,287
Equity in undistributed net income of subsidiaries (6,818,071) (6,275,566) (7,678,937)
Repayment of advance from subsidiary 10,175,000 1,890,000 --
Other, net (6,890,112) (436,314) (221,796)
------------ ---------- ----------
Net cash provided by (used in) operating
activities 3,102,695 1,490,450 (181,446)
------------ ---------- ----------
Investing activities:
Investment in Parkview Federal Savings Bank (500,000) (765,000) --
------------ ---------- ----------
Net cash used in investing activities (500,000) (765,000) --
------------ ---------- ----------
Financing activities:
Repayment on note payable (1,400,000) -- (1,060,000)
Proceeds from exercise of stock options 38,405 8,083 --
Cash paid in lieu of fractional shares -- (2,110) (939)
Dividends received from subsidiaries 350,000 1,500,000 1,350,000
Dividends paid (1,378,774) (1,372,120)
Purchase of Treasury stock (189,437) (901,928) (71,250)
------------ ---------- ----------
Net cash provided by (used in) financing
activities (2,579,806) (768,075) 217,811
------------ ---------- ----------
Net increase (decrease) in cash and cash
equivalents 22,889 (42,625) 36,365
Cash and cash equivalents at beginning of year 21,689 64,314 27,949
------------ ---------- ----------
Cash and cash equivalents at end of year $ 44,578 21,689 64,314
============ ========== ==========
51
54
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001, 2000, and 1999
(19) 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 allowed eligible employees to contribute up to 7%
of their compensation through December 31, 2000 and allows up to 15%,
beginning on January 1, 2001, 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 as
follows:
YEARS OF SERVICE PERCENT VESTED
-------------------
Less than 2 $ 0%
2 but less than 3 20
3 but less than 4 40
4 but less than 5 60
5 but less than 6 80
6 or more 100
The total of the Company's matching and profit sharing contribution cost
related to the plan for the years ended June 30, 2001, 2000, and 1999
was $83,255, $78,295, and $79,638, respectively.
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55
[LOGO] PVF CAPITAL CORP.
Board of Directors
JOHN R. MALE
Chairman of the Board and
Chief Executive Officer
C. KEITH SWANEY
President, Chief Operating Officer
and Treasurer
ROBERT K. HEALEY
Retired
STANLEY T. JAROS
Partner
Moriarty & Jaros, P.L.L.
CREIGHTON E. MILLER
Partner
Miller, Stillman & Bartel
STUART D. NEIDUS
Chairman and
Chief Executive Officer
Anthony & Sylvan Pools Corporation
ROBERT F. URBAN
Retired
Executive Officers
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
General Information
INDEPENDENT
CERTIFIED ACCOUNTANTS
KPMG LLP
One Cleveland Center
1375 East Ninth Street
Suite 2600
Cleveland, Ohio 44114
GENERAL COUNSEL
Moriarty & Jaros, P.L.L.
30195 Chagrin Boulevard
Suite 110 North
Pepper Pike, Ohio 44124
TRANSFER AGENT AND REGISTRAR
Fifth Third Bank
Corporate Trust Services
Mail Drop 10AT66-3212
38 Fountain Square
Cincinnati, Ohio 45263
SPECIAL COUNSEL
Stradley Ronon Housley Kantarian & Bronstein, LLP
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
STOCK LISTING
NASDAQ Small-Cap Market
Symbol: PVFC
ANNUAL MEETING
The 2001 Annual Meeting of Stockholders will be held on October 22, 2001 at
10:00 a.m. at the Hilton Cleveland East, 3663 Park East Drive, Beachwood, 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, 2001 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.
56
[LOGO] PVF CAPITAL CORP.
Corporate Center
30000 Aurora Road
Solon, OH 44139
440-248-7171