Exhibit 13
[PHOTO]
[PVF CAPITAL CORP. LOGO]
------------------------
Annual Report - June 30, 2003
TABLE OF CONTENTS
-------------------------------------------------------------------
Letter to Shareholders 1
Park View Federal - A Family Tradition 3
Selected Consolidated Financial and Other Data 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Independent Auditors' Report 21
[PVF CAPITAL CORP. LOGO]
----------------------------------------------------------------------
TO OUR SHAREHOLDERS
We are pleased to report that PVF Capital Corp. achieved record
operating results for the year ended June 30, 2003. Earnings were $8.1
million, or $1.27 basic earnings per share and $1.25 diluted earnings
per share. Return on average assets was 1.15 percent and return on
average common equity was 14.60 percent for the year.
The Company's consolidated assets increased by $63.8 million, or 9.4
percent, to $743.4 million, while total stockholders' equity increased
by $6.3 million, or 12.0 percent, to $58.6 million at June 30, 2003.
In addition, the loan portfolio grew by $38.0 million, or 6.6 percent,
and deposits increased by $46.7 million, or 9.7 percent, for the year
ended June 30, 2003. During a challenging period of sharply declining
and historically low market interest rates, the Company was able to
improve its interest rate spread from 2.95 percent for the year ended
June 30, 2002 to 3.13 percent for the year ended June 30, 2003.
Due to the efforts of our branch personnel and a strong staff of
branch managers, we were able to close a record total of $646.2
million in mortgage loans for the year. In addition, the Company sold
$453.7 million in fixed-rate mortgage loans and recorded record net
profits of $4.9 million on mortgage banking activities for the year.
As a result of these sales, the Company was able to increase its
mortgage servicing portfolio by $122.4 million to $650.7 million.
In July and August 2002, Park View Federal successfully opened two new
full-service branch offices in Strongsville and Avon, Ohio.
Additionally, in the coming year, Park View Federal is planning to
further expand its branch network with the opening of a new
full-service branch office in Streetsboro, Ohio.
The reconfiguration and 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. We plan to continue our efforts to identify
new locations for the further expansion of our branch network.
Our stock repurchase program originally announced in June of 1999, to
purchase up to 5 percent of the Company's common stock, was expanded
in August 2002 to acquire up to an additional 5 percent of the
Company's common stock. This plan was renewed for another 12 months in
July 2003. Pursuant to this plan and our cash dividend policy, the
Company repurchased 343,519 shares, or 5.1 percent, of its common
stock through June 30, 2003 and paid a $0.296 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. In July 2003, the Company declared a 10 percent stock
dividend that was paid in August 2003.
We welcome a new member to our Board of Directors. Ronald D. Holman,
II is a partner in the law firm Cavitch, Familo, Durkin & Frutkin in
Cleveland, Ohio.
Visit our web site at www.parkviewfederal.com. The site provides
information about our products and services, and provides access to
current loan and deposit account rates, terms and other information.
Our goal is to provide a full line of home banking services to our
customers.
We would like to thank our shareholders, customers and staff for their
continued confidence, contributions and support in helping us achieve
yet another successful year.
We invite all shareholders to attend our Annual Meeting of
Stockholders of PVF Capital Corp. on Monday, October 20, 2003, at PVF
Capital Corp.'s Corporate Center, 30000 Aurora Road, Solon, Ohio. We
look forward to another successful year of service and dedication to
the community, its members, our shareholders and our customers.
Sincerely,
/s/ John R. Male
John R. Male
Chairman of the Board
and Chief Executive Officer
/s/ C. Keith Swaney
C. Keith Swaney
President
2
PARK VIEW FEDERAL - A FAMILY TRADITION
- --------------------------------------------------------------------------------
This past October 9, 2002 was a tremendously sad day for Park View Federal. It
marked the end of one employee's 57 years of dedicated service to the bank. It
was the day Chairman Emeritus James W. Male passed away.
Jim Male was the original driving force behind our bank. Born and raised in
Cleveland, Ohio, he was a 1943 graduate of Ohio University. In June of 1945, he
left to serve overseas in World War II. He returned home to Cleveland in October
of that same year, having earned the Bronze Star. A month later, he began
working for Park View Savings and Loan Association, the company founded in 1920
by his father, Nathan C. ("N.C.") Male.
N.C. Male had been one of a group of local merchants and businessmen who joined
together to form a community building and loan association at the corner of East
93rd Street and Kinsman Avenue in Cleveland. Because the location was near the
entrance to Woodland Hills Park, they chose the name Park View Savings and Loan
Association. The following year, a sale of stock was completed, and the new
institution opened its doors in 1921. The Board of Directors selected N.C. Male
as managing officer.
[PHOTO]
Under N.C.'s leadership, the company survived the Great Depression of the early
1930s, remained solvent, and acquired a federal charter and deposit insurance by
1936. Following the Depression, Park View Savings experienced a period of growth
and expansion through World War II and the postwar era.
When Jim Male joined Park View in November 1945, as a teller and management
trainee, the bank had one office, four employees and approximately
$1.5 million in total assets. After serving as a teller, Mr. Male held a variety
of other positions; in his words, "whatever became available." During that time
he also attended classes at night and earned his law degree from Cleveland
Marshall Law School in June of 1951.
In 1950, the company became a federal mutual savings and loan and changed its
name to Park View Federal Savings and Loan Association of Cleveland, Ohio. By
1954, Jim Male had risen to the office of Executive Vice President and acquired
the responsibility of operating the bank. Among his initial accomplishments was
the opening of two new branch offices. In 1960, Jim Male was elected managing
officer.
[PHOTO]
Over the next 20 years, Park View Federal continued to grow and prosper. During
those years, Jim Male's innovative and forward thinking led to the addition of
nine branch offices, including a new main office, and the development of new
products and services. Throughout this period, Park View set a precedent for
adopting new technologies, beginning with the introduction of the bank's first
in-house computer system in 1963. This was also the time when Mr. Male fostered
the tradition of personal and community-oriented service that the bank is known
for today.
3
PARK VIEW FEDERAL - A FAMILY TRADITION
- --------------------------------------------------------------------------------
The 1980s were a pivotal time for savings institutions. Like other area thrifts,
Park View had taken advantage of new and expanded regulations and had ventured
into new businesses and real estate developments. But deregulation soon led to
the S&L crisis of the late 1980s and forced the closing of many of the area's
thrift institutions. Park View remained open by taking tighter control, scaling
back its business operations, and trimming its branch offices from a high of 16
to 7 locations.
Throughout the 1990s, Park View returned to "its roots," honing its niche as a
real estate and construction lender. In 1994, the bank began to systematically
restructure and expand its branch office network, which was predominantly
located on the east side of Cleveland. Branches were closed, others were moved,
and new ones were opened all to better serve Park View's customers and to
attract new ones. In 1999, consolidations within the local banking community
presented Park View with opportunities to begin its expansion to the west side
of Cleveland.
Whether evolving and growing during prosperous times, or weathering through the
tough times to emerge ever stronger, with Jim Male's vision, tenacity, devotion
and tireless energy, Park View Federal became the successful company it is
today. His goals for Park View were, "to be the best real estate bank anywhere
and to do a good job for the customers, employees, and shareholders."
Jim Male was always happy to come to work, eager to see what challenges the day
had to offer. He had a remarkable way with people and thrived on helping them -
whether friends, families, or employees. He understood that people are a
company's greatest asset.
One of his most notable achievements was taking the company public on the NASDAQ
stock exchange on December 30, 1992, having raised the $8.5 million needed to
complete the IPO by December 21.
Two years later, on October 31, 1994, after shareholder approval, Park View
Federal Savings Bank reorganized its corporate structure into PVF Capital Corp.,
a unitary savings and loan holding company.
By the year 2000, accelerated growth spurred the need to consolidate internal
operations from two separate locations to one. For many years, it was Jim Male's
dream to house all of our administrative, corporate and executive offices "under
one roof." In September 2000, the bank acquired a four-story, 55,000 square-foot
office building in Solon, Ohio. Following a year of improvements, renovations
and updates to the building, Mr. Male achieved his dream with the opening of our
new Corporate Center, which now serves as headquarters for management and staff
of Park View Federal. The Corporate Center is also home to a full-service,
state-of-the-art branch. It was his last great accomplishment and one of which
he was most proud. So proud, that he commissioned a watercolor of the building
as it would appear in winter, and that image was developed into the company's
holiday greeting card.
[PHOTO]
Park View Federal
Corporate Center
4
- --------------------------------------------------------------------------------
For the past 83 years, the managing officer of Park View Federal has always been
a member of the Male family. The current Chief Executive Officer is John R.
Male, grandson of the first managing officer, N.C. Male. John "Jack" Male had
replaced his father, Jim, as President and Chief Operating Officer in July 1986.
And with Jim Male's retirement announced in October 2000, Jack was named
Chairman and Chief Executive Officer of Park View Federal Savings Bank and PVF
Capital Corp.
[PHOTO]
Jack Male remains committed to carry out his grandfather's, father's, and now
his vision for the future of the bank.
"At the close of this June 30, 2003, Park View Federal had reached assets of
$743.4 million, 15 branches and 198 employees. The restructuring and expansion
of our branch network has positively positioned the bank to compete effectively
within the rapidly changing financial services industry and has provided a
strong foundation for further growth. Our basic strategy remains to function as
a niche lender, providing customers a wide range of lending products,
collateralized by real estate, that may not be available to them at larger
banks. We remain optimistic about the future role of community banks and will
continue our efforts to identify new locations for the further growth of our
branch network. As we continue to grow, we remain committed to serving the
financial needs of our customers and pledge our continued efforts to provide the
best personal service to our customers, shareholders, and the communities we
serve.
My father considered himself a very lucky man who had a great life with no
regrets about anything. He would not want to be remembered with sadness. He
touched the lives of everyone at Park View and he will be remembered as the
happy, inspiring man who envisioned Park View Federal as it is today. This
annual report is dedicated to his memory."
Building on the Foundation of Service
-------------------------------------
[PHOTO] The New Streetsboro Branch Office
In the coming year, Park View Federal Savings Bank will open a full-service
branch office in the rapidly growing city of Streetsboro, Ohio in Portage
County.
This new 3,000 square-foot facility on Market Square Drive, just north of State
Route 14, will feature ample, convenient parking, drive-in banking facilities,
an ATM and a complete array of financial services for the community. The office
will be Park View's first office in the expanding Portage County market and will
bring the total of the bank's full-service branch office locations to sixteen.
Park View Federal prides itself on providing its customers superior service,
flexible lending programs, and a full range of deposit accounts and services.
Each of our branch managers is actively involved in the communities served.
