EX-13 4 l83786aex13.txt EXHIBIT 13 1 [PVF CAPITAL CORP. LOGO] Annual Report June 30, 2000 2 TABLE OF CONTENTS Letter to Shareholders................................................1 Selected Consolidated Financial and Other Data........................4 Management's Discussion and Analysis of Financial Condition and Results of Operations.........................6 Independent Auditor's Report.........................................17 3 TO OUR SHAREHOLDERS I am pleased to report that, despite a year of rising interest rates that typically signals a slowdown of activity for the banking industry, PVF Capital Corp. once again achieved record operating results for the year ended June 30, 2000. New market opportunities allowed us to achieve record growth in assets of $163.8 million, or 36.5 percent, and increase the loan portfolio by $127.1 million, or 32.0 percent. Earnings were $6.3 million, or $1.32 basic earnings per share and $1.27 diluted earnings per share, for the year ended June 30, 2000. In addition, return on average assets was 1.21 percent and return on average common equity was 15.45 percent for the year. Pursuant to our stock repurchase program and cash dividend policy announced in June of 1999, the Company repurchased 93,063 shares, or 1.9 percent, of its common stock through June 30, 2000 and paid a $0.32 per share cash dividend for the year. Continuation of the stock repurchase program and cash dividend policy will be dependent on the Company's financial condition, earnings, capital needs, regulatory requirements, and market conditions. Additionally, in July 2000, the Company declared a 10 percent stock dividend that will be issued in September. The significant growth of the Company over the past year has been the result of our ability to take advantage of market opportunities presented by consolidations within the local banking community. We have been successful in identifying markets in need of the type of personalized service and financial products available at a community bank. With this in mind, we remain optimistic about the future role of community banks and will continue with our plan to restructure and expand our branch network into new markets offering opportunity for future growth. Our basic strategy will remain to function as a niche lender, providing our customers a wide range of lending products, collateralized by real estate, that may not be available to them at larger banks. In the past year, Park View Federal made the following changes to its branch network: In November 1999, Park View Federal relocated its Parma, Ohio branch to North Royalton, Ohio. This new full-service branch office is located near the northeast corner of Route 82 and Ridge Road. In December 1999, Park View Federal opened a new branch office in Medina, Ohio located in the Reserve Square Shopping Center on Route 18 just west of Interstate 71. Each branch office is equipped with an auto teller and an ATM machine. Both branches have been successful in attracting new deposits and generating new loan growth. 4 In the coming year, Park View Federal is planning to further expand and restructure its branch network. And, we plan to relocate our administrative operations to a new corporate headquarters. In August 2000, Park View Federal opened a new branch office in Solon, Ohio. This new full-service branch, complete with an auto teller, is located in the Solar Shopping Center near the southeast corner of Aurora Road and State Route 91 (SOM Center Road). Also in August 2000, Park View Federal relocated its North Moreland branch office near Shaker Square in Cleveland, Ohio to Shaker Towne Centre in Shaker Heights, Ohio. This move will provide our customers a more spacious office in a more easily accessible location with ample parking not available at the North Moreland facility. On or before June 30, 2001, Park View Federal intends to open a new branch office in Strongsville, Ohio. This new full-service branch office, complete with ATM service, will be located at the southwest corner of the intersection of Pearl and Drake Roads. Also, on or before June 30, 2001, Park View Federal plans to open a new full-service branch office in Westlake, Ohio. The new branch will be located near the southwest corner of Detroit and Columbia Roads and will have an ATM machine. Prior to December 31, 2000, we plan to begin moving into a new corporate headquarters in Solon, Ohio. This new corporate office is located at the southeast corner of Aurora and Cochran Roads, just south of U.S. 422. We are very excited about this move, because it will give us the necessary room for our current operations, will provide ample space for future growth, and will unite all of the bank's internal departments under one roof. This move will result in the closing of our North Moreland and Bedford Heights administrative office buildings. The expansion of our branch network has opened new markets to us in residential, construction, multi-family, and commercial real estate lending and has also increased our ability to attract consumer deposits. With the opening of the Strongsville and Westlake, Ohio branch offices, we will have a total of 14 full-service branch office locations located throughout Northeast Ohio. We are currently looking at a 15th site in Avon, Ohio, as we continue our efforts to identify new locations for the further growth of our branch network. In April 2000, the Company launched its Web site on the Internet. This Web site provides information about our products and services, and provides access to current loan and deposit rate information. Visitors to our site can apply for loans online, can calculate a PVF Capital Corp. 2000 Annual Report 2 5 mortgage payment, or can choose to read about company, branch office, and community news. Our ultimate goal is to provide a full line of home banking services to our customers. Look for us at www.parkviewfederal.com. Finally, we would like express our sincere gratitude and very best wishes to James W. Male, chairman of PVF Capital Corp. and Park View Federal Savings Bank, who after 55 years of service announced his retirement effective October 16, 2000. We acknowledge the impact of his numerous contributions to the growth and preservation of our company to its present status through a most difficult time in our industry. His efforts cannot be equaled. I am pleased to say that he will continue to serve both companies as chairman emeritus and as an ongoing consultant. I will succeed James Male as chairman and chief executive officer of both companies. C. Keith Swaney, currently vice president and treasurer of PVF Capital Corp. and executive vice president and chief financial officer of the bank, has been promoted to the position of president of both companies. Further, Jeffrey N. Male will continue to serve PVF Capital Corp. as vice president and corporate secretary and has been promoted to executive vice president of the bank. Together, we have a combined 94 years of experience and service with the bank. These steps have been taken, as we look to the future, to preserve the stability of the management team that has been in place and responsible for the operation of the bank for the past 14 years. We invite all shareholders to attend the Annual Meeting of Stockholders of PVF Capital Corp. on Monday, October 16, 2000 at 10:00 a.m. at the Cleveland Marriott East, 3663 Park East Drive, Beachwood, Ohio. We look forward to another successful year of service and dedication to the community, its members, our shareholders, and our customers. Sincerely, /s/ John R. Male John R. Male President PVF Capital Corp. 2000 Annual Report 3 6 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA FINANCIAL CONDITION DATA:
At June 30, ---------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------- (dollars in thousands) Total assets ............................................. $612,986 $449,201 $433,279 $373,081 $331,634 Loans receivable and mortgage-backed securities held for investment, net .................... 514,885 397,284 371,949 341,914 278,956 Loans receivable held for sale and mortgage-backed securities available for sale, net ..... 10,738 1,772 1,645 710 18,817 Cash equivalents and securities .......................... 70,931 35,423 51,017 23,576 27,884 Deposits ................................................. 440,982 331,242 344,229 288,270 271,045 FHLB advances and notes payable .......................... 114,974 66,041 47,384 49,715 30,191 Stockholders' equity ..................................... 42,900 38,856 31,209 26,273 22,474 Number of: Real estate loans outstanding ......................... 4,160 3,527 2,676 2,648 2,527 Savings accounts ...................................... 28,915 24,346 25,122 23,190 23,259 Offices ............................................... 11 10 10 9 9
OPERATING DATA:
Year Ended June 30, ----------------------------------------------- 2000 1999 1998 1997 1996 ----------------------------------------------- (dollars in thousands except for earnings per share) Interest income .......................................... $42,026 $35,347 $34,365 $30,963 $27,761 Interest expense ......................................... 23,972 19,863 19,558 16,561 15,703 ------- ------- ------- ------- ------- Net interest income before provision for loan losses ....................... 18,054 15,484 14,807 14,402 12,058 Provision for loan losses ................................ 850 0 246 187 417 ------- ------- ------- ------- ------- Net interest income after provision for loan losses ........................ 17,204 15,484 14,561 14,215 11,641 Non-interest income ...................................... 2,681 5,435 1,597 1,336 1,747 Non-interest expense ..................................... 10,410 9,649 8,851 10,000 7,989 ------- ------- ------- ------- ------- Income before federal income taxes ....................... 9,475 11,270 7,307 5,551 5,399 Federal income taxes ..................................... 3,163 3,551 2,379 1,904 1,613 ------- ------- ------- ------- ------- Net income ............................................... $ 6,312 $ 7,719 $ 4,928 $ 3,647 $ 3,786 ======= ======= ======= ======= ======= Basic earnings per share ................................. $ 1.32 $ 1.60 $ 1.04 $ 0.79 $ 0.82 ======= ======= ======= ======= ======= Diluted earnings per share ............................... $ 1.27 $ 1.54 $ 0.99 $ 0.73 $ 0.77 ======= ======= ======= ======= =======
PVF Capital Corp. 2000 Annual Report 4 7 OTHER DATA:
At or For the Year Ended June 30, ----------------------------------------------------- 2000 1999 1998 1997 1996 ----------------------------------------------------- Return on average assets ................................. 1.21% 1.77% 1.23% 1.04% 1.19% Return on average equity ................................. 15.45% 22.21% 17.11% 15.19% 18.43% Interest rate spread information: Average during year .................................... 3.21% 3.26% 3.38% 3.84% 3.45% Net interest margin ...................................... 3.59% 3.68% 3.78% 4.22% 3.90% Average interest-earning assets to average interest-bearing liabilities ................... 107.98% 108.92% 107.93% 107.93% 108.83% Non-accruing loans (> 90 days) and repossessed assets to total assets ..................... 0.87% 0.85% 0.92% 1.11% 0.73% Stockholders' equity to total assets ..................... 7.00% 8.65% 7.20% 7.04% 6.78% Ratio of average equity to average assets ......................................... 7.80% 7.95% 7.18% 6.84% 6.47% Dividend payout ratio .................................... 21.77% 0.00% 0.00% 0.00% 0.00% BANK REGULATORY CAPITAL RATIOS: Ratio of tangible capital to adjusted total assets .................................. 6.68% 7.99% 7.21% 7.34% 7.25% Ratio of core capital to adjusted total assets .................................. 6.68% 7.99% 7.21% 7.34% 7.25% Ratio of Tier 1 risk-based capital to risk-weighted assets ................................... 9.24% 10.43% 10.11% 9.70% 10.46% Ratio of risk-based capital to risk-weighted assets ................................... 10.00% 11.17% 10.93% 10.62% 11.42%
