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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
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 SEPTEMBER 30, 2002
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
- ------------------------ ----------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway, Monroeville, Pennsylvania 15146
-----------------------------------------------------------
(Address of principal executive offices; zip code)
Registrant's telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
The closing sales price of the Registrant's Common Stock on November 7, 2002 was
$24.24 per share.
Number of shares of Common Stock outstanding as of November 7, 2002 was
5,541,805.
1
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
- --------------------------------- ----
Item 1.
Consolidated Statements of Financial Condition as of September 30, 2002
and June 30, 2002 3
Consolidated Statements of Operations for the three months ended
September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows for the three months ended
September 30, 2002 and 2001 5-6
Consolidated Statements of Shareholders' Equity as of September 30, 2002 6
Notes to Unaudited Interim Consolidated Financial Statements 7-8
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-13
Item 3.
Quantitative and Qualitative Disclosures about Market Risk 14
Item 4.
Controls and Procedures 14
Part II - Other Information 14
Signatures and Certifications 15-18
2
Item 1.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
SEPTEMBER 30, June 30,
ASSETS 2002 2002
----------- -----------
(unaudited)
Cash and noninterest earning deposits $ 35,701 $ 25,050
Federal funds sold 97,000 119,000
Interest-earning deposits in other banks 16,559 17,473
Investment securities available for sale (cost of
$17,029 at September 30 and $11,780 at June 30) 18,217 13,080
Investment securities held to maturity (fair value
of $230,713 at September 30 and $201,098 at June 30) 228,785 199,860
Loans, net of allowance of $15,480 at September 30
and $15,492 at June 30 1,207,972 1,217,639
Foreclosed real estate, net 1,729 1,717
Office properties and equipment, net 9,924 10,080
Intangible assets and deferred charges 11,677 11,787
Prepaid expenses and other assets 14,189 16,506
----------- -----------
Total Assets $ 1,641,753 $ 1,632,192
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $ 1,350,534 $ 1,349,339
Advances from Federal Home Loan Bank 146,117 131,121
Trust preferred securities 25,000 25,000
Other debt 15,172 16,875
Escrow for taxes and insurance 3,738 7,882
Other liabilities 4,932 4,571
----------- -----------
Total Liabilities 1,545,493 1,534,788
=========== ===========
SHAREHOLDERS' EQUITY
Preferred Stock ($1.00 par value; 5,000,000
shares authorized; 0 shares issued) -- --
Common Stock ($1.00 par value; 10,000,000 shares
authorized; 6,734,894 shares issued) 6,735 6,735
Additional Paid in Capital 4,293 4,293
Treasury Stock at cost (1,151,689 shares in September
and 1,034,483 in June) (22,060) (19,128)
Accumulated Other Comprehensive Income 754 826
Retained Earnings 106,538 104,678
----------- -----------
Total Shareholders' Equity 96,260 97,404
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,641,753 $ 1,632,192
=========== ===========
3
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
------- -------
Interest Income: (unaudited)
Loans $19,745 $20,412
Investments 2,942 2,425
Federal funds sold 507 949
------- -------
Total interest income 23,194 23,786
------- -------
Interest Expense:
Savings deposits 12,322 13,915
Borrowings 2,386 1,672
------- -------
Total interest expense 14,708 15,587
------- -------
Net interest income 8,486 8,199
Provision for loan losses 48 52
------- -------
Net interest income after
provision for losses 8,438 8,147
------- -------
Noninterest Income:
Service charges on deposit accounts 1,065 851
Other fees and service charges 379 237
Gain on sale of assets -- 422
Miscellaneous 284 421
------- -------
