Exhibit 13
(2004 ANNUAL REPORT GRAPHIC)
June 30, 2004
(PVF CAPITAL CORP. LOGO)
(BUILDING GRAPHIC)
Table of Contents
Letter to Shareholders 1
Full Service Locations 4
Selected Consolidated Financial and Other Data 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Report of Independent Registered Public Accounting Firm 21
(PVF CAPITAL CORP. LOGO)
To Our Shareholders
We are pleased to report that PVF Capital Corp. enjoyed another solid year of
earnings, which enabled us to pay a competitive dividend rate and boost retained
earnings for the year ended June 30, 2004. Earnings were $6.9 million, or $0.98
basic earnings per share and $0.96 diluted earnings per share. In addition,
return on average assets was 0.96 percent and return on average common equity
was 11.26 percent for the year.
During the year, the Company invested in and introduced new technologies that
are transforming the way we do business. This modernization and improvement to
our technological infrastructure was performed in order to offer our customers
enhanced services as well as to position the Company to take advantage of the
cost savings benefits provided. One of these enhancements will be the release of
our new online banking service during the second quarter of this fiscal year.
This technology will offer our customers the ability to access current loan and
deposit account information, transfer funds between accounts, pay bills online,
as well as aggregate and view all of their participating online financial
accounts from a range of financial institutions in a single web page.
Consolidated assets of the Company increased $12.3 million to $755.7 million,
while total stockholders' equity of PVF Capital Corp. increased to $63.4 million
at June 30, 2004. Loans receivable and mortgage-backed securities held to
maturity increased by $33.7 million and $33.8 million, respectively, while loans
receivable held for sale declined by $21.7 million. The decline in loans
receivable held for sale resulted from a decrease in refinancing activity
attributable to rising interest rates. Securities held to maturity increased by
$27.5 million as management made the decision to invest in short-term agency
securities. Funds from the decrease of $79.3 million in cash and cash
equivalents were invested in new loan production, mortgage-backed securities and
securities. Deposit balances remained stable, as management utilized attractive
short-term advances to fund asset growth.
In June 2004, PVF Capital Corp. formed a trust that issued $10.0 million of
subordinated debt. The Company intends to use $7.0 million of the proceeds from
the sale of these securities to increase its investment in Park View Federal
Savings Bank and the balance to purchase treasury stock in accordance with our
existing stock repurchase program. The $7.0 million investment in Park View
Federal Savings Bank will increase the Bank's regulatory capital ratios and
increase lending limits.
Due to the efforts of our branch network and a strong staff of mortgage loan
originators, we were able to close a total of $415.4 million in mortgage loans
for the year. In addition, the Company sold $301.0 million in fixed-rate
mortgage loans and recorded profits of $4.6 million on mortgage banking activity
for the year. As a result of these sales, the Company increased its mortgage
servicing portfolio by $87.8 million to $746.8 million and carried a net
mortgage servicing asset of $5.4 million, or 72 basis points, of the total
servicing portfolio at June 30, 2004.
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. The August
2002 plan was renewed for an additional 12 months in July 2004. Pursuant to
these plans and our cash dividend policy, the Company repurchased a total of
377,870 shares, or 5.1 percent, of its common stock through June 30, 2004 and
paid a $0.269 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 2004, the Company announced a quarterly cash dividend
of $0.067 per share (adjusted for 2004 stock dividend) on the outstanding shares
of common stock that was paid in August 2004. Additionally, in July 2004, the
Company announced a 10 percent stock dividend, also paid in August 2004.
In December 2003 and January 2004, Park View Federal successfully opened a new
full-service branch office in Streetsboro, Ohio and a loan origination office in
Canal Fulton, Ohio. Also, in June 2004, our Mayfield Heights branch office was
relocated to a more convenient location in the same proximity as the former
office.
The growth of our branch network continues to open new markets in residential,
construction, multi-family, and commercial real estate lending and has increased
our ability to attract new consumer deposits. The opening of the Streetsboro,
Ohio branch office brings the number of full-service branch offices we have
located throughout greater Cleveland to sixteen. We plan to continue our efforts
to identify new locations for the further expansion of our branch network.
(BUILDING GRAPHIC)
2
Visit our web site at WWW.PVFSB.COM. The site provides information about our
products and services, and provides access to current loan and deposit account
rates, terms, and other information.
We invite all shareholders to attend the Annual Meeting of Stockholders of PVF
Capital Corp. on Monday, October 18, 2004 at 10:00 a.m., at PVF Capital Corp.'s
Corporate Center, 30000 Aurora Road, Solon, Ohio. We look forward to another
successful year of service and dedication to the community, its members, our
shareholders, and our customers.
Sincerely,
/s/ John R. Male
John R. Male
Chairman of the Board and Chief
Executive Officer
/s/ C. Keith Swaney
C. Keith Swaney
President, Chief Operating Officer
and Treasurer
(BUILDING GRAPHIC)
(PVF CAPITAL CORP. LOGO)
3
FULL SERVICE LOCATIONS
AVON OFFICE
36311 Detroit Rd.
Avon, OH 44011
Tel: 440-934-3580
(GRAPHIC OF AVON OFFICE)
BAINBRIDGE OFFICE
8500 Washington St.
Chagrin Falls, OH 44023
Tel: 440-543-8889
(GRAPHIC OF BAINBRIDGE OFFICE)
BEACHWOOD OFFICE
La Place
2111 Richmond Rd.
Beachwood, OH 44122
Tel: 216-831-6373
(GRAPHIC OF BEACHWOOD OFFICE)
BEDFORD OFFICE
413 Northfield Rd.
Bedford, OH 44146
Tel: 440-439-2200
(GRAPHIC OF BEDFORD OFFICE)
CHARDON OFFICE
408 Water St.
Chardon, OH 44024
Tel: 440-285-2343
(GRAPHIC OF CHARDON OFFICE)
CORPORATE CENTER OFFICE
30000 Aurora Rd.
Solon, OH 44139
Tel: 440-914-3900
(GRAPHIC OF CORPORATE CENTER OFFICE)
LAKEWOOD-CLEVELAND OFFICE
11010 Clifton Blvd.
Cleveland, OH 44102
Tel: 216-631-8900
(GRAPHIC OF LAKEWOOD-CLEVELAND OFFICE)
MACEDONIA OFFICE
497 East Aurora Rd.
Macedonia, OH 44056
Tel: 330-468-0055
(GRAPHIC OF MACEDONIA OFFICE]
(GRAPHIC OF MAP SHOWING OFFICE LOCATIONS)
4
MAYFIELD HEIGHTS OFFICE
1244 SOM Center Rd.
Mayfield Hts., OH 44124
Tel: 440-449-8597
(GRAPHIC OF MAYFIELD HEIGHTS OFFICE)
MEDINA OFFICE
Reserve Square
3613 Medina Rd.
Medina, OH 44256
Tel: 330-721-7484
(GRAPHIC OF MEDINA OFFICE)
MENTOR OFFICE
Heisley Corners
6990 Heisley Rd.
Mentor, OH 44060
Tel: 440-944-0276
(GRAPHIC OF MENTOR OFFICE)
NORTH ROYALTON OFFICE
13901 Ridge Rd.
North Royalton, OH 44133
Tel: 440-582-7417
(GRAPHIC OF NORTH ROYALTON OFFICE)
SHAKER HEIGHTS OFFICE
Shaker Towne Centre
16909 Chagrin Blvd.
Shaker Hts., OH 44120
Tel: 216-283-4003
(GRAPHIC OF SHAKER HEIGHTS OFFICE)
SOLON OFFICE
Solar Shopping Center
34400 Aurora Rd.
Solon, OH 44139
Tel: 440-542-6070
(GRAPHIC OF SOLON OFFICE)
STREETSBORO OFFICE
9305 Market Square Dr.
Streetsboro, OH 44241
Tel: 330-626-9444
(GRAPHIC OF STREETSBORO OFFICE)
STRONGSVILLE OFFICE
17780 Pearl Rd.
Strongsville, OH 44136
Tel: 440-878-6010
(GRAPHIC OF STRONGSVILLE OFFICE)
(BUILDING GRAPHIC)
PARK VIEW FEDERAL'S CONVENIENTLY LOCATED FULL-SERVICE BRANCH OFFICES, WITH AMPLE
PARKING FACILITIES IMMEDIATELY ADJACENT TO EACH OFFICE, ARE EQUIPPED WITH
STATE-OF-THE-ART TECHNOLOGY TO PROCESS ANY TRANSACTION QUICKLY AND EFFICIENTLY.
OUR LOAN OFFICERS AND ACCOUNT REPRESENTATIVES ARE AVAILABLE TO ANSWER ANY
QUESTIONS ABOUT OUR FINANCIAL PRODUCTS AND SERVICES. WE PRIDE OURSELVES ON
PROVIDING OUR CUSTOMERS WITH THE BEST IN FINANCIAL ASSISTANCE AND PERSONAL
SERVICE.
(PARK VIEW FEDERAL SAVINGS BANK LOGO)
BETTER SERVICE FROM A BETTER BANK.
www.pvfsb.com
5
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FINANCIAL CONDITION DATA:
At June 30,
-----------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(dollars in thousands)
Total assets .............................. $755,687 $743,404 $679,620 $736,525 $612,986
Loans receivable, net ..................... 610,681 576,985 560,577 570,228 510,650
Loans receivable held for sale, net ....... 11,871 33,604 11,680 6,152 10,738
Mortgage-backed securities held to maturity 36,779 2,931 7,211 17,912 1,208
Cash and cash equivalents ................. 17,470 96,751 14,314 65,395 5,672
Securities ................................ 27,500 33 55,121 50,212 65,259
Deposits .................................. 526,493 526,429 479,672 480,532 440,982
FHLB advances and notes payable ........... 147,526 125,938 129,028 190,567 114,974
Stockholders' equity ...................... 63,361 58,603 52,299 48,006 42,900
Number of:
Real estate loans outstanding ............. 5,094 4,778 4,484 4,431 4,160
Savings accounts .......................... 31,226 32,081 30,223 30,567 28,915
Offices ................................... 16 15 13 12 11
OPERATING DATA:
Year Ended June 30,
-------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(dollars in thousands except for earnings per share)
Interest income .................. $39,109 $43,482 $48,814 $53,962 $42,026
Interest expense ................. 16,739 20,646 27,060 34,118 23,972
------- ------- ------- ------- -------
Net interest income
before provision for loan losses 22,370 22,836 21,754 19,844 18,054
Provision for loan losses ........ 597 0 558 225 850
------- ------- ------- ------- -------
Net interest income
after provision for loan losses . 21,773 22,836 21,196 19,619 17,204
Non-interest income .............. 6,130 5,893 3,751 2,600 2,681
Non-interest expense ............. 17,571 16,509 14,139 12,218 10,410
------- ------- ------- ------- -------
Income before federal income taxes 10,332 12,220 10,808 10,001 9,475
Federal income taxes ............. 3,422 4,124 3,635 3,365 3,163
------- ------- ------- ------- -------
Net income ....................... $ 6,910 $ 8,096 $ 7,173 $ 6,636 $ 6,312
======= ======= ======= ======= =======
Basic earnings per share (1) ..... $ 0.98 $ 1.16 $ 1.02 $ 0.96 $ 0.90
======= ======= ======= ======= =======
Diluted earnings per share (1) ... $ 0.96 $ 1.14 $ 1.00 $ 0.92 $ 0.87
======= ======= ======= ======= =======
(1) Adjusted for stock dividends.