PVF Capital Corp. 2000 Annual Report 5 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL PVF Capital Corp. ("PVF" or the "Company") owns and operates Park View Federal Savings Bank ("Park View Federal" or the "Bank"), its principal and wholly-owned subsidiary, and PVF Service Corporation, a wholly-owned real estate subsidiary. Park View Federal has twelve offices located in Cleveland and surrounding communities, including recently opened branches in North Royalton, Medina, Solon, and Shaker Heights, Ohio. The Bank's principal business consists of attracting deposits from the general public through its branch offices and investing these funds in loans secured by first mortgages on real estate located in its market area, which consists of Portage, Lake, Geauga, Cuyahoga, Summit, Stark, Medina, and Lorain Counties in Ohio. The Bank has concentrated its activities on serving the borrowing needs of local homeowners and builders in its market area by originating both fixed-rate and adjustable-rate single-family mortgage loans, as well as construction loans, commercial real estate loans, and multi-family residential real estate loans. In addition, to a lesser extent, the Bank originates loans secured by second mortgages, including equity line of credit loans secured by real estate and loans secured by savings deposits. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates, and the availability of funds. Deposit flows and cost of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities, and the level of personal income and savings in the market area. FORWARD-LOOKING STATEMENTS When used in this Annual Report, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area, competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected, and Year 2000 issues. 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, 2000, 1999, AND 1998 PVF had total assets of $613.0 million, $449.2 million, and $433.3 million at June 30, 2000, 1999, and 1998, respectively. The primary source of the Bank's increase in total assets has been its loan portfolio. Net loans receivable and mortgage-backed securities totaled $525.6 million, $399.1 million, and $373.6 million at June 30, 2000, 1999, and 1998, respectively. The increase of $126.5 million in net loans and mortgage-backed securities at June 30, 2000 resulted primarily from increases in one-to-four family residential loans, construction loans, equity line of credit loans, commercial real estate loans, and multi-family loans of $66.9 million, $25.8 million, $15.4 million, $9.8 million, and $8.4 million, respectively. The Bank's current loans-to-one-borrower limitation was approximately $4.0 million at June 30, 2000. In addition, securities totaled $65.3 million, $25.3 million, and $27.8 million at the years ended June 30, 2000, 1999, and 1998, respectively. The increase of $126.5 million in net loans and mortgage-backed securities and $40.0 million in securities at June 30, 2000, were funded by increases of $109.8 million, and $49.0 million in deposits and Federal Home Loan Bank ("FHLB") advances, respectively, and a decrease of $4.4 million in cash and cash equivalents. The securities portfolio has been and will continue to be used primarily to meet the regulatory 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 that qualify as regulatory liquidity, federal funds sold, and deposits at the FHLB of Cincinnati. The entire portfolio matures within five years or less, and the Bank has no plans to change the short-term nature of its securities portfolio. PVF Capital Corp. 2000 Annual Report 6 9 The Bank's deposits totaled $441.0 million, $331.2 million, and $344.2 million at June 30, 2000, 1999, and 1998, respectively. Advances from the FHLB of Cincinnati amounted to $115.0 million, $66.0 million, and $46.3 million at June 30, 2000, 1999, and 1998, respectively. Management's decision to borrow utilizing attractive FHLB advance rates and to aggressively compete with market savings rates resulted in increases in FHLB advances of $49.0 million and savings deposits of $109.8 million for the year ended June 30, 2000. CAPITAL PVF's stockholders' equity totaled $42.9 million, $38.9 million, and $31.2 million at the years ended June 30, 2000, 1999, and 1998, respectively. The increases were the result of the retention of net earnings. The Bank's primary regulator, The Office of Thrift Supervision ("OTS") has implemented a statutory framework for capital requirements which establishes five categories of capital strength, ranging from "well capitalized" to "critically undercapitalized." An institution's category depends upon its capital level in relation to relevant capital measures, including two risk-based capital measures, a tangible capital measure, and a core/leverage capital measure. At June 30, 2000, the Bank was in compliance with all of the current applicable regulatory capital measurements to meet the definition of a well-capitalized institution, as demonstrated in the following table: Park View Requirement for Federal Percent of Well-Capitalized (dollars in thousands) Capital Assets (1) Institution -------------------------------------------------- GAAP capital $ 40,994 6.68% N/A Tangible capital $ 40,994 6.68% N/A Core capital $ 40,994 6.68% 5.00% Tier 1 risk-based capital $ 40,994 9.24% 6.00% Risk-based capital $ 44,380 10.00% 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 three-for-two stock split effected in the form of a dividend was issued in August 1996, a 10 percent stock dividend was issued in September 1997, a three-for-two stock split effected in the form of a dividend was issued in August 1998, a 10 percent stock dividend was issued in September 1999, and a 10 percent stock dividend was issued in September 2000. As adjusted to reflect all stock dividends and all stock splits, the Company had 4,832,918 shares of common stock outstanding and approximately 323 holders of record of the common stock at September 7, 2000. OTS regulations applicable to all Federal Savings Banks such as Park View Federal limit the dividends that may be paid by the Bank to PVF. Any dividends paid may not reduce the Bank's capital below minimum regulatory requirements. In June 1999, the Company announced a stock repurchase program to acquire up to 5 percent of the Company's common stock and a quarterly cash dividend policy. The stock repurchase program is dependent on market conditions with no guarantee as to the exact number of shares to be repurchased, while the cash dividend policy remains dependent upon the Company's financial condition, earnings, capital needs, regulatory requirements, and economic conditions. At June 30, 2000, the Company had acquired 93,063 shares, or 1.9 percent, of the Company's common stock. 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 2000 Fiscal 1999 ------------------------------------ High Bid Low Bid High Bid Low Bid ---------------- ---------------- Fourth Quarter $ 9.09 $ 6.36 $ 11.77 $ 8.68 Third Quarter 10.34 7.50 11.77 9.50 Second Quarter 12.05 10.34 11.26 8.05 First Quarter 11.93 11.02 14.19 8.68 (1) Quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions. Bid prices have been adjusted to reflect the previously described stock dividends and stock splits. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity measures its ability to fund loans and meet withdrawals of deposits and other cash outflows in a cost-effective manner. The Company's primary sources of funds for operations are deposits from its primary market area, principal and interest payments on loans and mortgage-backed securities, sales of loans and mortgage-backed securities, proceeds from maturing securities, and advances from the FHLB of Cincinnati. While loan and mortgage-backed securities payments and maturing securities are relatively stable sources of funds, deposit flows and loan prepayments are greatly influenced by prevailing interest rates, economic conditions, and competition. FHLB advances may be used on a short-term basis to compensate for deposit outflows or on a long-term basis to support expanded lending and investment activities. PVF Capital Corp. 2000 Annual Report 7 10 The Bank uses its capital resources principally to meet its ongoing commitment to fund maturing certificates of deposit and deposit withdrawals, repay borrowings, fund existing and continuing loan commitments, maintain its liquidity, and meet operating expenses. At June 30, 2000, the Bank had commitments to originate loans totaling $32.9 million and had $56.3 million of undisbursed loans in process. Scheduled maturities of certificates of deposit during the twelve months following June 30, 2000 totaled $272.5 million. Management believes that a significant portion of the amounts maturing during fiscal 2001 will be reinvested with the Bank because they are retail deposits, however, no assurances can be made that this will occur. Park View Federal is required by current OTS regulations to maintain specified liquid assets of at least 4 percent of its net withdrawable accounts plus short-term borrowings. Such investments serve as a source of liquid funds which the Bank may use to meet deposit withdrawals and other short-term needs. The Bank's most liquid assets are cash and cash equivalents, which are short-term, highly-liquid investments with original maturities equal to or less than three months that are readily convertible to known amounts of cash. The levels of such assets are dependent upon the Bank's operating, financing, and investment activities at any given time. Management believes that the liquidity levels maintained are more than adequate to meet potential deposit outflows, repay maturing FHLB advances, fund new loan demand, and cover normal operations. Park View Federal's daily liquidity ratio at June 30, 2000 was 11.9 percent, and its short-term liquidity ratio was significantly above regulatory requirements. 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 Banks market risk is composed of interest rate risk. Asset/Liability Management: The Banks asset and liability committee (ALCO), which includes senior management representatives, monitors and considers methods of managing the rate sensitivity and repricing characteristics of the balance sheet components consistent with maintaining acceptable levels of changes in net portfolio value (NPV) and net interest income. Park View Federals 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 [PIE GRAPH] 11.2% Investment securities 60 months or less 0.2% Overnight Fed funds 45.1% Adjustable-rate single-family mortgage loans 0.7% Consumer loans 34.4% Adjustable-rate other mortgage loans 0.2% Adjustable-rate mortgage-backed securities 3.3% Fixed-rate other mortgage loans 4.9% Fixed-rate single-family mortgage loans PVF Capital Corp. 2000 Annual Report 8 11 PROFILE OF INTEREST SENSITIVE LIABILITIES [PIE GRAPH] 1.9% FHLB Advances 13 to 36 months 0.1% FHLB Advances over 36 months 19.0% FHLB Advances 12 months or less 5.9% Passbook accounts 50.0% CDs 12 months or less 7.1% Transaction accounts 1.8% CDs over 36 months 5.2% CDs 13 to 24 months 9.0% CDs 25 to 36 months in exchange for mortgage-backed securities secured by such loans which are then sold in the market or sold directly for cash in the secondary market. Interest rate sensitivity analysis is used to measure the Bank's interest rate risk by computing estimated changes in NPV of its cash flows from assets, liabilities, and off-balance sheet items in the event of a range of assumed changes in market interest rates. NPV represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of an immediate and sustained 1 and 2 percent increase or decrease in market interest rates. The Bank's Board of Directors has adopted an interest rate risk policy which establishes maximum decreases in the NPV ratio (ratio of market value of portfolio equity to the market value of portfolio assets) of 0.5 and 1.0 percent in the event of an immediate and sustained 1 and 2 percent increase or decrease in market interest rates. The following table presents the Bank's projected change in NPV for the various rate shock levels at June 30, 2000 and 1999. 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, 2000 June 30, 1999 -------------------------------------- ------------------------------------- Change in Market Value of Dollar NPV Market Value of Dollar NPV Interest Rates Portfolio Equity Change Ratio Portfolio Equity Change Ratio -------------- ---------------- ------ ----- ---------------- ------ ----- +2% $ 35,620 $ (9,520) 5.95% $ 45,027 $ (1,398) 10.05% +1% 40,781 (4,359) 6.72 46,254 (171) 10.22 0 45,140 7.35 46,425 10.17 -1% 48,372 3,232 7.79 45,571 (854) 9.91 -2% 50,586 5,446 8.08 44,841 (1,584) 9.68
The table illustrates that at June 30, 2000, in the event of an immediate and sustained increase in prevailing market interest rates, the Bank's NPV ratio would be expected to decrease, while in the event of an immediate and sustained decrease in prevailing market rates, the Bank's NPV ratio would be expected to increase. While at June 30, 1999, an immediate and sustained increase or decrease in prevailing market interest rates had little impact on the Bank's NPV ratio, which remained well within Board-approved target levels. 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, 2000, the Bank's estimated changes in NPV ratio were within the targets established by the Board of Directors in the event of an immediate and sustained decrease in prevailing market interest rates, but exceeded Board-approved target levels in an increasing interest rate environment. The Bank's interest rate risk ("IRR") position currently exceeds Board-approved target levels in an increasing interest rate environment because of the maturity and repricing characteristics of assets and liabilities added to the balance sheet during the past year. The significant growth of the balance sheet, $163.8 million, was accomplished with the addition of interest-earning assets having a maturity and repricing period of from three to five years. These assets were funded utilizing interest- PVF Capital Corp. 2000 Annual Report 9 12 bearing liabilities having a final maturity of two years or less. 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, 2000 and 1999, with adjustments made to reflect the shift in the Treasury yield curve between the survey date and the quarter-end date. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. Actual values may differ from those projections set forth in the table, should market conditions vary from assumptions used in the preparation of the table. Certain assets, such as adjustable-rate loans, which represent the Bank's primary loan product, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In addition, the proportion of adjustable-rate loans in the Bank's portfolio could decrease in future periods if market interest rates remain at or decrease below current levels due to refinance activity. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the table. Finally, the ability of many borrowers to repay their adjustable-rate debt may decrease in the event of an interest rate increase. The Bank uses interest rate sensitivity gap analysis to monitor the relationship between the maturity and repricing of its interest-earning assets and interest-bearing liabilities, while maintaining an acceptable interest rate spread. Interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive liabilities, and is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. Generally, during a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would negatively affect net interest income. Management's goal is to maintain a reasonable balance between exposure to interest rate fluctuations and earnings. The following table summarizes the Bank's interest rate sensitivity gap analysis at June 30, 2000. The table indicates that the Bank's one year and under ratio of cumulative gap to total assets is negative 19.1 percent, one-to-three year ratio of cumulative gap to total assets is negative 16.3 percent, and three-to-five year ratio of cumulative gap to total assets is positive 4.2 percent. The negative three year and under cumulative gap position of the Bank explains the change in the Bank's NPV ratio to an immediate and sustained 1 and 2 percent increase or decrease in market interest rates.