Total other income 1,728 1,931
------- -------
Noninterest Expenses:
Compensation and employee benefits 3,267 2,709
Office occupancy 974 839
Marketing 151 118
Office supplies, telephone, and postage 410 318
Miscellaneous 994 753
------- -------
Total other expenses 5,796 4,737
------- -------
Income before income taxes 4,370 5,341
Income tax expense 1,508 1,854
------- -------
Net income $ 2,862 $ 3,487
======= =======
Net income per share:
Basic $ 0.51 $ 0.62
Diluted $ 0.50 $ 0.61
4
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
--------- ---------
Cash flows from operating activities: (unaudited)
Interest received $ 24,840 $ 23,753
Loan fees received (premiums paid) (223) 47
Other fees and commissions received 1,729 1,466
Interest paid (14,654) (15,594)
Cash paid to suppliers and others (5,083) (4,119)
Income taxes paid -- (1,501)
--------- ---------
Net cash provided by operating activities 6,609 4,052
Cash flows from investing activities:
Proceeds from sale of investment securities available for sale -- 504
Proceeds from maturities of investments 38,185 10,998
Purchase of investment securities available for sale (5,250) --
Purchase of investment securities held to maturity (67,171) (11,994)
Maturity of deposits in other banks 914 3,045
Purchase of loans (118,734) (69,533)
Proceeds from sales of loans 897 444
Principal collected on loans 168,329 110,373
Loans made to customers, net of loans in process (41,353) (51,960)
Other (161) (186)
--------- ---------
Net cash used in investing activities (24,344) (8,309)
Cash flows from financing activities:
Net increase (decrease) in checking and savings accounts (5,101) 7,269
Net (decrease) increase in certificates of deposit 6,295 (7,470)
Proceeds from FHLB advances 20,000 --
Repayment of FHLB advances (5,003) (5,003)
Net decrease in other borrowings (1,704) (19)
Decrease in borrowers' advances for tax & insurance (4,143) (3,876)
Cash dividends paid (1,026) (1,020)
Acquisition of treasury stock (2,932) --
--------- ---------
Net cash (used in) provided by financing activities 6,386 (10,119)
--------- ---------
Net decrease in cash and cash equivalents (11,349) (14,376)
Cash and equivalents at beginning of period 144,050 115,208
--------- ---------
Cash and equivalents at end of period $ 132,701 $ 100,832
========= =========
5
Reconciliation of net income to net cash provided
by operating activities:
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
------- -------
Net income $ 2,862 $ 3,487
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 427 213
Accretion and amortization of loan fees and discounts 751 66
Loan fees collected and deferred (223) 47
Provision for loan losses 48 52
Gain on sale of assets -- (422)
Decrease (increase) in accrued interest receivable 802 7
Increase (decrease) in other assets 115 124
(Increase) decrease in accrued interest payable 55 (7)
Increase in other liabilities 1,772 485
------- -------
Total adjustments 3,747 565
------- -------
Net cash provided by operating activities $ 6,609 $ 4,052
======= =======
For purposes of reporting cash flows, cash and cash equivalents include cash and
noninterest earning deposits, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods. Loans transferred to foreclosed
assets aggregated $189 for the three months ended September 30, 2002 and $39 for
the three months ended September 30, 2001.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
Accumulated
Other Total
Common Paid-in Treasury Comprehensive Retained Shareholders'
Stock Capital Stock Income Earnings Equity
------ ------- -------- ------------- -------- -------------
Balance, June 30, 2002 $6,735 $4,293 ($19,128) $826 $104,678 $97,404
Net income, three months
ended September 30, 2002 2,862 2,862
Unrealized security gains (losses) on
available-for-sale securities (72) (72)
Comprehensive Income 2,790
Treasury stock purchased (2,932) (2,932)
Dividends on common stock at
$0.18 per share (1,002) (1,002)
------ ------ -------- ---- -------- -------