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
6
OTHER DATA:
At or For the Year Ended June 30,
---------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Return on average assets ................. 0.96% 1.15% 1.03% 1.00% 1.21%
Return on average equity ................. 11.26% 14.60% 14.19% 14.62% 15.45%
Interest rate spread ..................... 3.12% 3.13% 2.95% 2.75% 3.21%
Net interest margin ...................... 3.31% 3.37% 3.26% 3.09% 3.59%
Average interest-earning assets to
average interest-bearing liabilities .... 107.62% 108.10% 107.64% 106.45% 107.98%
Non-accruing loans (> 90 days) and
repossessed assets to total assets ...... 1.42% 1.06% 1.23% 0.91% 0.87%
Stockholders' equity to total assets ..... 8.38% 7.88% 7.70% 6.52% 7.00%
Ratio of average equity to
average assets .......................... 8.49% 7.86% 7.24% 6.79% 7.80%
Dividend payout ratio (cash dividends paid
divided by net income) ................... 26.64% 20.44% 21.42% 20.78% 21.77%
BANK REGULATORY CAPITAL RATIOS:
Ratio of tangible capital to
adjusted total assets .................... 7.97% 7.73% 7.88% 6.46% 6.68%
Ratio of core capital to
adjusted total assets .................... 7.97% 7.73% 7.88% 6.46% 6.68%
Ratio of Tier-1 risk-based capital to
risk-weighted assets ..................... 9.54% 9.92% 10.84% 9.56% 9.24%
Ratio of risk-based capital to
risk-weighted assets ..................... 10.19% 10.55% 11.63% 10.26% 10.00%
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS GENERAL
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 16 branch offices located in Cleveland and
surrounding communities, including a recently opened branch office in
Streetsboro, Ohio, and a loan origination office in Canal Fulton, Ohio. The
Bank's principal business consists of attracting deposits from the general
public through its branch offices and investing these funds in loans secured by
first mortgages on real estate located in its market area, which consists of
Cuyahoga, Lake, Geauga, Portage, Summit, Stark, Medina, and Lorain Counties in
Ohio. The Bank has concentrated its activities on serving the borrowing needs of
local homeowners and builders in its market area by originating both fixed-rate
and adjustable-rate single-family mortgage loans, as well as construction loans,
commercial real estate loans, and multi-family residential real estate loans. In
addition, the Bank originates loans secured by second mortgages, including
equity line of credit loans 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, 2004, 2003, AND 2002
PVF had total assets of $755.7 million, $743.4 million, and $679.6 million at
June 30, 2004, 2003, and 2002, respectively. The primary source of the Bank's
total assets has been its loan portfolio. Net loans receivable, loans receivable
held for sale, and mortgage-backed securities totaled $659.3 million, $613.5
million, and $579.5 million at June 30, 2004, 2003, and 2002, respectively. The
increase of $45.8 million at June 30, 2004 resulted from an increase in loans
receivable of $33.7 million, a decrease in loans receivable held for sale of
$21.7 million, and an increase in mortgage-backed securities of $33.8 million.
The increase of loans receivable resulted from increases, net of deferred fees,
of $27.8 million in commercial real estate loans, $15.7 million in home equity
line of credit loans, $4.0 million in commercial equity line of credit loans,
$2.2 million in non real estate loans, and $1.1 million in land loans. These
increases were offset by decreases, net of deferred fees, of $11.6 million in
one-to-four family residential loans, $3.3 million in construction loans, and
$2.2 million in multi-family loans. The decline in loans receivable held for
sale of $21.7 million is attributable to a slowdown in refinancing activity
resulting from rising interest rates in the current period. The increase in
mortgage-backed securities resulted from the purchase of $39.9 million in
mortgage-backed securities less payments received of $6.1 million. Securities
totaled $27.5 million, $0.03 million, and $55.1 million, and cash and cash
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
8
equivalents totaled $17.5 million, $96.8 million, and $14.3 million at June 30,
2004, 2003, and 2002, respectively. The Bank invested $15.0 million in Bank
Owned Life Insurance ("BOLI") during the year ended June 30, 2004. The BOLI was
purchased to improve return on assets and return on equity, as well as to take
advantage of the tax-free return on investment.
The securities portfolio has been and will continue to be used primarily to meet
the liquidity requirements of the Bank in its deposit taking and lending
activities.
The Bank has adopted a policy that permits investment only in U.S. government
and agency securities or Triple-A-rated securities. The Bank invests primarily
in securities having a final maturity of five years or less, federal funds sold,
and deposits at the 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 $526.5 million, $526.4 million, and $479.7 million
at June 30, 2004, 2003, and 2002, respectively. Advances from the FHLB amounted
to $135.0 million, $120.1 million, and $120.7 million at June 30, 2004, 2003,
and 2002, respectively. Management's decision to borrow FHLB advances and to
match market savings rates resulted in an increase in FHLB advances of $14.9
million and a slight increase in savings deposits of $0.1 million for the year
ended June 30, 2004. In June 2004, the Company formed a trust that issued $10.0
million in subordinated debt. The Company intends to use $7.0 million of the
proceeds from the sale of these securities to increase its investment in Park
View Federal Savings Bank and the balance to purchase treasury stock in
accordance with our existing stock repurchase program.
Funds from the decrease of $79.3 million in cash and cash equivalents, a
decrease in loans receivable held for sale of $21.7 million, an increase in FHLB
advances of $14.9 million, the issuance of $10.0 million in subordinated debt,
and the increase in stockholders' equity of $4.8 million were used to fund the
net increase of $67.5 million in loans receivable and mortgage-backed securities
held to maturity, purchase $27.5 million in securities, fund the increase of
$15.9 million in prepaid expenses and other assets resulting from the investment
in BOLI, fund the decrease of $14.1 million in accrued expenses and other
liabilities and advances from borrowers for tax and insurance, repay $3.3
million in notes payable, and fund the increase of $2.3 million in office
property and equipment.
CAPITAL
PVF's stockholders' equity totaled $63.4 million, $58.6 million, and $52.3
million at the years ended June 30, 2004, 2003, and 2002, 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, 2004, 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:
ParkView Requirement for
Federal Percent of Well-Capitalized
(dollars in thousands) Capital Assets (1) Institution
------- ---------- -----------
GAAP capital $60,716 7.97% N/A
Tangible capital $60,658 7.97% N/A
Core capital $60,658 7.97% 5.00%
Tier-1 risk-based capital $60,658 9.54% 6.00%
Risk-based capital $64,835 10.19% 10.00%
(1) Tangible and core capital levels are shown as a percentage of total adjusted
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
COMMON STOCK AND DIVIDENDS
The Company's common stock trades under the symbol "PVFC" on the NASDAQ
Small-Cap Market. A 10 percent stock dividend was issued in August 2004, 2003,
and 2002. As adjusted to reflect all stock dividends and purchases of treasury
stock, the Company had 7,044,365 shares of common stock outstanding and
approximately 244 holders of record of the common stock at September 7, 2004.
OTS regulations applicable to all Federal Savings Banks such as Park View
Federal
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
9
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, 2004, as adjusted to reflect all stock dividends, the Company had acquired a
total of 377,870 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 $0.074 per share, prior to adjustment for stock
dividends, was paid on the Company's outstanding common stock in fiscal 2004,
2003, and 2002.
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 2004 Fiscal 2003
----------- -----------
High Bid Low Bid High Bid Low Bid
-------- ------- -------- -------
Fourth Quarter $15.44 $11.64 $12.19 $10.75
Third Quarter 15.95 12.95 11.83 9.92
Second Quarter 14.97 12.95 10.72 8.35
First Quarter 13.68 11.33 9.03 5.70
(1) Quotations reflect inter-dealer prices without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
Bid prices have been adjusted to reflect the previously described stock
dividends.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity measures its ability to fund loans and meet withdrawals
of deposits and other cash outflows in a cost-effective manner. The Company's
primary sources of funds for operations are deposits from its primary market
area, principal and interest payments on loans and mortgage-backed securities,
sales of loans, proceeds from maturing securities, and advances from the FHLB of
Cincinnati. While loan and mortgage-backed securities payments and maturing
securities are relatively stable sources of funds, deposit flows and loan and
mortgage-backed securities prepayments are greatly influenced by prevailing
interest rates, economic conditions, and competition. FHLB advances may be used
on a short-term basis to compensate for deposit outflows or on a long-term basis
to support expanded lending and investment activities.
The Bank uses its capital resources principally to meet its ongoing commitment
to fund existing and continuing loan commitments, fund maturing certificates of
deposit and deposit withdrawals, repay borrowings, maintain its liquidity, and
meet operating expenses. At June 30, 2004, the Bank had commitments to originate
loans totaling $58.4 million, commitments to fund equity lines of credit
totaling $82.0 million, and $72.0 million of undisbursed loans in process.
Scheduled maturities of certificates of deposit during the 12 months following
June 30, 2004 total $304.1 million. Management believes that a significant
portion of the amounts maturing during fiscal 2005 will be reinvested with the
Bank because they are retail deposits, however, no assurances can be made that
this will occur.
Park View Federal maintains liquid assets sufficient to meet operational needs.
The Bank's most liquid assets are cash and cash equivalents, which are
short-term, highly-liquid investments that are readily convertible to known
amounts of cash. The levels of such assets are dependent upon the Bank's
operating, financing, and investment activities at any given time. Management
believes that the liquidity levels maintained are more than adequate to meet
potential deposit outflows, repay maturing FHLB advances, fund new loan demand,
and cover normal operations.
MARKET RISK MANAGEMENT
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates, exchange rates, and
equity prices. The Bank's market risk is composed of interest rate risk.
Asset/Liability Management: The Bank's asset and liability committee ("ALCO"),
which includes senior management representatives and two outside directors,
monitors and considers methods of managing the rate sensitivity and repricing
characteristics of the balance sheet components consistent with maintaining
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
10
PROFILE OF INTEREST EARNING ASSETS
(PIE CHART)
acceptable levels of changes in net portfolio value ("NPV") and net interest
income. Park View Federal's asset and liability management program is designed
to minimize the impact of sudden and sustained changes in interest rates on NPV
and net interest income.
The Bank's exposure to interest rate risk is reviewed on a quarterly basis by
the Board of Directors and the ALCO. Exposure to interest rate risk is measured
with the use of interest rate sensitivity analysis to determine the Bank's
change in NPV in the event of hypothetical changes in interest rates, while
interest rate sensitivity gap analysis is used to determine the repricing
characteristics of the Bank's assets and liabilities. If estimated changes to
NPV and net interest income are not within the limits established by the Board,
the Board may direct management to adjust its asset and liability mix to bring
interest rate risk within Board-approved limits.
In order to reduce the exposure to interest rate fluctuations, the Bank has
developed strategies to manage its liquidity, shorten 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.