5
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FINANCIAL CONDITION DATA:
At June 30,
--------------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------------
(dollars in thousands)
Total assets ......................................... $743,404 $679,620 $736,525 $612,986 $449,201
Loans receivable held for investment, net ............ 579,671 563,550 573,643 513,670 395,551
Loans receivable held for sale, net .................. 33,604 11,680 6,152 10,738 1,772
Mortgage-backed securities held for investment, net .. 2,965 7,297 18,124 1,215 2,951
Cash equivalents and securities ...................... 96,784 69,435 115,607 70,931 35,423
Deposits ............................................. 526,429 479,672 480,532 440,982 331,242
FHLB advances and notes payable ...................... 125,938 129,028 190,567 114,974 66,041
Stockholders' equity ................................. 58,603 52,299 48,006 42,900 38,856
Number of:
Real estate loans outstanding ........................ 4,778 4,484 4,431 4,160 3,527
Savings accounts ..................................... 32,081 30,223 30,567 28,915 24,346
Offices .............................................. 15 13 12 11 10
OPERATING DATA:
Year Ended June 30,
--------------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------------
(dollars in thousands except for earnings per share)
Interest income ...................................... $ 43,482 $ 48,814 $ 53,962 $ 42,026 $ 35,347
Interest expense ..................................... 20,646 27,060 34,118 23,972 19,863
-------- -------- -------- -------- --------
Net interest income
before provision for loan losses ................... 22,836 21,754 19,844 18,054 15,484
Provision for loan losses ............................ 0 558 225 850 0
-------- -------- -------- -------- --------
Net interest income
after provision for loan losses .................... 22,836 21,196 19,619 17,204 15,484
Non-interest income .................................. 5,893 3,751 2,600 2,681 5,435
Non-interest expense ................................. 16,509 14,139 12,218 10,410 9,649
-------- -------- -------- -------- --------
Income before federal income taxes ................... 12,220 10,808 10,001 9,475 11,270
Federal income taxes ................................. 4,124 3,635 3,365 3,365 3,163
-------- -------- -------- -------- --------
Net income ........................................... $ 8,096 $ 7,173 $ 6,636 $ 6,312 $ 7,719
======== ======== ======== ======== ========
Basic earnings per share(1) .......................... $ 1.27 $ 1.12 $ 1.05 $ 0.99 $ 1.20
======== ======== ======== ======== ========
Diluted earnings per share(1) ........................ $ 1.25 $ 1.09 $ 1.02 $ 0.96 $ 1.15
======== ======== ======== ======== ========
(1)Adjusted for stock dividends.
[PVF CAPITAL CORP. LOGO]
2003 Annual Report
6
OTHER DATA:
At or For the Year Ended June 30,
--------------------------------------------------------
2003 2002 2001 2000 1999
--------------------------------------------------------
Return on average assets ................ 1.15% 1.03% 1.00% 1.21% 1.77%
Return on average equity ................ 14.60% 14.19% 14.62% 15.45% 22.21%
Interest rate spread .................... 3.13% 2.95% 2.75% 3.21% 3.26%
Net interest margin ..................... 3.37% 3.26% 3.09% 3.59% 3.68%
Average interest-earning assets to
average interest-bearing liabilities .. 108.10% 107.64% 106.45% 107.98% 108.92%
Non-accruing loans (> 90 days) and
repossessed assets to total assets .... 1.06% 1.23% 0.91% 0.87% 0.85%
Stockholders' equity to total assets .... 7.88% 7.70% 6.52% 7.00% 8.65%
Ratio of average equity to
average assets ........................ 7.86% 7.24% 6.79% 7.80% 7.95%
Dividend payout ratio ................... 20.44% 21.42% 20.78% 21.77% 0.00%
BANK REGULATORY CAPITAL RATIOS:
Ratio of tangible capital to
adjusted total assets ................. 7.73% 7.88% 6.46% 6.68% 7.99%
Ratio of core capital to
adjusted total assets ................. 7.73% 7.88% 6.46% 6.68% 7.99%
Ratio of Tier-1 risk-based capital to
risk-weighted assets .................. 10.74% 10.84% 9.56% 9.24% 10.43%
Ratio of risk-based capital to
risk-weighted assets .................. 11.43% 11.63% 10.26% 10.00% 11.17%
[PVF CAPITAL CORP. LOGO]
2003 Annual Report
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
PVF Capital Corp. ("PVF" or the "Company") is the holding company for Park View
Federal Savings Bank ("Park View Federal" or the "Bank"), its principal and
wholly-owned subsidiary, and a federally chartered savings bank headquartered in
Solon, Ohio. Park View Federal has 15 offices located in Cleveland and
surrounding communities, including recently opened branches in Strongsville and
Avon, Ohio. An office in Streetsboro, Ohio will open later this year. The Bank's
principal business consists of attracting deposits from the general public
through its branch offices and investing these funds in loans secured by first
mortgages on real estate located in its market area, which consists of Cuyahoga,
Lake, Geauga, Portage, Summit, Stark, Medina, and Lorain Counties in Ohio. The
Bank has concentrated its activities on serving the borrowing needs of local
homeowners and builders in its market area by originating both fixed-rate and
adjustable-rate single-family mortgage loans, as well as construction loans,
commercial real estate loans, and multi-family residential real estate loans. In
addition, to a lesser extent, the Bank originates loans secured by second
mortgages, including equity line of credit loans secured by real estate, and non
real estate loans. Lending activities are influenced by the demand for and
supply of housing, competition among lenders, the level of interest rates, and
the availability of funds. Deposit flows and cost of funds are influenced by
prevailing market rates of interest, primarily on competing investments, account
maturities, and the level of personal income and savings in the market area.
FORWARD-LOOKING STATEMENTS
When used in this Annual Report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
OVERVIEW OF FINANCIAL CONDITION AT JUNE 30, 2003, 2002, AND 2001
PVF had total assets of $743.4 million, $679.6 million, and $736.5 million at
June 30, 2003, 2002, and 2001, respectively. The primary source of the Bank's
total assets has been its loan portfolio. Net loans receivable and
mortgage-backed securities totaled $616.2 million, $582.5 million, and $597.9
million at June 30, 2003, 2002, and 2001, respectively. The increase of $33.7
million in net loans and mortgage-backed securities at June 30, 2003 resulted
from an increase in loans receivable of $38.0 million offset by the repayment of
mortgage-backed securities of $4.3 million. The increase in loans receivable
resulted from increases of $7.0 million in one-to-four family residential loans,
$14.4 million in commercial real estate loans, $14.5 million in home equity line
of credit loans, $11.2 million in commercial equity line of credit loans, $2.8
million in land loans, and $3.3 million in non real estate loans. These
increases were offset by decreases of $12.7 million in construction loans and
$2.5 million in multi-family loans. Securities totaled $0.03 million, $55.1
million, and $50.2 million, and cash and cash equivalents totaled $96.8 million,
$14.3 million, and $65.4 million at June 30, 2003, 2002, and 2001, respectively.
The securities portfolio has been and will continue to be used primarily to meet
the liquidity requirements of the Bank in its deposit taking and lending
activities.
8
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 Federal Home Loan Bank ("FHLB") of Cincinnati. The entire
portfolio matures within five years or less, and the Bank has no plans to change
the short-term nature of its securities portfolio.
The Bank's deposits totaled $526.4 million, $479.7 million, and $480.5 million
at June 30, 2003, 2002, and 2001, respectively. Advances from the FHLB amounted
to $120.1 million, $120.7 million, and $185.9 million at June 30, 2003, 2002,
and 2001, respectively. Management's decision to repay FHLB advances and to
compete with market savings rates resulted in a decrease in FHLB advances of
$0.6 million and an increase in savings deposits of $46.7 million for the year
ended June 30, 2003.
Funds from the decrease of $55.1 million in securities, increases of $46.7
million in deposits, an increase of $13.3 million in accrued expenses and other
liabilities, and the increase in stockholders' equity of $6.3 million were used
to fund the increase of $33.7 million in net loans and mortgage-backed
securities, the increase of $82.4 million in cash and cash-equivalents, the
repayments of $2.5 million in notes payable, and $0.6 million in FHLB advances.
CAPITAL
PVF's stockholders' equity totaled $58.6 million, $52.3 million, and $48.0
million at the years ended June 30, 2003, 2002, and 2001, respectively. The
increases were the result of the retention of net earnings less cash dividends
paid and purchased treasury stock.
The Bank's primary regulator, The Office of Thrift Supervision ("OTS") has
implemented a statutory framework for capital requirements which establishes
five categories of capital strength ranging from "well capitalized" to
"critically undercapitalized." An institution's category depends upon its
capital level in relation to relevant capital measures, including two risk-based
capital measures, a tangible capital measure, and a core/leverage capital
measure. At June 30, 2003, 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
---------------------------------------------
GAAP capital $57,656 7.75% N/A
Tangible capital $57,548 7.73% N/A
Core capital $57,548 7.73% 5.00%
Tier-1 risk-based capital $57,548 10.74% 6.00%
Risk-based capital $61,196 11.43% 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 1999,
September 2000, August 2001, August 2002, and August 2003. As adjusted to
reflect all stock dividends and purchases of treasury stock, the Company had
6,374,489 shares of common stock outstanding and approximately 247 holders of
record of the common stock at September 9, 2003. 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
August 2002, the Company announced that it had implemented a new stock
repurchase program to acquire up to an additional 5 percent of the Company's
common stock. The stock repurchase program is dependent on market conditions
with no guarantee as to the exact number of shares to be repurchased. At June
30, 2003, as adjusted to reflect all stock dividends, the Company had acquired a
total of 343,519 shares, or 5.1 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. A
quarterly cash dividend of $0.072 per share, $0.074 per share, and $0.074 per
share was paid on the Company's outstanding common stock in fiscal 2001, 2002,
and 2003, respectively.
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
9
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 2003 Fiscal 2002
----------------------------------------------------
High Bid Low Bid High Bid Low Bid
------------------------- -------------------------
Fourth Quarter $ 13.41 $ 11.82 $ 10.95 $ 8.93
Third Quarter 13.01 10.91 9.23 8.26
Second Quarter 11.79 9.18 9.30 7.68
First Quarter 9.93 6.27 11.57 7.68
(1)Quotations reflect inter-dealer prices without retail mark-up, mark-down, or
commission, and may not represent actual transactions. Bid prices have been
adjusted to reflect the previously described stock dividends.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity measures its ability to fund loans and meet withdrawals
of deposits and other cash outflows in a cost-effective manner. The Company's
primary sources of funds for operations are deposits from its primary market
area, principal and interest payments on loans and mortgage-backed securities,
sales of loans 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, 2003, the Bank had
commitments to originate loans totaling $79.5 million and had $59.8 million of
undisbursed loans in process. Scheduled maturities of certificates of deposit
during the 12 months following June 30, 2003 totaled $249.3 million. Management
believes that a significant portion of the amounts maturing during fiscal 2004
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.