Balance, September 30, 2002 $6,735 $4,293 $(22,060) $754 $106,538 $96,260
====== ====== ======== ==== ======== =======
6
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share data)
1. Statements of Operations
The statements of operations for the three months ended September 30, 2002 and
2001 are unaudited, but in the opinion of management, reflect all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the results of operations for those periods. The results of operations for
the three months ended September 30, 2002 are not necessarily indicative of the
results which may be expected for fiscal 2003. The Annual Report on Form 10-K
for the year ended June 30, 2002 contains additional information and should be
read in conjunction with this report.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three months ended September 30:
2002 2001
---------- ----------
Numerator for basic and diluted earnings per share:
Net Income $ 2,862 $ 3,487
Denominator:
Weighted average shares for basic earnings per share 5,639,270 5,667,277
Effect of dilutive employee stock options 93,786 91,929
---------- ----------
Weighted average shares for dilutive earnings per share 5,733,056 5,759,206
========== ==========
Net income per share:
Basic $ 0.51 $ 0.62
Diluted $ 0.50 $ 0.61
Dividends per share $ 0.18 $ 0.18
3. Loans
Loans are summarized as follows:
SEPTEMBER 30, June 30,
2002 2002
----------- -----------
Mortgage loans:
Residential:
1-4 Family $ 888,337 $ 895,330
Multifamily 18,691 18,140
Commercial 58,059 59,136
Other 35,934 35,108
----------- -----------
1,001,021 1,007,714
Consumer loans 164,863 167,956
Commercial business loans 52,891 53,055
Loans on savings accounts 3,167 3,224
----------- -----------
1,221,942 1,231,949
Less: Loans in process 181 205
Allowance for loan losses 15,480 15,492
Unamortized discount (premiums) and deferred loan fees (1,691) (1,387)
----------- -----------
Loans, net $ 1,207,972 $ 1,217,639
=========== ===========
7
The following summary sets forth the activity in the allowance for loan losses
for the three months ended September 30:
2002 2001
-------- --------
Beginning balance $ 15,492 $ 13,428
Provision for losses - mortgage loans -- --
Provision for losses - consumer loans 48 52
Loans recovered 62 22
Loans charged off (122) (68)
-------- --------
Ending balance $ 15,480 $ 13,434
======== ========
Nonperforming loans and
foreclosed real estate $ 5,610 $ 7,341
As a percent of total assets 0.34% 0.52%
4. Comprehensive Income
Sources of comprehensive income not included in net income are limited to
unrealized gains and losses on certain investments in equity securities. For the
three months ended September 30, 2002 and 2001, total comprehensive income
amounted to $2,790 and $2,927, respectively.
5. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes FASB 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of. This statement is effective for
fiscal years beginning after December 15, 2001. Management has evaluated the
impact of this statement and has determined that there is no material effect on
Parkvale's financial position or results of operations.
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which establishes financial
accounting and reporting for costs associated with exit or disposal activities.
This statement is effective for disposal activities initiated after December 31,
2002.
Statement of Financial Accounting Standards No. 147, Acquisition of Certain
Financial Instruments, which clarifies FASB 142 that, if certain conditions are
met, an acquisition of less-than-whole financial institutions should be
accounted for as a business combination. As a result of statement 147, entities
are required to reclassify and restate both the goodwill and amortization
expense as of the date FASB 142 was adopted. This statement is effective October
1, 2002. Management has evaluated the impact of this statement and has
determined that there is no material effect on Parkvale's financial position or
results of operations.
8
Item 2.