PROFILE OF INTEREST BEARING LIABILITIES
(PIE CHART)
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
11
The following table presents the Bank's projected change in NPV for the various
rate shock levels at June 30, 2004 and 2003. 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, 2004 June 30, 2003
-------------------------------------------- ---------------------------------------------
Change in Market Value of Dollar NPV Market Value of Dollar NPV
Interest Rates Portfolio Equity Change Ratio Portfolio Equity Change Ratio
- -------------- ---------------- ------ ----- ---------------- ------ -----
+2% $ 74,999 $ (8,703) 9.69% $ 71,763 $ 6,455 9.37%
+1% 80,232 (3,472) 10.25 68,847 3,539 8.95
0 83,703 10.59 65,308 8.46
- -1% 83,477 (226) 10.49 59,358 (5,950) 7.66
- -2% N/A N/A N/A N/A N/A N/A
The table illustrates that for June 30, 2004, in the event of an immediate and
sustained increase in prevailing market interest rates, the Bank's NPV ratio
would be expected to decrease, while in the event of an immediate and sustained
decrease in prevailing market rates, the Bank's NPV ratio would decline
slightly. For 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, 2004, 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 or decrease in prevailing market interest
rates. The Bank's interest rate risk ("IRR") position is the result of the
repricing characteristics of assets and liabilities. The balance sheet is
primarily comprised of interest-earning assets having a maturity and repricing
period of one month to five years. These assets were funded utilizing
interest-bearing liabilities having a final maturity of two years or less 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, 2004 and
2003, 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
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
12
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in the table. Finally, the ability of many borrowers to repay
their adjustable-rate debt may decrease in the event of an interest rate
increase.
The Company uses interest rate sensitivity gap analysis to monitor the
relationship between the maturity and repricing of its interest-earning assets
and interest-bearing liabilities, while maintaining an acceptable interest rate
spread. Interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities maturing or repricing
within that time period. A gap is considered positive when the amount of
interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive
liabilities, and is considered negative when the amount of
interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period of rising interest
rates, a negative gap would adversely affect net interest income, while a
positive gap would result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap would result in an
increase in net interest income, while a positive gap would negatively affect
net interest income. Management's goal is to maintain a reasonable balance
between exposure to interest rate fluctuations and earnings.
The following table summarizes the Company's interest rate sensitivity gap
analysis at June 30, 2004. The table indicates that the Company's one year and
under ratio of cumulative gap to total assets is a positive 7.8 percent,
one-to-three year ratio of cumulative gap to total assets is a positive 1.9
percent, and three-to-five year ratio of cumulative gap to total assets is a
positive 14.0 percent.
Within 1-3 3-5 >5
(dollars in thousands) 1 Year Years Years Years Total
- ---------------------- ------ ----- ----- ----- -----
Total interest-rate-sensitive assets .... $ 390,630 $ 101,335 $ 150,117 $ 72,860 $ 714,942
Total interest-rate-sensitive liabilities 331,594 146,191 58,572 121,233 657,590
Periodic GAP ............................ 59,036 (44,856) 91,545 (48,373) 57,352
Cumulative GAP .......................... 59,036 14,180 105,725 57,352
Ratio of cumulative GAP to total assets . 7.8% 1.9% 14.0% 7.6%
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) 2004 2003
---- ----
Commitments to originate:
Mortgage loans held for sale ........... $29,805 $66,782
Mortgage loans held for investment ..... 28,619 12,669
Unfunded home equity and
commercial real estate lines of credit 82,028 68,445
Undisbursed portion of loan proceeds ... 72,042 59,763
Commitments to sell loans held for sale 10,842 89,630
Standby letters of credit .............. 4,329 1,417
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
13
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. The fair value of commitments to originate
mortgage loans held for sale and commitments to sell loans held for sale at June
30, 2004 was not considered material.
The following table presents as of June 30, 2004, PVF Capital Corp.'s
significant fixed and determinable contractual obligations by payment date. The
payment amounts represent those amounts contractually due to the recipient and
do not include any unamortized premiums or discounts or other similar carrying
value adjustments. Further discussion of the nature of each obligation is
included in the referenced note to the consolidated financial statements.
Contractual Obligations:
Note Within 1-3 3-5 >5
(dollars in thousands) Reference 1 Year Years Years Years Total
- --------------------------------------------------------------------------------------------------------------
Deposits without a stated maturity 7 $122,210 -- -- -- $122,210
Certificates of deposit 7 304,108 82,682 17,493 -- 404,283
Advances from the FHLB of Cincinnati 8 15,000 40 20,000 100,000 135,040
Notes payable 9 85 2,401 -- 10,000 12,486
Operating leases 11 765 1,520 1,190 1,086 4,561
RESULTS OF OPERATIONS
GENERAL
PVF Capital Corp.'s net income for the year ended June 30, 2004 was $6.9
million, or $0.98 basic earnings per share and $0.96 diluted earnings per share
as compared to $8.1 million, or $1.16 basic earnings per share and $1.14 diluted
earnings per share for fiscal 2003, and $7.2 million, or $1.02 basic earnings
per share and $1.00 diluted earnings per share for fiscal 2002. All per share
amounts have been adjusted for stock dividends.
Net income for the current year decreased by $1.2 million from the prior fiscal
year and $0.3 million from fiscal 2002. The decrease in net income from 2003 is
due to a decrease in net interest income and an increase in the provision for
loan losses and non-interest expense.
NET INTEREST INCOME
Net interest income amounted to $22.4 million for the year ended June 30, 2004,
as compared to $22.8 million and $21.8 million for the years ended June 30, 2003
and 2002, 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.
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
14
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 AVERAGE BALANCES, INTEREST, AND AVERAGE YIELDS AND RATES
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002
-------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $610,081 $ 36,605 6.00% $601,122 $ 40,690 6.77% $581,812 $ 44,323 7.62%
Mortgage-backed securities 39,180 1,860 4.75 4,705 285 6.06 11,662 719 6.17
Securities and other interest-earning assets 27,538 645 2.34 70,861 2,507 3.54 73,588 3,772 5.13
-------- -------- -------- -------- -------- --------
Total interest-earning assets 676,799 39,110 5.78 676,688 43,482 6.43 667,062 48,814 7.32
-------- -------- -------- -------- -------- --------
Non-interest-earning assets 46,232 27,709 30,112
-------- -------- --------
Total assets $723,031 $704,397 $697,174
======== ======== ========
Interest-bearing liabilities:
Deposits $497,803 $ 11,351 2.28 $496,910 $ 15,170 3.05 $471,320 $ 20,995 4.45
FHLB advances 127,020 5,237 4.12 122,034 5,205 4.27 142,820 5,824 4.08
Notes payable 4,049 152 3.75 7,060 271 3.84 5,600 241 4.30
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 628,872 16,740 2.66 626,004 20,646 3.30 619,740 27,060 4.37
-------- ---- -------- ---- -------- ----
Non-interest-bearing liabilities 32,780 23,031 26,947
-------- -------- --------
Total liabilities 661,652 649,035 646,687
Stockholders' equity 61,379 55,362 50,487
-------- -------- --------
Total liabilities and stockholders' equity $723,031 $704,397 $697,174
======== ======== ========
Net interest income $ 22,370 $ 22,836 $ 21,754
======== ======== ========
Interest rate spread 3.12% 3.13% 2.95%
==== ==== ====
Net yield on interest-earning assets 3.31% 3.37% 3.26%
==== ==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 107.62% 108.10% 107.64%
====== ====== ======
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.
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
15
Table 2 illustrates the extent to which changes in interest rates and shifts in
the volume of interest-related assets and liabilities have affected the Bank's
interest income and expense during the years indicated. The table shows the
changes by major component, distinguishing between changes relating to volume
(changes in average volume multiplied by average old rate) and changes relating
to rate (changes in average rate multiplied by average old volume). Changes not
solely attributable to volume or rate have been allocated in proportion to the
changes due to volume and rate.
Table 2 YEAR ENDED JUNE 30,
---------------------------------------------------------------
2004 vs. 2003 2003 vs. 2002
------------------------------ ------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------------ ------------------------------
(dollars in thousands) Volume Rate Total Volume Rate Total
------------------------------ ------------------------------
Interest income:
Loans $ 537 $(4,622) $(4,085) $ 1,471 $(5,103) $(3,632)
Mortgage-backed securities 1,637 (62) 1,575 (429) (5) (434)
Securities and other interest-earning assets (1,014) (848) (1,862) (97) (1,169) (1,266)
------- ------- ------- ------- ------- -------
Total interest-earning assets 1,160 (5,532) (4,372) 945 (6,277) (5,332)
------- ------- ------- ------- ------- -------
Interest expense:
Deposits 20 (3,839) (3,819) 1,140 (6,965) (5,825)
FHLB advances 206 (174) 32 (848) (228) (620)
Notes payable (113) (6) (119) 63 (32) 31
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 113 (4,019) (3,906) 355 (6,769) (6,414)
------- ------- ------- ------- ------- -------
Net interest income $ 1,047 $(1,513) $ (466) $ 590 $ 492 $ 1,082
======= ======= ======= ======= ======= =======
As is evidenced by these tables, interest rate changes had a negative effect
on the Bank's net interest income for the year ended June 30, 2004 and a
positive effect on the Bank's net interest income for the year ended June 30,
2003. Due to the repricing characteristics of the Bank's loan portfolio and
short-term nature of its deposit portfolio, along with changing interest rates
during the years ended June 30, 2004 and 2003, the Bank experienced a decrease
of 1 basis point in its interest rate spread to 3.12 percent for fiscal 2004
from 3.13 percent for fiscal 2003 and from 2.95 percent for fiscal 2002. These
changes in interest rate spread contributed to a decrease in net interest income
for the year ended June 30, 2004 of $1.5 million, and an increase in net
interest income for the year ended June 30, 2003 of $0.5 million due to interest
rate changes.
Net interest income was favorably affected by volume changes during the years
ended June 30, 2004 and 2003. Accordingly, net interest income grew by $1.0
million and $0.6 million due to volume changes for the years ended June 30, 2004
and 2003, 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.
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
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
16
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. Management believes it uses the best information available to
make a determination with respect to the allowance for loan losses, recognizing
that future adjustments may be necessary depending upon a change in economic
conditions.
During 2004, the Bank experienced growth in the loan portfolio of $33.7 million,
or 5.8 percent, much of which was in commercial real estate loans. In addition,
the level of impaired loans increased from $7.2 million to $7.9 million, while
the specific allowance related to impaired loans decreased from $235,000 to
$200,000. The allowance for loan losses to impaired loans was 56 percent in the
current period, compared to 54 percent at June 30, 2003. Net charge-offs
increased from $19,000 in 2003 to $103,000 in 2004. 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 $597,000 of additional provision to increase the allowance to a level
deemed appropriate of $4.4 million.
During 2003, the Bank experienced growth in the loan portfolio of $16.4 million,
or 2.9 percent, while substantially maintaining the composition of the loan
portfolio. In addition, the level of impaired loans decreased from $10.4 million
to $7.2 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 38 to 54 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.
