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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 2004
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, PA 15146
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code:(412) 373-7200
Securities registered pursuant to Section 12(b) of the Act - None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of December 31, 2003, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant, computed by reference to the reported closing
sale price of $26.85 per share on such date was $117,223,610. Excluded from this
computation are 649,824 shares held by all directors and executive officers as a
group and 565,273 shares held by the Employee Stock Ownership Plan.
Number of shares of Common Stock outstanding as of September 8, 2004: 5,580,967
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for Fiscal Year ended June 30, 2004. With the
exception of those portions, which are incorporated by reference in this Form
10-K Annual Report, the 2004 Annual Report to Shareholders is not deemed to be
filed as part of this report. Part II
Proxy Statement for Annual Meeting of Shareholders dated September 20, 2004. The
definitive proxy statement will be filed with the Commission on or before
September 20, 2004. Part III
PART I.
ITEM 1. BUSINESS
INTRODUCTION
Parkvale Financial Corporation ("PFC") is a unitary savings and loan holding
company incorporated under the laws of the Commonwealth of Pennsylvania. It
maintains two subsidiaries. Parkvale Statutory Trust I ("PSTI") is a Connecticut
chartered investment company, and Parkvale Savings Bank ("the Bank") is a
Pennsylvania chartered permanent reserve fund stock savings bank headquartered
in Monroeville, Pennsylvania. PFC and its subsidiaries are collectively referred
to herein as "Parkvale". Parkvale is also involved in lending in the greater
Washington, D.C. and Columbus, Ohio areas through its wholly-owned subsidiary,
Parkvale Mortgage Corporation ("PMC"). The primary assets of PFC consist of the
stock of Parkvale, equity securities and cash. See Note O of Notes to the
Consolidated Financial Statements in the 2004 Annual Report to Shareholders
filed as Exhibit 13 hereto ("2004 Annual Report") for additional details
regarding PFC.
THE BANK
GENERAL
The Bank conducts business in the greater Pittsburgh metropolitan area through
39 full-service offices in Allegheny, Beaver, Butler, Fayette, Washington and
Westmoreland Counties. With total assets of $1.6 billion at June 30, 2004,
Parkvale was the fifth largest financial institution headquartered in the
Pittsburgh metropolitan area and eleventh largest financial institution with a
significant presence in Western Pennsylvania.
The primary business of Parkvale consists of attracting deposits from the
general public in the communities that it serves and investing such deposits,
together with other funds, in residential real estate loans, consumer loans,
commercial loans, and investment securities. Parkvale focuses on providing a
wide range of consumer and commercial services to individuals, partnerships and
corporations in the greater Pittsburgh metropolitan area, which comprises its
primary market area. In addition to the loans described above, these services
include various types of deposit and checking accounts, including commercial
checking accounts and automated teller machines ("ATMs") as part of the Star
network.
Parkvale derives its income primarily from interest charged on loans and
interest on investments, and, to a lesser extent, service charges and fees.
Parkvale's principal expenses are interest on deposits and borrowings and
operating expenses. Funds for lending activities are provided principally by
deposits, loan repayments, Federal Home Loan Bank ("FHLB") advances and other
borrowings, and earnings provided by operations.
Lower housing demand in Parkvale's primary lending areas, relative to its
deposit growth, has spurred the Bank to purchase residential mortgage loans from
other financial institutions. This purchase strategy also achieves geographic
asset diversification. Parkvale purchases adjustable rate residential mortgage
loans subject to its normal underwriting standards. Parkvale purchased loans
aggregating $227.1 million and $619.1 million in fiscal 2004 and 2003,
respectively. These represent 73.3% and 86.3% of total mortgage loan
originations and purchases for the fiscal year 2004 and 2003, respectively. In
addition, Parkvale operates loan production offices through its subsidiary, PMC
with offices in Fairfax, Virginia and Columbus, Ohio. During fiscal 2004, PMC
originated a total of $27.1 million or 8.8% of total
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mortgage loan originations and purchases for inclusion in Parkvale's loan
portfolio. See "Lending Activities" and "Sources of Funds."
Total nonperforming assets, comprised of nonaccrual loans and foreclosed real
estate, decreased from $10.0 million at June 30, 2003 to $8.0 million at June
30, 2004. The $2.0 million decrease in fiscal 2004 is primarily due to lower
levels of nonperforming loans at June 30, 2004. See "Lending Activities -
Nonperforming Loans and Foreclosed Real Estate".
The exposure from interest rate risk ("IRR") is the impact on Parkvale's current
and future earnings and capital from movements in interest rates. To properly
manage its historical liability sensitive position and mitigate the financial
impact of IRR, Parkvale's management has implemented an asset and liability
management plan to increase the interest rate sensitivity of its assets and
extend the average maturity of its liabilities. As part of this program,
Parkvale has, among other things (1) promoted the origination and purchase of
adjustable rate mortgage ("ARM") loans, (2) maintained a high level of
liquidity, (3) deployed excess liquidity, (4) emphasized the origination of
short-term and/or variable rate consumer loans and (5) attempted to extend the
average maturity of its deposits through the promotion of certificate accounts
with terms of one year or more. For additional discussion of asset and liability
management, see the Asset and Liability Management section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
2004 Annual Report.
Interest rate sensitivity gap analysis provides one indicator of potential IRR
by comparing interest-earning assets and interest-bearing liabilities maturing
or repricing at similar intervals. More recently from a gap perspective, the
excess of interest-bearing liabilities over interest-earning assets, which
reprice or mature in one year or less was -0.81% of total assets at June 30,
2004 compared to -0.79% of total assets at June 30, 2003. The cumulative
five-year gap ratio was 12.97% at June 30, 2003 and 9.30% at June 30, 2004. Key
components of the asset and liability management program are as follows: ARM
loans represented approximately 79.5% of the Bank's real estate loan portfolio
at June 30, 2004 compared to 79.3% and 69.4% at June 30, 2003 and 2002,
respectively. Deposits with terms in excess of one year or more increased $14.2
million from $789.4 million at June 30, 2003 to $803.6 million at June 30, 2004.