PARKVALE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Balance Sheet Data: SEPTEMBER 30,
2002 2001
-----------------------------
Total assets $1,641,753 $1,401,152
Loans, net 1,207,972 1,123,521
Interest-earning deposits and federal funds sold 113,559 93,306
Total investments 247,002 144,659
Savings deposits 1,350,534 1,180,596
FHLB advances and other debt 146,117 111,131
Shareholders' equity 96,260 97,002
Book value per share $17.24 $17.12
Statistical Profile:
THREE MONTHS ENDED
SEPTEMBER 30, (1)
2002 2001
---------------------------
Average yield earned on all
interest-earning assets 5.93% 6.94%
Average rate paid on all
interest-bearing liabilities 3.78% 4.82%
Average interest rate spread 2.15% 2.12%
Net yield on average
interest-earning assets 2.17% 2.39%
Other expenses to average assets 1.43% 1.35%
Taxes to pre-tax income 34.51% 34.71%
Return on average assets 0.70% 0.99%
Return on average equity 11.90% 15.19%
Average equity to average total assets 5.92% 6.54%
AT SEPTEMBER 30,
2002 2001
-----------------------------
One year gap to total assets -5.02% 0.93%
Intangibles to total equity 12.13% 0.25%
Capital to assets ratio 5.86% 6.92%
Ratio of nonperforming assets to total assets 0.34% 0.52%
Number of full-service offices 38 33
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
9
NONPERFORMING LOANS AND FORECLOSED REAL ESTATE:
Nonperforming and impaired loans and foreclosed real estate (REO) consisted of
the following at September 30, 2002 versus year-end June 30, 2002.
SEPTEMBER 30, 2002 June 30, 2002
------------------ -------------
(Dollars in 000's)
Delinquent single-family mortgage loans $2,927 $2,373
Delinquent other loans 581 598
--------- -------
Total of nonperforming loans $3,508 $2,971
Total of impaired loans 373 498
Real estate owned, net 1,729 1,717
------- -------
Total $5,610 $5,186
======= ======
Nonperforming and impaired loans and real estate owned represent 0.34% and 0.32%
of total assets at the respective balance sheet dates. Delinquent single-family
mortgage loans at September 30, 2002 consisted of 30 single family owner
occupied homes. As of September 30, 2002, $1.7 million or 56.7% of the
nonaccrual mortgage loans totaling $2.9 million were purchased from others. The
$1.7 million of the delinquent loans purchased by others are comprised of 6
loans which management believes are well collateralized.
Loans are placed on nonaccrual status when, in management's judgment, the
probability of collection of principle and interest is deemed to be insufficient
to warrant further accrual. When a loan is placed on nonaccrual status,
previously accrued but unpaid interest is deducted from interest income. As a
result, uncollected interest income is not included in earnings for nonaccrual
loans. The amount of interest income on nonaccrual loans that had not been
recognized in interest income was $209,000 at September 30, 2002 and $191,000 at
June 30, 2002. Parkvale provides an allowance for the loss of accrued but
uncollected interest on mortgage, consumer and commercial business loans which
are more than 90 days contractually past due.
Nonaccrual, substandard and doubtful commercial and other real estate loans are
assessed for impairment. Loans are considered impaired when the fair value is
insufficient as compared to the contractual amount due. Parkvale excludes
single-family loans, credit card and installment consumer loans in the
determination of impaired loans consistent with the exception under paragraph 6
of SFAS 114 of loans measured for impairment. Parkvale Bank had a $373,000 loan
classified as impaired at September 30, 2002 and $498,000 at June 30, 2002. The
average recorded investment in impaired loans is $373,000 for the September 2002
quarter. The amount of interest income that has not been recognized was $37,000
at September 30, 2002. Impaired assets include $1.7 million of foreclosed real
estate as of September 30, 2002. Foreclosed real estate properties are recorded
at the lower of the carrying amount or fair value of the property less the cost
to sell. Foreclosed real estate includes $814,000 related to a 1998 foreclosure
on a vacant building, which is in the final stages of remediation. Periodically,
management assesses the need for a valuation allowance or a writedown to account
for declines in fair value. A $6.5 million writedown was established for this
property during fiscal 2002 as estimated costs to rehabilitate and renovate the
building were higher than originally estimated. As deemed necessary, management
will continue to assess the need for a valuation allowance. The process will be
influenced by factors such as future additional capitalized costs required,
current real estate market and general economic conditions.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses was $15.5 million at September 30, 2002 and June
30, 2002 and $13.4 million at September 30, 2001 or 1.27%, 1.26% and 1.18% of
gross loans at September 30, 2002, June
10
30, 2002 and September 30, 2001. The increase in the allowance during fiscal
2002 includes $2.0 million of allowances acquired via the SNB acquisition. The
adequacy of the allowance for loan loss is determined by management through
evaluation of the loss potential on individual nonperforming, delinquent and
high dollar loans, economic and business trends, growth and composition of the
loan portfolio and historical loss experience, as well as other relevant
factors.