NON-INTEREST INCOME
Non-interest income amounted to $6.1 million, $5.9 million, and $3.8 million for
the years ended June 30, 2004, 2003, and 2002, respectively. The fluctuations in
non-interest income are due primarily to fluctuations in income derived from
mortgage banking activities, fee income on deposit accounts, gains on sale of
real estate owned, and the increase in the cash surrender value of bank owned
life insurance. Income attributable to mortgage banking activities consists of
loan servicing income, gains and losses on the sale of loans, and market
valuation provisions and recoveries. Income from mortgage banking activities
amounted to $4.6 million, $4.9 million, and $3.0 million for the years ended
June 30, 2004, 2003, and 2002, respectively. The income from mortgage banking
activities is primarily due to 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
$1.5 million, $1.0 million, and $0.8 million for the years ended June 30, 2004,
2003, and 2002, respectively. The increase in other non-interest income of $0.5
million from the year ended June 30, 2003 to June 30, 2004 is attributable to
gains realized on the sale of real estate owned and the increase in the
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
17
cash surrender value of bank owned life insurance in 2004. The increase in other
non-interest income of $0.2 million 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 $17.6 million, $16.5 million, and $14.1 million
for the years ended June 30, 2004, 2003, and 2002, respectively. The principal
component of non-interest expense is compensation and related benefits which
amounted to $9.6 million, $8.7 million, and $7.6 million for the years ended
June 30, 2004, 2003, and 2002, respectively. The increase in compensation for
the years ended June 30, 2004 and 2003 is due primarily to growth in the staff,
employee 401K benefits, a compensation incentive plan for management, and salary
and wage adjustments to employees. Office occupancy totaled $3.4 million, $3.2
million, and $2.8 million for the years ended June 30, 2004, 2003, and 2002,
respectively. The increased office occupancy expense is attributable to
maintenance and repairs to office buildings, and the cost of opening and
operating additional branch offices. Other non-interest expense totaled $4.6
million, $4.6 million, and $3.7 million for the years ended June 30, 2004, 2003,
and 2002, respectively. Changes in other non-interest expense are primarily the
result of advertising, professional and legal services, insurance expenses,
outside services, and franchise tax expense.
FEDERAL INCOME TAXES
The Company's federal income tax expense was $3.4 million, $4.1 million, and
$3.6 million for the years ended June 30, 2004, 2003, and 2002, respectively.
Due to the availability of tax credits for the years ended June 30, 2004, 2003,
and 2002, 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 33 percent for the year ended June 30, 2004, and an effective rate of 34
percent for the years ended June 30, 2003, and 2002, 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 Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Company's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services, since such prices are affected by inflation to
a larger extent than interest rates. For further information regarding the
effect of interest rate fluctuations on the Company, see "Market Risk
Management."
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting and reporting policies of PVF Capital Corp. are in accordance
with 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.
(PVF CAPITAL CORP. 2004 ANNUAL REPORT GRAPHIC)
18
(PARK VIEW FEDERAL SAVINGS BANK LOGO)
Office Locations and Hours
AVON OFFICE
36311 Detroit Road
Avon, Ohio 44011
440-934-3580
BAINBRIDGE OFFICE
8500 Washington Street
Chagrin Falls, Ohio 44023
440-543-8889
BEDFORD OFFICE
413 Northfield Road
Bedford, Ohio 44146
440-439-2200
CHARDON OFFICE
408 Water Street
Chardon, Ohio 44024
440-285-2343
MACEDONIA OFFICE
497 East Aurora Road
Macedonia, Ohio 44056
330-468-0055
MAYFIELD HEIGHTS OFFICE
1244 SOM Center Road
Mayfield Hts., Ohio 44124
440-449-8597
MEDINA OFFICE
Reserve Square
3613 Medina Road
Medina, Ohio 44256
330-721-7484
MENTOR OFFICE
Heisley Corners
6990 Heisley Road
Mentor, Ohio 44060
440-944-0276
NORTH ROYALTON OFFICE
13901 Ridge Road
North Royalton, Ohio 44133
440-582-7417
SOLON OFFICE
Solar Shopping Center
34400 Aurora Road
Solon, Ohio 44139
440-542-6070
STREETSBORO OFFICE
9305 Market Square Drive
P.O. Box 2130
Streetsboro, Ohio 44241
330-626-9444
STRONGSVILLE OFFICE
17780 Pearl Road
Strongsville, Ohio 44136
440-878-6010
LOBBY
MON., TUES., WED., THURS.:
9:00 am - 4:30 pm
FRIDAY: 9:00 am - 5:30 pm
SATURDAY: 9:00 am - 1:00 pm
AUTO TELLER
MON., TUES., WED., THURS.:
9:00 am - 5:00 pm
FRIDAY: 9:00 am - 6:00 pm
SATURDAY: 9:00 am - 1:00 pm
BEACHWOOD OFFICE
La Place
2111 Richmond Road
Beachwood, Ohio 44122
216-831-6373
LAKEWOOD-CLEVELAND OFFICE
11010 Clifton Blvd.
Cleveland, Ohio 44102
216-631-8900
LOBBY
MON., TUES., THURS.:
9:00 am - 4:30 pm
FRIDAY: 9:00 am - 5:30 pm
SATURDAY: 9:00 am - 1:00 pm
CLOSED WEDNESDAY
AUTO TELLER
MON., TUES., THURS.:
9:00 am - 5:00 pm
FRIDAY: 9:00 am - 6:00 pm
SATURDAY: 9:00 am - 1:00 pm
CLOSED WEDNESDAY
SHAKER HEIGHTS OFFICE
Shaker Towne Centre
16909 Chagrin Blvd.
Shaker Hts., Ohio 44120
216-283-4003
LOBBY
MON., TUES., WED., THURS.:
9:00 am - 4:30 pm
FRIDAY: 9:00 am - 6:00 pm
SATURDAY: 9:00 am - 1:00 pm
CORPORATE CENTER OFFICE
30000 Aurora Road
Solon, Ohio 44139
440-914-3900
LOBBY & AUTO TELLER
MONDAY - FRIDAY:
9:00 am - 5:00 pm
CLOSED SATURDAY
19
(PARK VIEW FEDERAL SAVINGS BANK LOGO)
BOARD OF DIRECTORS
JOHN R. MALE
Chairman of the Board and
Chief Executive Officer
C. KEITH SWANEY
President, Chief Operating Officer
and Chief Financial Officer
GERALD A. FALLON
Retired
ROBERT K. HEALEY
Retired
RONALD D. HOLMAN, II
Partner
Cavitch, Familo, Durkin & Frutkin
STANLEY T. JAROS
Partner
Moriarty & Jaros, P.L.L.
RAYMOND J. NEGRELLI
President
Raymond J. Negrelli, Inc.
STUART D. NEIDUS
Chairman and
Chief Executive Officer
Anthony & Sylvan Pools Corporation
OFFICERS
JOHN R. MALE
Chairman of the Board and
Chief Executive Officer
C. KEITH SWANEY
President, Chief Operating Officer
and Chief Financial Officer
JEFFREY N. MALE
Executive Vice President
WILLIAM J. HARR, JR.
Senior Vice President
Lending
ANNE M. JOHNSON
Senior Vice President
Operations
CAROL S. PORTER
Corporate Secretary and
Marketing Director
EDWARD B. DEBEVEC
Treasurer
MARK E. FOSNAUGHT
Vice President
Branch Coordinator
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
PVF Capital Corp.
Solon, Ohio
We have audited the accompanying consolidated statements of financial condition
of PVF Capital Corp. ("Company") as of June 30, 2004 and 2003, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PVF Capital Corp. as
of June 30, 2004 and 2003, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 2004 in conformity with
U.S. generally accepted accounting principles.
(CROWE CHIZEK AND COMPANY LLC)
Cleveland, Ohio
July 16, 2004
21
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Years ended June 30, 2004 and 2003
ASSETS 2004 2003
--------------- ---------------
Cash and amounts due from depository institutions $ 4,550,446 $ 9,755,224
Interest bearing deposits 894,327 3,946,019
Federal funds sold 12,025,000 83,050,000
--------------- ---------------
Cash and cash equivalents 17,469,773 96,751,243
Securities held to maturity (fair values of $27,399,975 and
$33,252, respectively) 27,500,000 33,252
Mortgage-backed securities held to maturity (fair values
of $35,390,465 and $3,032,386, respectively) 36,779,289 2,930,543
Loans receivable held for sale, net 11,870,775 33,603,895
Loans receivable, net of allowance of
$4,376,704 and $3,882,839 610,680,821 576,985,116
Office properties and equipment, net 13,888,392 11,555,919
Real estate owned 70,000 448,865
Federal Home Loan Bank stock 10,825,600 10,396,399
Prepaid expenses and other assets 26,602,759 10,698,571
--------------- ---------------
Total assets $ 755,687,409 $ 743,403,803
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 526,492,714 $ 526,428,927
Short-term advances from the FHLB 15,000,000 --
Long-term advances from the FHLB 120,039,831 120,123,220
Notes payable 2,486,250 5,815,150
Subordinated debentures 10,000,000 --
Advances from borrowers for taxes and insurance 2,376,872 7,964,653
Accrued expenses and other liabilities 15,930,799 24,468,717
--------------- ---------------
Total liabilities 692,326,466 684,800,667
--------------- ---------------
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;
7,420,045 and 6,717,283 shares issued, respectively 74,200 67,173
Additional paid-in capital 58,378,089 47,176,696
Retained earnings 8,035,847 14,486,460
Treasury stock, at cost, 377,870 and
343,519 shares, respectively (3,127,193) (3,127,193)
--------------- ---------------
Total stockholders' equity 63,360,943 58,603,136
--------------- ---------------
Total liabilities and stockholders' equity $ 755,687,409 $ 743,403,803
=============== ===============
See accompanying notes to consolidated financial statements.
22
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 2004, 2003 and 2002
Interest income: 2004 2003 2002
-------------- -------------- --------------
Loans $ 36,604,621 $ 40,690,675 $ 44,322,897
Mortgage-backed securities 1,860,224 285,167 719,321
Federal Home Loan Bank stock 429,402 449,026 505,673
Cash and securities 215,394 2,057,829 3,266,790
-------------- -------------- --------------
Total interest income 39,109,641 43,482,697 48,814,681
Interest expense:
Deposits 11,351,365 15,169,502 20,995,003
Borrowings 5,387,849 5,476,773 6,065,389
-------------- -------------- --------------
Total interest expense 16,739,214 20,646,275 27,060,392
-------------- -------------- --------------
Net interest income 22,370,427 22,836,422 21,754,289
Provision for loan losses: 597,300 -- 558,000
-------------- -------------- --------------
Net interest income after provision
for loan losses 21,773,127 22,836,422 21,196,289
Noninterest income:
Service and other fees 660,646 743,877 625,631
Mortgage banking activities, net 4,632,561 4,922,069 2,985,424
Gain on sale of real estate owned 488,839 -- --
Other, net 347,710 227,057 139,913
-------------- -------------- --------------
Total noninterest income 6,129,756 5,893,003 3,750,968
Noninterest expense:
Compensation and benefits 9,590,924 8,694,397 7,643,251
Office, occupancy, and equipment 3,394,285 3,151,956 2,758,158
Insurance 232,926 262,366 226,511
Professional and legal 397,179 518,648 425,185
Advertising 373,702 499,438 368,775
Outside services 876,799 857,050 520,181
Franchise tax 728,400 647,890 581,990
Other 1,977,065 1,877,460 1,614,584
-------------- -------------- --------------
Total noninterest expense 17,571,280 16,509,205 14,138,635
-------------- -------------- --------------
Income before federal income taxes 10,331,603 12,220,220 10,808,622
Federal income taxes:
Current 2,287,524 3,966,092 3,431,586
Deferred 1,134,025 157,672 203,727
-------------- -------------- --------------
3,421,549 4,123,764 3,635,313
-------------- -------------- --------------
Net income $ 6,910,054 $ 8,096,456 $ 7,173,309
============== ============== ==============
Basic earnings per share $ 0.98 $ 1.16 $ 1.02
============== ============== ==============
Diluted earnings per share $ 0.96 $ 1.14 $ 1.00
============== ============== ==============
See accompanying notes to consolidated financial statements.