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 CHART]
12.4% Overnight Fed funds 2.0% Fixed-rate other mortgage loans
1.6% Non real estate loans 38.0% Adjustable-rate single-family mortgage loans
38.3% Adjustable-rate other 7.3% Fixed-rate single-family mortgage loans
mortgage loans 0.4% Adjustable-rate mortgage-backed securities
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
10
PROFILE OF INTEREST SENSITIVE LIABILITIES
18.8% FHLB Advances over 13 months 38.9% CDs 12 months or less
1.3% Other borrowings 60 months or less 2.1% CDs 25 to 36 months
10.4% Transaction accounts 18.1% CDs 13 to 24 months
6.7% Passbook accounts
3.7% CDs over 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, 2003 and
2002. 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, 2003 June 30, 2002
----------------------------------- --------------------------------------
Change in Market Value of Dollar NPV Market Value of Dollar NPV
Interest Rates Portfolio Equity Change Ratio Portfolio Equity Change Ratio
-------------- ---------------- ------ ----- ---------------- ------ -----
+2% $ 71,763 $ 6,455 9.37% $ 74,641 $ 678 10.67%
+1% 68,847 3,539 8.95 75,347 1,384 10.71
0 65,308 8.46 73,963 10.46
-1% 59,358 (5,950) 7.66 70,065 (3,897) 9.88
-2% N/A N/A N/A N/A N/A N/A
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
11
The table illustrates that for June 30, 2002 and June 30, 2003, in the event of
an immediate and sustained increase in prevailing market interest rates, the
Bank's NPV ratio would be expected to increase, while in the event of an
immediate and sustained decrease in prevailing market rates, the Bank's NPV
ratio would be expected to decrease. 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, 2003, the
Bank's estimated changes in NPV ratio were within the targets established by the
Board of Directors in the event of an immediate and sustained increase in
prevailing market interest rates, but exceeded Board-approved target levels in
a decreasing interest rate environment. The Bank's interest rate risk ("IRR")
position currently exceeds Board-approved target levels in a decreasing interest
rate environment because of the maturity and repricing characteristics of assets
and liabilities. The balance sheet is primarily comprised of interest-earning
assets having a maturity and repricing period of from one month 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, 2003 and
2002, 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, 2003. The table indicates that the Bank's one year and under ratio
of cumulative gap to total assets is a positive 29.7 percent, one-to-three year
ratio of cumulative gap to total assets is a positive 17.1 percent, and
three-to-five year ratio of cumulative gap to total assets is a positive 23.4
percent. The positive gap position of the Bank is consistent with the change in
the Bank's NPV ratio to an immediate and sustained 1 and 2 percent increase and
a 1 percent decrease in market interest rates.
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
12
Within 1-3 3-5 Greater Than 5
(dollars in thousands) 1 Year Years Years Years Total
- ------------------------------------------------------------------------------------------------------------------
Total interest-rate-sensitive assets ...... $ 456,053 $ 110,204 $ 91,399 $ 45,613 $ 703,269
Total interest-rate-sensitive liabilities.. 254,216 195,742 48,898 141,919 640,775
Periodic GAP .............................. 201,837 (85,538) 42,501 (96,306) 62,494
Cumulative GAP ............................ 201,837 116,299 158,800 62,494
Ratio of cumulative GAP to total assets ... 29.7% 17.1% 23.4% 9.2%
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
including commitments to originate new loans, commitments to extend credit under
existing lines of credit and commitments to sell loans. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheet.
Off-balance sheet financial instruments whose contract amounts represent credit
and interest rate risk are summarized as follows:
June 30,
------------------------
(dollars in thousands) 2003 2002
------- --------
Commitments to originate:
Mortgage loans held for sale $66,782 $30,247
Mortgage loans held for investment 12,669 14,173
Unfunded home equity and
commercial real estate lines of credit 68,445 53,882
Commitments to sell loans held for sale 89,630 25,733
Standby letters of credit 1,417 519
Commitments to originate new loans or to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Loan commitments generally expire within 30 to 60
days. Most home equity line of credit commitments are for a term of five years,
and commercial real estate lines of credit are generally renewable every two
years. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the borrower.
Commitments to sell loans held for sale are agreements to sell loans to a third
party at an agreed-upon price. At June 30, 2003, the agreed-upon price of these
commitments exceeded the book value of loans to be sold. The fair value of
commitments to originate mortgage loans held for sale and commitments to sell
loans held for sale at June 30, 2003 was not considered material.
The following table presents as of June 30, 2003, PVF Capital Corp.'s
significant fixed and determinable contractual obligations by payment date. The
payment amounts represent those amounts contractually due to the recipient and
do not include any unamortized premiums or discounts or other similar carrying
value adjustments. Further discussion of the nature of each obligation is
included in the referenced note to the consolidated financial statements.
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
13
Contractual Obligations:
Note Within 1-3 3-5 Greater Than 5
(dollars in thousands) Reference 1 Year Years Years Years Total
- ---------------------------------------------------------------------------------------------------------------------
Deposits without a stated maturity ..... 7 $124,263 -- -- -- $124,263
Certificates of deposit ................ 7 249,316 129,493 23,357 -- 402,166
Advances from the FHLB of Cincinnati ... 8 42 81 20,000 100,000 120,123
Notes payable .......................... 9 79 2,678 3,058 -- 5,815
Operating leases ....................... 11 581 839 714 702 2,836
RESULTS OF OPERATIONS
GENERAL
PVF Capital Corp.'s net income for the year ended June 30, 2003 was $8.1
million, or $1.27 basic earnings per share and $1.25 diluted earnings per share
as compared to $7.2 million, or $1.12 basic earnings per share and $1.09 diluted
earnings per share for fiscal 2002, and $6.6 million, or $1.05 basic earnings
per share and $1.02 diluted earnings per share for fiscal 2001. All per share
amounts have been adjusted for stock dividends.
Net income for the current year increased by $0.9 million from the prior fiscal
year and was $1.5 million greater than net income for fiscal 2001.
NET INTEREST INCOME
Net interest income amounted to $22.8 million for the year ended June 30, 2003,
as compared to $21.8 million and $19.8 million for the years ended June 30, 2002
and 2001, 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.
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.
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
14
Table 1 AVERAGE BALANCES, INTEREST, AND AVERAGE YIELDS AND RATES
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001
---------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $601,122 $ 40,690 6.77% $581,812 $ 44,323 7.62% $551,424 $ 48,101 8.72%
Mortgage-backed securities 4,705 285 6.06 11,662 719 6.17 16,059 1,189 7.40
Securities and other interest-earning assets 70,861 2,507 3.54 73,588 3,772 5.13 74,046 4,672 6.31
-------- -------- -------- -------- -------- --------
Total interest-earning assets 676,688 43,482 6.43 667,062 48,814 7.32 641,529 53,962 8.41
-------- -------- --------
Non-interest-earning assets 27,709 30,112 26,786
-------- -------- --------
Total assets $704,397 $697,174 $668,315
======== ======== ========
Interest-bearing liabilities:
Deposits $496,910 $ 15,170 3.05 $471,320 $ 20,995 4.45 $480,692 $ 27,080 5.63
FHLB advances 122,034 5,205 4.27 142,820 5,824 4.08 117,624 6,682 5.68
Notes payable 7,060 271 3.84 5,600 241 4.30 4,331 356 8.22
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 626,004 20,646 3.30 619,740 27,060 4.37 602,647 34,118 5.66
-------- ---- -------- ---- -------- ----
Non-interest-bearing liabilities 23,031 26,947 20,267
-------- -------- --------
Total liabilities 649,035 646,687 622,914
Stockholders' equity 55,362 50,487 45,401
-------- -------- --------
Total liabilities and stockholders' equity $704,397 $697,174 $668,315
======== ======== ========
Net interest income $ 22,836 $ 21,754 $ 19,844
======== ======== ========
Interest rate spread 3.13% 2.95% 2.75%
==== ==== ====
Net yield on interest-earning assets 3.37% 3.26% 3.09%
==== ==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 108.10% 107.64% 106.45%
======== ======== ========
As is evidenced by these tables, interest rate changes had a positive effect on
the Bank's net interest income for the years ended June 30, 2003 and June 30,
2002. 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, 2003 and June 30, 2002, the Bank
experienced an increase of 18 basis points in its interest rate spread to 3.13
percent for fiscal 2003 from 2.95 percent for fiscal 2002, and during fiscal
2002 its interest rate spread increased 20 basis points from 2.75 percent for
fiscal 2001. These changes in interest rate spread contributed to an increase in
net interest income for the year ended June 30, 2003 of $0.5 million, and an
increase in net interest income for the year ended June 30, 2002 of $0.5 million
due to interest rate changes.
Net interest income was favorably affected by volume changes during the years
ended June 30, 2003 and 2002. Accordingly, net interest income grew by $0.6
million and $1.4 million due to volume changes for the years ended June 30, 2003
and 2002, respectively.
The rate/volume analysis illustrates the effect that volatile interest rate
environments can have on a financial institution. A flattening yield curve will
typically have a negative effect on net interest income, while a steepening
yield curve will typically have a positive effect on net interest income.
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
15
Table 2 YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
2003 vs. 2002 2002 vs. 2001
--------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------------------- ----------------------------------
(dollars in thousands) Volume Rate Total Volume Rate Total
--------------------------------- ----------------------------------
Interest income:
Loans ........................................ $ 1,471 $(5,103) $(3,632) $ 2,315 $(6,093) $(3,778)
Mortgage-backed securities ................... (429) (5) (434) (271) (199) (470)
Securities and other interest-earning assets . (97) (1,169) (1,266) (23) (877) (900)
------- ------- ------- ------- ------- -------
Total interest-earning assets .............. 945 (6,277) (5,332) 2,021 (7,169) (5,148)
------- ------- ------- ------- ------- -------
Interest expense:
Deposits ..................................... 1,140 (6,965) (5,825) (417) (5,667) (6,084)
FHLB advances ................................ (848) (228) (620) 1,028 (1,886) (858)
Notes payable ................................ 63 (32) 31 54 (170) (116)
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities ......... 355 (6,769) (6,414) 665 (7,723) (7,058)
------- ------- ------- ------- ------- -------
Net interest income ............................ $ 590 $ 492 $ 1,082 $ 1,356 $ 554 $ 1,910
======= ======= ======= ======= ======= =======
PROVISION FOR LOAN LOSSES
The Bank carefully monitors its loan portfolio and establishes levels of general
and specific reserves for loan losses. Provisions for loan losses are charged to
earnings to bring the total 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 general 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, 2002, 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.
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
16
During 2003, the Bank experienced growth in the loan portfolio of $38.0 million,
or 6.6 percent, while substantially maintaining the composition of the loan
portfolio. In addition, the level of impaired loans decreased from $13.0 million
to $12.8 million, while the specific allowance related to impaired loans
increased from $30,000 to $235,000. The decrease in the level of impaired loans
to total loans caused the percentage of allowance for loan losses to impaired
loans to increase from 30 to 31 percent. Net charge-offs decreased from $176,000
in 2002 to $19,000 in 2003. Therefore, taking into consideration the growth of
the portfolio, the level of impaired loans, as well as net charge-offs and the
overall performance of the loan portfolio, the Bank provided no additional
provision and maintained the allowance at a level deemed appropriate of $3.9
million.
During 2002, the Bank experienced a decline in the loan portfolio of $4.6
million, or 0.8 percent, while substantially maintaining the composition of the
loan portfolio. In addition, the level of impaired loans increased from $5.4
million to $13.0 million, while the specific allowance related to impaired loans
increased from $25,000 to $30,000. The increase in the level of impaired loans
to total loans caused the percentage of allowance for loan losses to impaired
loans to decrease from 65 to 30 percent. Net charge-offs increased from $93,000
in 2001 to $176,000 in 2002. Therefore, taking into consideration the higher
level of impaired loans, as well as the higher level of net charge-offs and the
overall performance of the loan portfolio, the Bank provided $558,000 of
additional provision to increase the allowance to a level deemed appropriate of
$3.9 million.