The Bank was originally chartered in 1943 as Park Savings and Loan Association
and was renamed as a result of its merger with Millvale Savings and Loan
Association in 1968. The Bank converted to a state chartered savings bank in
1993. Such charter conversion resulted in the replacement of the Office of
Thrift Supervision ("OTS") by the Federal Deposit Insurance Corporation ("FDIC")
and the Pennsylvania Department of Banking ("Department") as the Bank's primary
regulators. As a Pennsylvania-chartered savings bank, deposits continue to be
insured by the FDIC and the Bank retains its membership in the FHLB of
Pittsburgh. The savings bank continues to conduct business in a manner
substantially identical to the conduct of its business as a savings association.
The OTS retains jurisdiction over Parkvale Financial Corporation due to its
status as a unitary savings and loan holding company. The Bank is further
subject to regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve Board") governing reserves to be maintained against deposits
and certain other matters.
Parkvale's main office is located at 4220 William Penn Highway, Monroeville, PA
15146, and its telephone number is (412) 373-7200.
3
THE BANKING INDUSTRY
The earnings of Parkvale are affected by the competitive, economic and
regulatory environment in which the savings industry operates. Consolidation, a
fundamental trend in the financial services industry, confronts the banking
industry with the challenge to survive and prosper in a dynamic market. Strong
alliances are likely as banks move to trim costs, expand geographically and
consolidate market strengths by diversifying the financial products offered.
The industry continues its consolidation efforts with an operating focus on
improving profitability, reallocation of capital and expense management. The
traditional banks' share of the overall loan market has been reduced
significantly. Corporate lending has abated since public companies found raising
funds on Wall Street is faster and cheaper via commercial paper and medium term
notes. At the same time, retail customers are increasingly abandoning
traditional commercial and local banks in favor of nonbank financial
institutions. Instead of buying a CD or opening a passbook savings account,
consumers increasingly place their savings and retirement funds with investment
management firms. Mutual fund total assets have increased substantially to
exceed total FDIC insured deposits. Banks in today's market are faced with
substantial competition from an array of outside financial service providers,
including brokerage firms, insurance companies and mutual fund companies.
The challenge to the financial services industry is the delivery of financial
products at competitive prices. This translates to the spreading of costs of
services over a greater number of customers and has spurred banks to adopt
technological capabilities so that customers may do all their banking without
ever having to walk into a branch, consequently, reducing operating costs.
Parkvale expects a tiering of institutions with several large national and
regional firms offering a plethora of products and services on the one hand and
a sizeable number of community institutions and niche players on the other.
The Federal Open Market Committee of the Federal Reserve Board forecast in
August 2004 suggests that the economic expansion would strengthen substantially
as the year progressed. Accommodative financial conditions would provide
significant impetus to business and consumer spending over the months ahead. The
FOMC members generally anticipated that key inflation measures would remain near
their currently low levels for an extended period. The economic outlook for
Western Pennsylvania is characterized by slow to moderate economic growth and
low inflation. The target federal funds rate increased 25 basis points with one
rate increase during fiscal 2004 (on June 30, 2004) as compared to a decrease of
75 basis points with two rate decreases during fiscal 2003. These rate changes
resulted in lower loan and deposit interest rates during fiscal 2004 and 2003
than in previous years.
Parkvale will continue to be affected by these and other market and economic
conditions, such as inflation and factors affecting the markets for debt and
equity securities, as well as legislative, regulatory, accounting and tax
changes which are beyond its control. Parkvale has positioned its liquidity
level to remain flexible to the high volatility of the financial markets. For
additional discussion of asset/liability management, see the Asset and Liability
Management section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 2004 Annual Report.
4
BUSINESS
LENDING ACTIVITIES
LOAN ACTIVITY AND PORTFOLIO COMPOSITION
The following table shows Parkvale's loan origination, purchase and sale
activity on a consolidated basis during the years ended June 30.
2004 2003 2002
---- ---- ----
(In Thousands)
TOTAL LOANS RECEIVABLE AT BEGINNING OF YEAR $ 1,241,779 $ 1,217,639 $ 1,127,670
Real estate loan originations:
Residential:
Single family (1)................................................ 59,503 77,021 108,911
Multifamily...................................................... 5,465 4,215 506
Construction - Single family....................................... 5,570 6,945 3,717
Commercial......................................................... 11,639 9,737 15,940
----------- ------------ -----------
TOTAL REAL ESTATE LOAN ORIGINATIONS.................................. 82,177 97,918 129,074
Consumer loan originations........................................... 75,999 95,371 67,127
Commercial loan originations 6,269 14,191 35,933
----------- ------------ -----------
TOTAL LOAN ORIGINATIONS.............................................. 164,445 207,480 232,134
Loans acquired through acquisition (2)............................... - - 120,807
Purchase of loans 227,146 619,098 339,807
----------- ------------ -----------
TOTAL LOAN ORIGINATIONS AND PURCHASES................................ 391,591 826,578 692,748
Principal loan repayments............................................ 110,357 167,446 148,967
Mortgage loan payoffs................................................ 489,850 636,149 436,812
Sales of whole loans................................................. 5,394 3,128 2,690
----------- ------------ -----------
Net (decrease) increase in loans.................................. (214,010) 19,855 104,279
----------- ------------ -----------
TOTAL LOANS RECEIVABLE AT END OF YEAR................................ 1,027,769 1,251,804 1,231,949
Less: Loans in process.............................................. 313 117 205
Allowance for loan losses.................................. 13,808 15,013 15,492
Unamortized (premiums) discounts........................... (1,430) (5,105) (1,387)
----------- ------------ -----------
NET LOANS RECEIVABLE AT END OF YEAR.................................. $ 1,015,078 $ 1,241,779 $ 1,217,639
=========== ============ ===========
- ----------
(1) Includes $27.1 million, $39.3 million and $67.1 million of loans
originated by PMC during fiscal 2004, 2003 and 2002, respectively.