Within 1-3 3-5 >5 (dollars in thousands) 1 Year Years Years Years Total --------------------------------------------------------------------------------------------------------------------------- Total interest-rate-sensitive assets......................... $259,498 $147,080 $150,002 $ 36,167 $592,747 Total interest-rate-sensitive liabilities.................... 376,453 130,136 24,013 14,672 545,274 Periodic GAP................................................. (116,955) 16,944 125,989 21,495 47,473 Cumulative GAP............................................... (116,955) (100,011) 25,978 47,473 Ratio of cumulative GAP to total assets...................... (19.1)% (16.3)% 4.2% 7.7%
PVF Capital Corp. 2000 Annual Report 10 13 RESULTS OF OPERATIONS GENERAL PVF Capital Corp.'s net income for the year ended June 30, 2000 was $6.3 million, or $1.32 basic earnings per share and $1.27 diluted earnings per share, as compared to $7.7 million, or $1.60 basic earnings per share and $1.54 diluted earnings per share for fiscal 1999 and $4.9 million, or $1.04 basic earnings per share and $0.99 diluted earnings per share for fiscal 1998. All per share amounts have been adjusted for stock dividends and stock splits. Net income for the current year decreased by $1.4 million from the prior fiscal year and exceeded net income for fiscal 1998 by $1.4 million. In fiscal 1999, the Company recorded an after-tax gain of approximately $2.5 million as a result of the closing on the sale by PVF Service Corporation of its 250-acre parcel of land in Solon, Ohio. NET INTEREST INCOME Net interest income amounted to $18.1 million for the year ended June 30, 2000, as compared to $15.5 million and $14.8 million for the years ended June 30, 1999 and 1998, 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 change in the Bank's net interest income. Table 1 sets forth certain information relating to the Bank's average interest-earning assets (loans and securities) and interest-bearing liabilities (deposits and borrowings) and reflects the average yield on assets and average cost of liabilities for the periods and at the dates indicated. Such yields and costs are derived by dividing interest income or interest expense by the average daily balance of assets or liabilities, respectively, for the periods presented. During the periods indicated, non-accrual loans are included in the net loan category.
Table 1 AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES FOR THE YEAR ENDED JUNE 30, 2000 1999 ------------------------------------------------------------------ Average Yield/ Average Yield/ (dollars in thousands) Balance Interest Cost Balance Interest Cost ------------------------------------------------------------------------------------------------------------------------ Interest-earning assets: Loans ........................................... $448,163 $ 38,390 8.57% $384,420 $ 33,146 8.62% Mortgage-backed securities ...................... 1,401 90 6.42 2,338 147 6.29 Securities and other interest-earning assets .... 53,808 3,546 6.59 34,500 2,054 5.95 -------- -------- -------- -------- Total interest-earning assets .............. 503,372 42,026 8.35 421,258 35,347 8.39 -------- -------- Non-interest-earning assets ..................... 20,251 16,071 -------- -------- Total assets ............................... $523,623 $437,329 ======== ======== Interest-bearing liabilities: Deposits ........................................ $386,242 $ 19,409 5.03% $334,530 $ 16,961 5.07 FHLB advances ................................... 79,862 4,558 5.71 52,102 2,891 5.55 Notes payable ................................... 53 5 9.50 122 11 9.02 -------- -------- -------- -------- Total interest-bearing liabilities ......... 466,157 23,972 5.14 386,754 19,863 5.14 -------- -------- -------- -------- Non-interest-bearing liabilities ................ 16,604 15,818 -------- -------- Total liabilities .......................... 482,761 402,572 Stockholders' equity .............................. 40,862 34,757 -------- -------- Total liabilities and stockholders' equity.. $523,623 $437,329 ======== ======== Net interest income ............................... $ 18,054 $ 15,484 ======== ======== Interest rate spread .............................. 3.21% 3.26% ======== ======== Net yield on interest-earning assets .............. 3.59% 3.68% ======== ======== Ratio of average interest-earning assets to average interest-bearing liabilities ......... 107.98% 108.92% ======== ========
Table 1 AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES FOR THE YEAR ENDED JUNE 30, 1998 ----------------------------------- Average Yield/ (dollars in thousands) Balance Interest Cost --------------------------------------------------------------------------------------- Interest-earning assets: Loans ........................................... $361,308 $ 32,500 9.00% Mortgage-backed securities ...................... 2,439 155 6.36 Securities and other interest-earning assets .... 27,918 1,710 6.13 -------- -------- Total interest-earning assets .............. 391,665 34,365 8.77 -------- Non-interest-earning assets ..................... 9,291 -------- Total assets ............................... $400,956 ======== Interest-bearing liabilities: Deposits ........................................ $321,039 $ 17,062 5.31 FHLB advances ................................... 40,240 2,351 5.84 Notes payable ................................... 1,604 145 9.04 -------- -------- Total interest-bearing liabilities ......... 362,883 19,558 5.39 -------- -------- Non-interest-bearing liabilities ................ 9,267 -------- Total liabilities .......................... 372,150 Stockholders' equity .............................. 28,806 -------- Total liabilities and stockholders' equity.. $400,956 ======== Net interest income ............................... $ 14,807 ======== Interest rate spread .............................. 3.38% ======== Net yield on interest-earning assets .............. 3.78% ======== Ratio of average interest-earning assets to average interest-bearing liabilities ......... 107.93% ========
PVF Capital Corp. 2000 Annual Report 11 14 Table 1 also presents information for the periods indicated with respect to the difference between the weighted-average yield earned on interest-earning assets and weighted-average rate paid on interest-bearing liabilities, or "interest rate spread," which savings institutions have traditionally used as an indicator of profitability. Another indicator of an institution's net interest income is its "net interest margin" or "net yield on interest-earning assets," which is its net interest income divided by the average balance of net interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. Table 2 illustrates the extent to which changes in interest rates and shifts in the volume of interest-related assets and liabilities have affected the Bank's interest income and expense during the years indicated. The table shows the changes by major component, distinguishing between changes relating to volume (changes in average volume multiplied by average old rate) and changes relating to rate (changes in average rate multiplied by average old volume). Changes not solely attributable to volume or rate have been allocated in proportion to the changes due to volume and rate. As is evidenced by these tables, interest rate changes had a slightly positive effect on the Bank's net interest income for the year ended June 30, 2000, and unfavorably affected the Bank's net interest income for the year ended June 30, 1999. Due to the long-term nature of the Bank's loan portfolio and short-term nature of its deposit portfolio, along with a relatively flat yield curve during much of the years ended June 30, 2000 and 1999, the Bank experienced a decrease of 5 basis points in its interest rate spread to 3.21 percent for fiscal 2000 from 3.26 percent for fiscal 1999, and during fiscal 1999 its interest rate spread decreased 12 basis points from 3.38 percent for fiscal 1998. These changes in average interest rate spread contributed to an increase in net interest income for the year ended June 30, 2000 of $48,000, and a decrease in net interest income for the year ended June 30, 1999 of $0.5 million due to interest rate changes. Net interest income was favorably affected by volume changes during the years ended June 30, 2000 and 1999. Accordingly, net interest income grew by $2.5 million and $1.2 million due to volume changes for the years ended June 30, 2000 and 1999, respectively. The rate/volume analysis illustrates the effect that volatile interest rate environments can have on a financial institution. Increasing interest rates or a flattening yield curve will both have a negative effect on net interest income, while decreasing interest rates or a steepening yield curve will both have a positive effect on net interest income.
Table 2 YEAR ENDED JUNE 30, ------------------------------------------------------------------ 2000 vs. 1999 1999 vs. 1998 ----------------------------- ------------------------------ Increase (Decrease) Increase (Decrease) Due to Due to ----------------------------- ------------------------------ (dollars in thousands) Volume Rate Total Volume Rate Total ----------------------------- ------------------------------ Interest income: Loans............................................. $ 5,460 $ (216) $ 5,244 $ 1,993 $(1,347) $ 646 Mortgage-backed securities........................ (60) 3 (57) (7) (2) (9) Securities and other interest-earning assets...... 1,297 195 1,492 392 (47) 345 ------- --------- ------- ------- --------- -------- Total interest-earning assets................. 6,697 (18) 6,679 2,378 (1,396) 982 ------- --------- ------- ------- --------- -------- Interest expense: Deposits.......................................... 2,599 (151) 2,448 684 (784) (100) FHLB advances..................................... 1,582 84 1,666 658 (119) 539 Notes payable..................................... (6) 1 (5) (134) 0 (134) ------- --------- ------- ------- --------- -------- Total interest-bearing liabilities............ 4,175 (66) 4,109 1,208 (903) 305 ------- --------- ------- ------- --------- -------- Net interest income................................. $ 2,522 $ 48 $ 2,570 $ 1,170 $ (493) $ 677 ======= ========= ======= ======= ========= ========
PVF Capital Corp. 2000 Annual Report 12 15 PROVISION FOR LOAN LOSSES The Bank carefully monitors its loan portfolio and establishes levels of unallocated and specific reserves for loan losses. Provisions for loan losses are charged to earnings to bring the total allowances for loan losses to a level considered adequate by management to provide for probable loan losses inherent in the loan portfolio as of each balance sheet date, based on prior loss experience, volume and type of lending conducted by the Bank, industry standards, and past due loans in the Bank's loan portfolio. The Bank's policies require the review of assets on a regular basis, and the Bank appropriately classifies loans as well as other assets if warranted. The Bank establishes specific provisions for loan losses when a loan is deemed to be uncollectible in an amount equal to the net book value of the loan or to any portion of the loan deemed uncollectible. A loan that is classified as either substandard or doubtful is assigned an allowance based upon the specific circumstances on a loan-by-loan basis after consideration of the underlying collateral and other pertinent economic and market conditions. In addition, the Bank maintains unallocated allowances based upon the establishment of a risk category for each type of loan in the Bank's portfolio. The Bank uses a systematic approach in determining the adequacy of its loan loss allowance and the necessary provision for loan losses, whereby the loan portfolio is reviewed generally and delinquent loan accounts are analyzed individually, on a monthly basis. Consideration is given primarily to the types of loans in the portfolio and the overall risk inherent in the portfolio, as well as, with respect to individual loans, account status, payment history, ability to repay and probability of repayment, and loan-to-value percentages. After reviewing current economic conditions, changes in delinquency status, and actual loan losses incurred by the Bank, management establishes an appropriate reserve percentage applicable to each category of loans, and a provision for loan losses is recorded when necessary to bring the allowance to a level consistent with this analysis. During the year ended June 30, 1999, management conducted a review of the established reserve percentages used in calculating the required loan loss allowance. This review was conducted using the most currently available national and regional aggregate thrift industry data on charge-offs along with an analysis of historical losses experienced by the Bank according to type of loan. As a result of this analysis, management made moderate adjustments to the required reserve percentages on various loan categories to more accurately reflect probable losses. Management