<PAGE> 1
[PVF
CAPITAL CORP. LOGO]
Annual Report
June 30, 2000
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FINANCIAL CONDITION DATA:
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
OPERATING DATA:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------
(dollars in thousands except for earnings per share)
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
</TABLE>
PVF Capital Corp. 2000 Annual Report
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OTHER DATA:
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
-----------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
PVF Capital Corp. 2000 Annual Report
5
<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
<TABLE>
<CAPTION>
(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
-------------- ---------------- ------ ----- ---------------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
+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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Within 1-3 3-5 >5
(dollars in thousands) 1 Year Years Years Years Total
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
PVF Capital Corp. 2000 Annual Report
10
<PAGE> 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>
<CAPTION>
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
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
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
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
========
</TABLE>
PVF Capital Corp. 2000 Annual Report
11
<PAGE> 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>
<CAPTION>
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
----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
======= ========= ======= ======= ========= ========
</TABLE>
PVF Capital Corp. 2000 Annual Report
12
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 20
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 2000 and 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
----------------- -----------------
<S> <C> <C>
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
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
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
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------------- -------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
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
============= ============== =============== ============= ================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
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)
----------------- ----------------- -----------------
</TABLE>
(Continued)
21
<PAGE> 24
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
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
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
2000
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1999
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
There were no sales of securities for the years ended June 30, 2000, 1999 or
1998.
26
<PAGE> 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:
<TABLE>
<CAPTION>
2000
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
2000
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
There were no sales of mortgage-backed securities for the years ended June 30,
2000, 1999 or 1998.
27
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
29
<PAGE> 32
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
Mortgage banking activities, net, for each of the years in the three-year period
ended June 30, 2000, consist of the following:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999
----------------------------- ------------------------------
AMOUNT % AMOUNT %
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
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%
============ ============
</TABLE>
<TABLE>
<CAPTION>
2000 1999
----------------------------- -----------------------------
AMOUNT % AMOUNT %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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%
============ ============
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
MATURITY INTEREST RATE 2000 1999
-------- ------------- ------------ ------------
<S> <C> <C> <C>
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%
============ ============
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------- --------------------------- ----------------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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%
=========== =========== =========== =========== =========== ===========
</TABLE>
34
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
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)
=========== ===========
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999
----------- ------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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):
<TABLE>
<CAPTION>
CORE/ TIER-1 TOTAL RISK-
EQUITY LEVERAGE RISK-BASED BASED
CAPITAL CAPITAL CAPITAL CAPITAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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%
</TABLE>
38
<PAGE> 41
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
CORE/ TIER-1 TOTAL RISK-
EQUITY LEVERAGE RISK-BASED BASED
CAPITAL CAPITAL CAPITAL CAPITAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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%
</TABLE>
39
<PAGE> 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:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------- ---------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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
============ ============ ============ ============ ============ ============
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
40
<PAGE> 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:
<TABLE>
<CAPTION>
2000
--------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
41
<PAGE> 44
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
1998
--------------------------------------
PER-SHARE
NET INCOME SHARES AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
(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.
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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 -- --
</TABLE>
42
<PAGE> 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
<PAGE> 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)
<TABLE>
<CAPTION>
QUARTERS FOR THE YEAR ENDED JUNE 30, 2000
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
44
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION 2000 1999
------------------------------------------- ----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS 2000 1999 1998
---------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
46
<PAGE> 49
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS 2000 1999 1998
---------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
47
<PAGE> 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
<PAGE> 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.
<PAGE> 52
[PVF CAPITAL CORP. LOGO]
2618 North Moreland Blvd., Cleveland, Ohio 44120, 216-991-9600