(2) On January 31, 2002, Parkvale acquired The Second National Bank of
Masontown ("SNB").
At June 30, 2004, Parkvale's net loan portfolio amounted to $1.0 billion,
representing 62.9% of Parkvale's total assets at that date. Parkvale has
traditionally concentrated its lending activities on conventional first mortgage
loans secured by residential property. Conventional loans are not insured by the
Federal Housing Administration ("FHA") or guaranteed by the Department of
Veteran's Affairs ("VA").
5
The following table sets forth the composition of the Bank's loan portfolio by
type of loan at June 30.
2004 2003 2002
---- ---- ----
Real estate loans: Amount % Amount % Amount %
------ - ------ - ------ -
Residential: (Dollars in Thousands)
Single family (1) $ 722,649 71.2 $ 931,724 75.0 893,578 73.4
Multifamily (2) 23,910 2.4 19,477 1.5 18,140 1.5
FHA/VA 902 0.1 811 0.1 1,752 0.1
Commercial 82,186 8.1 59,796 4.8 59,136 4.9
Other (3) 12,987 1.3 36,581 3.0 35,108 2.9
---------- ----- ------------ ----- ---------- -----
Total real estate loans 842,634 83.0 1,048,389 84.4 1,007,714 82.8
Consumer loans (4) 143,476 14.1 152,458 12.3 167,956 13.8
Deposit loans 2,790 0.3 2,974 0.2 3,224 0.2
Commercial loans 38,869 3.8 47,983 3.9 53,055 4.4
---------- ----- ------------ ----- ---------- -----
Total loans receivable 1,027,769 101.3 1,251,804 100.8 1,231,949 101.2
Less:
Loans in process 313 0.0 117 0.0 205 0.0
Allowance for losses 13,808 1.4 15,013 1.2 15,492 1.3
Unamortized (premiums)/discounts (1,430) (0.1) (5,105) (0.4) (1,387) ( 0.1)
---------- ----- ------------ ----- ---------- -----
Net loans receivable $1,015,078 100% $ 1,241,779 100% $1,217,639 100%
========== ===== ============ ===== ========== =====
2001 2000
---- ----
Real estate loans: Amount % Amount %
------ - ------ -
Residential: (Dollars in Thousands)
Single family (1) 849,631 76.3 793,625 76.7
Multifamily (2) 24,602 2.2 19,482 1.9
FHA/VA 2,134 0.2 2,719 0.3
Commercial 55,947 5.0 54,459 5.3
Other (3) 22,164 2.0 10,387 1.0
---------- ----- ---------- -----
Total real estate loans 954,478 85.7 880,672 85.2
Consumer loans (4) 132,580 11.9 131,500 12.7
Deposit loans 2,265 0.2 2,325 0.2
Commercial loans 38,347 3.4 34,288 3.3
---------- ----- ---------- -----
Total loans receivable 1,127,670 101.3 1,048,785 101.4
Less:
Loans in process 205 0.0 15 0.0
Allowance for losses 13,428 1.2 13,368 1.3
Unamortized (premiums) and discounts 733 0.1 1,033 0.1
---------- ----- ---------- -----
Net loans receivable $1,113,264 100% $1,034,369 100%
========== ===== ========== =====
- ----------
(1) Includes first mortgages secured by one to four unit residences.
(2) Includes short-term construction loans to developers.
(3) Loans for purchase and development of land.
(4) Primarily includes home equity loans, home equity and personal lines of
credit, student loans, personal loans, deposit loans, charge cards, home
improvement loans and automobile loans.
The following table sets forth the percentage of loans in each category to total
loans at June 30.
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Single Family loans 70.4% 74.5% 72.7% 75.5% 75.9%
Commercial & Multi Family loans 11.6 9.3 9.1 9.1 8.0
Consumer loans 14.2 12.4 13.9 12.0 12.8
Commercial loans 3.8 3.8 4.3 3.4 3.3
----- ----- ----- ----- -----
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
6
CONTRACTUAL MATURITIES OF LOANS
The following table presents information regarding loan contractual maturities
by loan categories during the periods indicated. Mortgage loans with adjustable
interest rates are shown in the year in which they are contractually due rather
than in the year in which they reprice. The amounts shown for each period do not
take into account loan prepayments and normal amortization of the Bank's loan
portfolio.
Amounts Due in Real Estate Commercial
Years Ending June 30, Loans (1) Loans
- ----------------------- ----------- -----------
(In Thousands)
2005 $ 4,864 $ 18,782
2006 - 2009 25,898 15,676
2010 and thereafter 811,872 4,411
--------- ---------
Gross loans receivable (2) $ 842,634 $ 38,869
========= =========
- ----------
(1) Includes all residential and commercial real estate loans, and loans
for the purchase and development of land.
(2) Variable rate and ARM loans represent approximately 79.5% of gross
loans receivable at June 30, 2004. Of the $857.9 million principal
amount of loans maturing after June 30, 2005, loans with an aggregate
principal amount of $212.5 million have fixed interest rates and
loans with an aggregate principal amount of $645.4 million have
variable or adjustable interest rates.
The average life of mortgage loans has been substantially less than the average
contractual terms of such loans because of loan prepayments and, to a lesser
extent, because of enforcement of due-on-sale clauses, which enable Parkvale to
declare a loan immediately due and payable in the event that the borrower sells
or otherwise disposes of the real property. The average life of mortgage loans
tends to increase, however, when market rates on new mortgages substantially
exceed rates on existing mortgages and, conversely, decrease when rates on new
mortgages are substantially below rates on existing mortgages. During fiscal
2004, 2003 and fiscal 2002, many borrowers refinanced their mortgage loans in
order to take advantage of the lowest market rates in forty years.