The allowance for loan losses is continually monitored by management to identify
potential portfolio risks and detect potential credit deterioration in the early
stages. Management then establishes reserves based upon its evaluation of the
inherent risks in the loan portfolio. Changes to the levels of reserves are made
quarterly based upon perceived changes in risk. Management believes the
allowance for loan losses is adequate to absorb probable loan losses.
LIQUIDITY AND CAPITAL RESOURCES:
Federal funds sold decreased $22 million or 18.5% from June 30, 2002 to
September 30, 2002 due mainly to funds being invested in higher-yielding
investment securities. Investment securities held to maturity increased $28.9
million or 14.5% from June 30, 2002 to September 30, 2002. Escrow for taxes and
insurance decreased by $4.1 million or 52.6% as a result of the remittance of
property taxes to the various taxing districts during the quarter. Parkvale
Bank's FHLB advance available maximum borrowing capacity is $864.6 million. If
Parkvale were to experience a deposit run off in excess of the available cash
resources invested in cash and cash equivalents, this available FHLB borrowing
capacity could be utilized to fund a rapid decrease in deposits.
Shareholders' equity was $96.3 million or 5.9% of total assets at September 30,
2002. The Bank is required to maintain Tier I (Core) capital equal to at least
4% of the institution's adjusted total assets, and Tier II (Supplementary)
risk-based capital equal to at least 8% of the risk-weighted assets. At
September 30, 2002, Parkvale was in compliance with all applicable regulatory
requirements, with Tier I and Tier II ratios of 6.53% and 11.51%, respectively.
The regulatory capital ratios for Parkvale Bank at September 30, 2002 are
calculated as follows:
Tier I Tier I Tier Ii
Core Risk-based Risk-based
Capital Capital Capital
----------- ---------- ----------
Equity Capital (1) $117,057 $117,057 $117,057
Less non-allowable intangible assets (11,677) (11,677) (11,677)
Less unrealized securities gains (238) (238) (238)
Plus permitted valuation allowances (2) -- -- 12,854
Plus allowable unrealized holding gains (3) -- -- 168
---------- ---------- -----------
Total regulatory capital 105,142 105,142 118,164
Minimum required capital 64,356 41,051 82,101
---------- ---------- -----------
Excess regulatory capital $40,786 $64,091 $36,063
Adjusted total assets $1,608,909 $1,026,267 $1,026,267
Regulatory capital as a percentage 6.53% 10.25% 11.51%
Minimum capital required as a percentage 4.00% 4.00% 8.00%
---------- ----------- -----------
Excess regulatory capital as a percentage 2.53% 6.25% 3.51%
========== =========== ===========
Well capitalized requirement 5.00% 6.00% 10.00%
========== =========== ===========
(1) Represents equity capital of the consolidated Bank as reported to the
Pennsylvania Department of Banking and FDIC on Form 041 for the quarter
ended September 30, 2002.
(2) Limited to 1.25% of risk adjusted total assets.
(3) Limited to 45% of pretax net unrealized holding gains.
