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