ORIGINATION, PURCHASE AND SALE OF LOANS
As a Pennsylvania-chartered, federally-insured savings bank, the Bank has the
ability to originate or purchase real estate loans secured by properties located
throughout the United States. At June 30, 2004, the majority of loans in
Parkvale's portfolio are secured by real estate located in its primary market
area, which consists of the greater Pittsburgh metropolitan area. However, 56.7%
and 61.5% of Parkvale's total mortgage loan portfolio at June 30, 2004 and 2003,
respectively, represent loans serviced by others, the majority of which are
secured by properties located outside of Pennsylvania, including, in order of
loan concentration: Virginia, Ohio, Maryland, and Illinois. The change in loans
secured by out-of-state properties is due to the loan purchases of $227.1
million, which amounted to 73.3% of Parkvale's total origination and purchases
for fiscal 2004 as compared to loan purchases of $619.1 million, or 86.3% of
total originations in fiscal 2003. See further discussion below.
Currently, new loans are originated by Parkvale primarily within its primary
market area or through the PMC offices. In addition, Parkvale purchases loan
participations and whole loans from other institutions.
All of Parkvale's mortgage lending is subject to its written underwriting
standards and to loan origination procedures approved by the Board of Directors.
Decisions on loan applications are made on a number
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of factors including, but not limited to, property valuations by independent
appraisers, credit history and cash flow available to service debt. The Loan
Committee of Parkvale consists of senior officers and is authorized to approve
all loans up to $500,000. At least three senior officers must be present to hold
a meeting of the Loan Committee. Loans exceeding $500,000 must be approved by
the Board of Directors.
Under policies adopted by Parkvale's Board of Directors, Parkvale limits the
loan-to-value ratio to 80% on newly originated residential mortgage loans, or up
to 95% with private mortgage insurance. Depending upon the amount of private
mortgage insurance obtained by the borrower, Parkvale's loan exposure may be
reduced to as low as 65% of the value of the property. Commercial real estate
loans generally do not exceed 80% of the value of the secured property. In
addition, it is Parkvale's policy to obtain title insurance policies insuring
that Parkvale has a valid first lien on mortgaged real estate.
ORIGINATIONS BY PARKVALE. Historically, mortgage loans have been originated by
Parkvale primarily through referrals from real estate brokers, builders and
direct customers, as well as through refinancings for existing customers.
Consumer and commercial loan originations are made by Parkvale within its
primary market area. Total loan originations for the fiscal years ending June
30, 2004, 2003 and 2002 were $164.4 million, $207.5 million and $232.1 million,
respectively. See the chart on page 5 for detailed activity for the past 3
fiscal years. The reduced levels of certain lending categories during fiscal
2004, specifically single family mortgages and commercial mortgages relate to
the Bank's decision to not offer lower long term fixed rates due to the
perceived interest rate risk associated with low fixed rates.
LOAN PURCHASES. The asset/liability strategy of investing in ARM loans to remain
flexible in a volatile interest rate environment mitigated during fiscal 2004 as
Parkvale decreased loan purchases to $227.1 million from $619.1 million in
fiscal 2003. The decreased level of purchases was reflective of the yields
available on agency securities without the inherent risk in purchasing ARM loans
at prices above par that would add to the risk profile due to pre-payment risk
and reinvestment risk if rates remain at historic lows. In fiscal 2004, all of
the purchased loans were ARM loans. Typically, Parkvale purchases loans to
supplement the portfolio during periods of loan origination shortfalls and takes
advantage of market opportunities when yields on whole loans are greater than
similarly securitized loans. Loan purchases are higher when prepayment speeds
increase on existing portfolios. All loan purchases are subject to Parkvale's
underwriting standards and are purchased from reputable mortgage banking
institutions.
RESIDENTIAL REAL ESTATE LOANS
Parkvale offers ARMs with amortization periods of up to 30 years. The monthly
payment amounts on all Parkvale residential mortgage ARMs are reset at each
interest rate adjustment period without affecting the maturity of the ARM.
Interest rate adjustments generally occur on either a one, three or five year
basis and allow a maximum change of 2% to 3% per adjustment period, with a 6% or
7% maximum rate increase over the life of the loan. ARMs comprised approximately
89.7%, 94.5% and 89.7% of total mortgage loan originations and purchases in
fiscal 2004, 2003 and 2002, respectively. At June 30, 2004, 78.7% of Parkvale's
total residential loan portfolio was represented by ARMs. ARM loans generally do
not adjust as rapidly as Parkvale's cost of funds. Parkvale has been emphasizing
the origination of adjustable-rate versus long-term fixed-rate residential
mortgages for its portfolio as part of the asset and liability plan to increase
the rate sensitivity of its assets.
8
COMMERCIAL REAL ESTATE LOANS
The balance of commercial real estate mortgages increased from $59.8 million at
June 30, 2003 to $82.1 million at June 30, 2004. Commercial loans offer more
attractive yields than residential real estate loans, but are conservatively
underwritten and well secured, as are residential loans. Also, these loans are
made in the Pittsburgh area, which traditionally has not experienced the
dramatic real estate price increases and decreases which have occurred in
certain other geographic areas.
CONSUMER LOANS
Parkvale offers a full complement of consumer loans, including home equity
loans, home equity and personal lines of credit, student loans, personal loans,
deposit loans, home improvement loans, automobile and risk-based loans. Total
consumer loans outstanding at June 30, 2004 decreased by 9.0% to $143.5 million
from $152.5 million at June 30, 2003. The fiscal 2004 net decrease is a result
of consumers either paying off or making large principal reduction payments in
reaction to lower market rates, particularly first mortgage refinancing offered
by competitors. Parkvale offers home equity lines of credit at up to 120% of
collateral value at competitive introductory rates. Of an aggregate $61.3
million in outstanding lines of credit at June 30, 2004, $2.7 million have a
loan to value ratio greater than 100% and $9.1 million have a loan to value
ratio ranging from 80% to 100%. These loans have shorter terms and greater
interest rate sensitivity and margins than residential real estate loans.
