-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UkKBIZQIDJBClPStwR6pjHRswxFmx7Ig5N7zdYYYNp6dyu+9XBGKlkEC0FJXNUvI tgtdFh6Xjgt2LIDLhf93dQ== 0000904280-03-000015.txt : 20030213 0000904280-03-000015.hdr.sgml : 20030213 20030213115303 ACCESSION NUMBER: 0000904280-03-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PVF CAPITAL CORP CENTRAL INDEX KEY: 0000928592 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341659805 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24948 FILM NUMBER: 03557447 BUSINESS ADDRESS: STREET 1: 2618 N MORELAND BLVD CITY: CLEVELAND HEIGHTS STATE: OH ZIP: 44120 BUSINESS PHONE: 4109919600 MAIL ADDRESS: STREET 1: 25350 ROCKSIDE ROAD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 10-Q 1 fm10q123102-1224.txt FORM 10-Q 12-31-02 PVF CAPITAL CORP. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20552 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2002. [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to --------------- --------------- Commission File Number 0-24948 ------- PVF Capital Corp. ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) United States 34-1659805 - ----------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30000 Aurora Road, Solon, Ohio 44139 ---------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (440) 248-7171 ----------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES NO X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value 5,790,959 - ----------------------------- --------------------------------- (Class) (Outstanding at January 31, 2003) PVF CAPITAL CORP. INDEX Page Part I Financial Information Item 1 Financial Statements Consolidated Statements of Financial Condition, December 31, 2002 (unaudited) June 30, 2002 1 Consolidated Statements of Operations for the three and six months ended December 31, 2002 and 2001 (unaudited) 2 Consolidated Statements of Cash Flows for the six months ended December 31, 2002 and 2001 (unaudited) 3 Notes to Consolidated Financial Statements (unaudited) 4 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3 Quantitative and Qualitative Disclosures about Market Risk 13 Item 4 Controls and Procedures 13 Part II Other Information 13 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31 JUNE 30, ASSETS 2002 2002 ------ UNAUDITED ------------- ------------- Cash and cash equivalents: Cash and amounts due from depository institutions $ 4,012,717 $ 4,526,976 Interest bearing deposits 9,380,343 1,736,712 Federal funds sold 3,050,000 8,050,000 ------------- ------------- Total cash and cash equivalents 16,443,060 14,313,688 Securities held to maturity 35,073,857 55,121,211 Mortgage-backed securities held to maturity 4,485,775 7,297,206 Loans receivable, net 587,707,764 563,550,556 Loans receivable held for sale, net 31,308,517 11,679,735 Office properties and equipment, net 11,076,624 9,817,348 Real estate owned, net 533,798 564,316 Real estate held for investment 1,650,000 1,650,000 Stock in the Federal Home Loan Bank of Cincinnati 10,199,692 9,947,624 Prepaid expenses and other assets 6,060,450 5,678,431 ------------- ------------- Total Assets $ 704,539,537 $ 679,620,115 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities Deposits $ 498,929,424 $ 479,672,218 Advances from the Federal Home Loan Bank of Cincinnati 120,710,781 120,739,695 Notes payable 7,252,080 8,288,020 Advances from borrowers for taxes and insurance 8,072,797 7,320,613 Accrued expenses and other liabilities 14,206,141 11,300,991 ------------- ------------- Total Liabilities 649,171,223 627,321,537 Stockholders' Equity Serial preferred stock, none issued -- -- Common stock, $0.01 par value, 15,000,000 shares authorized; 6,087,735 and 6,045,352 shares issued, respectively 60,877 60,454 Additional paid-in-capital 37,445,969 37,342,458 Retained earnings-substantially restricted 20,773,799 17,697,883 Treasury Stock, at cost 296,776 and 260,251 shares, respectively (2,912,331) (2,802,217) ------------- ------------- Total Stockholders' Equity 55,368,314 52,298,578 ------------- ------------- Total Liabilities and Stockholders' Equity $ 704,539,537 $ 679,620,115 ============= =============
See accompanying notes to consolidated financial statements PAGE 1 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ----------------------------------------------------- 2002 2001 2002 2001 Interest income Loans $10,486,097 $11,635,767 $20,920,563 $23,245,898 Mortgage-backed securities 75,652 193,935 175,984 435,759 Cash and securities 737,575 884,842 1,607,263 1,922,325 ----------- ----------- ----------- ----------- Total interest income 11,299,324 12,714,544 22,703,810 25,603,982 ----------- ----------- ----------- ----------- Interest expense Deposits 3,923,304 5,403,849 8,353,611 11,642,564 Borrowings 1,393,667 1,600,821 2,788,671 3,246,911 ----------- ----------- ----------- ----------- Total interest expense 5,316,971 7,004,670 11,142,282 14,889,475 ----------- ----------- ----------- ----------- Net interest income 5,982,353 5,709,874 11,561,528 10,714,507 Provision for loan losses 0 228,000 0 353,000 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 5,982,353 5,481,874 11,561,528 10,361,507 ----------- ----------- ----------- ----------- Noninterest income, net Service and other fees 218,279 169,632 347,703 305,579 Mortgage banking activities, net 1,534,385 884,269 2,130,699 1,494,803 Other, net 85,598 16,084 109,688 50,889 ----------- ----------- ----------- ----------- Total noninterest income, net 1,838,262 1,069,985 2,588,090 1,851,271 ----------- ----------- ----------- ----------- Noninterest expense Compensation and benefits 2,223,861 2,117,296 4,327,421 3,923,019 Office, occupancy, and equipment 775,274 645,078 1,522,444 1,266,530 Other 1,413,130 969,787 2,363,842 1,701,297 ----------- ----------- ----------- ----------- Total noninterest expense 4,412,265 3,732,161 8,213,707 6,890,846 ----------- ----------- ----------- ----------- Income before federal income tax provision 3,408,350 2,819,698 5,935,911 5,321,932 Federal income tax provision 1,151,190 977,177 1,991,665 1,808,707 ----------- ----------- ----------- ----------- Net income $ 2,257,160 $ 1,842,521 $ 3,944,246 $ 3,513,225 =========== =========== =========== =========== Basic earnings per share $ 0.39 $ 0.32 $ 0.68 $ 0.61 =========== =========== =========== =========== Diluted earnings per share $ 0.38 $ 0.31 $ 0.67 $ 0.59 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements PAGE 2 PART I FINANCIAL INFORMATION ITEM 1 PVF CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, ------------------------------ 2002 2001 ---- ---- OPERATING ACTIVITIES Net income $ 3,944,246 $ 3,513,225 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 664,097 784,668 Provision for losses on loans 0 353,000 Accretion of unearned discount and deferred loan origination fees, net (608,691) (522,699) Gain on sale of loans receivable held for sale, net (2,502,412) (1,496,564) Gain on disposal of real estate owned, net 0 (13,744) Federal Home Loan Bank stock dividends (252,068) (299,195) Change in accrued interest on investments, loans, and borrowings, net 66,056 (1,521,630) Origination of loans receivable held for sale, net (188,241,355) (158,653,305) Sale of loans receivable held for sale, net 171,114,985 154,594,493 Decrease in other, net 3,302,134 676,128 ------------- ------------- Net cash provided by (used in) operating activities (12,513,008) (2,585,623) ------------- ------------- INVESTING ACTIVITIES Loan and mortgage-backed securities repayments and originations, net (20,822,222) (12,789,612) Disposals of real estate owned 22,779 223,451 Securities purchased (30,000,000) 0 Securities maturities 50,047,354 44,493 Additions to office properties and equipment, net (1,923,373) (1,901,894) Increase in real estate held for investment 0 (350,000) ------------- ------------- Net cash used in investing activities (2,675,462) (14,773,562) ------------- ------------- FINANCING ACTIVITIES Net increase in demand deposits, NOW, and passbook savings 13,483,132 11,496,284 Net increase (decrease) in time deposits 5,774,074 (41,143,671) Net decrease in Federal Home Loan Bank advances (28,914) (15,033,854) Net increase (decrease) in notes payable (1,035,940) 425,000 Purchase of treasury stock (110,114) (92,675) Proceeds from exercise of stock options 33,716 16,257 Cash dividend paid (798,112) (736,876) ------------- ------------- Net cash provided by (used in) financing activities 17,317,842 (45,069,535) ------------- ------------- Net increase (decrease) in cash and cash equivalents 2,129,372 (62,428,720) Cash and cash equivalents at beginning of period 14,313,688 65,395,118 ------------- ------------- Cash and cash equivalents at end of period $ 16,443,060 $ 2,966,398 ============= ============= Supplemental disclosures of cash flow information: Cash payments of interest expense $ 11,191,880 $ 16,224,865 Cash payments of income taxes $ 2,195,000 $ 2,450,000 Supplemental noncash investing activity: Transfer of loans to real estate owned $ 0 $ 283,332
See accompanying notes to consolidated financial statements PAGE 3 Part I Financial Information Item 1 PVF CAPITAL CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 AND 2001 (UNAUDITED) 1. The accompanying condensed consolidated interim financial statements were prepared in accordance with regulations of the Securities and Exchange Commission for Form 10-Q. All information in the consolidated interim financial statements is unaudited except for the June 30, 2002 consolidated statement of financial condition which was derived from the Corporation's audited financial statements. Certain information required for a complete presentation in accordance with generally accepted accounting principles has been condensed or omitted. However, in the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring accruals, necessary to fairly present the interim financial information. The results of operations for the three and six months ended December 31, 2002 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2003. The results of operations for PVF Capital Corp. ("PVF" or the "Company") for the periods being reported have been derived primarily from the results of operation of Park View Federal Savings Bank (the "Bank"). PVF Capital Corp.'s common stock is traded on the NASDAQ SMALL-CAP ISSUES under the symbol PVFC. 2. Recently Issued Accounting Standards SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" was issued in August 2001 and amends SFAS No. 121 by addressing business segments accounted for as a discontinued operation under Accounting Principles Board Opinion No. 30. This statement is effective for fiscal years beginning after December 15, 2001. PVF adopted statement 144 on July 1, 2002. Management determined that the adoption of Statement 144 would not have a material impact on the Bank's consolidated financial statements. SFAS No. 146 "Obligations Associated with Disposal Activities" was issued in July 2002. This standard covers accounting for costs associated with exit or disposal activities, such as lease termination costs or employee severance costs. The Statement replaces EITF 94-3, and is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. It requires these costs to be recognized when they are incurred rather than at date of commitment to an exit or disposal plan. Management determined that the adoption of Statement 146 would not have a material impact on the Bank's consolidated financial statements. Page 4 Part I Financial Information Item 1 3. The following table discloses Earnings Per Share for the three and six months ended December 31, 2002 and December 31, 2001.
Three months ended December 31, 2002 2001 -------------------------------------- -------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- ---------- Basic EPS Net Income $2,257,160 5,792,236 $ 0.39 $1,842,421 5,742,160 $ 0.32 Effect of Stock Options 79,853 0.01 210,921 0.01 Diluted EPS Net Income $2,257,160 5,872,089 $ 0.38 $1,842,421 5,953,081 $ 0.31 Six months ended December 31, 2002 2001 -------------------------------------- -------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- ----------- Basic EPS Net Income $3,944,246 5,787,765 $ 0.68 $3,513,225 5,741,786 $ 0.61 Effect of Stock Options 70,457 0.01 219,919 0.02 Diluted EPS Net Income $3,944,246 5,858,222 $ 0.67 $3,513,225 5,961,705 $ 0.59
Page 5 Part I Financial Information Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis discusses changes in financial condition and results of operations at and for the three-month and six-month periods ended December 31, 2002 for PVF Capital Corp. ("PVF" or the "Company"), Park View Federal Savings Bank (the "Bank"), its principal and wholly-owned subsidiary, PVF Service Corporation ("PVFSC"), a wholly-owned real estate subsidiary, Mid Pines Land Co., a wholly-owned real estate subsidiary, and PVF Holdings, Inc., a wholly-owned and currently inactive subsidiary. FORWARD-LOOKING STATEMENTS - -------------------------- When used in this Form 10-Q, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area, competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. FINANCIAL CONDITION - ------------------- Consolidated assets of PVF were $704.5 million as of December 31, 2002, an increase of approximately $24.9 million, or 3.7%, as compared to June 30, 2002. The Bank remained in regulatory capital compliance for tangible, core, and risk-based capital on a fully phased-in basis with capital levels of 7.87%, 7.87%, and 11.38%, respectively, at December 31, 2002. During the six months ended December 31, 2002, the Company's cash and cash equivalents, which consist of cash, interest-bearing deposits, and federal funds sold, increased $2.1 million, or 14.9%, as compared to June 30, 2002. The change in the Company's cash and cash equivalents consisted of an increase in cash and interest-bearing deposits of $7.1 million and a decrease in federal funds sold of $5.0 million. Page 6 Part I Financial Information Item 2 FINANCIAL CONDITION CONTINUED - ----------------------------- The net $41.0 million, or 7.0%, increase in loans receivable and mortgage-backed securities during the six months ended December 31, 2002, resulted from an increase in loans receivable held for investment of $24.2 million, an increase in loans receivable held for sale of $19.6 million, and a decrease in mortgage-backed securities of $2.8 million. The increase of $24.2 million in loans receivable held for investment included increases of $9.3 million in home equity line of credit loans, $8.3 million in commercial line of credit loans, $6.8 million in commercial real estate loans, $4.4 million in construction loans, and $1.4 million in land loans, offset by decreases