believes it uses the best information available to make a determination with respect to the allowance for loan losses, recognizing that future adjustments may be necessary depending upon a change in economic conditions. During 2000, the Bank experienced growth in the loan portfolio of $127.1 million, or 32 percent, while maintaining the composition of the loan portfolio. In addition, the level of impaired loans increased from $3.6 million to $4.8 million, while allowance related to impaired loans decreased from $55,000 to $1,000. The decrease in the level of impaired loans to total loans caused the percentage of allowance for loan losses to impaired loans to decrease from 72 to 70 percent. Net charge-offs increased from $57,000 in 1999 to $92,000 in 2000. Therefore, taking into consideration the growth of the portfolio, the higher level of impaired loans, as well as the higher level of net charge-offs and the overall performance of the portfolio, the Bank provided $850,000 of additional provision to maintain the allowance at a level deemed appropriate of $3.4 million. During 1999, the Bank experienced growth in the loan portfolio of $26.7 million, or 7.2 percent, while maintaining the composition of the loan portfolio. In addition, the level of impaired loans increased from $3.3 million to $3.6 million, while allowance related to impaired loans decreased from $89,000 to $55,000. The increase in the level of impaired loans caused the percentage of allowance for loan losses to impaired loans to decrease from 82 to 72 percent. Net charge-offs decreased from $234,000 in 1998 to $57,000 in 1999. Therefore, taking into consideration the growth of the portfolio, the lower level of impaired loans to total loans, as well as the lower level of net charge-offs, the overall performance of the portfolio, and adjustments made to the systematic established reserve percentages, the Bank made no provision and maintained the allowance at a level deemed appropriate of $2.6 million. NON-INTEREST INCOME Non-interest income amounted to $2.7 million, $5.4 million, and $1.6 million for the years ended June 30, 2000, 1999, and 1998, respectively. The fluctuations in non-interest income are due primarily to fluctuations in income derived from mortgage banking activities and fee income on deposit accounts. Income attributable to mortgage banking activities consists of loan servicing income, gains and losses on the sale of loans and mortgage-backed securities, and market valuation provisions and recoveries. The increase in non-interest income of $3.8 million for the year ended June 30, 1998 to 1999 is the result of a gain on the sale of real estate by PVF Service Corporation, PVF Capital Corp. 2000 Annual Report 13 16 a wholly-owned subsidiary of PVF Capital Corp., attributable to the sale of its 250-acre parcel of land in Solon, Ohio. Income from mortgage banking activities amounted to $718,000, $1,023,000, and $869,000 for the years ended June 30, 2000, 1999, and 1998, respectively. The decrease in income from mortgage banking activities of $305,000 from the year ended June 30, 1999 to 2000 is primarily due to a decrease in net profit realized on the sale of loans. The increase in income from mortgage banking activities of $154,000 from the year ended June 30, 1998 to 1999 is primarily due to an increase in net profit realized on the sale of loans. Other non-interest income amounted to $1,963,000, $611,000, and $727,000 for the years ended June 30, 2000, 1999, and 1998, respectively. The increase in non-interest income of $1.3 million from the year ended June 30, 1999 to June 30, 2000 is primarily due to an insurance payment of $672,000 for legal costs previously incurred relating to the settlement of a lawsuit by PVF Holdings, Inc., a wholly-owned subsidiary of PVF Capital Corp. In addition, a gain of $207,000 was recorded on the sale of the North Moreland office building, rental income increased by $220,000, and gain on the disposal of real estate owned properties increased by $161,000 in the year ended June 30, 2000. Changes in other non-interest income are typically the result of service and other miscellaneous fee income, 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 $10.4 million, $9.6 million, and $8.9 million for the years ended June 30, 2000, 1999, and 1998, respectively. The principal component of non-interest expense is compensation and related benefits which amounted to $5.7 million, $4.8 million, and $4.5 million for the years ended June 30, 2000, 1999, and 1998, respectively. The increase in compensation for the years ended June 30, 2000 and 1999 is due primarily to growth in the staff, the opening of a new branch in fiscal 2000, employee 401K benefits, a compensation incentive plan for both management and loan originators, and inflationary salary and wage adjustments to employees. Office occupancy totaled $2.0 million, $1.8 million, and $1.6 million for the years ended June 30, 2000, 1999, and 1998, respectively. The increased occupancy expense is attributable to maintenance and repairs to office buildings, the relocation of an existing branch office, and the cost of opening and operating an additional branch office. Other non-interest expense totaled $2.7 million, $3.0 million, and $2.7 million for the years ended June 30, 2000, 1999, and 1998, respectively. The increase in other non-interest expense of $0.3 million from the year ended June 30, 1999, as compared to the years ended June 30, 1998 and 2000, is attributable to increased legal expenses during the year ended June 30, 1999. Information pertaining to these expenses is set forth in Item 3 of Form 10-K. Changes in other non-interest expense are the result of advertising, professional and legal services, regulatory and insurance expenses, and franchise tax expense. FEDERAL INCOME TAXES The Company's federal income tax expense was $3.2 million, $3.6 million, and $2.4 million for the years ended June 30, 2000, 1999, and 1998, respectively. Due to the availability of tax credits for the years ended June 30, 2000, 1999, and 1998, 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, 32, and 33 percent for the years ended June 30, 2000, 1999, and 1998, respectively. YEAR 2000 Park View Federal did not experience any significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact on its ongoing business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 or similar issues such as leap-year-related problems may occur with billing, payroll, or financial closings at month, quarterly, or year end. The Company believes that any such problems are likely to be minor and correctable. In addition, the Company could still be negatively affected if its customers are adversely affected by the Year 2000 or similar issues. The Company currently is not aware of any significant Year 2000 or similar problems that have arisen for its customers. The cost to the Company to become Year 2000 compliant did not have a material impact on the Company's net income for any year. These efforts included replacing some outdated, non-compliant hardware and non-compliant software, as well as identifying and remediating Year 2000 problems. 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 PVF Capital Corp. 2000 Annual Report 14 17 in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a more significant impact on the Bank's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. For further information regarding the effect of interest rate fluctuations on the Bank, see "Market Risk Management." EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes comprehensive accounting and reporting requirements for derivative instruments and hedging activities. This statement requires entities to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for gains and losses resulting from changes in fair value of the derivative instrument depends on the use of the derivative and the type of risk being hedged. SFAS No. 137, Deferral of Effective Date of FASB Statement No. 133, amended the effective date of SFAS No. 133 to June 15, 2000. Management determined that the Bank did not engage in any hedging activities or derivative instruments, and therefore the adoption of SFAS No. 137 had no impact on financial condition or results of operation. PARK VIEW FEDERAL SAVINGS BANK BOARD OF DIRECTORS JAMES W. MALE Chairman of the Board JOHN R. MALE President and Chief Executive Officer ROBERT K. HEALEY Retired STANLEY T. JAROS Partner Moriarty & Jaros, P.L.L. ROBERT F. URBAN Retired STUART D. NEIDUS Chairman and Chief Executive Officer Anthony & Sylvan Pools Corporation CREIGHTON E. MILLER Partner Miller, Stillman & Bartel EXECUTIVE OFFICERS JAMES W. MALE Chairman of the Board CAROL S. PORTER Corporate Secretary and Marketing Director JOHN R. MALE President and Chief Executive Officer EDWARD B. DEBEVEC Treasurer C. KEITH SWANEY Executive Vice President and Chief Financial Officer JEFFREY N. MALE Senior Vice President OTHER OFFICERS MARK E. FOSNAUGHT Vice President Branch Coordinator ROBERT J. PAPA Vice President Construction Lending WILLIAM J. HARR, JR. Vice President JOHN E. SCHIMMELMANN Vice President Deposit Operations ANNE M. JOHNSON Vice President Mortgage Loan Servicing KENNAIRD H. STEWART Vice President Commercial Real Estate Lending ADELINE NOVAK Vice President Human Resources ROBERT D. TOTH Vice President Information Systems PVF Capital Corp. 2000 Annual Report 15 18 PARK VIEW FEDERAL SAVINGS BANK OFFICE LOCATIONS AND HOURS BAINBRIDGE OFFICE 8500 Washington Street Chagrin Falls, Ohio 44023 440-543-8889 BEDFORD HEIGHTS OFFICE 25350 Rockside Road Bedford Hts., Ohio 44146 440-439-2200 CHARDON OFFICE 408 Water Street Chardon, Ohio 44024 440-285-2343 NORTH ROYALTON OFFICE 13901 Ridge Road North Royalton, Ohio 44133 440-582-7417 MACEDONIA OFFICE 497 East Aurora Road Macedonia, Ohio 44056 330-468-0055 MAYFIELD HEIGHTS OFFICE 1456 SOM Center Road Mayfield Hts., Ohio 44124 440-449-8597 MEDINA OFFICE 3613 Medina Road Medina, Ohio 44256 330-721-7484 MENTOR OFFICE 6990 Heisley Road Mentor, Ohio 44060 440-944-0276 SOLON OFFICE 34400 Aurora Road Solon, Ohio 44139 440-542-6070 LOBBY Mon., Tue., Wed., Thurs.....9:00 a.m. - 4:30 p.m. Fri.........................9:00 a.m. - 5:30 p.m. Sat.........................9:00 a.m. - 1:00 p.m. DRIVE-UP WINDOW Mon., Tue., Wed., Thurs. ...9:00 a.m. - 5:00 p.m. Fri.........................9:00 a.m. - 6:00 p.m. Sat.........................9:00 a.m. - 1:00 p.m. LA PLACE OFFICE 2111 Richmond Road Beachwood, Ohio 44122 216-831-6373 LAKEWOOD-CLEVELAND OFFICE 11010 Clifton Blvd. Cleveland, Ohio 44102 216-631-8900 LOBBY Mon., Tue., Thurs...........9:00 a.m. - 4:30 p.m. Fri.........................9:00 a.m. - 5:30 p.m. Sat.........................9:00 a.m. - 1:00 p.m. Closed Wednesday DRIVE-UP WINDOW Mon., Tue., Thurs...........9:00 a.m. - 5:00 p.m. Fri.........................9:00 a.m. - 6:00 p.m. Sat.........................9:00 a.m. - 1:00 p.m. SHAKER HEIGHTS OFFICE 16909 Chagrin Blvd. Shaker Hts., Ohio 44120 216-283-4003 LOBBY Mon., Tue., Wed., Thurs.....9:00 a.m. - 4:30 p.m. Fri.........................9:00 a.m. - 6:00 p.m. Sat.........................9:00 a.m. - 1:00 p.m. ADMINISTRATIVE OFFICES 25350 Rockside Road Bedford Hts., Ohio 44146 440-439-6790 Monday - Friday 9:00 a.m. - 5:00 p.m. PVF Capital Corp. 2000 Annual Report 16 19 INDEPENDENT AUDITORS' REPORT The Board of Directors PVF Capital Corp.: We have audited the accompanying consolidated statements of financial condition of PVF Capital Corp. and subsidiaries (Company) as of June 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three- year period ended June 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PVF Capital Corp. and subsidiaries as of June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Cleveland, Ohio August 2, 2000 17 20 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Financial Condition June 30, 2000 and 1999
ASSETS 2000 1999 ----------------- ----------------- Cash and amounts due from depository institutions $ 3,806,575 4,140,460 Interest bearing deposits 815,280 573,872 Federal funds sold 1,050,000 5,375,000 ----------------- ----------------- Cash and cash equivalents 5,671,855 10,089,332 Securities held to maturity (fair values of $63,853,318 and $24,895,033, respectively) 65,258,853 25,334,041 Mortgage-backed securities held to maturity (fair values of $1,200,418 and $1,728,656, respectively) 1,215,045 1,732,726 Loans receivable held for long-term investment, net of allowance for loan losses of $3,387,474 and $2,629,743, respectively 513,669,748 395,550,737 Loans receivable held for sale, net 10,737,721 1,772,176 Office properties and equipment, net 1,857,344 2,003,211 Real estate held for investment 4,094,020 3,796,852 Real estate owned 488,461 168,500 Investment required by law - stock in the Federal Home Loan Bank of Cincinnati 5,841,227 3,759,452 Prepaid expenses and other assets 4,151,852 4,994,438 ----------------- ----------------- Total assets $ 612,986,126 449,201,465 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 440,981,859 331,241,736 Advances from the Federal Home Loan Bank of Cincinnati 114,973,840 66,040,736 Notes payable 1,000,000 -- Advances from borrowers for taxes and insurance 6,175,119 5,463,660 Accrued expenses and other liabilities 6,955,245 7,599,525 ----------------- ----------------- Total liabilities 570,086,063 410,345,657 ----------------- ----------------- 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; 4,832,918 and 4,389,742 shares issued, respectively 48,329 43,897 Additional paid-in capital 24,780,978 20,248,139 Retained earnings (substantially restricted) 19,043,934 18,635,022 Treasury stock, at cost, 93,063 and 6,050 shares, respectively (973,178) (71,250) ----------------- ----------------- Total stockholders' equity 42,900,063 38,855,808 ----------------- ----------------- Total liabilities and stockholders' equity $ 612,986,126 449,201,465 ================= =================