Home equity lines are revolving and range from $5,000 to $250,000. The amount of
the available line of credit is determined by the borrower's ability to pay,
their credit history and the amount of collateral equity. Personal and overdraft
lines of credit are generally unsecured and are extended for $500 to $50,000.
Line of credit interest rates are variable and are priced at a margin above
Parkvale's prime rate.
Parkvale offers student loans through its community banking network. Parkvale
receives a guaranteed rate on such loans indexed to the 91-day United States
Treasury bill rate and generally sells the loans to the Student Loan Marketing
Association when the student graduates or leaves school in order to avoid costly
servicing expenses.
Parkvale's deposit loans are made on a demand basis for up to 100% of the
balance of the account securing the loan. The interest rate on deposit loans
equals the rate on the underlying account plus a minimum of 100 basis points.
On May 28, 2004, Parkvale sold its unsecured Visa and Visa Gold credit card
portfolio. Parkvale no longer offers Visa and Visa Gold cards through the
Independent Bankers Association of America as part of the loan portfolio. Credit
card balances outstanding totaled $2.3 million and $2.8 million at June 30, 2003
and 2002, respectively.
Parkvale no longer originates loans through PV Financial Service, Inc. (PVFS).
PVFS's portfolio balance was $3.4 million at June 30, 2004 and $5.2 million at
June 30, 2003. This portfolio has not generated additional loans during fiscal
2004 and 2003 compared to $3.0 million during fiscal 2002 because in May 2002,
the Bank instituted risk based pricing procedures for home equity loans that
were previously originated by the subsidiary.
9
COMMERCIAL LOANS
Parkvale's commercial loans are primarily of a short-term nature and are
extended to small businesses and professionals located within the communities
served by Parkvale. Generally, the purpose of the loan dictates the basis for
its repayment. Both secured and unsecured commercial loans are offered by
Parkvale. In originating commercial loans, the borrower's historical and
projected ability to service the proposed debt is of primary importance.
Interest rates are generally variable and indexed to Parkvale's prime rate.
Fixed-rate commercial loans are extended based upon Parkvale's ability to match
available funding sources to loan maturities. Parkvale generally requires
personal guarantees on its commercial loans. Commercial loans were $38.9 million
and $48.0 million at June 30, 2004 and 2003, respectively. The decrease in
fiscal 2004 was primarily the result of not originating commercial lease loans
during fiscal 2004. During fiscal 2003 and 2004, competition in the commercial
loan market resulted in many commercial loan customers refinancing outside of
Parkvale in an amount that exceeded new originations.
LOAN SERVICING AND LOAN FEES
Interest rates and fees charged by Parkvale on mortgage loans are primarily
determined by funding costs and competitive rates offered in its market area.
Mortgage loan rates reflect factors such as general interest rate levels, the
availability of money and loan demand.
After originating fixed rate mortgage loans, Parkvale has the ability to sell
its loans in the secondary mortgage market, primarily to Freddie Mac. Parkvale
generally retains the right to service loans sold or securitized in order to
generate additional servicing fee income. The amount of loans serviced by
Parkvale for others remained at $24.1 million at June 30, 2003 and at June 30,
2004. During fiscal 2003, Parkvale Bank entered into an agreement with Freddie
Mac, in which the Bank sold $12.2 million of 1-4 family mortgages and retained
the servicing for such loans. During fiscal 2004 there were few sales. Prior to
fiscal 2003, there had been no mortgage loan securitizations or sale
transactions in the last five fiscal years, with the exception of certain loans
made in conjunction with various state and local bond programs designed to
assist first time and/or low income home buyers. Parkvale may or may not be the
service provider of these loans depending on the terms of the specific program.
In addition to interest earned on loans and income from servicing of loans,
Parkvale generally receives fees in connection with loan commitments and
originations, loan modifications, late payments, changes of property ownership
and for miscellaneous services related to its loans. Income from these
activities varies with the volume and type of loans originated. The fees
received by Parkvale in connection with the origination of conventional mortgage
loans on single-family properties vary depending on the loan terms selected by
the borrower.
Parkvale defers loan origination and commitment fees and certain direct loan
origination costs over the contractual life of a loan as an adjustment of yield.
Indirect loan origination costs are charged to expense as incurred.
Deferred loan origination fees were $727,000, $903,000 and $774,000 at June 30,
2004, 2003 and 2002, respectively. The balances primarily reflect the fees
deferred related to the commercial real estate and commercial loan portfolio.
10
NONPERFORMING LOANS AND FORECLOSED REAL ESTATE
The following table sets forth information regarding Parkvale's nonaccrual loans
and foreclosed real estate at June 30.
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(In Thousands)
Nonaccrual Loans:
Mortgage $ 2,610 $ 3,786 $ 2,871 $ 1,143 $ 2,098
Commercial 2,345 3,498 598 516 244
------- ------- ------- ------- -------
Total nonaccrual loans $ 4,955 $ 7,284 $ 3,469 $ 1,659 $ 2,342
======= ======= ======= ======= =======
Total nonaccrual loans
as a percent of total loans 0.48% 0.58% 0.28% 0.15% 0.22%
Total foreclosed real estate, net $ 2,998 $ 2,695 $ 1,717 $ 3,762 $ 1,442
Total amount of nonaccrual
loans and foreclosed real estate $ 7,953 $ 9,979 $ 5,186 $ 5,421 $ 3,784
Total nonaccrual loans and
foreclosed real estate as a
percent of total assets 0.49% 0.61% 0.32% 0.39% 0.30%
A loan is considered delinquent when a borrower fails to make contractual
payments on the loan. If the delinquency exceeds 90 days, Parkvale generally
institutes legal action to remedy the default. In the case of real estate loans,
this includes foreclosure action. If a foreclosure action is instituted and the
loan is not reinstated, paid in full or refinanced, the property is sold at a
judicial sale at which, in most instances, Parkvale is the buyer. The acquired
property then becomes "foreclosed real estate" until it is sold. In the case of
consumer and commercial business loans, the measures to remedy defaults include
the repossession of the collateral, if any, and initiation of proceedings to
collect and/or liquidate the collateral and/or act against guarantees related to
the loans.