of $3.2 million in one-to-four family residential loans held for investment and $2.8 million in multi-family loans. The increase of $19.6 million in loans receivable held for sale is attributable to timing differences between the origination and sale of loans originated for sale. The decrease in mortgage-backed securities resulted from payments received of $2.8 million. The growth of the loan portfolio resulted in no material change to the composition of the portfolio. The decrease of $20.0 million in securities held to maturity resulted from calls exercised on securities totaling $50.0 million and the purchase of $30.0 million in securities. The increase of $1.3 million in office properties and equipment is primarily the result of capital improvements to our corporate office building in Solon, Ohio. The decrease of $30,500 in real estate owned properties resulted from proceeds received on the sale of two developed building lots. The increase in prepaid expenses and other assets of $382,000, or 6.7%, is attributable to an increase in the mortgage servicing asset that resulted from the high volume of loan sales in the current period. Deposits increased by $19.3 million, or 4.0%, as a result of special promotional rates offered with the opening of two new branch offices. The increase from borrowers for taxes and insurance of $752,000, or 10.3%, is due to timing differences between the collection and payment of escrow funds along with an increase in the mortgage loan servicing portfolio. The increase in accrued expenses and other liabilities of $2.9 million, or 25.7%, is primarily the result of timing differences between the collection and remittance of payments received on loans serviced for others. Notes payable decreased by $752,200, or 12.5%, as a result of principal repayments. The increase in deposits of $19.3 million, funds from the decrease of $20.0 million in securities held to maturity, the repayment of $2.8 million in mortgage-backed securities, funds of $2.9 million collected on serviced loans, and earnings of $3.9 million were used to fund the increase of $43.8 million in total loans receivable, the increase of $2.1 million in cash and cash equivalents, the increase of $1.2 million in office properties and equipment, repay $1.0 million in notes payable, and pay a dividend of $800,000. Page 7 Part I Financial Information Item 2 RESULTS OF OPERATIONS Three months ended December 31, 2002, - --------------------- compared to three months ended December 31, 2001. PVF's net income is dependent primarily on its net interest income, which is the difference between interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net interest income also includes amortization of loan origination fees, net of origination costs. PVF's net income is also affected by the generation of non-interest income, which primarily consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans held for sale. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest-rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, net income is affected by the level of operating expenses and loan loss provisions. The Company's net income for the three months ended December 31, 2002 was $2,257,100 as compared to $1,842,500 for the prior year comparable period. This represents an increase of $414,600, or 22.5%, when compared with the prior year comparable period. Net interest income for the three months ended December 31, 2002 increased by $272,500, or 4.8%, as compared to the prior year comparable period. This resulted from a decrease of $1,415,200, or 11.1%, in interest income and a decrease of $1,687,700, or 24.1%, in interest expense. The decrease in interest income resulted primarily from a decrease of 95 basis points in the return on interest-earning assets in the current period. This decrease in yield more than offset the increase of $3.9 million in the average balance of interest-earning assets and resulted in an overall decrease to interest income of $1,415,200 in the current period. The average balance on interest-bearing liabilities increased by $1.9 million from the prior year comparable period. The average cost of funds on interest-bearing liabilities decreased by 113 basis points in the current period, as a result of declining market interest rates, resulting in an overall decrease in interest expense of $1,687,700. The Company's net interest income increased by $272,500 primarily due to an increase of 18 basis points in the Company's interest-rate spread during the current period as compared to the prior year comparable period. For the three months ended December 31, 2002, no provision for loan losses was recorded, while a provision for loan losses of $228,000 was recorded in the prior year comparable period. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis, with respect to payment history, ability to repay, probability of repayment, and loan-to-value Page 8 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. In August 2002, management conducted a review of the reserve percentages applicable to each category of loans and made adjustments to certain loan categories that reflect current market risk conditions. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses. During the three months ended December 31, 2002, the Company experienced an increase in the loan portfolio of $15.8 million. In addition, the level of impaired loans and classified assets decreased by $541,000 and $3.4 million, respectively. Management determined it was not necessary to record a provision for loan losses in the current period due to the application of revised reserve percentages, reflecting the company's historic loss experience, to certain loan categories along with decreases to impaired loans and classified assets. During the three months ended December 31, 2001, the Company experienced a decrease in the level of impaired loans of $379,000 and an increase of $1.6 million in classified assets. Due to an increase in the loan portfolio of $29.5 million along with an increase in the level of classified assets, management determined it was necessary to record a provision for loan losses of $228,000 in the prior period. At December 31, 2002, the allowance for loan losses was $3.9 million, which represented 55.4% of non-performing loans and 0.63% of net loans. At June 30, 2002, the allowance for loan losses was $3.9 million, which represented 50.0% of non-performing loans and 0.68% of net loans. For the three months ended December 31, 2002, non-interest income increased by $768,300, or 71.8%, from the prior year comparable period. This resulted primarily from an increase of $650,100, or 73.5%, in mortgage-banking activities that resulted from an increase of $895,600 in profit on loan sales in the current period offset by a decrease of $245,500 in loan servicing income. The decrease in loan servicing income is attributable to the write-down of the fair value of mortgage loan servicing rights that resulted from declining market interest rates and an increased prepayment speed on loans serviced for others. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. Page 9 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED In addition, other non-interest income, net, increased by $69,500, or 432.2%, in the current period primarily due to recoveries on amounts previously charged off. Service and other fees increased by $48,600, or 28.7%, primarily due to increases in loan prepayment penalties and late charge fee income. Non-interest expense for the three months ended December 31, 2002 increased by $680,100, or 18.2%, from the prior year comparable period. This was primarily the result of an increase of $443,300, or 45.7%, in other non-interest expense that was attributable to increases in legal fees, advertising expenses, costs from outside services attributable to the opening of two new branch offices and the relocation of an existing branch office, and stationery, printing and supplies. Office occupancy and equipment increased $130,200, or 20.2%, due to the operation of two additional branch offices along with repairs and maintenance costs to our Corporate Center office. Compensation and benefits increased $106,600, or 5.0%, as the result of increased staffing, incentive bonuses paid, and salary and wage adjustments. The federal income tax provision for the three-month period ended December 31, 2002 decreased to an effective rate of 33.8% for the current period from an effective rate of 34.7% for the prior year comparable period. RESULTS OF OPERATIONS Six months ended December 31, 2002, compared to six months ended December 31, 2001. PVF's net income is dependent primarily on its net interest income, which is the difference between interest earned on its loans and investments and interest paid on interest-bearing liabilities. Net interest income also includes amortization of loan origination fees, net of origination costs. PVF's net income is also affected by the generation of non-interest income, which primarily consists of loan servicing income, service fees on deposit accounts, and gains on the sale of loans held for sale. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities ("interest-rate spread") and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Company's interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, net income is affected by the level of operating expenses and loan loss provisions. The Company's net income for the six months ended December 31, 2002 was $3,944,200 as compared to $3,513,200 for the prior year comparable period. This represents an increase of $431,000, or 12.3%, when compared with the prior year comparable period. Page 10 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED Net interest income for the six months ended December 31, 2002 increased by $847,000, or 7.9%, due to a decrease of $2,900,200, or 11.3%, in interest income and a $3,747,200, or 25.2%, decrease in interest expense. The decrease in interest income resulted primarily from a decrease of 91 basis points in the return on interest-earning assets in the current period. This decrease in yield more than offset the increase of $1.0 million in the average balance of interest-earning assets and resulted in an overall decrease to interest income of $2,900,200 in the current period. The average balance on interest-bearing liabilities decreased by $2.2 million from the prior year comparable period. The average cost of funds on interest-bearing liabilities decreased by 121 basis points in the current period, as a result of declining market interest rates, resulting in an overall decrease in interest expense of $3,747,200. The Company's net interest income increased by $847,000 due to an increase of 30 basis points in the Company's interest-rate spread during the current period as compared to the prior year comparable period. For the six months ended December 31, 2002, no provision for loan losses was recorded, while a provision for loan losses of $353,000 was recorded in the prior year comparable period. The Company uses a systematic approach to determine the adequacy of its loan loss allowance and the necessary provision for loan losses. The loan portfolio is reviewed and delinquent loan accounts are analyzed individually on a monthly basis, with respect to payment history, ability to repay, probability of repayment, and loan-to-value percentage. Consideration is given to the types of loans in the portfolio and the overall risk inherent in the portfolio. After reviewing current economic conditions, changes to the size and composition of the loan portfolio, changes in delinquency status, levels of non-accruing loans, non-performing assets, impaired loans, and actual loan losses incurred by the Company, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. In August 2002, management conducted a review of the reserve percentages applicable to each category of loans and made adjustments to certain loan categories that reflect current market risk conditions. Management believes it uses the best information available to make a determination as to the adequacy of the allowance for loan losses. During the six months ended December 31, 2002, the Company experienced an increase in the loan portfolio of $43.8 million. In addition, the level of impaired loans and classified assets decreased by $758,000 and $0.9 million, respectively. Management determined it was not necessary to record a provision for loan losses in the current period due to the application of revised reserve percentages, reflecting the company's historic loss experience, to certain loan categories along with decreases to impaired loans and classified assets. During the six months ended December 31, 2001, the Company experienced a decrease in the level of impaired loans of $170,000 and a decrease of $441,000 in classified assets. Due to an increase in the loan portfolio of $29.5 million, management determined it was necessary to record a provision for loan losses of $353,000 in the prior period. At December Page 11 Part I Financial Information Item 2 RESULTS OF OPERATIONS CONTINUED 31, 2002, the allowance for loan losses was $3.9 million, which represented 55.4% of non-performing loans and 0.63% of net loans. At June 30, 2002, the allowance for loan losses was $3.9 million, which represented 50.0% of non-performing loans and 0.68% of net loans. For the six months ended December 31, 2002, non-interest income increased by $736,800, or 39.8%, from the prior year comparable period. This resulted primarily from an increase of $635,900, or 42.5%, in mortgage-banking activities that resulted from an increase of $1,005,800 in profit on loan sales in the current period offset by a decrease of $369,900 in loan servicing income. The decrease in loan servicing income is attributable to the write-down of the fair value of mortgage loan servicing rights that resulted from declining market interest rates and an increased prepayment speed on loans serviced for others. During these periods, PVF pursued a strategy of originating long-term, fixed-rate loans pursuant to Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") guidelines and selling such loans to the FHLMC or the FNMA, while retaining the servicing. In addition, other non-interest income, net, increased by $58,800, in the current period primarily due to recoveries of amounts previously charged off. Service and other fees increased by $42,100, or 13.8%, primarily due to increases in loan prepayment penalties and late charge fee income. Non-interest expense for the six months ended December 31, 2002 increased by $1,322,900, or 19.2%, from the prior year comparable period. This was primarily the result of an increase of $662,600, or 38.9%, in