See accompanying notes to consolidated financial statements. 18 21 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Operations Years ended June 30, 2000, 1999, and 1998
2000 1999 1998 ----------------- ----------------- ----------------- Interest income: Loans $ 38,390,556 33,145,769 32,499,826 Mortgage-backed securities 89,987 146,865 155,446 Cash and securities 3,545,785 2,054,310 1,709,951 ----------------- ----------------- ----------------- Total interest income 42,026,328 35,346,944 34,365,223 ----------------- ----------------- ----------------- Interest expense: Deposits 19,409,126 16,960,961 17,062,418 Short-term borrowings 4,563,252 2,901,621 978,144 Long-term borrowings -- -- 1,517,766 ----------------- ----------------- ----------------- Total interest expense 23,972,378 19,862,582 19,558,328 ----------------- ----------------- ----------------- Net interest income 18,053,950 15,484,362 14,806,895 Provision for loan losses 850,000 -- 246,000 ----------------- ----------------- ----------------- Net interest income after provision for loan losses 17,203,950 15,484,362 14,560,895 ----------------- ----------------- ----------------- Noninterest income: Service and other fees 482,208 492,316 621,277 Mortgage banking activities, net 547,787 422,304 385,620 Gain on sale of loans, net 170,199 601,056 483,915 Gain on sale of real estate 207,165 3,800,696 -- Rental income 301,426 81,779 70,000 Insurance proceeds 672,243 -- -- Other, net 299,952 37,311 35,905 ----------------- ----------------- ----------------- Total noninterest income 2,680,980 5,435,462 1,596,717 ----------------- ----------------- ----------------- Noninterest expense: Compensation and benefits 5,659,378 4,848,030 4,512,664 Office, occupancy, and equipment 2,002,573 1,783,631 1,631,802 Insurance 232,491 272,607 255,365 Professional and legal 331,103 921,664 264,555 Other 2,183,795 1,823,225 2,185,965 ----------------- ----------------- ----------------- Total noninterest expense 10,409,340 9,649,157 8,850,351 ----------------- ----------------- ----------------- Income before federal income taxes 9,475,590 11,270,667 7,307,261 Federal income taxes: Current 3,099,581 2,437,926 2,332,125 Deferred 63,679 1,113,454 47,230 ----------------- ----------------- ----------------- 3,163,260 3,551,380 2,379,355 ----------------- ----------------- ----------------- Net income $ 6,312,330 7,719,287 4,927,906 ================= ================= ================= Basic earnings per share $ 1.32 1.60 1.04 ================= ================= ================= Diluted earnings per share $ 1.27 1.54 .99 ================= ================= =================
See accompanying notes to consolidated financial statements. 19 22 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended June 30, 2000, 1999, and 1998
ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK TOTAL ------------- -------------- --------------- ------------- ---------------- Balance at June 30, 1997 $ 25,556 14,522,275 11,725,585 -- 26,273,416 Net income -- -- 4,927,906 -- 4,927,906 Stock options exercised, 127,278 shares 1,049 8,480 -- -- 9,529 Cash paid in lieu of fractional shares -- -- (2,141) -- (2,141) Three-for-two stock split effected in the form of a dividend 13,303 (13,303) -- -- -- ------------- -------------- --------------- ------------- ---------------- Balance at June 30, 1998 39,908 14,517,452 16,651,350 -- 31,208,710 Net income -- -- 7,719,287 -- 7,719,287 Cash paid in lieu of fractional shares -- -- (939) -- (939) Stock dividend issued, 398,934 shares 3,989 5,730,687 (5,734,676) -- -- Purchase of 6,050 shares of Treasury stock -- -- -- (71,250) (71,250) ------------- -------------- --------------- ------------- ---------------- Balance at June 30, 1999 43,897 20,248,139 18,635,022 (71,250) 38,855,808 Net income -- -- 6,312,330 -- 6,312,330 Stock options exercised, 3,982 shares 40 8,043 -- -- 8,083 Cash paid in lieu of fractional shares -- -- (2,110) -- (2,110) Stock dividend issued, 439,194 shares 4,392 4,524,796 (4,529,188) -- -- Cash dividend -- -- (1,372,120) -- (1,372,120) Purchase of 87,013 shares of Treasury stock -- -- -- (901,928) (901,928) ------------- -------------- --------------- ------------- ---------------- Balance at June 30, 2000 $ 48,329 24,780,978 19,043,934 (973,178) 42,900,063 ============= ============== =============== ============= ================
See accompanying notes to consolidated financial statements. 20 23 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 2000, 1999, and 1998
2000 1999 1998 ----------------- ----------------- ----------------- Operating activities: Net income $ 6,312,330 7,719,287 4,927,906 Adjustments required to reconcile net income to net cash provided by (used in) operating activities: Accretion of discount on securities (9,297) (1,458) (4,650) Depreciation and amortization 587,993 605,453 512,290 Provision for loan losses 850,000 -- 246,000 Accretion of unearned discount and deferred loan origination fees, net (1,085,706) (1,263,266) (1,464,630) Deferred income tax provision (63,679) (1,113,454) (47,230) Proceeds from loans held for sale 37,826,392 107,977,623 81,294,421 Originations of loans held for sale (46,791,937) (108,105,064) (82,229,552) Gain on the sale of loans, net (170,199) (601,056) (483,915) Net change in other assets and other liabilities 48,841 (649,409) 1,342,926 ----------------- ----------------- ----------------- Net cash provided by (used in) operating activities (2,495,262) 4,568,656 4,093,566 ----------------- ----------------- ----------------- Investing activities: Loans originated (236,094,858) (157,546,496) (143,825,436) Principal repayments on loans 117,791,239 132,682,883 116,232,185 Principal repayments on mortgage-backed securities held to maturity 522,969 1,223,417 589,488 Purchase of mortgage-backed securities held to maturity -- -- (3,017,075) Purchase of securities held to maturity (39,995,313) (25,389,250) (27,800,000) Maturities of securities held to maturity 79,798 27,856,667 14,000,000 Federal Home Loan Bank (FHLB) stock purchased, net (2,081,775) (251,888) (745,250) Additions to office properties and equipment (442,127) (295,118) (943,445) Disposals of real estate owned 478,410 752,636 1,025,818 (Additions) disposal of real estate held for investment, net (297,168) (2,858,782) (28,313) ----------------- ----------------- ----------------- Net cash used in investing activities (160,038,825) (23,825,931) (44,512,028) ----------------- ----------------- -----------------
(Continued) 21 24 PVF CAPITAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 2000, 1999, and 1998
2000 1999 1998 ----------------- ----------------- ----------------- Financing activities: Payments on FHLB advances $ (124,066,896) (10,283,720) (92,580,968) Proceeds from FHLB advances 173,000,000 30,000,000 91,500,000 Proceeds from notes payable 1,000,000 -- -- Repayment of notes payable -- (1,060,000) (1,250,000) Net increase in NOW and passbook savings 10,847,871 7,719,664 5,693,428 Proceeds from issuance of certificates of deposit 160,039,738 46,744,489 85,884,130 Payments on maturing certificates of deposit (61,147,486) (67,451,145) (35,618,504) Payment of cash dividend (1,374,230) (939) (2,141) Purchase of Treasury stock (901,928) (71,250) -- Other 719,541 532,546 429,049 ----------------- ----------------- ----------------- Net cash provided by financing activities 158,116,610 6,129,645 54,054,994 ----------------- ----------------- ----------------- Net increase (decrease) in cash and cash equivalents (4,417,477) (13,127,630) 13,636,532 Cash and cash equivalents at beginning of year 10,089,332 23,216,962 9,580,430 ----------------- ----------------- ----------------- Cash and cash equivalents at end of year $ 5,671,855 10,089,332 23,216,962 ================= ================= ================= Supplemental disclosures of cash flow information: Cash payments of interest expense $ 23,766,847 19,922,567 19,530,151 Cash payments of income taxes 2,720,291 2,480,000 2,617,000 ================= ================= ================= Supplemental schedule of noncash investing and financing activities: Transfers from real estate owned $ (265,267) (700,736) (989,299) Transfers to real estate owned 585,226 170,000 2,714,353 ================= ================= =================
See accompanying notes to consolidated financial statements. 22 25 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS The accounting and reporting policies of PVF Capital Corp. and its subsidiaries (Company) conform to generally accepted accounting principles and general industry practice. The Company's principal subsidiary, Park View Federal Savings Bank (Bank), is principally engaged in the business of offering savings deposits through the issuance of savings accounts, money market accounts, and certificates of deposit and lending funds primarily for the purchase, construction, and improvement of real estate in Cuyahoga, Summit, Geauga, Lake, Medina and eastern Lorain Counties, Ohio. The deposit accounts of the Bank are insured under the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC) and are backed by the full faith and credit of the United States government. The following is a description of the significant policies which the Company follows in preparing and presenting its consolidated financial statements. (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of PVF Capital Corp. and its wholly owned subsidiaries, Park View Federal Savings Bank and PVF Service Corporation. All significant intercompany transactions and balances are eliminated in consolidation. (b) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) ALLOWANCE FOR LOSSES A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest according to the contractual terms of the loan agreement. Since the Bank's loans are primarily collateral dependent, measurement of impairment is based on the fair value of the collateral. The allowance for loan losses is maintained at a level to absorb probable losses inherent in the portfolio as of the balance sheet date. The adequacy of the allowance for loan losses is periodically evaluated by the Bank based upon the overall portfolio composition and general market conditions. While management uses the best information available to make these evaluations, future adjustments to the allowance may be necessary if economic conditions change substantially from the assumptions used in making the evaluations. Future adjustments to the allowance may also be required by regulatory examiners based on their judgments about information available to them at the time of their examination. Uncollectible interest on loans that are contractually 90 days or more past due is charged off, or an allowance is established. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent cash payments are received until the loan is determined to be performing in accordance with the applicable loan terms in which case the loan is returned to accrual status. 23 26 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (d) MORTGAGE BANKING ACTIVITIES Mortgage loans held for sale are carried at the lower of cost or market value, determined on an aggregate basis. The Company retains servicing on loans that are sold. The Company recognizes an asset for mortgage servicing rights based on an allocation of total loan cost using relative fair values, or a liability for mortgage servicing rights based on fair value, if the benefits of servicing are not expected to adequately compensate the Company. The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on current market interest rates and prepayment assumptions. For purposes of measuring impairment, the rights are stratified based on predominant risk characteristics of the underlying loans such as interest rates and scheduled maturity. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights exceed their fair value. The Company monitors prepayments, and in the event that actual prepayments exceed original estimates, amortization is adjusted accordingly. (e) INVESTMENT AND MORTGAGE-BACKED SECURITIES The Company classifies all securities as held to maturity or available for sale. Securities held to maturity are limited to debt securities that the Company has the positive intent and the ability to hold to maturity; these securities are reported at amortized cost. Securities available for sale consist of all other securities; these securities are reported at fair value, and unrealized gains and losses are not reflected in earnings but are reflected as a component of accumulated other comprehensive income, net of tax. Investment and mortgage-backed securities that could be sold in the future because of changes in interest rates or other factors are not be classified as held to maturity. Gains or losses on the sales of all securities are recognized at the date of sale (trade date). Premiums and discounts are amortized or accredited over the life of the related security as an adjustment to yield. Dividends and interest income are recognized when earned. (f) OFFICE PROPERTIES AND EQUIPMENT Depreciation and amortization are computed using the straight-line method at rates expected to amortize the cost of the assets over their estimated useful lives or, with respect to leasehold improvements, the term of the lease, if shorter. 24 27 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (g) FEDERAL INCOME TAXES The Company files a consolidated tax return with its wholly owned subsidiaries and provides deferred federal income taxes in recognition of temporary differences between financial statement and income tax reporting. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, and the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) LOAN ORIGINATION AND COMMITMENT FEES The Company defers loan origination and commitment fees and certain direct loan origination costs and amortizes the net amount over the lives of the related loans as a yield adjustment if the loans are held for investment, or recognizes the net fees as mortgage banking income when the loans are sold. (i) REAL ESTATE OWNED Real estate owned is carried at the lower of cost, including capitalized holding costs, or fair value less estimated selling costs. (j) STATEMENTS OF CASH FLOWS For purposes of the consolidated statements of cash flows, the Company considers cash and amounts due from depository institutions, interest bearing deposits, and federal funds sold with original maturities of less than three months to be cash equivalents. (k) EARNINGS PER SHARE Earnings per share is calculated by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. The assumed exercise of stock options is included in the calculation of diluted earnings per share. The per share data for 2000, 1999 and 1998 are adjusted to reflect the three-for-two stock issuance declared July 1998; and the 10% stock dividends declared July 1999 and July 2000. (l) RECLASSIFICATIONS Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. 25 28 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (2) SECURITIES Securities held to maturity at June 30, 2000 and 1999, are summarized as follows:
2000 ------------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAIN LOSS FAIR VALUE ----------- ----------- ----------- ----------- United States Government and agency securities $64,962,318 -- (1,405,535) 63,556,783 Municipal bond 296,535 -- -- 296,535 ----------- ----------- ----------- ----------- Total $65,258,853 -- (1,405,535) 63,853,318 =========== =========== =========== =========== Due after one year through five years $65,258,853 -- (1,405,535) 63,853,318 =========== =========== =========== ===========
1999 ------------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAIN LOSS FAIR VALUE ----------- ----------- ----------- ----------- United States Government and agency securities $24,957,708 -- (439,008) 24,518,700 Municipal bond 376,333 -- -- 376,333 ----------- ----------- ----------- ----------- Total $25,334,041 -- (439,008) 24,895,033 =========== =========== =========== =========== Due after one year through five years $25,334,041 -- (439,008) 24,895,033 =========== =========== =========== ===========
There were no sales of securities for the years ended June 30, 2000, 1999 or 1998. 26 29 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (3) MORTGAGE-BACKED SECURITIES Mortgage-backed securities held to maturity at June 30, 2000 and 1999, are summarized as follows:
2000 --------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAIN LOSS FAIR VALUE ---------- ---------- ---------- ---------- FHLMC mortgage-backed securities $1,207,804 -- (14,627) 1,193,177 Accrued interest receivable 7,241 -- -- 7,241 ---------- ---------- ---------- ---------- $1,215,045 -- (14,627) 1,200,418 ========== ========== ========== ========== Due after one year through five years 1,057,919 -- (14,627) 1,043,292 Due after five years 157,126 -- -- 157,126 ---------- ---------- ---------- ---------- $1,215,045 -- (14,627) 1,200,418 ========== ========== ========== ==========
2000 --------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAIN LOSS FAIR VALUE ---------- ---------- ---------- ---------- FHLMC mortgage-backed securities $1,721,883 -- (4,070) 1,717,813 Accrued interest receivable 10,883 -- -- 10,843 ---------- ---------- ---------- ---------- $1,732,726 -- (4,070) 1,728,656 Due after one year through five years 1,434,965 -- (4,070) 1,430,895 Due after five years 297,761 -- -- 297,761 ---------- ---------- ---------- ---------- $1,732,726 -- (4,070) 1,728,656 ========== ========== ========== ==========
There were no sales of mortgage-backed securities for the years ended June 30, 2000, 1999 or 1998. 27 30 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (4) LOANS RECEIVABLE HELD FOR LONG-TERM INVESTMENT Loans receivable held for long-term investment at June 30, 2000 and 1999, consist of the following:
2000 1999 ------------- ------------- Real estate mortgages: One-to-four family residential $ 197,226,816 139,505,849 Home equity line of credit 30,978,348 22,956,231 Multifamily residential 42,503,308 34,074,620 Commercial 115,226,307 105,426,600 Commercial equity line of credit 12,078,863 4,712,750 Land 41,583,317 42,003,325 Construction - residential 106,706,249 82,475,445 Construction - commercial 21,603,903 18,556,297 ------------- ------------- Total real estate mortgages 567,907,111 449,711,117 Consumer 4,390,647 3,085,680 ------------- ------------- 572,297,758 452,796,797 Accrued interest receivable 3,019,724 2,191,226 Deferred loan origination fees (1,956,826) (1,920,738) Unearned discount (15,529) (22,752) Undisbursed portion of loan proceeds (56,287,905) (54,864,053) Allowance for loan losses (3,387,474) (2,629,743) ------------- ------------- $ 513,669,748 395,550,737 ============= =============
A summary of the changes in the allowance for loan losses for the years ended June 30, 2000, 1999, and 1998, is as follows (charge-offs include transfers to real estate owned): 2000 1999 1998 ----------- ----------- ----------- Beginning balance $ 2,629,743 2,686,521 2,674,537 Provision charged to operations 850,000 -- 246,000 Charge-offs (92,855) (62,097) (236,593) Recoveries 586 5,319 2,577 ----------- ----------- ----------- Ending balance $ 3,387,474 2,629,743 2,686,521 =========== =========== =========== 28 31 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 The following is a summary of the principal balances (as rounded) of loans on nonaccrual status, and loans past due 90 days or more which were on accrual status, at June 30:
2000 1999 ---------- ---------- Loans on nonaccrual status: Real estate mortgages: One-to-four family residential $1,254,000 1,242,000 Commercial 69,000 551,000 Multi-family residential 253,000 230,000 Construction and land 3,266,000 1,616,000 ---------- ---------- Total loans on nonaccrual status 4,842,000 3,639,000 ---------- ---------- Past due loans on accrual status - real estate mortgages - construction and land 935,000 248,000 ---------- ---------- Total past due loans $5,777,000 3,887,000 ========== ==========
During the years ended June 30, 2000, 1999 and 1998, gross interest income of $502,840, $349,539 and $204,736, respectively, would have been recorded on loans accounted for on a nonaccrual basis if the loans had been current throughout the period. At June 30, 2000 and 1999, the recorded investment in loans which have been identified as being impaired totaled $4,842,000 and $3,639,000, respectively. Included in the impaired amount at June 30, 2000 and 1999, is $188,966 and $443,062, respectively, related to loans with a corresponding valuation allowance of $150,506 and $202,334, respectively. The Company recognized no interest on impaired loans in 2000, 1999, and 1998 (during the portion of the respective years that they were impaired). Average impaired loans for the years ended June 30, 2000, 1999, and 1998 amounted to $4,240,500, $3,522,000, and $3,026,000, respectively. (5) LOANS RECEIVABLE HELD FOR SALE Loans receivable held for sale at June 30, 2000 and 1999, consist of the following:
2000 ------------------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAIN LOSS FAIR VALUE ------------ ------------ ------------ ------------ Real estate mortgages $ 10,956,179 -- (45,000) 10,911,179 Deferred loan origination fees (173,458) -- -- (173,458) ------------ ------------ ------------ ------------ $ 10,782,721 -- (45,000) 10,737,721 ============ ============ ============ ============
29 32 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998
1999 -------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAIN LOSS FAIR VALUE ----------- ----------- ----------- ----------- Real estate mortgages $ 1,802,323 -- (27,717) 1,774,606 Deferred loan origination fees (30,147) -- -- (30,147) ----------- ----------- ----------- ----------- $ 1,772,176 -- (27,717) 1,744,459 =========== =========== =========== ===========
Mortgage banking activities, net, for each of the years in the three-year period ended June 30, 2000, consist of the following:
2000 1999 1998 ----------- ----------- ----------- Mortgage loan servicing fees $ 755,705 702,645 617,080 Amortization of mortgage servicing rights (162,918) (280,341) (231,460) Gross realized: Gains on sales of loans 613,584 1,506,985 1,209,893 Losses on sales of loans (443,385) (905,929) (725,978) Market valuation provision for losses on loans receivable held for sale (45,000) -- -- ----------- ----------- ----------- $ 717,986 1,023,360 869,535 =========== =========== ===========
At June 30, 2000, 1999 and 1998, the Bank was servicing whole and participation mortgage loans for others aggregating approximately $288,249,513, $277,288,302, and $233,893,979, respectively. The Bank had $3,411,372 and $3,458,030 at June 30, 2000 and 1999, respectively, of funds collected on mortgage loans serviced for others due to investors, which is included in accrued expenses and other liabilities. 30 33 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 Originated mortgage servicing rights capitalized and amortized during the years ended June 30, 2000, 1999 and 1998 were as follows: 2000 1999 1998 ----------- ----------- ----------- Beginning balance $ 798,973 606,200 451,000 Originated 197,503 473,114 386,600 Amortized (162,918) (280,341) (231,400) ----------- ----------- ----------- Ending balance $ 833,558 798,973 606,200 =========== =========== =========== Estimated fair value $ 2,349,255 2,334,665 1,639,261 =========== =========== =========== No valuation allowance has been established for mortgage servicing rights as there has been no impairment on those rights. (6) OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment at cost, less accumulated depreciation and amortization at June 30, 2000 and 1999 are summarized as follows: 2000 1999 ---------- ---------- Land and land improvements $ -- 207,092 Building and building improvements 23,747 1,062,525 Leasehold improvements 2,042,976 1,849,929 Furniture and equipment 4,378,276 3,788,158 ---------- ---------- 6,444,999 6,907,704 Less accumulated depreciation and amortization (4,587,655) (4,904,493) ---------- ---------- $ 1,857,344 2,003,211 ========== ========== 31 34 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (7) DEPOSITS Deposit balances at June 30, 2000 and 1999 are summarized by interest rate as follows:
2000 1999 ----------------------------- ------------------------------ AMOUNT % AMOUNT % ------------- ------------ ------------ ------------ NOW and money market accounts Noninterest bearing $ 10,681,710 2.4% $ 7,182,506 2.2% 2.00 - 5.00% 38,611,269 8.8 30,146,167 9.1 ------------- ------------ ------------ ------------ 49,292,979 11.2 37,328,673 11.3 Passbook savings 3.00 - 5.00% 32,137,728 7.3 33,254,163 10.0 Certificates of deposit 2.50 - 2.99% 721,663 .2 750,000 .2 4.00 - 4.99 20,079,686 4.6 86,009,310 26.0 5.00 - 5.99 108,986,262 24.7 115,086,171 34.7 6.00 - 6.99 214,068,573 48.5 48,828,427 14.7 7.00 - 7.99 15,413,432 3.5 9,784,800 3.0 8.00 - 8.99 281,537 .1 200,192 .1 ------------- ------------ ------------ ------------ 359,551,152 81.5 260,658,900 78.7 ------------- ------------ ------------ ------------ $ 440,981,859 100.0% $331,241,736 100.0% ============= ============ ============ ============ Weighted average rate on deposits 5.49% 4.80% ============ ============