23
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 2004, 2003 and 2002
Additional
Common paid-in Retained Treasury
stock capital Earnings stock Total
------------ ------------ ------------ ------------- ------------
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, $0.222 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, $0.245 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
Net income -- -- 6,910,054 -- 6,910,054
Stock options exercised, 34,580 shares 346 256,447 -- -- 256,793
Stock purchased and retired,
6,373 shares (64) (94,147) -- -- (94,211)
Cash paid in lieu of fractional shares (2,814) -- (2,814)
Stock dividend issued, 674,555 shares 6,745 11,039,093 (11,045,838) -- --
Cash dividend, $0.330 per share (2,312,015) -- (2,312,015)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 2004 $ 74,200 $ 58,378,089 $ 8,035,847 $ (3,127,193) $ 63,360,943
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
24
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2004, 2003 and 2002
2004 2003 2002
------------- ------------- -------------
Operating activities:
Net income $ 6,910,054 $ 8,096,456 $ 7,173,309
Adjustments required to reconcile net
income to net cash from operating
activities:
Amortization of premium on
mortgage-backed securities 72,548 1,771 1,771
Depreciation 1,658,958 1,407,503 1,060,530
Provision for loan losses 597,300 -- 558,000
Accretion of deferred loan
origination fees, net (1,108,263) (1,244,214) (1,130,822)
Gain on disposal of real estate owned (488,839) -- --
FHLB stock dividends (429,201) (448,775) (505,319)
Deferred income tax provision 1,134,025 157,672 203,727
Proceeds from loans held for sale 301,018,063 453,735,624 295,706,407
Originations of loans held for sale (277,787,331) (475,659,784) (301,234,328)
Gain on the sale of loans, net (5,260,163) (6,727,015) (2,981,311)
Net change in other assets
and other liabilities (7,841,279) 12,410,926 (1,620,985)
------------- ------------- -------------
Net cash from operating activities 18,475,872 (8,269,836) (2,769,021)
------------- ------------- -------------
Investing activities:
Loans originated (137,580,380) (170,534,726) (135,864,877)
Principal repayments on loans 104,195,639 162,351,576 149,065,323
Principal repayments on mortgage-
backed securities held to maturity 5,932,009 4,364,892 10,916,457
Purchase of mortgage-backed securities
held to maturity (39,853,303) -- --
Purchase of securities held to maturity (27,500,000) (30,000,000) (55,000,000)
Maturities and calls of securities held
to maturity 33,252 85,087,959 50,090,394
Additions to office properties and
equipment (3,991,431) (3,146,074) (3,094,421)
Acquisition of bank-owned life insurance (15,000,000) -- --
Disposals of real estate owned 1,166,703 114,259 353,100
Acquisition of real estate owned (70,000) -- --
(Additions) disposal of real estate held
for investment, net 525,000 (50,000) (350,000)
------------- ------------- -------------
Net cash from investing activities (112,142,511) 48,187,886 16,115,976
See accompanying notes to consolidated financial statements.
25
PVF CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended June 30, 2004, 2003 and 2002
2004 2003 2002
-------------- -------------- --------------
Financing Activities:
Payments on long-term FHLB advances (83,389) (616,476) (65,127,160)
Net change in short-term FHLB advances 15,000,000 -- --
Proceeds from notes payable -- -- 6,650,000
Repayment of notes payable (3,328,900) (2,472,870) (3,061,980)
Net change in NOW and passbook savings (2,052,829) 16,190,703 23,728,050
Proceeds from issuance of certificates
of deposit 107,020,928 135,463,914 88,664,759
Payments on maturing certificates of deposit (104,904,312) (104,897,908) (113,252,740)
Proceeds from issuance of subordinated
debentures 10,000,000 -- --
Net increase (decrease) in advances
from borrowers (5,587,781) 644,040 851,552
Payment of cash dividend (1,841,130) (1,654,844) (1,536,424)
Purchase of treasury stock -- (324,975) (1,639,602)
Proceeds from exercise of stock options 256,793 187,921 295,169
Stock repurchased and retired (94,211) -- --
------------- ------------- -------------
Net cash from financing activities 14,385,169 42,519,505 (64,428,385)
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents (79,281,470) 82,437,555 (51,081,430)
Cash and cash equivalents at beginning
of year 96,751,243 14,313,688 65,395,118
------------- ------------- -------------
Cash and cash equivalents at end of year $ 17,469,773 $ 96,751,243 $ 14,313,688
============= ============= =============
Supplemental disclosures of cash flow
information:
Cash payments of interest $ 16,740,542 $ 20,733,040 $ 28,600,682
Cash payments of income taxes 2,760,000 4,020,000 2,825,000
Supplemental schedule of noncash
investing and financing activities:
Transfers to real estate owned $ 200,000 $ -- $ 355,132
See accompanying notes to consolidated financial statements.
26
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
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, Lorain and Portage Counties, Ohio. The
deposit accounts of the Bank are insured up to applicable limits 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 Holdings, Inc., and
Mid-Pines Land Co. PVFSC owns some Bank premises and leases them to the Bank.
PVF Holdings, Inc. and Mid-Pines Land Co. did not have any significant assets or
activity as of or for the years ended June 30, 2004, 2003, or 2002. All
significant intercompany transactions and balances are eliminated in
consolidation.
PVFSC has entered into various nonconsolidated joint ventures that own real
estate including properties leased to the Bank.
PVF Capital Trust I ("Trust") was created for the sole purpose of issuing trust
preferred securities. The Trust is not consolidated into the financial
statements.
Use of Estimates: The preparation of financial statements in conformity with
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, the valuation of mortgage
servicing rights, and fair value of financial instruments are particularly
subject to change.
Securities: The Company classifies all securities as held to maturity.
Securities held to maturity are limited to debt securities that the Company has
the positive intent and the ability to hold to maturity; these securities are
reported at amortized cost. Securities that could be sold in the future because
of changes in interest rates or other factors are not to be classified as held
to maturity. Other securities such as Federal Home Loan Bank stock are carried
at cost.
(Continued)
27
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED
MATTERS (Continued)
Gains or losses on calls exercised on securities are recognized at the date of
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.
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 deferred loan fees and costs, and an allowance for
loan losses. Interest income is reported in the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Uncollectible interest on loans that are contractually 90 days or more past due
is charged off against interest income. 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.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level to absorb probable incurred losses in the portfolio as of the balance
sheet date. The adequacy of the allowance for loan losses is periodically
evaluated by the Bank based upon the overall portfolio composition and general
market conditions as well as information about specific borrower situations and
estimated collateral values. While management uses the best information
available to make these evaluations, future adjustments to the allowance may be
necessary if economic conditions change substantially from the assumptions used
in making the evaluations. Allocations of the allowance may be made for specific
loans, but the entire allowance is available for any loan that, in management's
judgment, should be charged-off. Loan losses are charged against the allowance
when management believes the uncollectibility of a loan balance is confirmed.
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.
Mortgage Banking Activities: Mortgage loans originated and intended for sale in
the secondary market include deferred origination fees and costs and are carried
at the lower of cost or fair value, determined on an aggregate basis. The fair
value of mortgage loans held for sale is based on market prices and yields at
period end in normal market outlets used by the Company.
(Continued)
28
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED
MATTERS (Continued)
The Company sells the loans on either a servicing retained or servicing released
basis. Servicing rights are recognized as assets for the allocated value of
retained servicing rights on loans sold. The capitalized cost of loan servicing
rights is amortized in proportion to and over the period of estimated net future
servicing revenue. The expected period of the estimated net servicing income is
based, in part on the expected prepayment of the underlying mortgages.
Mortgage servicing rights are periodically evaluated for impairment. Impairment
represents the excess of amortized cost over its estimated fair value.
Impairment is evaluated based upon the fair value of the assets. Fair value is
determined using prices for similar assets with similar characteristics, when
available, or based upon discounted cash flows using market-based assumptions.
Any impairment is reported as a valuation allowance. The impairment charges
incurred and reversed during the periods ended June 30, 2004 and 2003 were a
result of this process and the change in market values during those periods.
Office Properties and Equipment: Land is carried at cost. Buildings and
equipment are stated at cost less accumulated depreciation. Depreciation and
amortization are computed using the straight-line method at rates expected to
amortize the cost of the assets over their estimated useful lives or, with
respect to leasehold improvements, the term of the lease, if shorter. Estimated
lives range from one to forty years.
Bank-Owned Life Insurance: The Company has purchased life insurance policies on
certain key executives. Bank-owned life insurance is recorded at its cash
surrender value, or the amount that can be realized.
Income Taxes: Income tax expense is the total of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
Real Estate Owned: Assets acquired through or instead of loan foreclosure are
initially recorded at the lower of cost or fair value less estimated selling
costs. If fair value declines subsequent to foreclosure, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
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 using the intrinsic value method. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying 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.
2004 2003 2002
Net income as reported $ 6,910,054 $ 8,096,456 $ 7,173,309
Deduct: Stock-based compensation expense
determined under fair value based method 100,135 124,135 104,521
------------ ------------- -------------
Pro forma net income $ 6,809,919 $ 7,972,321 $ 7,068,788
============ ============= =============
Basic earnings per share as reported $ 0.98 $ 1.16 $ 1.02
Pro forma basic earnings per share $ 0.97 $ 1.14 $ 1.01
Diluted earnings per share as reported $ 0.96 $ 1.14 $ 1.00
Pro forma diluted earnings per share $ 0.95 $ 1.12 $ 0.98
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
2004 2003 2002
---------- ---------- ----------
Risk-free interest rate 3.76% 3.50% 4.73%
Expected option life 7 years 7 years 7 years
Expected stock price volatility 29.78% 35.00% 37.00%
Dividend yield 1.99% 2.50% 2.73%
Earnings Per Share: Basic 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.
(Continued)
30
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED
MATTERS (Continued)
The per share data for 2004, 2003 and 2002 are adjusted to reflect the 10% stock
dividends declared June 2004, June 2003, and June 2002.
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.
Loan Commitments and Related Financial Instruments: Financial instruments
include off-balance sheet credit instruments, such as commitments to make loans
issued to meet customer financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.
Instruments, such as standby letters of credit, are considered financial
guarantees in accordance with FASB Interpretation No. 45.