Loans are placed on nonaccrual status when, in management's judgment, the
probability of collection of 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, no
uncollected interest income is included in earnings for loans, which are on
nonaccrual status. 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, 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 $140,000 of loans classified as
impaired at June 30, 2004 and a $1.1 million loan classified as impaired at June
30, 2003. The average recorded investment in impaired loans was $160,000 in
fiscal 2004. The amount of interest income that has not been recognized was
$152,000 at June 30, 2004. Impaired assets include $3.0 million of foreclosed
real estate as of June 30, 2004. 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 $1.8 million related to a 1998
foreclosure on a vacant building, which was sold on July 19, 2004. A $1.1
million writedown was established for this property during fiscal 2003 in
addition to a $6.5 million writedown in fiscal 2002 as estimated costs to
remediate and renovate the building were higher than originally estimated.
11
Assets classified as substandard/nonaccrual or foreclosed real estate in excess
of $400,000, net of reserves, at June 30, 2004 consist of one commercial loan
and the commercial property discussed in the preceding paragraph along with a
$714,000 commercial mortgage and a single family dwelling of $549,000.
Management believes that the fair value of the collateral for the above
mentioned loans exceeds book value at June 30, 2004.
ALLOWANCE FOR LOAN LOSSES
The following table sets forth the activity in the allowance for loan losses for
the years ended June 30:
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(In Thousands)
Beginning balance $15,013 $15,492 $ 13,428 $13,268 $13,253
SNB Acquisition - - 1,994 - -
Provision for loan losses (106) 308 205 320 236
Loans recovered: Consumer 122 39 34 188 31
Commercial 6 1 - - -
Mortgage 235 69 110 57 105
------- ------- -------- ------- -------
Total recoveries 363 109 144 245 136
------- ------- -------- ------- -------
Loans charged-off: Consumer (301) (241) (148) (421) (239)
Commercial (779) (253) (19) - -
Mortgage (382) (402) (112) (84) -
------- ------- -------- ------- -------
Total charge-offs (1,462) (896) (279) (505) (257)
------- ------- -------- ------- -------
Net charge-offs (1,099) (787) (135) (260) (121)
------- ------- -------- ------- -------
Ending balance $13,808 $15,013 $ 15,492 $13,428 $13,368
======= ======= ======== ======= =======
During 2004, a $732 commercial loan was charged off due to a commercial borrower
ceasing operations and liquidating their assets within a 60 day period.
Creditors with preferred claims exceeded available assets. The Bank does not
expect any recovery. The first step in determining the allowance for loan losses
is recognizing a specific allowance on individual impaired loans. Nonaccrual,
substandard and doubtful commercial and other real estate loans are considered
impaired. Impaired loans are generally evaluated based on the present value of
the expected future cash flows discounted at the loan's effective interest rate,
at the loan's observable market price or at the fair value of the collateral if
the loan is collateral dependent. Based on this evaluation, specific loss
reserves are established on impaired loans when necessary.
The allowance for loan loss was $13.8 million at June 30, 2004 and $15.0 million
at June 30, 2003 or 1.34% and 1.20% of gross loans at June 30, 2004 and 2003,
respectively. 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 adequacy of allowance for loan loss is continually monitored by management
with an emphasis on identifying potential portfolio risks to detect potential
credit deterioration in the early stages, including trends and risks in the
marketplace and loan types. Management, in conjunction with the Loan Review
Committee 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.
12
INVESTMENT ACTIVITIES
Investment decisions are made by authorized officers including the Chief
Executive Officer or the Chief Financial Officer of Parkvale in accordance with
policies established by Parkvale's Board of Directors.
Parkvale's investment portfolio consisted of the following securities at June 30
for the years indicated.
2004 2003 2002
---- ---- ----
(In Thousands)
Federal funds sold $ 14,000 $ 72,000 $119,000
U.S. Government and agency obligations 337,656 14,635 52,032
Municipal obligations 5,661 9,144 10,440
Corporate debt 84,692 146,618 121,453
Mortgage backed securities 49,565 40,430 15,935
Equity securities (at market value) 20,372 19,743 13,080
-------- -------- --------
Total investment portfolio $511,946 $302,570 $331,940
======== ======== ========
During fiscal 2004, available funds were invested in shorter term US government
securities compared to the emphasis on investments in corporate debt and
purchasing single family loans in prior years.
As part of its investment strategy, Parkvale also invests in mortgage-backed
securities, the majority of which are guaranteed by Freddie Mac, Fannie Mae or
the Government National Mortgage Association ("GNMA"). GNMA securities are
guaranteed as to principal and interest by the full faith and credit of the
United States Treasury, while Freddie Mac and Fannie Mae securities are
guaranteed by their respective agencies. At June 30, 2004, Parkvale had $49.6
million, or 3.1% of total assets invested in mortgage-backed securities, as
compared to 2.5% and 1.0% at June 30, 2003 and 2002, respectively. At June 30,
2004, the mortgage-backed securities consisted of Freddie Mac ($9.1 million);
GNMA ($1.8 million); Fannie Mae ($33.1 million); collateralized mortgage
obligations, including REMIC's ($5.1 million) private participation certificates
($384,000); and SBA ($57,000).
The following table shows Parkvale's mortgage-backed security activity during
the years ended June 30.