NON-INTEREST INCOME
Non-interest income amounted to $5.9 million, $3.8 million, and $2.6 million for
the years ended June 30, 2003, 2002, and 2001, 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 $4.9 million,
$3.0 million, and $1.1 million for the years ended June 30, 2003, 2002, and
2001, respectively. The increases in income from mortgage banking activities of
$1.9 million from the year ended June 30, 2001 to 2002, and from the year ended
June 30, 2002 to 2003, is primarily due to an increase in net profit realized on
the sale of loans. The results of operations from mortgage banking activity are
attributable in large part to historically low market interest rates and are not
necessarily indicative of expected future results. Other non-interest income
amounted to $971,000, $766,000, and $1,164,000 for the years ended June 30,
2003, 2002, and 2001, respectively. The decrease in other non-interest income of
$398,000 from the year ended June 30, 2001 to June 30, 2002 is attributable to a
decline in rental income in 2002. The increase in other non-interest income of
$205,000 from the year ended June 30, 2002 to June 30, 2003 is primarily due to
an increase in loan prepayment fee and late charge fee income. 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 $16.5 million, $14.1 million, and $12.2 million
for the years ended June 30, 2003, 2002, and 2001, respectively. The principal
component of non-interest expense is compensation and related benefits which
amounted to $8.7 million, $7.6 million, and $6.5 million for the years ended
June 30, 2003, 2002, and 2001, respectively. The increase in compensation for
the years ended June 30, 2002 and 2001 is due primarily to growth in the staff,
employee 401K benefits, a compensation incentive plan for management, and
inflationary salary and wage adjustments to employees. Office occupancy totaled
$3.2 million, $2.8 million, and $2.6 million for the years ended June 30, 2003,
2002, and 2001, respectively. The increased occupancy expense is attributable to
the cost of our Corporate Center in Solon, Ohio, maintenance and repairs to
office buildings, and the cost of opening and operating additional branch
offices. Other non-interest expense totaled $4.6 million, $3.7 million, and $3.1
million for the years ended June 30, 2003, 2002, and 2001, respectively. Changes
[PVC CAPITAL CORP. LOGO]
2003 Annual Report
17
in other non-interest expense are primarily the result of advertising,
professional and legal services, insurance expenses, outside services, and
franchise tax expense.
FEDERAL INCOME TAXES
The Company's federal income tax expense was $4.1 million, $3.6 million, and
$3.4 million for the years ended June 30, 2003, 2002, and 2001, respectively.
Due to the availability of tax credits for the years ended June 30, 2002, 2001,
and 2000, 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 percent for the years ended June 30, 2003, 2002, and 2001,
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."
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting and reporting policies of PVF Capital Corp. are in accordance
with accounting principles generally accepted within the United States of
America and conform to general practices within the banking industry.
Application of these principles requires management to make estimates,
assumptions and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions and judgments
are based on information available as of the date of the financial statements.
Accordingly, as this information changes, the financial statements could reflect
different estimates, assumptions and judgments.
The most significant accounting policies followed by PVF Capital Corp. are
presented in Note 1 to the consolidated financial statements. Accounting and
reporting policies for the allowance for loan losses and mortgage servicing
rights are deemed critical since they involve the use of estimates and require
significant management judgments. PVF Capital Corp. provides further detail on
the methodology and reporting of the allowance for loan losses in Note 4 and
mortgage servicing rights in Note 5.
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently issued two new
accounting standards, Statement 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities," and Statement 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equities,"
both of which generally become effective in the quarter beginning July 1, 2003.
Management determined that adoption of the new standards will not materially
affect the Company's operating results or financial condition.
[PVC CAPITAL CORP. LOGO]
18
[PARK VIEW FEDERAL LOGO]
- --------------------------------------------------------------------------------
Office Locations and Hours
Office Locations and Hours
--------------------------
AVON OFFICE NORTH ROYALTON OFFICE BEACHWOOD OFFICE SHAKER HEIGHTS OFFICE
36311 Detroit Road 13901 Ridge Road La Place Shaker Towne Centre
Avon, Ohio 44011 North Royalton, Ohio 44133 2111 Richmond Road 16909 Chagrin Blvd.
440-934-3580 440-582-7417 Beachwood, Ohio 44122 Shaker Hts., Ohio 44120
216-831-6373 216-283-4003
BAINBRIDGE OFFICE SOLON OFFICE
8500 Washington Street Solar Shopping Center LAKEWOOD-CLEVELAND OFFICE LOBBY
Chagrin Falls, Ohio 44023 34400 Aurora Road 11010 Clifton Blvd. MON., TUES., WED., THURS.:
440-543-8889 Solon, Ohio 44139 Cleveland, Ohio 44102 9:00 am - 4:30 pm
440-542-6070 216-631-8900 FRIDAY: 9:00 am - 6:00 pm
BEDFORD OFFICE SATURDAY: 9:00 am - 1:00 pm
413 Northfield Road STRONGSVILLE OFFICE LOBBY
Bedford, Ohio 44146 17780 Pearl Road MON., TUES., THURS.:
440-439-2200 Strongsville, Ohio 44136 9:00 am - 4:30 pm
440-878-6010 FRIDAY: 9:00 am - 5:30 pm CORPORATE CENTER OFFICE
CHARDON OFFICE SATURDAY: 9:00 am - 1:00 pm 30000 Aurora Road
408 Water Street LOBBY CLOSED WEDNESDAY Solon, Ohio 44139
Chardon, Ohio 44024 MON., TUES., WED., THURS.: 440-914-3900
440-285-2343 9:00 am - 4:30 pm AUTO TELLER
FRIDAY: 9:00 am - 5:30 pm MON., TUES., THURS.:
SATURDAY: 9:00 am - 1:00 pm 9:00 am - 5:00 pm LOBBY & AUTO TELLER
MACEDONIA OFFICE FRIDAY: 9:00 am - 6:00 pm MONDAY - FRIDAY:
497 East Aurora Road SATURDAY: 9:00 am - 1:00 pm 9:00 am - 5:00 pm
Macedonia, Ohio 44056 AUTO TELLER CLOSED WEDNESDAY CLOSED SATURDAY
330-468-0055 MON., TUES., WED., THURS.:
9:00 am - 5:00 pm
MAYFIELD HEIGHTS OFFICE FRIDAY: 9:00 am - 6:00 pm
1456 SOM Center Road SATURDAY: 9:00 am - 1:00 pm
Mayfield Hts., Ohio 44124
440-449-8597
MEDINA OFFICE
Reserve Square
3613 Medina Road
Medina, Ohio 44256
330-721-7484
MENTOR OFFICE
Heisley Corners
6990 Heisley Road
Mentor, Ohio 44060
440-944-0276
19
[PARK VIEW FEDERAL LOGO]
- --------------------------------------------------------------------------------
Board of Directors Officers
Board of Directors Officers
- --------------------------------- ----------------------------------
JOHN R. MALE JOHN R. MALE
Chairman of the Board and Chairman of the Board and
Chief Executive Officer Chief Executive Officer
C. KEITH SWANEY C. KEITH SWANEY
President, Chief Operating Officer President, Chief Operating Officer
and Chief Financial Officer and Chief Financial Officer
GERALD A. FALLON JEFFREY N. MALE
Retired Executive Vice President
ROBERT K. HEALEY ANNE M. JOHNSON
Retired Senior Vice President
Operations
RONALD D. HOLMAN, II
Partner CAROL S. PORTER
Cavitch, Familo, Durkin & Frutkin Corporate Secretary and
Marketing Director
STANLEY T. JAROS
Partner EDWARD B. DEBEVEC
Moriarty & Jaros, P.L.L. Treasurer
RAYMOND J. NEGRELLI MARK E. FOSNAUGHT
President Vice President
Raymond J. Negrelli, Inc. Branch Coordinator
STUART D. NEIDUS WILLIAM J. HARR, JR.
Chairman and Vice President
Chief Executive Officer
Anthony & Sylvan Pools Corporation 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
20
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PVF Capital Corp.
Solon, Ohio
We have audited the accompanying consolidated statements of financial condition
of PVF Capital Corp. (Company) as of June 30, 2003 and 2002, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 2003 and 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The 2001 financial
statements were audited by other auditors, whose report dated July 27, 2001
expressed on unqualified opinion on those statements.
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. as
of June 30, 2003 and 2002, and the results of its operations and its cash flows
for the years ended June 30, 2003 and 2002 in conformity with accounting
principles generally accepted in the United States of America.