11
Management is not aware of any trends, events, uncertainties or current
recommendations by any regulatory authority that will have (if implemented), or
that are reasonably likely to have, material effects on Parkvale's liquidity,
capital resources or operations.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002
AND 2001
For the three months ended September 30, 2002, Parkvale reported net income of
$2.9 million or $0.50 per diluted share down from net income of $3.5 million or
$0.62 per diluted share for the quarter ended September 30, 2001. The $625,000
decrease in net income for the September 2002 quarter reflects decreased margins
on earning assets, an increase in non-interest expense, partially offset by
increased fee income. Fee income and non-interest expense increases are
primarily related to the acquisition of the Second National Bank of Masontown
("SNB") acquired January 31, 2002. Net interest income increased to $8.5 million
from $8.2 million for the prior period, which is attributable to an increase of
$191 million in interest earning assets related to the SNB transaction. The
September 2001 quarter reflects a security gain of $422,000 (pre-tax). Absent
this gain, net income would have been $3.2 million or $0.56 per share for the
quarter ended September 30, 2001. Return on average equity was 11.90% for the
September 2002 quarter compared to 15.19% for the September 2001 quarter.
INTEREST INCOME:
Parkvale had interest income of $23.2 million during the three months ended
September 30, 2002 versus $23.8 million during the comparable period in 2001.
The $592,000 decrease is the result of a 101 basis point decrease in the average
yield from 6.94% in 2001 to 5.93% in 2002 mitigated by a $193.5 million or 14.1%
increase in the average balance of interest-earning assets. Interest income from
loans decreased $667,000 or 3.3% resulting from an 83 basis point decrease in
the average yield from 7.32% in 2001 to 6.49% in 2002 offset by an increase in
the average outstanding loan balances of $100.9 million or 9.0%. The decrease in
the average yield reflects the adverse impact of loan repayments of $580 million
in fiscal 2002 plus the additional $168 million in payments during the September
2002 quarter. New loans granted and purchased during the past 15 months have
been at substantially lower rates reflective of lower market rates. Investment
interest income increased by $517,000 or 21.3% due to an increase of $85.6
million or 58.1% in the average balance and offset, by a 152 basis point
decrease in the average yield from 6.57% in 2001 to 5.05% in 2002. Interest
income earned on federal funds sold decreased $442,000 or 46.6% from the 2001
quarter due to a 177 basis point decrease in the average yield from 3.54% in
2001 to 1.78% in 2002. This decrease was mitigated, somewhat, by an increase in
the average balance of $7.0 million or 6.6%. The weighted average yield on all
interest earning assets was 5.93 % at September 30, 2002 and 7.02% at September
30, 2001.
INTEREST EXPENSE:
Interest expense decreased $879,000 or 5.6% from the 2002 to the 2001 quarter.
The decrease was due to a 103 basis point decrease in the average rate paid on
deposits and borrowings from 4.82% in 2001 to 3.78% in 2002 and offset by an
increase in the average deposits and borrowings of $223.9 million. The rates
paid in the September 2002 quarter reflects a 6 basis point decrease from the
3.84% paid in the June 2002 quarter. At September 30, 2002, the average rate
payable on liabilities was 3.70% for deposits, 5.26% for borrowings, 5.47% for
trust preferred securities and 3.88% for combined deposits and borrowings.
12
PROVISION FOR LOAN LOSSES:
The provision for loan losses is an amount added to the allowance against which
loan losses are charged. Parkvale's provision for loan losses decreased by
$4,000 from the 2001 to the 2002 quarter. Aggregate valuation allowances were
1.27% and 1.26% of gross loans at September 30, 2002 and June 30, 2002,
respectively.
Nonperforming loans and real estate owned were $5.6 million, $5.2 million and
$7.3 million at September 30, 2002, June 30, 2002 and September 30, 2001,
representing 0.34%, 0.32% and 0.52% of total assets at the respective balance
sheet dates. Total loan loss reserves at September 30, 2002 were $15.5 million.
The allowance for loan loss is continually monitored by management to identify
potential portfolio risks and detect potential credit deterioration in the early
stages. Management then establishes reserves based upon its evaluation of the
inherent risks in the loan portfolio. Management believes the allowance for loan
loss is adequate to absorb probable loan losses at September 30, 2002.
OTHER INCOME:
Total other income decreased by $203,000 or 10.5% in 2002 due to a prior period
gain on the sale of assets of $422,000. Other income absent this gain in the
prior period increased $219,000 or 14.5% due to an increase on service fees on
all types of deposit and loan products.