2004 2003 2002
---- ---- ----
(In Thousands)
Mortgage-backed securities at beginning of year $ 40,430 $ 15,935 $ 16,515
Purchases 22,387 43,979 -
SNB Acquisition - - 2,876
Principal repayments (13,252) (19,484) (3,456)
Sales - - -
-------- -------- --------
Mortgage-backed securities at end of year $ 49,565 $ 40,430 $ 15,935
======== ======== ========
The following table indicates the respective maturities and weighted average
yields of securities as of June 30, 2004 (in Thousands):
13
Carrying Balance %
---------------- ----
U.S. Treasury and U.S. Government agencies:
Maturing within one year $ 7,538 2.75
Maturing within five years 169,316 3.01
Maturing within ten years 160,802 3.94
States of the U.S. and political subdivisions:
Maturing within one year - -
Maturing within five years 2,233 6.29
Maturing within ten years 130 4.50
Maturing after ten years 3,298 5.58
Other Corporate debt:
Maturing within one year 33,762 3.82
Maturing within five years 29,835 4.36
Maturing within ten years 156 7.73
Maturing after ten years 20,939 6.57
Equity securities 20,372 1.39
Mortgage-backed securities 49,565 3.72
--------- ----
Total $ 497,946 3.62
========= ====
HEDGING ACTIVITIES
The objective of Parkvale's financial futures policy is to reduce interest rate
risk by authorizing an asset and liability hedging program. The futures policy
permits Parkvale's President to hedge up to $10 million of assets and
liabilities. Hedges over $10 million and up to $25 million require the approval
of the Audit-Finance Committee of the Board of Directors, and hedges over $25
million require the approval of the Board of Directors. The objective of
Parkvale's financial options policy is to reduce interest rate risk in the
investment portfolio through the use of financial options. The options policy
permits the use of options on United States Treasury bills, notes, bonds and
bond futures and on mortgage-backed securities. The options policy generally
limits the use of puts and calls to $5.0 million per type of option. Parkvale's
President and Senior Vice President - Treasurer are authorized to conduct
options activities, which are monitored by the Audit-Finance Committee of the
Board of Directors. Parkvale has not engaged in any financial future or
financial option activity in the last three fiscal years.
Derivative instruments are various instruments used to construct a transaction
that is derived from and reflects the underlying value of assets, other
instruments or various indices. The primary purpose of derivatives, which
include such items as forward contracts, interest rate swap contracts, options
and futures, is to transfer price risk associated with the fluctuations of
financial instrument value. Parkvale has not entered into any forward contracts,
interest rate swap contracts, options or futures in the last three fiscal years.
SOURCES OF FUNDS
GENERAL
Savings accounts and other types of deposits have traditionally been the
principal source of Parkvale's funds for use in lending and for other general
business purposes. In addition to deposits, Parkvale derives funds from loan
repayments and FHLB advances. Borrowings may be used on a short-term basis to
compensate for seasonal or other reductions in deposits or for inflows at less
than projected levels, as well as on a longer term basis to support expanded
lending and investment activities. Parkvale's ability to maintain high liquidity
levels has allowed investment decisions to be evaluated with the funding source
as a secondary issue.
14
DEPOSITS
Parkvale has established a complete program of deposit products designed to
attract both short-term and long-term savings by providing an assortment of
accounts and rates. The deposit products currently offered by Parkvale include
passbook and statement savings accounts, noninsured sweep accounts, checking
accounts, money market accounts, certificates of deposit ranging in terms from
31 days to ten years, IRA certificates and jumbo certificates of deposit. In
addition, Parkvale is a member of the Star network with thirty-five ATMs
currently operated by Parkvale.
Parkvale is generally competitive in the types of accounts and in the interest
rates it offers on its deposit products, although it generally does not lead the
market with respect to the level of interest rates offered. Parkvale intends to
continue its efforts to attract deposits as a principal source of funds for
supporting its lending activities because the cost of these funds generally is
less than other borrowings. Although market demand generally dictates which
deposit maturities and rates will be accepted by the public, Parkvale intends to
continue to promote longer term deposits to the extent possible in a manner
consistent with its asset and liability management goals.
The following table shows the distribution of Parkvale's deposits by type of
deposit as of June 30.
2004 2003 2002
---- ---- ----
Balance % Balance % Balance %
------- - ------- - ------- -
(Dollars in Thousands)
Passbook accounts and
statement savings $ 201,723 15.7% $ 200,080 15.0% $ 187,617 13.9%
Checking and
money market accounts 357,332 27.9 317,970 23.9 286,217 21.2
Certificate accounts 604,796 47.2 686,221 51.6 744,629 55.2
Jumbo certificates 110,147 8.6 117,833 8.8 119,725 8.9
Accrued interest 7,973 0.6 9,656 0.7 11,151 0.8
---------- ----- ---------- ----- ---------- -----
Total Savings Deposits $1,281,971 100.0% $1,331,760 100.0% $1,349,339 100.0%
========== ===== ========== ===== ========== =====
The following table sets forth information regarding average balances and
average rates paid by type of deposit for the years ending June 30.
2004 2003 2002
---- ---- ----
Average Average Average
Balance % Balance % Balance %
------- - ------- - ------- -
(Dollars in Thousands)
Passbook accounts $ 201,946 0.54% $ 189,902 1.36% $ 156,746 1.74%
Checking and
money market accounts 359,756 0.63 293,767 0.75 227,703 1.03
Certificate accounts 721,660 3.52 839,154 4.69 850,564 5.53
Accrued interest 8,731 - 12,715 - 13,221 -
---------- ---- ---------- ---- ---------- ----
$1,292,093 2.43% $1,335,538 3.30% $1,248,234 4.22%
========== ==== ========== ==== ========== ====
The wide range of deposit accounts offered has increased Parkvale's ability to
retain funds and allows it to be more competitive in obtaining new funds, but
does not eliminate the threat of disintermediation. During periods of high
interest rates, certificate and money market accounts have been more costly than
traditional accounts. In addition, Parkvale has become much more subject to
short-term fluctuations in
15
deposit flows as customers have become more rate conscious and willing to move
funds into higher yielding accounts. The ability of Parkvale to attract and
maintain deposits and Parkvale's cost of funds has been, and will continue to
be, significantly affected by market conditions.