Crowe, Chizek and Company, LLP
Cleveland, Ohio
August 1, 2003
21
PVF CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Years ended June 30, 2003 and 2002
ASSETS 2003 2002
---- ----
Cash and amounts due from depository institutions $ 9,755,224 $ 4,526,976
Interest bearing deposits 3,946,019 1,736,712
Federal funds sold 83,050,000 8,050,000
------------- -------------
Cash and cash equivalents 96,751,243 14,313,688
Securities held to maturity (fair value 2003-
$33,252, 2002-$55,751,561) 33,252 55,121,211
Mortgage-backed securities held to maturity (fair value 2003-
$3,032,385, 2002-$7,500,739) 2,964,798 7,297,206
Loans receivable held for sale, net 33,603,895 11,679,735
Loans receivable, net of allowance of
$3,882,839 and $3,901,839 579,670,681 563,550,556
Office properties and equipment, net 11,555,919 9,817,348
Real estate owned 448,865 564,316
Federal Home Loan Bank stock 10,396,399 9,947,624
Prepaid expenses and other assets 7,978,751 7,328,431
------------- -------------
Total assets $ 743,403,803 $ 679,620,115
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 526,428,927 $ 479,672,218
Advances from the Federal Home Loan Bank of Cincinnati 120,123,220 120,739,695
Notes payable 5,815,150 8,288,020
Advances from borrowers for taxes and insurance 7,964,653 7,320,613
Accrued expenses and other liabilities 24,468,717 11,300,991
------------- -------------
Total liabilities 684,800,667 627,321,537
------------- -------------
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;
6,717,283 and 6,064,809 shares issued, respectively 67,173 60,648
Additional paid-in capital 47,176,696 37,412,482
Retained earnings 14,486,460 17,627,665
Treasury stock, at cost, 343,519 and 286,276 shares, respectively (3,127,193) (2,802,217)
------------- -------------
Total stockholders' equity 58,603,136 52,298,578
------------- -------------
Total liabilities and stockholders' equity $ 743,403,803 $ 679,620,115
============= =============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
PVF CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 2003, 2002 and 2001
2003 2002 2001
----------- ----------- -----------
Interest income:
Loans $40,690,675 $44,322,897 $48,100,662
Mortgage-backed securities 285,167 719,321 1,189,468
Cash and securities 2,506,855 3,772,463 4,671,814
----------- ----------- -----------
Total interest income 43,482,697 48,814,681 53,961,944
----------- ----------- -----------
Interest expense:
Deposits 15,169,502 20,995,003 27,079,731
Borrowings 5,476,773 6,065,389 7,038,219
----------- ----------- -----------
Total interest expense 20,646,275 27,060,392 34,117,950
----------- ----------- -----------
Net interest income 22,836,422 21,754,289 19,843,994
Provision for loan losses -- 558,000 225,000
----------- ----------- -----------
Net interest income after
provision for loan losses 22,836,422 21,196,289 19,618,994
----------- ----------- -----------
Noninterest income:
Service and other fees 743,877 625,631 562,613
Mortgage banking activities, net 4,922,069 2,985,424 1,134,505
Gain on sale of real estate -- -- 300,790
Rental income -- -- 270,528
Other, net 227,057 139,913 331,150
----------- ----------- -----------
Total noninterest income 5,893,003 3,750,968 2,599,586
----------- ----------- -----------
Noninterest expense:
Compensation and benefits 8,694,397 7,643,251 6,493,661
Office, occupancy, and equipment 3,151,956 2,758,158 2,586,580
Insurance 262,366 226,511 208,279
Professional and legal 518,648 425,185 344,849
Advertising 499,438 368,775 256,244
Outside services 857,050 520,181 355,626
Franchise tax 647,890 581,990 496,338
Other 1,877,460 1,614,584 1,475,833
----------- ----------- -----------
Total noninterest expense 16,509,205 14,138,635 12,217,410
----------- ----------- -----------
Income before federal income taxes 12,220,220 10,808,622 10,001,170
Federal income taxes:
Current 3,966,092 3,431,586 3,128,578
Deferred 157,672 203,727 236,714
----------- ----------- -----------
4,123,764 3,635,313 3,365,292
----------- ----------- -----------
Net income $ 8,096,456 $ 7,173,309 $ 6,635,878
=========== =========== ===========
Basic earnings per share $ 1.27 $ 1.12 $ 1.05
=========== =========== ===========
Diluted earnings per share $ 1.25 $ 1.09 $ 1.02
=========== =========== ===========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
PVF CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 2003, 2002 and 2001
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
----- ------- -------- ----- -----
Balance at June 30, 2000 $ 48,333 24,784,942 19,039,966 (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, 485,730 shares 4,857 6,523,354 (6,528,211) -- --
Cash dividend, $0.292 per share -- -- (1,376,934) -- (1,376,934)
Purchase of 21,488 shares of
Treasury stock -- -- (189,437) (189,437)
----------- ---------- ---------- ---------- ----------
Balance at June 30, 2001 53,394 31,346,497 17,768,859 (1,162,615) 48,006,135
Net income -- -- 7,173,309 7,173,309
Stock options exercised, 173,492
shares 1,735 293,425 -- -- 295,160
Cash paid in lieu of fractional shares -- -- (2,869) (2,869)
Stock dividend issued, 551,870
shares 5,519 5,772,560 (5,778,079) -- --
Cash dividend, $0.296 per share -- -- (1,533,555) (1,533,555)
Purchase of 136,395 shares of
Treasury stock -- -- -- (1,639,602) (1,639,602)
----------- ---------- ---------- ---------- ----------
Balance at June 30, 2002 60,648 37,412,482 17,627,665 (2,802,217) 52,298,578
Net income 8,096,456 -- 8,096,456
Stock options exercised, 41,909 shares 419 187,502 -- -- 187,921
Cash paid in lieu of fractional shares -- (2,159) -- (2,159)
Stock dividend issued, 610,565 shares 6,106 9,576,712 (9,582,818) -- --
Cash dividend, $0.296 per share -- (1,652,684) -- (1,652,684)
Purchase of 28,615 shares of
Treasury stock -- -- -- (324,976) (324,976)
----------- ---------- ---------- ---------- ----------
Balance at June 30, 2003 $ 67,173 47,176,696 14,486,460 (3,127,193) 58,603,136
=========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
24
PVF CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
2003 2002 2001
----------- ----------- -----------
Operating activities:
Net income $ 8,096,456 7,173,309 6,635,878
Adjustments required to reconcile net
income to net cash provided by (used in)
operating activities:
Accretion of discount on securities - - (618,845)
Depreciation 1,407,503 1,060,530 710,375
Provision for loan losses - 558,000 225,000
Accretion of unearned discount and
deferred loan origination fees, net (1,244,214) (1,130,822) (1,132,931)
FHLB stock dividends (448,775) (505,319) (525,378)
Deferred income tax provision (157,672) (203,727) (236,714)
Proceeds from loans held for sale 460,462,639 295,706,407 106,047,642
Originations of loans held for sale (475,659,784) (301,234,328) (101,461,735)
Gain on the sale of loans, net (6,727,015) (2,981,311) (633,362)
Net change in other assets and other liabilities 12,726,270 (1,213,531) 4,356,135
----------- ----------- -----------
Net cash from operating activities (1,544,592) (2,770,792) 13,366,065
----------- ----------- -----------
Investing activities:
Loans originated (177,261,741) (135,864,877) (226,319,550)
Principal repayments on loans 162,351,576 149,065,323 147,331,835
Principal repayments on mortgage-backed
securities held to maturity 4,366,663 10,918,228 3,926,715
Purchase of mortgage-backed securities held to maturity - - (977,611)
Purchase of securities held to maturity (30,000,000) (55,000,000) (99,918,836)
Maturities and calls of securities held to maturity 85,087,959 50,090,394 115,584,929
Federal Home Loan Bank (FHLB) stock purchased, net - - (3,075,700)
Additions to office properties and equipment (3,146,074) (3,094,421) (6,636,488)
Disposals of real estate owned 114,259 353,100 740,442
(Additions) disposal of real estate held for
investment, net (50,000) (350,000) 2,794,020
----------- ----------- -----------
Net cash from investing activities 41,462,642 16,117,747 (66,550,244)
----------- ----------- -----------
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
25
PVF CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
2003 2002 2001
---- ---- ----
Financing activities:
Payments on FHLB advances (10,616,476) (183,127,160) (89,106,985)
Proceeds from FHLB advances 10,000,000 118,000,000 160,000,000
Proceeds from notes payable - 6,650,000 4,700,000
Repayment of notes payable (2,472,870) (3,061,980) (1,000,000)
Net increase in NOW and passbook savings 16,190,703 23,728,050 2,913,422
Proceeds from issuance of certificates of deposit 135,463,914 88,664,759 124,038,791
Payments on maturing certificates of deposit (104,897,908) (113,252,740) (87,401,922)
Net increase in advances from borrowers 644,040 851,552 293,943
Payment of cash dividend (1,654,844) (1,536,424) (1,378,774)
Purchase of Treasury stock (324,975) (1,639,602) (189,437)
Other 187,921 295,160 38,404
------------- ---------- ----------
Net cash from financing activities 42,519,505 (64,428,385) 112,907,442
------------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 82,437,555 (51,081,430) 59,723,263
Cash and cash equivalents at beginning of year 14,313,688 65,395,118 5,671,855
------------- ---------- ----------
Cash and cash equivalents at end of year $ 96,751,243 14,313,688 65,395,118
============= ========== ==========
Supplemental disclosures of cash flow information:
Cash payments of interest $ 20,733,040 28,600,682 32,577,423
Cash payments of income taxes 4,020,000 2,825,000 3,399,482
Supplemental schedule of noncash investing and
financing activities:
Transfers to real estate owned $ - 355,132 742,981
Loans securitized into mortgage-backed securities - - 16,400,000
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
26
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
The accounting and reporting policies of PVF Capital Corp. and its subsidiaries
(Company) conform to accounting principles generally accepted in the United
States of America 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 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.
Principles of Consolidation. The consolidated financial statements include the
accounts of PVF Capital Corp., and its wholly owned subsidiaries, Park View
Federal Savings Bank, PVF Service Corporation (PVFSC), PVF Holding, Inc., and
Mid-Pines Land Co. PVFSC owns some bank premises and leases them to the bank.
PVF Holding Inc. and Mid Pines Land Co. did not have any significant assets or
activity as of or for the years ended June 30, 2003 or 2002. All significant
intercompany transactions and balances are eliminated in consolidation.
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. The allowance for loan losses and fair value of financial
instruments are particularly subject to change.
Allowance for Loan Losses. A loan is considered impaired when, based on current
information and events, it is probable that the Bank will be unable to collect
the scheduled payments of principal and interest according to the contractual
terms of the loan agreement. Since the Bank's loans are primarily 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
incurred 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.
Allocations of the allowance
- --------------------------------------------------------------------------------
(Continued)
27
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(Continued)
may be made for specific loans, but the entire allowance is available for any
loan that, in management's judgment, should be charged-off. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is confirmed. 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. Uncollectable 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.
Mortgage Banking Activities. Mortgage loans held for sale are carried at the
lower of cost or fair 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.
Investment and Mortgage-Backed Securities. The Company classifies all securities
as held to maturity. Securities held to maturity are limited to debt securities
that the Company has the positive intent and the ability to hold to maturity;
these securities are reported at amortized cost. Investment and mortgage-backed
securities that could be sold in the future because of changes in interest rates
or other factors are not to be classified as held to maturity. Other securities
such as Federal Home Loan Bank stock are carried at cost.
Gains or losses on the sales or call of all securities are recognized at the
date of sale or call (trade date). Premiums and discounts are amortized or
accreted over the life of the related security as an adjustment to yield.
Dividends and interest income are recognized when earned.
- --------------------------------------------------------------------------------
(Continued)
28
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(Continued)
A decline in fair value of any held to maturity security below cost that is
deemed other than temporary is charged to earnings resulting in establishment of
a new cost basis for the security.
Loans Receivable: Loans that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses.
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. Estimated lives range from one
to forty years. Land is carried at cost.
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.
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.
Real Estate Owned. Real estate owned is carried at the lower of cost or fair
value less estimated selling costs. If Fair values decline, a valuation
allowance is recorded through expense. Costs after acquisition are expensed.
Long-Term Assets. Office properties and equipment and other long-term assets are
reviewed for impairment when events indicate their carrying amount may not be
recoverable from future undiscounted cash flows. If impaired, the assets are
recorded at fair value.
- --------------------------------------------------------------------------------
(Continued)
29
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(Continued)
Statements of Cash Flows. For purposes of the consolidated statements of cash
flows, the Company considers cash and amounts due from depository institutions,
interest bearing deposits, and federal funds sold with original maturities of
less than three months to be cash equivalents. Net cash flows are reported for
NOW and passbook savings accounts, and advances from borrowers.
Stock Compensation. Employee compensation expense under stock option plans is
reported if options are granted below market price at grant date. No stock-based
compensation cost is reflected in net income, as all options granted had an
exercise price equal to or greater than the market price of the underlying stock
at the date of grant. The following table illustrates the effect on net income
and earnings per share if expense was measured using the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.