OTHER EXPENSE:
Total other expense increased by $1.1 million or 22.4% for the three months
ended September 30, 2002. This increase is due principally to increases in
compensation and office occupancy of $558,000 and $135,000, or 20.6% and 16.1%,
respectively. Compensation has risen slightly over the prior year due mainly to
an increase in full-time equivalents relating to the acquisition of SNB offices.
Office occupancy has increased due to the addition of five branch offices from
the SNB acquisition. Miscellaneous expense increased $235,000 due to an increase
of products and services as a result of the SNB acquisition. Annualized
noninterest expense as a percentage of average assets were 1.43% for the quarter
ended September 30, 2002 as compared to 1.35% for the quarter ended September
30, 2001.
IMPACT OF INFLATION AND CHANGING PRICES:
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, substantially all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution'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 as measured by the consumer price
index.
FORWARD LOOKING STATEMENTS:
The statements in this Form 10-Q which are not historical fact are forward
looking statements. Forward looking information should not be construed as
guarantees of future performance. Actual results may differ from expectations
contained in such forward looking information as a result of factors including
but not limited to the interest rate environment, economic policy or conditions,
federal and state banking and tax regulations and competitive factors in the
marketplace. Each of these factors could affect estimates, assumptions,
uncertainties and risks considered in the development of forward looking
information and could cause actual results to differ materially from
management's expectations regarding future performance.
13
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are
presented at June 30, 2002 in item 7a of Parkvale Financial Corporation's Form
10-K, filed with the SEC on September 17, 2002. Management believes that there
have been no material changes in Parkvale's market risk since June 30, 2002.
Item 4. Controls and Procedures
Disclosure controls and procedures are monitored and supervised by the
Registrant's management, including the CEO and CFO, to the effectiveness of the
design and operation of the Registrant's disclosure controls and procedures. The
Registrant's management, including the CEO and CFO, concluded that the
Registrant's disclosure controls and procedures were effective as of September
30, 2002. There have been no significant changes in Registrant's internal
controls or in other factors that could significantly affect internal controls
subsequent to September 30, 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2002 Annual Meeting of Shareholders of Parkvale Financial Corporation
was held on October 24, 2002. Of 5,625,405 shares eligible to vote, 87.4%
or 4,917,634 were voted by proxy.
(b) The shareholders voted to elect the nominee for director, as described in
the Proxy Statement for the Annual Meeting. The results for the
re-election of Fred P. Burger, Jr. as director were 4,783,780 shares in
favor and 133,854 shares withheld.
(c) The recommendation by the Board of Directors to ratify the appointment of
Ernst & Young LLP as the Corporation's independent auditors, as described
in the Proxy Statement for the Annual Meeting, was approved with 4,890,151
shares in favor, 16,115 shares against and 11,368 shares abstaining.
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Parkvale Financial Corporation
DATE: NOVEMBER 12, 2002 By: /s/ ROBERT J. MCCARTHY, JR.
--------------------- ----------------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: NOVEMBER 12, 2002 By: /s/ TIMOTHY G. RUBRITZ
----------------- ----------------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
15
CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. McCarthy, Jr., President and Chief Executive Officer of Parkvale
Financial Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Parkvale Financial
Corporation;
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
registrant's board of directors (or persons performing the equivalent
functions):
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: November 12, 2002 /s/ Robert J. McCarthy, Jr.
------------------ ------------------------------------
Robert J. McCarthy, Jr.
President and Chief Executive Officer
16
CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy G. Rubritz, Vice President-Treasurer and Chief Financial Officer of
Parkvale Financial Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Parkvale Financial
Corporation;
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
registrant's board of directors (or persons performing the equivalent
functions):
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: November 12, 2002 /s/ Timothy G. Rubritz
-------------------- --------------------------------
Timothy G. Rubritz
Vice President-Treasurer and
Chief Financial Officer
17