other non-interest expense that was primarily attributable to increases in legal fees, advertising expenses, costs from outside services attributable to the opening of two new branch offices and the relocation of an existing branch office, and stationery, printing and supplies. Compensation and benefits increased $404,400, or 10.3%, as the result of increased staffing, incentive bonuses paid, and salary and wage adjustments. Office occupancy and equipment increased by $255,900, or 20.2%, due to the operation of two additional branch offices along with repairs and maintenance costs to our Corporate Center office. The federal income tax provision for the six-month period ended December 31, 2002 decreased to an effective rate of 33.6% for the current period from an effective rate of 34.0% for the prior year comparable period. Page 12 Part I Financial Information Item 2 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's liquidity measures its ability to fund loans and meet withdrawals of deposits and other cash outflows in a cost-effective manner. Management believes the Company maintains sufficient liquidity to meet its operational needs. Part I Financial Information Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- There have been no significant changes to the Company's interest rate risk position or any changes to how the Company manages its Asset/Liability position since June 30, 2002. This is attributable to the Company's Asset/Liability Management policy of monitoring and matching the maturity and re-pricing characteristics of its interest-earning assets and interest-bearing liabilities, while remaining short-term with the weighted-average maturity and re-pricing periods. Part I Financial Information Item 4 CONTROLS AND PROCEDURES - ----------------------- Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. In addition, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. Part II OTHER INFORMATION - ------------------------- Item 1. Legal Proceedings. N/A Item 2. Changes in Securities and Use of Proceeds. N/A Item 3. Defaults Upon Senior Securities. N/A Item 4. Submission of Matters to a Vote of Security Holders. N/A The Company's Annual Meeting of Stockholders was held on October 21, 2002. A total of 5,254,742 shares of the Company's common stock were represented at the Annual Meeting in person or by proxy. Page 13 Part II OTHER INFORMATION continued Stockholders voted in favor of the election of four nominees for director. The voting results for each nominee were as follows: Votes in Favor Nominee of election Votes Against - ------- -------------- ------------- Robert K. Healey 5,243,025 -0- Stuart D. Neidus 5,244,998 -0- C. Keith Swaney 5,140,151 -0- Gerald A. Fallon 5,244,998 -0- Proposal to ratify the appointment of Crowe Chizek and Company LLP as independent certified public accountants of the Company for the fiscal year ending June 30, 2003. Votes For Votes against Abstain Not Voting - --------- ------------- ------- ---------- 5,232,461 1,839 20,642 -0- There were no broker non-votes. Item 5. Other Information. N/A Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibit is filed herewith: Exhibit Title Number ----- ------ 99 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None Page 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PVF Capital Corp. ----------------- (Registrant) Date: February 12, 2003 /s/ C. Keith Swaney ------------------- ------------------------------ C. Keith Swaney President, Chief Operating Officer and Treasurer (Only authorized officer and Principal Financial Officer) CERTIFICATION I, John R. Male, Chairman of the Board and Chief Executive Officer of PVF Capital Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of PVF Capital Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ John R. Male ------------------------------------ John R. Male Chairman of the Board and Chief Executive Officer (Principal Executive Officer) CERTIFICATION I, C. Keith Swaney, President, Chief Operating Officer and Treasurer of PVF Capital Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of PVF Capital Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ C. Keith Swaney ---------------------------------- C. Keith Swaney President, Chief Operating Officer and Treasurer EX-99 3 ex99fm10q123102-1224.txt EXHIBIT 99 TO FORM 10-Q 12-31-02 Exhibit 99 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned executive officers of the Registrant hereby certify that this Quarterly Report on Form 10-Q for the quarter ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By:/s/ John R. Male ------------------------------------------- Name: John R. Male Title: Chairman of the Board and Chief Executive Officer By:/s/ C. Keith Swaney ------------------------------------------- Name: C. Keith Swaney Title: President, Chief Operating Officer and Treasurer Date: February 12, 2003 -----END PRIVACY-ENHANCED MESSAGE-----