2003 2002 2001
---- ---- ----
Net income as reported $ 8,096,456 7,173,309 6,635,878
Deduct: Stock-based compensation expense $ 124,135 104,521 129,146
determined under fair value based method $ 7,972,321 7,068,788 6,506,732
Pro forma net income
Basic earnings per share as reported $ 1.27 1.12 1.05
Pro forma basic earnings per share $ 1.25 1.11 1.03
Diluted earnings per share as reported $ 1.25 1.09 1.02
Pro forma diluted earnings per share $ 1.23 1.08 1.00
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
2003 2002 2001
---- ---- ----
Risk-free interest rate 3.50% 4.73% 5.71%
Expected option life 7 years 7 years 7 years
Expected stock price volatility 35.00% 37.00% 30.00%
Dividend yield 2.50% 2.73% 2.00%
- --------------------------------------------------------------------------------
(Continued)
30
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(Continued)
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 2003, 2002 and 2001 are adjusted to reflect the 10% stock
dividends declared July 2003, July 2002 and July 2001.
Loss Contingencies. Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Off Balance Sheet Financial Instruments: Financial instruments include
off-balance sheet credit instruments, such as commitments to make loans issued
to meet customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay.
Such financial instruments are recorded when they are funded.
Restrictions on Cash: Cash on deposit with another institution of $1,096,000 was
required to meet regulatory reserve requirements at June 30, 2003. These
balances do not earn interest. No cash on deposit with other institution was
required to meet regulatory reserve requirements at June 30, 2002.
Fair Value of Financial Instruments. Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Operating Segments. While the Company's chief decision-makers monitor the
revenue streams of the various Company products and services, the identifiable
segments are not material and operations are managed and financial performance
is evaluated on a Company-wide basis. Accordingly, all of the Company's
financial service operations are considered by management to be aggregated in
one reportable operating segment.
Reclassifications. Certain reclassifications have been made to the prior year
amounts to conform to the current year presentation.
- --------------------------------------------------------------------------------
(Continued)
31
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
NOTE 2 - SECURITIES
Securities held to maturity at June 30, 2003 and 2002, are summarized as
follows:
2003
----
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
---- ---- ---- ----------
Municipal bond $ 33,252 - - $ 33,252
----------- ----------- ----------- -----------
Total $ 33,252 - - $ 33,252
=========== =========== =========== ===========
Due after one year through
five years $ 33,252 - - $ 33,252
=========== =========== =========== ===========
2002
----
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
---- ---- ---- ----------
United States Government and
agency securities $55,000,000 $ 639,100 $ (8,750) $55,630,350
Municipal bond 121,211 - - 121,211
----------- ----------- ----------- -----------
Total $55,121,211 $ 639,100 $ (8,750) $55,751,561
=========== =========== =========== ===========
Due after one year through
five years $55,121,211 $ 639,100 $ (8,750) $55,751,561
=========== =========== =========== ===========
There were no sales of securities for the years ended June 30, 2003, 2002 or
2001. $85,000,000 of United States Agency securities were called in the year
ended June 30, 2003.
- --------------------------------------------------------------------------------
(Continued)
32
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
NOTE 3 - MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity at June 30, 2003 and 2002, are
summarized as follows:
2003
----
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
---- ---- ---- ----------
FNMA mortgage-backed securities $ 89,721 $ 2,909 - $ 92,630
FHLMC mortgage-backed securities 2,840,822 98,934 - 2,939,756
Accrued interest receivable 34,255 - - 34,255
----------- ----------- ----------- -----------
$ 2,964,798 $ 101,843 - $ 3,066,641
=========== =========== =========== ===========
2002
----
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair Value
---- ---- ---- ----------
FNMA mortgage-backed securities $ 188,732 $ 3,564 - $ 192,296
FHLMC mortgage-backed securities 7,022,569 199,969 - 7,222,538
Accrued interest receivable 85,905 - - 85,905
----------- ----------- ----------- -----------
$ 7,297,206 $ 203,533 - $ 7,500,739
=========== =========== =========== ===========
There were no sales of mortgage-backed securities for the years ended June 30,
2003, 2002 or 2001.
- --------------------------------------------------------------------------------
(Continued)
33
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE
Loans receivable at June 30, 2003 and 2002, consist of the following:
2003 2002
---- ----
Real estate mortgages:
One-to-four family residential $ 143,881,760 $ 158,833,656
Home equity line of credit 67,822,058 53,349,287
Multifamily residential 40,997,490 43,451,715
Commercial 147,560,511 133,145,924
Commercial equity line of credit 34,080,887 22,872,121
Land 62,933,365 60,124,877
Construction - residential 111,388,555 110,596,307
Construction - multi-family 304,300 1,084,805
Construction - commercial 22,935,858 33,451,289
------------- -------------
Total real estate mortgages 631,904,784 616,909,981
Non real estate loans 11,760,915 8,459,413
------------- -------------
643,665,699 625,369,394
Accrued interest receivable 2,685,565 2,973,654
Deferred loan origination fees (3,032,489) (2,789,665)
Unearned discount (2,276) (3,085)
Undisbursed portion of loan proceeds (59,762,979) (58,097,903)
Allowance for loan losses (3,882,839) (3,901,839)
------------- -------------
$ 579,670,681 $ 563,550,556
============= =============
A summary of the changes in the allowance for loan losses for the years ended
June 30, 2003, 2002, and 2001, is as follows:
2003 2002 2001
---- ---- ----
Beginning balance $ 3,901,839 $ 3,520,198 $ 3,387,474
Provision charged to operations - 558,000 225,000
Charge-offs (19,000) (206,078) (112,435)
Recoveries - 29,719 20,159
----------- ----------- -----------
Ending balance $ 3,882,839 $ 3,901,839 $ 3,520,198
=========== =========== ===========
- --------------------------------------------------------------------------------
(Continued)
34
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE (Continued)
The following is a summary of the principal balances of nonperforming loans at
June 30:
2003 2002
---- ----
Loans on nonaccrual status:
Real estate mortgages:
One-to-four family residential $3,072,917 $2,677,504
Commercial 2,879,445 1,215,160
Multi-family residential 137,085 115,362
Construction and land 1,347,905 3,796,980
---------- ----------
Total loans on nonaccrual status 7,437,352 7,805,006
---------- ----------
Past due loans on accrual status -
Real estate mortgages -
Construction and land 275,461 -
---------- ----------
Total nonaccrual and past due loans $7,712,813 $7,805,006
========== ==========
During the years ended June 30, 2003, 2002 and 2001, gross interest income of
$761,798, $548,000, and $769,931, respectively, would have been recorded on
loans accounted for on a nonaccrual basis if the loans had been current
throughout the period. Nonperforming loans and impaired loans are defined
differently. Some loans may be included in both categories, whereas other loans
may only be included in one category.
At June 30, 2003 and 2002, the recorded investment in loans, which have been
identified as being impaired, totaled $12,765,000 and $13,016,000 respectively.
Included in the impaired amount at June 30, 2003 and 2002, is $1,095,934 and
$115,362, respectively, related to loans with a corresponding valuation
allowance of $234,719 and $29,719 respectively. The Company recognized no
interest on impaired loans in 2003, 2002, and 2001 (during the portion of the
respective years that they were impaired).
Average impaired loans for the years ended June 30, 2003 and 2002 amounted to
$13,296,000 and $6,983,200, respectively.
- --------------------------------------------------------------------------------
(Continued)
35
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 5 - MORTGAGE BANKING ACTIVITIES
Mortgage banking activities, net, including gains and losses on sales of loans,
for each of the years in the three-year period ended June 30, 2003, consist of
the following:
2003 2002 2001
---- ---- ----
Mortgage loan servicing fees $ 1,446,168 $ 1,116,929 $ 810,567
Amortization and impairment of mortgage
servicing rights (3,251,114) (1,112,817) (354,424)
Gross realized:
Gains on sales of loans 8,214,611 3,079,814 1,766,805
Losses on sales of loans (1,487,596) (98,502) (1,133,443)
Market valuation provision for losses on loans
receivable held for sale - - -
Market valuation recoveries - - 45,000
----------- ----------- -----------
$ 4,922,069 $ 2,985,424 $ 1,134,505
=========== =========== ===========
At June 30, 2003 and 2002, the Company was servicing whole and participation
mortgage loans for others aggregating approximately $658,967,272 and
$528,319,233, respectively. The Company had $20,143,571 and $6,069,959 at June
30, 2003 and 2002, respectively, of funds collected on mortgage loans serviced
for others which is included in accrued expenses and other liabilities.
Originated mortgage servicing rights capitalized and amortized during the years
ended June 30, 2003, 2002 and 2001 were as follows:
2003 2002 2001
---- ---- ----
Beginning balance $ 3,255,147 $ 1,284,678 $ 833,558
Originated 3,981,149 3,083,286 805,544
Amortized (2,581,114) (1,112,817) (354,424)
----------- ---------- ----------
Ending balance $ 4,655,182 $ 3,255,147 $ 1,284,678
=========== ========== ==========
Valuation allowance
Beginning of year $ - $ - $ -
Additions expensed 670,000 $ - -
End of year $ 670,000 $ - $ -
=========== ========== ==========
- --------------------------------------------------------------------------------
(Continued)
36
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 6 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at cost, less accumulated depreciation and
amortization at June 30, 2003 and 2002 are summarized as follows:
2003 2002
---- ----
Land and land improvements $ 847,500 $ 847,500
Building and building improvements 4,702,678 4,715,304
Leasehold improvements 4,966,034 3,793,711
Furniture and equipment 8,436,598 6,532,717
------------ ------------
18,952,810 15,889,232
Less accumulated depreciation and amortization (7,396,891) (6,071,884)
------------ ------------
$ 11,555,919 $ 9,817,348
============ ============
NOTE 7 - DEPOSITS
Deposit balances at June 30, 2003 and 2002 are summarized by interest rate as
follows:
2003 2002
---- ----
Amount % Amount %
------ - ------ -
NOW and money market accounts
Noninterest bearing $ 14,682,098 2.8% $ 12,092,628 2.5%
0.245-4.00% 66,389,265 12.6 58,813,116 12.3
------------ ---- ------------ ----
81,071,363 15.4 70,905,744 14.8
Passbook savings 1.00 - 2.50% 43,191,519 8.2 37,166,435 7.7
Certificates of deposit 0.50 - 1.99% 71,825,960 13.6 - -
2.00 - 2.99 100,173,672 19.0 91,168,895 19.0
3.00 - 3.99 147,737,107 28.1 117,780,641 24.6
4.00 - 4.99 53,456,947 10.2 49,071,134 10.2
5.00 - 5.99 20,956,710 4.0 26,261,752 5.5
6.00 - 6.99 6,283,529 1.2 43,549,703 9.1
7.00 - 7.99 1,651,935 0.3 43,693,887 9.1
8.00 - 8.99 80,185 0.0 74,027 0.0
------------ ---- ------------ ----
402,166,045 84.6 371,600,039 85.2
------------ ---- ------------ ----
$526,428,927 100% $479,672,218 100%
============ ==== ============ ====
Weighted average rate on deposits 2.61% 3.76%
==== ====
- --------------------------------------------------------------------------------
(Continued)
37
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 7 - DEPOSITS (Continued)
2003 2002
---- ----
Amount % Amount %
------ - ------ -
Remaining term to maturity
of certificates of deposit:
12 months or less $249,316,121 62.0% $254,171,324 68.4%
13 to 24 months 115,880,269 28.8 77,333,220 20.8
25 to 36 months 13,613,069 3.4 24,414,990 6.6
37 to 48 months 23,356,586 5.8 15,680,505 4.2
------------ --- ------------ ---
$402,166,045 100% $371,600,039 100%
============ === ============ ===
Weighted average rate on
certificates of deposit 3.23% 4.57%
==== ====
Time deposits in amounts of $100,000 or more totaled approximately $109,893,000
and $105,828,000 at June 30, 2003 and 2002, respectively.