Restrictions on Cash: Cash on deposit with another institution of $348,000 and
$1,096,000 was required to meet regulatory reserve requirements at June 30, 2004
and 2003, respectively. These balances do not earn interest.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 2 - SECURITIES
Securities held to maturity at June 30, 2004 and 2003 are summarized as follows:
2004
-------------------------------------------------------------------
Gross Gross Estimated
Carrying Unrecognized Unrecognized Fair
Amount Gain Loss Value
------------- --------------- ------------ ---------------
United States agency securities $ 27,500,000 $ -- $ (100,025) $ 27,399,975
============= =============== ============ ===============
Due after one year through five years $ 27,500,000 $ -- $ (100,025) $ 27,399,975
============= =============== ============ ===============
2003
-------------------------------------------------------------------
Gross Gross Estimated
Carrying Unrecognized Unrecognized Fair
Amount Gain Loss Value
------------- --------------- ------------ ---------------
Municipal bond $ 33,252 $ -- $ -- $ 33,252
============= =============== ============ ===============
Due within one year $ 33,252 $ -- $ -- $ 33,252
============= =============== ============ ===============
There were no sales of securities for the years ended June 30, 2004, 2003 or
2002.
At year end 2004 and 2003, there were no holdings of securities of any one
issuer, other than the U.S. Government and its agencies, in an amount greater
than 10% of shareholders' equity.
Securities with unrealized losses at year end 2004 not recognized in income are
as follows:
Less than 12 Months Total
------------------------------ ------------------------------
Fair Unrecognized Fair Unrecognized
Description of Securities Value Loss Value Loss
- ------------------------------- --------------- ------------ --------------- ------------
United States agency securities $ 27,399,975 $ (100,025) $ 27,399,975 $ (100,025)
=============== =========== =============== ===========
Unrecognized losses on these securities have not been recognized into income
because the securities are of high credit quality and management has the intent
and ability to hold them until maturity and the unrecognized losses are
attributable to changes in interest rates.
(Continued)
32
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 3 - MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity at June 30, 2004 and 2003 are
summarized as follows:
2004
-------------------------------------------------------------------
Gross Gross Estimated
Carrying Unrecognized Unrecognized Fair
Amount Gain Loss Value
------------- --------------- ------------ ---------------
FNMA mortgage-backed securities $ 35,774,087 $ 5,350 $ (1,400,267) $ 34,379,170
FHLMC mortgage-backed securities 1,005,202 6,093 -- 1,011,295
------------- --------------- ------------ ---------------
$ 36,779,289 $ 11,443 $ (1,400,267) $ 35,390,465
============= =============== ============ ===============
Due after ten years $ 36,779,289 $ 11,443 $ (1,400,267) $ 35,390,465
============= =============== ============ ===============
2003
-------------------------------------------------------------------
Gross Gross Estimated
Carrying Unrecognized Unrecognized Fair
Amount Gain Loss Value
------------- --------------- ------------ ---------------
FNMA mortgage-backed securities $ 89,721 $ 2,909 $ -- $ 92,630
FHLMC mortgage-backed securities 2,840,822 98,934 -- 2,939,756
------------- --------------- ------------ ---------------
$ 2,930,543 $ 101,843 $ -- $ 3,032,386
============= =============== ============ ===============
There were no sales of mortgage-backed securities for the years ended June 30,
2004, 2003 or 2002.
Mortgage-backed securities with unrealized losses at year end 2004 not
recognized in income are as follows:
Less than 12 Months Total
------------------------------ ------------------------------
Description of Fair Unrecognized Fair Unrecognized
Mortgage-backed Securities Value Loss Value Loss
- ------------------------------- --------------- ------------ --------------- ------------
FNMA mortgage-backed
securities $ 34,286,991 $(1,400,267) $ 34,286,991 $(1,400,267)
============== =========== =============== ===========
Unrecognized losses on these securities have not been recognized into income
because the securities are of high credit quality and management has the intent
and ability to hold them until maturity and the unrecognized losses are
attributable to changes in interest rates.
(Continued)
33
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 4 - LOANS RECEIVABLE
Loans receivable at June 30, 2004 and 2003, consist of the following:
2004 2003
---------------- ----------------
Real estate mortgages:
One-to-four family residential $ 128,209,918 $ 139,774,348
Home equity line of credit 83,505,220 67,822,058
Multi-family residential 38,776,777 40,941,727
Commercial 175,323,234 146,686,357
Commercial equity line of credit 38,113,453 34,080,887
Land 54,047,091 52,962,675
Construction - residential 70,832,624 73,160,279
Construction - multi-family -- 217,378
Construction - commercial 15,678,754 16,496,096
---------------- ----------------
Total real estate mortgages 604,487,071 572,141,805
Non real estate loans 13,951,135 11,760,916
---------------- ----------------
618,438,206 583,902,721
Net deferred loan origination fees (3,380,681) (3,034,766)
Allowance for loan losses (4,376,704) (3,882,839)
---------------- ----------------
$ 610,680,821 $ 576,985,116
================ ================
A summary of the changes in the allowance for loan losses for the years ended
June 30, 2004, 2003, and 2002, is as follows:
2004 2003 2002
-------------- ------------- -------------
Beginning balance $ 3,882,839 $ 3,901,839 $ 3,520,198
Provision charged to operations 597,300 -- 558,000
Charge-offs (132,435) (19,000) (206,078)
Recoveries 29,000 -- 29,719
-------------- ------------- -------------
Ending balance $ 4,376,704 $ 3,882,839 $ 3,901,839
============== ============= =============
(Continued)
34
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 4 - LOANS RECEIVABLE (Continued)
The following is a summary of the principal balances of nonperforming loans at
June 30:
2004 2003
------------- -------------
Loans on nonaccrual status:
Real estate mortgages:
One-to-four family residential $ 4,707,428 $ 3,072,917
Commercial 4,455,529 2,879,445
Multi-family residential -- 137,085
Construction and land 1,469,754 1,347,905
------------- -------------
Total loans on nonaccrual status 10,632,711 7,437,352
Loans past due 90 days, still on accrual status:
Real estate mortgages:
One-to-four family residential 69,703 --
Commercial 432,941 --
Construction and land -- 275,461
------------- -------------
Total nonaccrual and past due loans $ 11,135,355 $ 7,712,813
============= =============
At June 30, 2004 and 2003, the recorded investment in loans, which have been
identified as being impaired, totaled $7,865,000, and $7,172,000, respectively.
Included in the impaired amount at June 30, 2004 and 2003, is $706,131, and
$1,095,934, respectively, related to loans with a corresponding valuation
allowance of $200,000, and $234,719, respectively.
Average impaired loans for the years ended June 30, 2004, 2003 and 2002 amounted
to $7,926,000, $9,172,000, and $5,101,000, respectively. The Company recognized
$165,300 and $406,900 in interest on impaired loans in 2004 and 2003. No
interest was recognized on impaired loans in 2002.
(Continued)
35
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
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, 2004, consist of
the following:
2004 2003 2002
-------------- ------------- --------------
Mortgage loan servicing fees $ 1,761,286 $ 1,446,168 $ 1,116,929
Amortization and changes in valuation allowance
for mortgage servicing rights (2,388,888) (3,251,114) (1,112,817)
Gross realized:
Gains on sales of loans 6,930,590 8,214,611 3,079,814
Losses on sales of loans (1,670,427) (1,487,596) (98,502)
-------------- ------------- --------------
$ 4,632,561 $ 4,922,069 $ 2,985,424
============== ============= ==============
At June 30, 2004 and 2003, the Company was servicing whole and participation
mortgage loans for others aggregating $746,787,300, and $658,967,272,
respectively. These loans are not reported as assets. The Company had
$11,755,302, and $20,143,571 at June 30, 2004 and 2003, 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, 2004, 2003 and 2002 were as follows:
2004 2003 2002
------------- ------------- -------------
Beginning balance $ 4,655,182 $ 3,255,147 $ 1,284,678
Originated 3,762,551 3,981,149 3,083,286
Amortized (3,058,888) (2,581,114) (1,112,817)
------------- ------------- -------------
Ending balance $ 5,358,845 $ 4,655,182 $ 3,255,147
============= ============= =============
Valuation Allowance
Beginning balance $ 670,000 $ -- $ --
Additions expensed -- 670,000 --
Reductions credited to expense (670,000) -- --
------------- ------------- -------------
Ending balance $ -- $ 670,000 $ --
============= ============= =============
NOTE 6 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at cost, less accumulated depreciation and
amortization at June 30, 2004 and 2003 are summarized as follows:
2004 2003
------------- ---------------
Land and land improvements $ 1,034,892 $ 847,500
Building and building improvements 5,576,225 4,702,678
Leasehold improvements 5,699,721 4,966,034
Furniture and equipment 10,471,403 8,436,598
------------ --------------
22,782,241 18,952,810
Less accumulated depreciation and amortization (8,893,849) (7,396,891)
------------ --------------
$ 13,888,392 $ 11,555,919
============ ==============
(Continued)
36
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 7 - DEPOSITS
Deposit balances at June 30, 2004 and 2003 are summarized by interest rate as
follows:
2004 2003
--------------------------- --------------------------
Amount % Amount %
---------------- ------ ---------------- ------
NOW and money market accounts
Noninterest bearing -- -- $ 16,429,334 3.1% $ 14,682,098 2.8%
Interest bearing 0.245 - 4.00% 59,054,708 11.2 66,389,265 12.6
---------------- ----- ---------------- -----
75,484,042 14.3 81,071,363 15.4
Passbook savings 1.00 - 2.50% 46,726,011 8.9 43,191,519 8.2
Certificates of deposit 0.50 - 1.99% 109,995,876 20.9 71,825,960 13.6
2.00 - 2.99 155,925,736 29.6 100,173,672 19.0
3.00 - 3.99 66,107,497 12.6 147,737,107 28.1
4.00 - 4.99 50,336,514 9.6 53,456,947 10.2
5.00 - 5.99 15,459,083 2.9 20,956,710 4.0
6.00 - 6.99 4,837,859 0.9 6,283,529 1.2
7.00 - 7.99 1,533,292 0.3 1,651,935 0.3
8.00 - 8.99 86,804 0.0 80,185 0.0
---------------- ----- ---------------- -----
404,282,661 76.8 402,166,045 84.6
---------------- ----- ---------------- -----
$ 526,492,714 100.0% $ 526,428,927 100.0%
================ ===== ================ =====
Weighted average rate on deposits 2.19% 2.61%
===== =====
2004 2003
--------------------------- --------------------------
Amount % Amount %
---------------- ------ ---------------- ------
Remaining term to maturity of
certificates of deposit:
12 months or less $ 304,107,729 75.3% $ 249,316,121 62.0%
13 to 24 months 60,283,357 14.9 115,880,269 28.8
25 to 36 months 22,398,689 5.5 13,613,069 3.4
37 to 48 months 17,492,886 4.3 23,356,586 5.8
---------------- ----- ---------------- -----
$ 404,282,661 100.0% $ 402,166,045 100.0%
================ ===== ================ =====
Weighted average rate on certificates of deposit 2.78% 3.23%
==== ====
(Continued)
37
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 7 - DEPOSITS (Continued)
Time deposits in amounts of $100,000 or more totaled approximately $119,851,000
and $109,893,000 at June 30, 2004 and 2003, respectively.