2000 1999 ----------------------------- ----------------------------- AMOUNT % AMOUNT % ------------ ------------ ------------ ------------ Remaining term to maturity of certificates of deposit: 12 months or less $277,540,274 77.2% $216,355,447 83.0% 13 to 24 months 43,853,077 12.2 32,535,028 12.5 25 to 36 months 28,263,017 7.9 6,253,664 2.4 Over 36 months 9,894,784 2.7 5,514,761 2.1 ------------ ------------ ------------ ------------ $359,551,152 100.0% $260,658,900 100.0% ============ ============ ============ ============ Weighted average rate on certificates of deposit 6.17% 5.48% ============ ============
Time deposits in amounts of $100,000 or more totaled $99,473,486 and $65,113,000 at June 30, 2000 and 1999, respectively. 32 35 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 Interest expense on deposits is summarized as follows: 2000 1999 1998 ----------- ----------- ----------- NOW accounts $ 978,645 730,099 599,436 Passbook accounts 812,545 832,070 870,661 Certificates of deposit 17,617,936 15,398,792 15,592,321 ----------- ----------- ----------- $19,409,126 16,960,961 17,062,418 =========== =========== =========== (8) ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI Advances from the Federal Home Loan Bank of Cincinnati, with maturities and interest rates thereon at June 30, 2000 and 1999, were as follows:
MATURITY INTEREST RATE 2000 1999 -------- ------------- ------------ ------------ June 2001 6.60%for 2000 and 6.00% for 1999 $ 89,000,000 25,000,000 March 2001 5.93 5,000,000 5,000,000 February 2003 6.00 500,000 500,000 February 2006 6.05 473,840 540,736 February 2008 5.37 10,000,000 10,000,000 March 2008 5.15 -- 5,000,000 March 2008 5.64 10,000,000 10,000,000 March 2008 5.13 -- 5,000,000 July 2008 5.15 -- 5,000,000 ------------ ------------ $114,973,840 66,040,736 ============ ============ Weighted average interest rate 6.38% 5.65% ============ ============
The Bank maintains two lines of credit, totaling $122,500,000, with the Federal Home Loan Bank of Cincinnati (FHLB). The $100,000,000 repurchase line matures in June 2001. The Bank has chosen to take daily advances from this line, with the interest rate set daily. The $22,500,000 cash management line matures in October 2000. Serving as collateral for such advances, the Bank has pledged mortgage loans with unpaid principal balances aggregating approximately $172,460,760 and $99,061,104 at June 30, 2000 and 1999, respectively. In addition, stock in the FHLB is pledged for such advances. The Bank has the capacity to borrow up to 25% of its assets, upon approval of the FHLB. At June 30, 2000 and 1999, the Bank had the capacity to borrow an additional $16,000,000 and $27,000,000, respectively, in FHLB advances. 33 36 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (9) NOTES PAYABLE On April 12, 2000, PVF Service Corporation, a wholly owned subsidiary of the Company, secured a mortgage note from another federally insured institution at a variable interest rate that adjusts to prime without notice on the effective date of each change in the lender's prime rate. The balance at June 30, 2000 was $1,000,000. The note matures in April of 2002. (10) FEDERAL INCOME TAXES AND RETAINED EARNINGS The accompanying consolidated financial statements reflect provisions for federal income taxes differing from the amounts computed by applying the U.S. federal income tax statutory rate to income before federal income taxes. These differences are reconciled as follows:
2000 1999 1998 --------------------------- --------------------------- ---------------------------- AMOUNT % AMOUNT % AMOUNT % ----------- ----------- ----------- ----------- ----------- ----------- Computed expected tax $ 3,316,457 35.0% $ 3,944,733 35.0% $ 2,557,541 35.0% Decrease in tax resulting from: Benefit of graduated rates (94,756) (1.0) (112,706) (1.0) (73,073) (1.0) Tax credits (111,774) (1.2) (219,332) (2.0) (287,788) (3.9) Other, net 53,333 0.6 (61,315) (0.5) 182,675 2.5 ----------- ----------- ----------- ----------- ----------- ----------- $ 3,163,260 33.4% $ 3,551,380 31.5% $ 2,379,355 32.6% =========== =========== =========== =========== =========== ===========
34 37 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 The net tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 2000 and 1999 are:
2000 1999 ----------- ----------- Deferred tax assets: Loan loss and other reserves $ 1,166,543 875,271 Other 151,741 282,819 ----------- ----------- Total gross deferred tax assets 1,318,284 1,158,090 Less valuation allowance -- -- ----------- ----------- Net deferred tax assets 1,318,284 1,158,090 ----------- ----------- Deferred tax liabilities: Deferred loan fees, net 411,289 257,290 FHLB stock dividend 717,315 582,845 Unrealized gains on loan sales, net 192,334 95,871 Originated mortgage servicing asset 283,396 271,637 Basis differences - fixed assets 797,507 968,345 Other 178,590 180,570 ----------- ----------- Total gross deferred tax liabilities 2,580,431 2,356,558 ----------- ----------- Net deferred tax liability $(1,262,147) (1,198,468) =========== ===========
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, 2000 or 1999. Retained earnings at June 30, 2000 includes approximately $4,516,000 for which no provision for federal income tax has been made. This amount represents allocations of income during years prior to 1988 to bad debt deductions for tax purposes only. These qualifying and nonqualifying base year reserves and supplemental reserves will be recaptured into income in the event of certain distributions and redemptions. Such recapture would create income for tax purposes only, which would be subject to the then current corporate income tax rate. Recapture would not occur upon the reorganization, merger, or acquisition of the Bank, nor if the Bank is merged or liquidated tax-free into a bank or undergoes a charter change. If the Bank fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into income. The favorable reserve method previously afforded to thrifts was repealed for tax years beginning after December 31, 1995. Large thrifts were required to switch to the specific charge-off method of section 166. In general, a thrift is required to recapture the amount of its qualifying and nonqualifying reserves in excess of its qualifying and nonqualifying base year reserves. The Bank has no such excess reserves to recapture. 35 38 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (11) LEASES Future minimum payments under noncancelable operating leases with initial or remaining terms of one year or more consisted of the following at June 30, 2000: YEAR ENDING JUNE 30, -------------------- 2001 $ 624,935 2002 589,088 2003 495,549 2004 382,773 2005 198,330 Thereafter 716,451 ---------- Total minimum lease payments $3,007,126 ========== During the years ended June 30, 2000, 1999, and 1998, rental expense was $593,331, $460,313, and $435,097, respectively. (12) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Bank enters into commitments with off-balance sheet risk to meet the financing needs of its customers. Commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Bank's exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of 60 to 120 days or other termination clauses and may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on management's credit evaluation of the applicant. Collateral held is generally residential and commercial real estate. The Bank's lending is concentrated in Northeastern Ohio, and as a result, the economic conditions and market for real estate in Northeastern Ohio could have a significant impact on the Bank. 36 39 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 At June 30, 2000 and 1999, the Bank had the following commitments:
2000 1999 ----------- ------------ Commitments to sell mortgage loans in the secondary market $ 1,024,479 540,000 Commitments to fund variable mortgage loans 28,615,700 43,472,000 Commitments to fund fixed mortgage loans 4,304,905 8,669,000
There are pending against the Company various lawsuits and claims which arise in the normal course of business. In the opinion of management, any liabilities that may result from pending lawsuits and claims will not materially affect the financial position of the Company. (13) REGULATORY CAPITAL The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Office of Thrift Supervision (OTS) regulations require 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, 2000, the minimum regulatory capital regulations require institutions to have equity capital to total tangible assets of 1.5%; a minimum leverage ratio of core (Tier 1) capital to total adjusted tangible assets of 3%; and a minimum ratio of total capital to risk weighted assets of 8%. At June 30, 2000, the Bank exceeded all of the aforementioned regulatory capital requirements. 37 40 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 The most recent notification from the Office of Thrift Supervision categorized the Company as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. At June 30, 2000 and 1999, the Bank was in compliance with regulatory capital requirements as set forth below (dollars in thousands):
CORE/ TIER-1 TOTAL RISK- EQUITY LEVERAGE RISK-BASED BASED CAPITAL CAPITAL CAPITAL CAPITAL ---------- ---------- ---------- ---------- June 30, 2000: GAAP capital $ 40,994 40,994 40,994 40,994 General loan valuation allowances -- -- 3,386 ---------- ---------- ---------- Regulatory capital 40,994 40,994 44,380 Total assets 613,695 ---------- Adjusted total assets 613,695 ---------- Risk-weighted assets 443,612 443,612 ---------- ---------- Actual capital ratio 6.68% 6.68% 9.24% 10.00% Regulatory requirement 1.50% 3.00% 8.00% Regulatory capital category - well-capitalized - equal to or greater than 5.00% 6.00% 10.00%
38 41 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998
CORE/ TIER-1 TOTAL RISK- EQUITY LEVERAGE RISK-BASED BASED CAPITAL CAPITAL CAPITAL CAPITAL ---------- ---------- ---------- ---------- June 30, 1999: GAAP capital $ 35,950 35,950 35,950 35,950 General loan valuation allowances -- -- 2,574 ---------- ---------- ---------- Regulatory capital 35,950 35,950 38,524 Total assets 450,039 ---------- Adjusted total assets 450,039 ---------- Risk-weighted assets 344,753 344,753 ---------- ---------- Actual capital ratio 7.99% 7.99% 10.43% 11.17% Regulatory requirement 1.50% 3.00% 8.00% Regulatory capital category - well-capitalized - equal to or greater than 5.00% 6.00% 10.00%
39 42 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (14) STOCK OPTIONS The Bank offered stock options to the directors and officers of the bank in fiscal years 1993, 1997, 1998, 1999 and 2000. Under the 1992 plan, 381,830 options were originally granted, which are exercisable for a ten-year period and can be exercised at any time. In fiscal year 1997, 32,100 options were originally granted, in fiscal year 1998, 32,550 options were originally granted, in fiscal year 1999, 21,700 options were originally granted and in fiscal year 2000, 53,300 options were originally granted, which are exercisable for a ten-year period, with 20% of the options vesting each year. Options were granted at fair market value and, accordingly, no charges were reflected in the compensation and benefits expense due to the granting of stock options. The excess of the option price over the par value of the shares purchased through the exercise of stock options is credited to additional capital:
2000 1999 1998 ----------------------------- ---------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE OPTION OPTION OPTION SHARES PRICE SHARES PRICE SHARES PRICE ------------ ------------ ------------ ------------ ------------ ------------ Outstanding beginning of year 314,601 $ 4.35 288,344 $ 3.86 482,963 $ 2.35 Exercised (4,380) 1.85 -- -- (231,608) 1.86 Expired -- -- -- -- (2,396) 7.51 Granted 58,630 11.76 26,257 9.60 39,385 10.87 ------------ ------------ ------------ ------------ ------------- ------------ Outstanding end of year 368,851 $ 5.60 314,601 $ 4.35 288,344 $ 3.86 ============ ============ ============ ============ ============ ============ Exercisable end of year 281,894 $ 5.60 253,833 $ 4.35 232,638 $ 3.86 ============ ============ ============ ============ ============ ============
As of June 30, 2000, options outstanding have exercise prices between $1.85 and $12.50 and a weighted average remaining contractual life of 4.5 years. The Company has elected to disclose pro forma net income and net income per share as if the fair- value-based method had been applied in measuring compensation costs. The Company's pro forma information for the years ended June 30:
2000 1999 1998 ---------- ---------- ---------- Net income $6,312,330 7,719,287 4,927,906 Less: Compensation expense, net of tax 90,372 48,427 34,589 ---------- ---------- ---------- Pro forma earnings $6,221,958 7,670,860 4,893,317 ========== ========== ========== Basic earnings per share $ 1.32 1.60 1.04 ========== ========== ========== Pro forma basic earnings per share $ 1.30 1.59 1.03 ========== ========== ========== Diluted earning per share $ 1.27 1.54 .99 ========== ========== ========== Pro forma diluted earnings per share $ 1.26 1.53 .99 ========== ========== ==========