Interest expense on deposits is summarized as follows:
2003 2002 2001
---- ---- ----
NOW accounts $ 899,621 $ 1,079,276 $ 1,292,321
Passbook accounts 470,504 660,260 771,793
Certificates of deposit 13,799,377 19,255,467 25,015,617
----------- ----------- -----------
$15,169,502 $20,995,003 $27,079,731
=========== =========== ===========
NOTE 8 - ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI
Advances from the Federal Home Loan Bank of Cincinnati (FHLB), with maturities
and interest rates thereon at June 30, 2003 and 2002, were as follows:
Maturity Interest Rate 2003 2002
- -------- ------------- ---- ----
February 2003 6.00 $ - $ 500,000
February 2006 6.05 123,220 239,695
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 50,000,000
May 2011 4.16 50,000,000 50,000,000
------------ ------------
$120,123,220 $120,739,695
============ ============
Weighted average interest rate 4.29% 4.30%
==== ====
- --------------------------------------------------------------------------------
(Continued)
38
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 8 - ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI (Continued)
Each of the advances, except the advance maturing in February 2006, is a
convertible fixed-rate advance. Each of these is convertible at the option of
the FHLB to LIBOR. Alternatively, if the conversion option is exercised, the
Bank could repay these advances without prepayment penalty.
In order to secure these advances, the Bank has pledged mortgage loans with
unpaid principal balances aggregating approximately $113,341,000 and
$150,925,000 at June 30, 2003 and 2002, respectively, plus Federal Home Loan
Bank stock. In addition, at June 30, 2003, $21,000,000 in overnight cash and
stock in the FHLB was pledged for such advances.
NOTE 9 - NOTES PAYABLE
On July 26, 2000, the Company 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, 2003 and June 30, 2002 was
$2,500,000 and $4,900,000, respectively. The line was extended in July 2003 for
an additional year and can be extended indefinitely. The line is secured by all
of the Company's stock in the Bank.
On March 8, 2002, one of the Company's subsidiaries obtained a $3.4 million term
loan from another federally insured institution to refinance the Company's Solon
headquarters building. The note carries a variable interest rate that adjusts to
LIBOR plus 230 basis points. The loan matures on March 15, 2007. The loan is
guaranteed by the Company.
Principal repayments on the note are scheduled as follows:
2004 $78,900
2005 85,470
2006 92,520
2007 3,058,260
----------
$3,315,150
==========
- --------------------------------------------------------------------------------
(Continued)
39
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 10 - FEDERAL INCOME TAXES
The provision for federal income taxes differs from the amounts computed by
applying the U.S. federal income tax statutory rate to income before federal
income taxes. These differences are reconciled as follows:
2003 2002 2001
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
Computed expected tax $4,277,077 35.0% $3,783,018 35.0% $3,500,410 35.0%
Decrease in tax resulting from:
Benefit of graduated rates (100,000) (1.0) (100,000) (1.0) (100,000) (1.0)
Tax credits (111,646) (0.9) (111,646) (1.0) (111,646) (1.1)
Other, net 58,333 0.6 63,941 0.6 76,528 0.8
---------- ---- ---------- ---- ---------- ----
$4,123,764 33.7% $3,635,313 33.6% $3,365,292 33.7%
========== ==== ========== ==== ========== ====
The net tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 2003 and 2002
are:
2003 2002
---- ----
Deferred tax assets:
Loan loss and other reserves $ 1,294,629 $ 1,345,883
Deferred Compensation 426,964 428,385
Unrealized gains on loans held for sale 364,130 91,637
Other 36,909 25,737
----------- -----------
Total gross deferred tax assets 2,122,632 1,891,642
Deferred tax liabilities:
Deferred loan fees, net 358,953 309,847
FHLB stock dividend 1,187,603 1,034,365
Originated mortgage servicing asset 1,354,962 1,106,750
Fixed assets 728,809 798,412
Other 187,666 193,413
----------- -----------
Total gross deferred tax liabilities 3,817,993 3,442,787
----------- -----------
Net deferred tax liability $(1,695,361) $(1,551,145)
=========== ===========
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, 2003 or 2002.
- --------------------------------------------------------------------------------
(Continued)
40
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 10 - FEDERAL INCOME TAXES (continued)
Retained earnings at June 30, 2003 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.
NOTE 11 - LEASES
The Company leases certain premises from unaffiliated parties. Future minimum
payments under noncancelable operating leases with initial or remaining terms of
one year or more consisted of the following at June 30, 2003:
Year Ending June 30,
2004 $ 581,014
2005 464,491
2006 374,602
2007 374,602
2008 338,874
Thereafter 702,739
----------
Total minimum lease payments $2,836,322
==========
During the years ended June 30, 2003, 2002, and 2001, rental expense was
$647,596, $555,030, and $809,169, respectively.
- --------------------------------------------------------------------------------
(Continued)
41
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 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.
At June 30, 2003 and 2002, the Bank had the following commitments:
2003 2002
---- ----
Commitments to sell mortgage loans in the secondary market $89,630,300 $25,733,000
Commitments to fund variable mortgage loans 12,669,150 14,173,479
Commitments to fund fixed mortgage loans 66,782,101 30,247,388
The fixed rate loan commitments have interest rates ranging from 3.75% to
7.125%.
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.
(Continued)
- --------------------------------------------------------------------------------
42
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 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, 2003, 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 4.0%; and a minimum ratio of total capital to risk weighted assets of
8.0%. At June 30, 2003, the Bank exceeded all of the aforementioned regulatory
capital requirements.
Regulations limit capital distributions by savings institutions. Generally,
capital distributions are limited to undistributed net income for the current
and prior two years. At June 30, 2003, these limitations are not expected to
prevent the company from paying its normal cash dividends.
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.
- --------------------------------------------------------------------------------
(Continued)
43
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY CAPITAL (Continued)
At June 30, 2003 and 2002, 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, 2003:
GAAP capital $ 57,656 57,656 57,656 57,656
Nonallowable component - (108) (108) (108)
General loan valuation allowances - - - 3,648
------- ------- ------- -------
Regulatory capital 57,656 57,548 57,548 61,196
Total assets 744,105 744,105 744,105 744,105
Adjusted total assets - 743,997 - -
Risk-weighted assets - - 535,618 535,618
Actual capital ratio 7.75% 7.73% 10.74% 11.43%
Regulatory requirement for capital
adequacy purposes 1.50% 4.00% 8.00%
Regulatory capital category -
well-capitalized -
equal to or greater than 5.00% 6.00% 10.00%
Core/ Tier-1 Total
Equity Leverage Risk-Based Risk-Based
Capital Capital Capital Capital
------- ------- ------- -------
June 30, 2002:
GAAP capital $ 53,553 53,553 53,553 53,553
Nonallowable component - (159) (159) (159)
General loan valuation allowances - - - 3,872
------- ------- ------- -------
Regulatory capital 53,553 53,394 53,394 57,266
Total assets 677,517 677,517 677,517 677,517
Adjusted total assets - 677,358 - -
Risk-weighted assets - - 492,378 492,378
Actual capital ratio 7.90% 7.88% 10.84% 11.63%
Regulatory requirement for capital
adequacy purposes 1.50% 4.00% 8.00%
Regulatory capital category -
well-capitalized -
equal to or greater than 5.00% 6.00% 10.00%
- --------------------------------------------------------------------------------
(Continued)
44
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 14 - RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in 2003 were as
follows.
Beginning balance $ 4,467,000
New Loans 3,110,000
Repayments (1,803,000)
-----------
Ending balance $ 5,774,000
===========
NOTE 15 - 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.
All of the options authorized under the 1992 have been granted and exercised.
The options granted under the 1996 plan are exercisable over a ten-year period,
with a vesting period ranging from zero to five years as stated in the
individual option agreements. The options granted under the 2000 plan are
exercisable over a ten-year period and can be exercised at any time.
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 paid
in capital.
A summary of the activity in the plan is as follows:
2003 2002 2001
---- ---- ----
Average Average Average
Option Option Option
Shares Price Shares Price Shares Price
------- ------ ------- ------ ------- ------
Outstanding beginning of year 385,799 $ 8.27 553,029 $ 4.90 490,936 $ 4.21
Exercised (66,095) 5.51 (239,588) 1.95 (27,683) 1.38
Expired (5,018) 9.72 - - - -
Granted 53,240 10.31 72,358 8.96 89,776 7.87
------- ------ ------- ------ ------- ------
Outstanding end of year 367,926 $ 8.38 385,799 $ 8.27 553,029 $ 4.90
======= ====== ======= ====== ======= ======
Exercisable end of year 264,622 $ 7.99 227,775 $ 7.67 444,109 $ 4.12
======= ====== ======= ====== ======= ======
Weighted average fair value
of options granted during the year $ 3.55 $ 3.68 $ 3.43
- --------------------------------------------------------------------------------
(Continued)
45
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 15 - STOCK OPTIONS (Continued)
Options outstanding at June 30, 2003 were as follows:
Outstanding Exercisable
----------- -----------
Weighted Average Weighted
Range of Remaining Average
Exercise Contractual Exercise
Price Number Life Number Price
- --------------- ---------------- ------------------
$5.63 - $7.37 110,943 5.03 110,650 $ 6.66
$7.38 - $9.19 176,771 6.11 107,160 8.35
$9.39 - $11.26 80,212 7.65 46,812 10.31
---------------- ------------------
Total 367,926 6.12 264,622 $ 7.99
================ ==================
NOTE 16 - EARNINGS PER SHARE
The following is a reconciliation of basic earnings per share to diluted
earnings per share for the years ended June 30:
2003
----
Per-Share
Net Income Shares Amount
---------- ------ ------
Basic EPS:
Income available to common shareholders $8,096,456 6,368,231 $ 1.27
Dilute effects of assumed exercises of stock options - 100,648 .02
---------- --------- --------
Diluted EPS:
Income available to common shareholders $8,096,456 6,468,879 $ 1.25
========== ========= ========
2002
----
Per-Share
Net Income Shares Amount
---------- ------ ------
Basic EPS:
Income available to common shareholders $7,173,309 6,376,256 $ 1.12
Dilute effects of assumed exercises of stock options - 166,480 0.03
---------- --------- --------
Diluted EPS:
Income available to common shareholders $7,173,309 6,542,736 $ 1.09
========== ========= ========
- --------------------------------------------------------------------------------
(Continued)
46
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 16 - EARNINGS PER SHARE (Continued)
2001
----
Per-Share
Net Income Shares Amount
---------- ------ ------
Basic EPS
Income available to common shareholders $6,635,878 6,309,752 $ 1.05
Dilute effects of assumed exercises of stock options - 214,213 0.03
---------- --------- --------
Diluted EPS
Income available to common shareholders $6,635,878 6,523,965 $ 1.02
========== ========= ========
No options were anti-dilutive for the years ended June 30, 2003, 2002, or 2001
as the market price in all cases was greater than the exercise price.