Interest expense on deposits is summarized as follows:
2004 2003 2002
---------------- --------------- ----------------
NOW accounts $ 276,456 $ 899,621 $ 1,079,276
Passbook accounts 227,222 470,504 660,260
Certificates of deposit 10,847,687 13,799,377 19,255,467
---------------- --------------- ----------------
$ 11,351,365 $ 15,169,502 $ 20,995,003
================ =============== ================
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, 2004 and 2003, were as follows:
Maturity Interest rate 2004 2003
- -------- ------------- ---------------- ----------------
July 1, 2004 1.25 $ 15,000,000 $ --
February 2006 6.05 39,831 123,220
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
---------------- ----------------
$ 135,039,831 $ 120,123,220
================ ================
Weighted average interest rate 3.96% 4.29%
================ ================
Each of the advances, except the advance maturing in July 2004 and 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. The
Bank maintains two lines of credit totaling $130,000,000, with the Federal Home
Loan Bank of Cincinnati ("FHLB"). The $100,000,000 repurchase line matures in
October 2004. At June 30, 2004, $15,000,000 was drawn on the repurchase line of
credit. The Bank has chosen to take daily advances from this line, with the
interest rate set daily. The $30,000,000 cash management line matures in October
2004.
In order to secure these advances, the Bank has pledged mortgage loans with
unpaid principal balances aggregating approximately $308,369,000 and
$113,341,000 at June 30, 2004 and 2003, respectively, plus FHLB stock. In
addition, at June 30, 2003, $21,000,000 in overnight cash was pledged for such
advances.
(Continued)
38
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 9 - SUBORDINATED DEBENTURES AND NOTES PAYABLE
On March 8, 2002, one of the Company's subsidiaries obtained a $3.4 million term
loan with a remaining unpaid principal balance of $2.5 million 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:
2005 $ 85,470
2006 92,520
2007 2,308,260
----------
$2,486,250
==========
In June 2004, the Company formed a special purpose entity, PVF Capital Trust I
("Trust"), for the sole purpose of issuing $10,000,000 of variable-rate trust
preferred securities. The Company issued Subordinated Deferrable Interest
Debentures ("subordinated debentures") to the Trust in exchange for the proceeds
of the offering of the trust preferred securities. The trust preferred security
carries a variable interest rate that adjusts to LIBOR plus 260 basis points. At
June 30, 2004 the interest rate was 4.20%.
The subordinated debentures are the sole asset of the trust. The trust preferred
securities will mature June 29, 2034 but may be redeemed by the Trust at par, at
its option, starting June 29, 2009.
(Continued)
39
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
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:
2004 2003 2002
------------------ ------------------ ------------------
Amount % Amount % Amount %
---------- ---- ---------- ---- ---------- ----
Computed expected tax $3,616,061 35.0% $4,277,077 35.0% $3,783,018 35.0%
Increase (decrease) in tax
resulting from:
Benefit of graduated rates (103,316) (1.0) (100,000) (1.0) (100,000) (1.0)
Tax credits (111,646) (1.1) (111,646) (0.9) (111,646) (1.0)
Other, net 20,450 0.2 58,333 0.6 63,941 0.6
---------- ---- ---------- ---- ---------- ----
$3,421,549 33.1% $4,123,764 33.7% $3,635,313 33.6%
========== ==== ========== ==== ========== ====
The net tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 2004 and 2003
are:
2004 2003
----------- -----------
Deferred tax assets:
Loan loss and other reserves $ 1,420,079 $ 1,294,629
Deferred compensation 566,264 426,964
Unrealized gains on loans held for sale -- 364,130
Other 47,637 36,909
----------- -----------
Total gross deferred tax assets 2,033,980 2,122,632
Deferred tax liabilities:
Deferred loan fees, net 357,693 358,953
FHLB stock dividend 1,366,273 1,187,603
Originated mortgage servicing asset 1,822,007 1,354,962
Fixed assets 962,627 728,809
Other 354,766 187,666
----------- -----------
Total gross deferred tax liabilities 4,863,366 3,817,993
----------- -----------
Net deferred tax liability $(2,829,386) $(1,695,361)
=========== ===========
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, 2004 or 2003.
(Continued)
40
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 10 - FEDERAL INCOME TAXES (Continued)
Retained earnings at June 30, 2004 and 2003 include approximately $4,516,000 for
which no provision for federal income tax has been made. The related unrealized
deferred tax liability was approximately $1,535,000 at June 30, 2004 and 2003.
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.
NOTE 11 - LEASES
The Company leases certain premises from unrelated and related parties. Future
minimum payments under noncancelable operating leases with initial or remaining
terms of one year or more consisted of the following at June 30, 2004:
Leases With Leases With
Unrelated Related Total
Year ending June 30, Parties Parties Leases
- -------------------- ----------- ----------- -----------
2005 $ 564,960 $ 199,807 $ 764,767
2006 561,200 199,807 761,007
2007 559,200 199,807 759,007
2008 478,296 160,617 639,213
2009 409,426 141,472 550,898
Thereafter 502,837 583,334 1,086,171
----------- ----------- -----------
Total minimum lease payments $ 3,075,920 $ 1,485,144 $ 4,561,063
=========== =========== ===========
During the years ended June 30, 2004, 2003, and 2002, rental expense was
$695,307, $647,596, and $555,030, respectively.
(Continued)
41
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 12 - LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES
In the normal course of business, the Bank enters into commitments with
off-balance sheet risk to meet the financing needs of its customers. Commitments
to extend credit involve elements of credit risk and interest rate risk in
excess of the amount recognized in the consolidated statements of financial
condition. The Bank's exposure to credit loss in the event of nonperformance by
the other party to the commitment is represented by the contractual amount of
the commitment. The Bank uses the same credit policies in making commitments as
it does for on-balance sheet instruments. Interest rate risk on commitments to
extend credit results from the possibility that interest rates may have moved
unfavorably from the position of the Bank since the time the commitment was
made.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates of 60 to 120 days or other termination
clauses and may require payment of a fee. Since some of the commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained by the Bank upon extension of credit is based on
management's credit evaluation of the applicant. Collateral held is generally
residential and commercial real estate.
The Bank's lending is concentrated in Northeastern Ohio, and as a result, the
economic conditions and market for real estate in Northeastern Ohio could have a
significant impact on the Bank.
At June 30, 2004 and 2003, the Bank had the following commitments:
2004 2003
----------- -----------
Commitments to sell mortgage loans in the secondary market $10,841,600 $89,630,300
Commitments to fund variable-rate mortgage loans 28,618,869 12,669,150
Commitments to fund fixed-rate mortgage loans 29,805,425 66,782,101
Commitments to fund equity lines of credit 82,028,000 68,445,000
Undisbursed portion of loan proceeds 72,042,000 59,763,000
The fixed-rate loan commitments have interest rates ranging from 4.25% to 7.25%.
At June 30, 2004, there were $4,329,428 of outstanding standby letters of
credit. The fair value of these instruments was immaterial.
(Continued)
42
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 13 - REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Office of Thrift Supervision ("OTS") regulations requires savings institutions
to maintain certain minimum levels of regulatory capital. An institution that
fails to comply with its regulatory capital requirements must obtain OTS
approval of a capital plan and can be subject to a capital directive and certain
restrictions on its operations. At June 30, 2004, 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, 2004 and 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, 2004, this limitation was $12,836,000 and is
not expected to prevent the Company from paying its normal cash dividends.
The most recent notification from the Office of Thrift Supervision categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain
minimum total risk-based, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 13 - REGULATORY CAPITAL (Continued)
At June 30, 2004 and 2003, the Bank was in compliance with regulatory capital
requirements as set forth below (dollars in thousands):
Tier-1 Tier-1 Total
Tangible Core Risk-Based Risk-Based
Capital Capital Capital Capital
-------- --------- ---------- ----------
June 30, 2004:
GAAP capital $ 60,716 $ 60,716 $ 60,716 $ 60,716
Nonallowable component (58) (58) (58) (58)
General loan valuation allowances -- -- -- 4,177
-------- --------- ---------- ----------
Regulatory capital $ 60,658 $ 60,658 $ 60,658 $ 64,835
======== ========= ========== ==========
Total assets $761,443 $ 761,443 $ 761,443 $ 761,443
Adjusted total assets 761,385 761,385 -- --
Risk-weighted assets -- -- 636,040 636,040
Actual capital ratio 7.97% 7.97% 9.54% 10.19%
Regulatory requirement for capital
adequacy purposes 1.50% 4.00% 4.00% 8.00%
Regulatory capital category -
well-capitalized -
equal to or greater than NA 5.00% 6.00% 10.00%
Tier-1 Tier-1 Total
Tangible Core 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) (108)
General loan valuation allowances -- -- -- 3,648
-------- --------- ---------- ----------
Regulatory capital $ 57,548 $ 57,548 $ 57,548 $ 61,196
======== ========= ========== ==========
Total assets $744,105 $ 744,105 $ 744,105 $ 744,105
Adjusted total assets 743,997 743,997 -- --
Risk-weighted assets -- -- 580,305 580,305
Actual capital ratio 7.73% 7.73% 9.92% 10.55%
Regulatory requirement for capital
adequacy purposes 1.50% 4.00% 4.00% 8.00%
Regulatory capital category -
well-capitalized -
equal to or greater than NA 5.00% 6.00% 10.00%
(Continued)
44
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 14 - RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in 2004 were as
follows.
Beginning balance $ 5,774,000
New Loans 1,209,000
Repayments (685,000)
-----------
Ending balance $ 6,298,000
===========
NOTE 15 - STOCK OPTIONS
The Bank offered stock options to the directors and officers of the Bank under
various option plans.
All of the options authorized under the 1992 plan have been granted and
exercised. The options granted under the 1996 plan are exercisable over a
ten-year period, with vesting ranging from zero to five years as stated in the
individual option agreements. The options granted under the 2000 plan are
exercisable over a ten-year period and vest immediately.