40 43 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 The above results may not be representative of the effects of SFAS No. 123 on net income for future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following assumptions used for grants in 2000, 1999, and 1998; expected dividend yield of 0%, and expected option lives of 7 years; expected volatility of 30%, 30%, and 5%, and average risk free interest rates of 6.14 %, 4.33 %, and 5.56%, respectively. Pursuant to the terms of the plans, share information and exercise prices have been adjusted to reflect the impact of stock splits and dividends subsequent to the granting dates of the options. (15) EARNINGS PER SHARE Reconciliation of basic earnings per share to diluted earnings per share for the years ended June 30:
2000 -------------------------------------- PER-SHARE NET INCOME SHARES AMOUNT ---------- ---------- ---------- Basic EPS Income available to common shareholders $6,312,330 4,782,917 1.32 Effect of stock options -- 177,952 0.05 ---------- ---------- ---------- Diluted EPS Income available to common shareholders $6,312,330 4,960,869 1.27 ========== ========== ==========
1999 -------------------------------------- PER-SHARE NET INCOME SHARES AMOUNT ---------- ---------- ---------- Basic EPS Income available to common shareholders $7,719,287 4,828,877 1.60 Effect of stock options -- 177,379 .06 ---------- ---------- ---------- Diluted EPS Income available to common shareholders $7,719,287 5,006,256 1.54 ========== ========== ==========
41 44 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998
1998 -------------------------------------- PER-SHARE NET INCOME SHARES AMOUNT ---------- ---------- ---------- Basic EPS Income available to common shareholders $4,927,906 4,765,439 1.04 Effect of stock options -- 192,177 .05 ---------- ---------- ---------- Diluted EPS Income available to common shareholders $4,927,906 4,957,616 .99 ========== ========== ==========
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
JUNE 30, 2000 JUNE 30, 1999 ---------------------------- ---------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------ ------------ ------------ ------------ Assets: Cash and amounts due from depository institutions $ 3,806,575 3,806,575 4,140,460 4,140,460 Interest-bearing deposits 815,280 815,280 573,872 573,872 Federal funds sold 1,050,000 1,050,000 5,375,000 5,375,000 Securities held to maturity 65,258,853 63,853,318 25,334,041 24,895,033 Mortgage-backed securities held to maturity 1,215,045 1,200,418 1,732,726 1,728,656 Loans receivable held for: Long-term investment, net 513,669,748 511,085,000 395,550,737 398,014,043 Sale, net 10,737,721 10,737,721 1,772,176 1,744,459 Stock in the Federal Home Loan Bank of Cincinnati 5,841,227 5,841,227 3,759,452 3,759,452 Liabilities: Demand deposits and passbook savings $ 81,430,707 81,430,707 70,582,836 70,582,836 Time deposits 359,551,152 359,551,152 260,658,900 260,658,900 Advances from the Federal Home loan Bank of Cincinnati 114,973,840 114,334,000 66,040,736 63,240,609 Notes payable 1,000,000 1,000,000 -- --
42 45 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 Cash and amounts due from depository institutions, interest bearing deposits, and federal funds sold . The carrying amount is a reasonable estimate of fair value because of the short maturity of these instruments. Securities and mortgage-backed securities. Estimated fair value for securities and mortgage-backed securities is based on quoted market prices. Loans receivable held for investment and held for sale. For loans receivable held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. For performing loans receivable held for investment, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. For other loans, cash flows and maturities are estimated based on contractual interest rates and historical experience and are discounted using secondary market rates adjusted for differences in servicing and credit costs. Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. Stock in the Federal Home Loan Bank of Cincinnati. This item is valued at cost, which represents redemption value and approximate fair value. Demand deposits and time deposits. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed- maturity certificates of deposit is estimated using discounted cash flows and rates currently offered for deposits of similar remaining maturities. Advances from the Federal Home Loan Bank of Cincinnati. The fair value of the Bank's FHLB debt is estimated based on the current rates offered to the Bank for debt of the same remaining maturities. Notes payable. The carrying value of the Company's variable rate note payable is a reasonable estimate of fair value based on the current incremental borrowing rate for similar types of borrowing arrangements. Off-balance sheet instruments. The fair value of commitments is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of undisbursed lines of credit is based on fees currently charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The carrying amount and fair value of off-balance sheet instruments is not significant as of June 30, 2000 and 1999. 43 46 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited consolidated quarterly results of operations for 2000 and 1999 (in thousands of dollars, except per share data): (1)
QUARTERS FOR THE YEAR ENDED JUNE 30, 2000 -------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Interest income $ 9,112 9,930 10,840 12,144 Interest expense 4,900 5,437 6,421 7,215 -------- -------- -------- -------- Net interest income 4,212 4,493 4,419 4,929 Provision for losses on loans 350 100 -- 400 Noninterest income 1,016 657 327 681 Noninterest expense 2,551 2,598 2,631 2,630 -------- -------- -------- -------- Income before taxes 2,327 2,452 2,115 2,580 Federal income taxes 775 818 702 867 -------- -------- -------- -------- Net income $ 1,552 1,634 1,413 1,713 ======== ======== ======== ======== Basic earnings per share (2) $ .32 .34 .30 .36 ======== ======== ======== ======== Diluted earnings per share (2) $ .31 .33 .28 .35 ======== ======== ======== ========
44 47 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 QUARTERS FOR THE YEAR ENDED JUNE 30, 1999 -------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Interest income $ 8,938 8,935 8,666 8,808 Interest expense 5,165 5,079 4,878 4,740 -------- -------- -------- -------- Net interest income 3,773 3,856 3,788 4,068 Noninterest income 363 445 4,221 407 Noninterest expense 2,241 2,198 2,713 2,498 -------- -------- -------- -------- Income before taxes 1,895 2,103 5,296 1,977 Federal income taxes 632 696 1,804 420 -------- -------- -------- -------- Net income $ 1,263 1,407 3,492 1,557 ======== ======== ======== ======== Basic earnings per share (2) $ .26 .29 .72 .32 ======== ======== ======== ======== Diluted earnings per share (2) $ .24 .28 .69 .31 ======== ======== ======== ======== ------------- (1) The total of the four quarterly amounts may not equal the full year amount due to rounding. (2) After giving effect to a 10% stock dividend, declared on July 27, 1999 and issued on September 7, 1999 and a 10% stock dividend, declared on July 25, 2000 and issued on September 1, 2000. 45 48 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (18) PARENT COMPANY The following condensed statements of financial condition as of June 30, 2000 and 1999, and related condensed statements of operations and cash flows for the years ended June 30, 2000, 1999 and 1998 for PVF Capital Corp. should be read in conjunction with the consolidated financial statements and the notes thereto.
CONDENSED STATEMENTS OF FINANCIAL CONDITION 2000 1999 ------------------------------------------- ----------- ----------- Cash and amounts due from depository institutions $ 21,689 64,314 Prepaid expenses and other assets 492,305 1,943,893 Investment in subsidiaries, at equity in underlying value of net assets 42,428,540 36,887,972 ----------- ----------- Total assets $42,942,534 38,896,179 =========== =========== Accrued expenses and other liabilities 42,471 40,371 ----------- ----------- Stockholders' equity 42,900,063 38,855,808 ----------- ----------- Total liabilities and stockholders' equity $42,942,534 38,896,179 =========== ===========
CONDENSED STATEMENTS OF OPERATIONS 2000 1999 1998 ---------------------------------- ---------- ---------- ---------- Income: Mortgage banking activities $ 251,349 310,930 421,344 Other, net 12,261 -- -- ---------- ---------- ---------- 263,610 310,930 421,344 ---------- ---------- ---------- Expenses: Interest expense -- -- 7,758 General and administrative 206,579 249,630 266,287 ---------- ---------- ---------- 206,579 249,630 274,045 ---------- ---------- ---------- Income before federal income taxes and equity in undistributed net income of subsidiaries 57,031 61,300 147,299 Federal income taxes 20,267 20,950 50,266 ---------- ---------- ---------- Income before equity in undistributed net income of subsidiaries 36,764 40,350 97,033 Equity in undistributed net income of subsidiaries 6,275,566 7,678,937 4,830,873 ---------- ---------- ---------- Net income $6,312,330 7,719,287 4,927,906 ========== ========== ==========
46 49 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998
CONDENSED STATEMENTS OF CASH FLOWS 2000 1999 1998 ---------------------------------- ----------- ----------- ----------- Operating activities: Net income $ 6,312,330 7,719,287 4,927,906 Equity in undistributed net income of subsidiaries (6,275,566) (7,678,937) (4,830,873) Repayment of advance from subsidiary 1,890,000 -- -- Other, net (436,314) (221,796) (326,913) ----------- ----------- ----------- Net cash provided by (used in) operating activities 1,490,450 (181,446) (229,880) ----------- ----------- ----------- Investing activities: Investment in Parkview Federal Savings Bank (765,000) -- -- Investment in PVF Holdings Inc. -- -- (301,100) ----------- ----------- ----------- Net cash used in investing activities (765,000) -- (301,100) ----------- ----------- ----------- Financing activities: Repayment on note payable -- (1,060,000) (600,000) Proceeds from exercise of stock options 8,083 -- 9,529 Cash paid in lieu of fractional shares (2,110) (939) (2,141) Dividends received from subsidiaries 1,500,000 1,350,000 1,100,000 Dividends paid (1,372,120) Purchase of Treasury stock (901,928) (71,250) -- ----------- ----------- ----------- Net cash provided by (used in) financing activities (768,075) 217,811 507,388 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (42,625) 36,365 (23,592) Cash and cash equivalents at beginning of year 64,314 27,949 51,541 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 21,689 64,314 27,949 =========== =========== ===========
47 50 PVF CAPITAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999, and 1998 (19) 401(k) SAVINGS PLAN Employees who have reached age 18 and have completed one year of eligibility service are eligible to participate in the Company's 401(k) Savings Plan. The plan allows eligible employees to contribute up to 7% 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 employees compensation. Participants vest in the Company's contributions as follows: YEARS OF SERVICE PERCENT VESTED ---------------- -------------- Less than 2 $ 0% 2 but less than 3 20 3 but less than 4 40 4 but less than 5 60 5 but less than 6 80 6 or more 100 The total of the Company's matching and profit sharing contribution cost related to the plan for the years ended June 30, 2000, 1999, and 1998 was $78,295, $79,638, and $72,602, respectively. 48 51 PVF CAPITAL CORP. BOARD OF DIRECTORS JAMES W. MALE Chairman of the Board JOHN R. MALE President and Chief Executive Officer ROBERT K. HEALEY Retired STANLEY T. JAROS Partner Moriarty & Jaros, P.L.L. CREIGHTON E. MILLER Partner Miller, Stillman & Bartel STUART D. NEIDUS Chairman and Chief Executive Officer Anthony & Sylvan Pools Corporation ROBERT F. URBAN Retired EXECUTIVE OFFICERS JAMES W. MALE Chairman of the Board JOHN R. MALE President and Chief Executive Officer C. KEITH SWANEY Vice President and Treasurer JEFFREY N. MALE Vice President and Corporate Secretary GENERAL INFORMATION INDEPENDENT CERTIFIED ACCOUNTANTS KPMG LLP 1500 National City Center 1900 East Ninth Street Cleveland, Ohio 44114 GENERAL COUNSEL Moriarty & Jaros, P.L.L. 30195 Chagrin Boulevard Suite 110 North Pepper Pike, Ohio 44124 TRANSFER AGENT AND REGISTRAR Fifth Third Bank Corporate Trust Services Mail Drop 10AT66-4129 38 Fountain Square Cincinnati, Ohio 45263 SPECIAL COUNSEL Stradley Ronon Housley Kantarian & Bronstein, LLP 1220 19th Street, N.W., Suite 700 Washington, D.C. 20036 STOCK LISTING NASDAQ Small-Cap Market Symbol: PVFC ANNUAL MEETING The 2000 Annual Meeting of Stockholders will be held on October 16, 2000 at 10:00 a.m. at the Cleveland Marriott East, 3663 Park East Drive, Beachwood, Ohio. ANNUAL REPORT ON FORM 10-K A copy of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 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., 2618 N. Moreland Boulevard, Cleveland, Ohio 44120. 52 [PVF CAPITAL CORP. LOGO] 2618 North Moreland Blvd., Cleveland, Ohio 44120, 216-991-9600