NOTE 17 - 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, 2003 June 30, 2002
------------- -------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- -------- ----------
(in thousands)
Assets:
Cash and amounts due from depository
institutions $ 9,755 9,755 4,527 4,527
Interest-bearing deposits 3,946 3,946 1,737 1,737
Federal funds sold 83,050 83,050 8,050 8,050
Securities held to maturity 33 33 55,121 55,752
Mortgage-backed securities held to maturity 2,965 3,032 7,297 7,501
Loans receivable held for:
Investment, net 579,671 596,515 563,551 597,488
Sale, net 33,604 34,380 11,680 11,940
Federal Home Loan Bank stock 10,396 10,396 9,948 9,948
- --------------------------------------------------------------------------------
(Continued)
47
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
June 30, 2003 June 30, 2002
------------- -------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
(in thousands)
Liabilities:
Demand deposits and passbook savings $(124,263) (124,263) (108,072) (108,072)
Time deposits (402,166) (410,934) (371,600) (376,534)
Advances from the Federal Home Loan
Bank of Cincinnati (120,123) (131,958) (120,740) (125,206)
Notes payable (5,815) (5,815) (8,288) (8,288)
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.
Federal Home Loan Bank stock. This item is valued at cost, which represents
redemption value and approximates fair value.
- --------------------------------------------------------------------------------
(Continued)
48
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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, 2003 and 2002.
NOTE 18 - PARENT COMPANY
The following are condensed statements of financial condition as of June 30,
2003 and 2002 and related condensed statements of operations and cash flows for
the years ended June 30, 2003, 2002 and 2001 for PVF Capital Corp.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------
2003 2002
---- ----
Cash and amounts due from depository institutions $ 19,459 $ 106,598
Prepaid expenses and other assets 1,422,778 1,701,403
Investment in subsidiaries 59,802,552 55,409,326
----------- -----------
Total assets $61,244,789 $57,217,327
=========== ===========
Accrued expenses and other liabilities $ 141,653 $ 18,749
Note payable 2,500,000 4,900,000
Stockholders' equity 58,603,136 52,298,578
----------- -----------
Total liabilities and stockholders' equity $61,244,789 $57,217,327
=========== ===========
- --------------------------------------------------------------------------------
(Continued)
49
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY (Continued)
CONDENSED STATEMENTS OF OPERATIONS
- ----------------------------------
C
2003 2002 2001
---- ---- ----
Income:
Mortgage banking activities $ 88,602 $ 142,140 $ 213,171
Dividends from subsidiaries 3,950,000 1,545,000 350,000
Other, net - - -
---------- ---------- ----------
4,038,602 1,687,140 563,171
---------- ---------- ----------
Expenses:
Interest expense 137,483 276,418 304,688
General and administrative 284,890 214,296 184,532
---------- ---------- ----------
422,373 490,714 489,220
---------- ---------- ----------
(Loss) income before federal income taxes and
equity in undistributed net income of
subsidiaries 3,616,229 1,196,426 73,951
Federal income tax benefit 112,615 116,951 93,856
---------- ---------- ----------
(Loss) income before equity in undistributed
net income of subsidiaries 3,728,844 1,313,377 167,807
Equity in undistributed net income of subsidiaries 4,367,612 5,859,932 6,468,071
---------- ---------- ----------
Net income $8,096,456 $7,173,309 $6,635,878
========== ========== ==========
CONDENSED STATEMENTS OF CASH FLOWS
- ----------------------------------
2003 2002 2001
---- ---- ----
Operating activities:
Net income $8,096,456 $7,173,309 $6,635,878
Equity in undistributed net income of subsidiaries (4,367,612) (5,859,932) (6,468,071)
Repayment of advance from subsidiary 440,000 1,615,873 10,175,000
Other, net (38,471) (33,581) (6,890,112)
---------- ---------- ----------
Net cash provided by (used in) operating
activities 4,130,373 2,895,669 3,452,695
---------- ---------- ----------
Investing activities:
Investment in Parkview Federal Savings Bank - - (500,000)
---------- ---------- ----------
Net cash used in investing activities - - (500,000)
---------- ---------- ----------
- --------------------------------------------------------------------------------
(Continued)
50
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY (Continued)
Financing activities:
Repayment on note payable (2,400,000) (3,050,000) (1,400,000)
Proceeds from note payable - 3,250,000 -
Proceeds from exercise of stock options 162,307 142,377 38,405
Cash paid in lieu of fractional shares - - -
Dividends paid (1,654,844) (1,536,424) (1,378,774)
Purchase of Treasury stock (324,975) (1,639,602) (189,437)
----------- ----------- -----------
Net cash provided by (used in) financing activities (4,217,512) (2,833,649) (2,929,806)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (87,139) 62,020 22,889
Cash and cash equivalents at beginning of year 106,598 44,578 21,689
----------- ----------- -----------
Cash and cash equivalents at end of year $ 19,459 $ 106,598 $ 44,578
=========== =========== ===========
NOTE 19 -EMPLOYEE BENEFIT PLANS
401(k) Savings Plan: Employees who have reached age 18 and have completed one
year of eligibility service are eligible to participate in the Company's 401(k)
Savings Plan. The plan allows eligible employees to contribute up to 15% of
their compensation with the Company matching up to 50% of the first 4%
contributed by the employee, as determined by the Company for the contribution
period. The plan also permits the Company to make a profit sharing contribution
at its discretion up to 4% of the employee's compensation. Participants vest in
the Company's contributions ratably over six years.
The total of the Company's matching and profit sharing contribution cost related
to the plan for the years ended June 30, 2003, 2002, and 2001 was $104,094,
$89,966, and $83,255, respectively.
Supplemental Executive Retirement Plan: During fiscal year 2000, the Company
established a Supplemental Executive Retirement Plan (SERP) to provide
additional retirement benefits to participating executive officers. The SERP was
adopted in order to provide benefits to such executives whose benefits are
reduced under the Company's tax-qualified benefit plans pursuant to limitations
under the Internal Revenue Code. The SERP is subject to certain vesting
provisions, and provides that the executives shall receive a supplemental
retirement benefit if the executive's employment is terminated after reaching
the normal retirement. For the year ended June 30, 2003, 2002, and 2001, the
Company recognized expense under the SERP of $401,400, $223,800, and $201,000,
respectively.
- --------------------------------------------------------------------------------
(Continued)
51
PVF CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
NOTE 20 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results of
operations for 2003 and 2002 (in thousands of dollars, except per share
data):(1)
Quarters For the Year Ended June 30, 2003
----------------------------------------------
First Second Third Fourth
----- ------ ----- ------
Interest income $11,404 11,299 10,415 10,364
Interest expense 5,825 5,317 4,740 4,764
------- ------ ------ -----
Net interest income 5,579 5,982 5,675 5,600
Provision for losses on loans 0 0 0 0
Noninterest income 750 1,838 1,597 1,708
Noninterest expense 3,801 4,412 4,114 4,181
------- ------ ------ -----
Income before taxes 2,528 3,408 3,158 3,127
Federal income taxes 840 1,151 1,064 1,069
------- ------ ------ -----
Net income $ 1,688 2,257 2,094 2,058
======= ====== ====== =====
Basic earnings per share(2) $ 0.26 0.35 0.33 0.33
======= ====== ====== =====
Diluted earnings per share(2) $ 0.25 0.35 0.32 0.32
======= ====== ====== =====
Quarters For the Year Ended June 30, 2002
----------------------------------------------
First Second Third Fourth
------- ------ ----- ------
Interest income $12,889 12,715 11,611 11,599
Interest expense 7,884 7,005 6,231 5,940
------- ----- ----- -----
Net interest income 5,005 5,710 5,380 5,659
Provision for losses on loans 125 228 50 155
Noninterest income 781 1,070 870 1,030
Noninterest expense 3,159 3,732 3,548 3,700
------- ----- ----- -----
Income before taxes 2,502 2,820 2,652 2,834
Federal income taxes 832 977 889 938
------- ----- ----- -----
Net income $ 1,671 1,843 1,763 1,896
======= ===== ===== =====
Basic earnings per share(2) $ 0.26 0.29 0.27 0.30
======= ===== ===== =====
Diluted earnings per share(2) $ 0.25 0.28 0.26 0.29
======= ===== ===== =====
(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, 2002 and
issued on August 30, 2002 and a 10% stock dividend, declared on June 24,
2003 and issued on August 29, 2003.
- --------------------------------------------------------------------------------
52
[PVF CAPITAL CORP. LOGO]
- --------------------------------------------------------------------------------
Board of Directors General Information
Board of Directors General Information
- ---------------------- ------------------------
JOHN R. MALE INDEPENDENT
Chairman of the Board and CERTIFIED ACCOUNTANTS
Chief Executive Officer Crowe, Chizek and Company LLP
Landerbrook Corporate Center One
C. KEITH SWANEY 5900 Landerbrook Drive
President, Chief Operating Officer Suite 205
and Treasurer Cleveland, Ohio 44124
GERALD A. FALLON GENERAL COUNSEL
Retired Moriarty & Jaros, P.L.L.
30195 Chagrin Boulevard
ROBERT K. HEALEY Suite 110 North
Retired Pepper Pike, Ohio 44124
RONALD D. HOLMAN, II TRANSFER AGENT AND REGISTRAR
Partner National City Bank, Dept. 5352
Cavitch, Familo, Durkin & Frutkin Corporate Trust Operations
P.O. Box 92301
STANLEY T. JAROS Cleveland, Ohio 44193-0900
Partner
Moriarty & Jaros, P.L.L. SPECIAL COUNSEL
Stradley Ronon Stevens & Young, LLP
RAYMOND J. NEGRELLI 1220 19th Street, N.W., Suite 600
President Washington, D.C. 20036
Raymond J. Negrelli, Inc.
STOCK LISTING
STUART D. NEIDUS NASDAQ Small-Cap Market
Chairman and Symbol: PVFC
Chief Executive Officer
Anthony & Sylvan Pools Corporation ANNUAL MEETING
The 2003 Annual Meeting of Stockholders
will be held on October 20, 2003 at 10:00 a.m.
at the Company's Corporate Center,
Executive Officers 30000 Aurora Road, Solon, Ohio.
Executive Officers
- -------------------------- 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, 2003 as filed with the Securities
JOHN R. MALE and Exchange Commission will be furnished
Chairman of the Board and without charge to stockholders upon written
Chief Executive Officer request to the Corporate Secretary,
PVF Capital Corp., 30000 Aurora
C. KEITH SWANEY Road, Solon, Ohio 44139.
President, Chief Operating Officer
and Treasurer
JEFFREY N. MALE
Vice President and Secretary
[PVF CAPITAL CORP. LOGO]
CORPORATE CENTER
30000 Aurora Road
Solon, OH 44139
440-248-7171
www.parkviewfederal.com