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:
2004 2003 2002
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------
Outstanding beginning of year 404,719 $ 7.51 424,379 $ 6.83 608,332 $ 4.45
Exercised (38,118) 6.68 (72,705) 5.01 (263,547) 1.77
Expired -- -- (5,520) 8.84 -- --
Granted 43,560 13.78 58,564 9.37 79,594 8.15
-------- -------- -------- -------- -------- --------
Outstanding end of year 410,161 $ 8.25 404,719 $ 7.51 424,379 $ 6.83
======== ======== ======= ======== ======= ========
Exercisable end of year $319,703 $ 7.75 291,084 $ 7.26 250,553 $ 6.97
======== ======== ======= ======== ======= ========
Weighted average fair
value of options granted during the year $ 4.06 $ 3.55 $ 3.68
(Continued)
45
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 15 - STOCK OPTIONS (Continued)
Options outstanding at June 30, 2004 were as follows:
Outstanding Exercisable
------------------------ ---------------------
Weighted
Average Weighted
Range of Remaining Average
Exercise Contractual Exercise
Price Number Life Number Price
- -------------- -------- ----------- -------- --------
$5.14 - $ 6.72 113,300 4.86 108,294 $ 6.01
$7.39 - $ 8.55 197,278 5.02 159,718 7.93
$9.15 - $14.90 99,583 7.93 51,691 10.83
-------- ----------- -------- --------
Total 410,161 5.68 319,703 $ 7.75
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: 2004 Per-Share
2004
------------------------------------
Net Income Shares Amount
---------- --------- ---------
Basic EPS:
Income available to common shareholders $6,910,054 7,021,403 $ 0.98
Dilutive effect of assumed exercises of stock options 170,005 (0.02)
---------- --------- ---------
Diluted EPS:
Income available to common shareholders $6,910,054 7,191,408 $ 0.96
========== ========= =========
2004
------------------------------------
Net Income Shares Amount
---------- --------- ---------
Basic EPS:
Income available to common shareholders $8,096,456 7,005,054 $ 1.16
Dilutive effect of assumed exercises of stock options -- 110,713 (0.02)
---------- --------- ---------
Diluted EPS:
Income available to common shareholders $8,096,456 7,115,767 $ 1.14
========== ========= =========
2004
------------------------------------
Net Income Shares Amount
---------- --------- ---------
Basic EPS:
Income available to common shareholders $7,173,309 7,013,882 $ 1.02
Dilutive effect of assumed exercises of stock options -- 183,128 (0.02)
---------- --------- ---------
Diluted EPS:
Income available to common shareholders $7,173,309 7,197,010 $ 1.00
========== ========= =========
(Continued)
46
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 16 - EARNINGS PER SHARE (Continued)
No options were anti-dilutive for the years ended June 30, 2003 or 2002 as
market price in all cases was greater than the exercise price; 43,560 options
were anti-dilutive for the year ended June 30, 2004.
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company 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 Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
June 30, 2004 June 30, 2003
----------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- -------- ----------
(in thousands)
Assets:
Cash and amounts due from depository institutions $ 4,550 4,550 9,755 9,755
Interest-bearing deposits 894 894 3,946 3,946
Federal funds sold 12,025 12,025 83,050 83,050
Securities held to maturity 27,500 27,400 33 33
Mortgage-backed securities held to maturity 36,779 35,390 2,931 3,032
Loans receivable held for:
Investment, net 610,681 625,210 576,985 593,829
Loans receivable held for:
Sale, net 11,871 11,871 33,604 34,380
Federal Home Loan Bank stock 10,826 10,826 10,396 10,396
Accrued interest receivable 2,664 2,664 2,686 2,686
Liabilities:
Demand deposits and passbook savings $ (122,210) (122,210) (124,263) (124,263)
Time deposits (404,283) (405,977) (402,166) (410,934)
Advances from the Federal Home Loan Bank of Cincinnati (135,040) (139,328) (120,123) (131,958)
Subordinated debentures (10,000) (10,000) -- --
Notes payable (2,486) (2,486) (5,815) (5,815)
Accrued interest payable (465) (465) (466) (466)
(Continued)
47
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
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 and subordinated debentures. The carrying value of the Company's
variable rate note payable is a reasonable estimate of fair value based on the
current incremental borrowing rate for similar types of borrowing arrangements.
Accrued interest receivable and accrued interest payable. The carrying amount is
a reasonable estimate of the fair value.
(Continued)
48
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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, 2004 and 2003.
NOTE 18 - PARENT COMPANY
The following are condensed statements of financial condition as of June 30,
2004 and 2003 and related condensed statements of operations and cash flows for
the years ended June 30, 2004, 2003 and 2002 for PVF Capital Corp.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
2004 2003
----------- -----------
Cash and amounts due from depository institutions $10,126,841 $ 19,459
Prepaid expenses and other assets 1,396,246 1,422,778
Investment in Bank subsidiary 60,715,669 57,656,188
Investment in non-Bank subsidiaries 2,704,429 2,146,364
----------- -----------
Total assets $74,943,185 $61,244,789
=========== ===========
Accrued expenses and other liabilities $ 1,582,242 $ 141,653
Note payable -- 2,500,000
Subordinated debentures 10,000,000 --
Stockholders' equity 63,360,943 58,603,136
----------- -----------
Total liabilities and stockholders' equity $74,943,185 $61,244,789
=========== ===========
(Continued)
49
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 18 - PARENT COMPANY (Continued)
CONDENSED STATEMENTS OF OPERATIONS
2004 2003 2002
------------ ------------ ------------
Income:
Mortgage banking activities $ 16,210 $ 88,602 $ 142,140
Dividends from Bank subsidiary 3,500,000 3,950,000 1,545,000
Other, net -- -- --
------------ ------------ ------------
3,516,210 4,038,602 1,687,140
------------ ------------ ------------
Expenses:
Interest expense 46,847 137,483 276,418
General and administrative 278,931 284,890 214,296
------------ ------------ ------------
325,778 422,373 490,714
------------ ------------ ------------
Income before federal income taxes and
equity in undistributed net income of subsidiaries 3,190,432 3,616,229 1,196,426
Federal income tax benefit 105,204 112,615 116,951
------------ ------------ ------------
Income before equity in undistributed
net income of subsidiaries 3,295,636 3,728,844 1,313,377
Equity in undistributed net income of subsidiaries 3,614,418 4,367,612 5,859,932
------------ ------------ ------------
Net income $ 6,910,054 $ 8,096,456 $ 7,173,309
============ ============ ============
CONDENSED STATEMENTS OF CASH FLOWS
2004 2003 2002
------------ ------------ ------------
Operating activities:
Net income $ 6,910,054 $ 8,096,456 $ 7,173,309
Equity in undistributed net income of subsidiaries (3,614,418) (4,367,612) (5,859,932)
Repayment of advance from subsidiary 1,140,000 440,000 1,615,873
Other, net (149,706) (38,471) (33,581)
------------ ------------ ------------
Net cash from operating activities 4,285,930 4,130,373 2,895,669
------------ ------------ ------------
Financing activities:
Repayment on note payable (2,500,000) (2,400,000) (3,050,000)
Proceeds from note payable -- -- 3,250,000
Proceeds from subordinated debentures 10,000,000 -- --
Proceeds from exercise of stock options 256,793 162,307 142,377
Stock purchased and retired (94,211) -- --
Dividends paid (1,841,130) (1,654,844) (1,536,424)
Purchase of treasury stock -- (324,975) (1,639,602)
------------ ------------ ------------
Net cash from financing activities 5,821,452 (4,217,512) (2,833,649)
------------ ------------ ------------
Net increase (decrease) in cash and cash-equivalents 10,107,382 (87,139) 62,020
Cash and cash equivalents at beginning of year 19,459 106,598 44,578
------------ ------------ ------------
Cash and cash equivalents at end of year $ 10,126,841 $ 19,459 $ 106,598
============ ============ ============
(Continued)
50
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
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, 2004, 2003, and 2002 was $120,722,
$104,094, and $89,966, respectively.
Supplemental Executive Retirement Plan: During fiscal year 2000, the Company
established a Supplemental Executive Retirement Plan ("SERP") to provide
additional retirement benefits to participating executive officers. The SERP was
adopted in order to provide benefits to such executives whose benefits are
reduced under the Company's tax-qualified benefit plans pursuant to limitations
under the Internal Revenue Code. The SERP is subject to certain vesting
provisions, and provides that the executives shall receive a supplemental
retirement benefit if the executive's employment is terminated after reaching
the normal retirement. For the years ended June 30, 2004, 2003, and 2002, the
Company recognized expense under the SERP of $445,775, $401,400, and $223,800,
respectively.
(Continued)
51
PVF CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2004, 2003 and 2002
NOTE 20 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly results of
operations for 2004 and 2003 (in thousands of dollars, except per share data):
(1)
Quarters for the year ended June 30, 2004
-----------------------------------------
First Second Third Fourth
------- ------ ------- ------
Interest income $10,058 $9,830 $ 9,576 $9,646
Interest expense 4,311 4,078 4,097 4,254
------- ------ ------- ------
Net interest income 5,747 5,752 5,479 5,392
Provision for losses on loans 100 192 140 165
Noninterest income 3,312 868 837 1,113
Noninterest expense 4,538 4,362 4,425 4,246
------- ------ ------- ------
Income before taxes 4,421 2,066 1,751 2,094
Federal income taxes 1,489 716 565 652
------- ------ ------- ------
Net income $ 2,932 $1,350 $ 1,186 $1,442
======= ====== ======= ======
Basic earnings per share (2) $ 0.42 $ 0.19 $ 0.17 $ 0.20
======= ====== ======= ======
Diluted earnings per share (2) $ 0.41 $ 0.19 $ 0.16 $ 0.20
======= ====== ======= ======
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 -- -- -- --
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) $ 0.24 $ 0.32 $ 0.30 $ 0.30
======= ======= ======= =======
Diluted earnings per share (2) $ 0.24 $ 0.32 $ 0.29 $ 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 June 24, 2003 and
issued on August 29, 2003 and a 10% stock dividend, declared on June 22,
2004 and issued August 31, 2004.
52
[PVF CAPITAL CORP. LOGO]
BOARD OF DIRECTORS
JOHN R. MALE
Chairman of the Board and
Chief Executive Officer
C. KEITH SWANEY
President, Chief Operating Officer
and Treasurer
GERALD A. FALLON
Retired
ROBERT K. HEALEY
Retired
RONALD D. HOLMAN, II
Partner
Cavitch, Familo, Durkin & Frutkin
STANLEY T. JAROS
Partner
Moriarty & Jaros, P.L.L.
RAYMOND J. NEGRELLI
President
Raymond J. Negrelli, Inc.
STUART D. NEIDUS
Chairman and
Chief Executive Officer
Anthony & Sylvan Pools Corporation
EXECUTIVE OFFICERS
JOHN R. MALE
Chairman of the Board and
Chief Executive Officer
C. KEITH SWANEY
President, Chief Operating Officer
and Treasurer
JEFFREY N. MALE
Vice President and Secretary
GENERAL INFORMATION
INDEPENDENT
CERTIFIED ACCOUNTANTS
Crowe, Chizek and Company LLP
Landerbrook Corporate Center One
5900 Landerbrook Drive
Suite 205
Cleveland, Ohio 44124
GENERAL COUNSEL
Moriarty & Jaros, P.L.L.
30000 Chagrin Boulevard
Suite 200
Pepper Pike, Ohio 44124
TRANSFER AGENT AND REGISTRAR
National City Bank, Dept. 5352
Corporate Trust Operations
P.O. Box 92301
Cleveland, Ohio 44193-0900
SPECIAL COUNSEL
Muldoon Murphy Faucette & Aguggia LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
STOCK LISTING
NASDAQ Small-Cap Market
Symbol: PVFC
ANNUAL MEETING
The 2004 Annual Meeting of Stockholders will be held on October 18, 2004
at 10:00 a.m. at the Company's Corporate Center, 30000 Aurora Road, Solon,
Ohio.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2004 as filed with the Securities and Exchange Commission
will be furnished without charge to stockholders upon written request to
the Corporate Secretary, PVF Capital Corp., 30000 Aurora Road, Solon, Ohio
44139.
[PVF CAPITAL CORP. LOGO]
Corporate Center
30000 Aurora Road
Solon, OH 44139
440-248-7171
www.pvfsb.com