The principal methods used by Parkvale to attract deposits include the offering
of a wide range of services and accounts, competitive interest rates, and
convenient office hours and locations. Parkvale utilizes traditional marketing
methods to attract new customers and deposits, including mass media advertising
and direct mail.
Parkvale's deposits are obtained primarily from persons who are residents of
Pennsylvania. Parkvale neither advertises for deposits outside of Pennsylvania
nor utilizes the services of deposit brokers. Approximately 3.1% of Parkvale's
deposits were held by nonresidents of Pennsylvania at June 30, 2004.
The following table sets forth the net deposit flows of Parkvale during the
years ended June 30.
2004 2003 2002
---- ---- ----
(In Thousands)
(Decrease) increase before interest credited $(73,390) $(48,051) $133,720
Interest credited 23,601 30,472 34,822
-------- -------- --------
Net deposit (decrease) increase $(49,789) $(17,579) $168,542
======== ======== ========
Management carefully monitors the interest rates and terms of its deposit
products in order to maximize Parkvale's interest rate spread and to better
match its interest rate sensitivity.
The following table reflects the makeup of Parkvale's deposit accounts at June
30, 2004, including the scheduled quarterly maturity of CD accounts.
Amount % of Total Average
in 000's Deposits Rates
-------- -------- -----
Passbook and club accounts $ 201,723 15.7% 0.54%
Checking and money market accounts 357,332 27.9 0.63
---------- ----- ----
Total non-certificate accounts 559,055 43.6 0.59
---------- ----- ----
Certificate accounts maturing in quarter ending:
September 30, 2004 100,364 7.8 2.13
December 31, 2004 75,369 5.9 2.23
March 31, 2005 42,846 3.3 3.37
June 30, 2005 62,498 4.9 3.60
September 30, 2005 48,824 3.8 2.99
December 31, 2005 36,478 2.9 3.36
March 31, 2006 27,667 2.2 3.30
June 30, 2006 38,278 3.0 3.61
September 30, 2006 26,678 2.1 3.16
December 31, 2006 27,455 2.1 4.15
March 31, 2007 37,936 3.0 4.61
June 30, 2007 52,971 4.1 4.33
Thereafter 137,579 10.7 4.83
---------- ----- ----
Total certificate accounts 714,943 55.8 3.52
---------- ----- ----
Accrued interest 7,973 0.6 0.00
---------- ----- ----
Total deposits $1,281,971 100.0% 2.43%
========== ===== ====
16
The following table presents, by various interest rate categories, the
outstanding amount of certificates of deposit at June 30, 2004 which mature
during the years ending June 30:
2005 2006 2007 Thereafter Total
---- ---- ---- ---------- -----
(In Thousands)
Certificates of deposit:
Under 4.00% $232,639 $124,324 $ 82,631 $ 40,121 $479,715
4.00% to 5.99% 22,645 15,907 38,891 72,607 150,050
6.00% to 7.99% 25,793 11,016 23,518 24,851 85,178
-------- -------- -------- --------- --------
Total certificates of deposits $281,077 $151,247 $145,040 $ 137,579 $714,943
======== ======== ======== ========= ========
Maturities of certificates of deposit of $100,000 or more that were outstanding
as of June 30, 2004 are summarized as follows:
(In Thousands)
3 months or less $ 15,898
Over 3 months through 6 months 9,678
Over 6 months through 12 months 12,761
Over 12 months 71,810
--------
Total $110,147
========
BORROWINGS
Parkvale's borrowings from the FHLB of Pittsburgh are collateralized with FHLB
capital stock, deposits with the FHLB of Pittsburgh and investment securities.
See "Regulation - Federal Home Loan Bank System". Borrowings are made pursuant
to several different credit programs, each of which has its own interest rate
and range of maturities. FHLB advances are generally available to meet seasonal
and other withdrawals of savings accounts and to expand lending and investment
activities, as well as to aid the efforts of members to establish better
asset/liability management by extending the maturities of liabilities.
The following table sets forth information concerning Parkvale's advances from
the FHLB of Pittsburgh for the years ended June 30.
2004 2003 2002
---- ---- ----
(Dollars in Thousands)
Average balance outstanding $164,433 $147,588 $114,044
Maximum amount outstanding at any month-end
during the period $171,096 $161,109 $131,121
Average interest rate 5.19% 5.37% 5.67%
Balance outstanding at June 30 $171,093 $161,107 $131,121
The increase in the outstanding average balance from $147.6 million in 2003 to
$171.1 million in 2004 is due to additional advances drawn on the FHLB during
fiscal 2004 and later in fiscal 2003. The increases related to a new $10 million
borrowing made during fiscal 2004 at 4.14% for an advance with a stated maturity
of 10 years. Such borrowings were used to fund loan purchases and originations.
YIELDS EARNED AND RATES PAID
The results of operations of Parkvale depend substantially on its net interest
income, which is the largest component of Parkvale's net income. Net interest
income is affected by the difference or spread between
17
yields earned by Parkvale on its loan and investment portfolios and the rates of
interest paid by Parkvale for its deposits and borrowings, as well as the
relative amounts of its interest-earning assets and interest-bearing
liabilities.
The following table sets forth certain information regarding changes in interest
income and interest expense for the periods indicated. For each category of
interest-earning asset and interest-bearing liability, information is provided
on changes attributable to (1) changes in rates (change in rate multiplied by
old volume), (2) changes in volume (changes in volume multiplied by old rate),
and (3) changes in rate-volume (change in rate multiplied by the change in
volume).
Year Ended June 30,
-------------------
2004 vs. 2003 2003 vs. 2002
------------- -------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
---- ------ ------ ----- ---- ------ ------ -----
(In Thousands)
Interest-earning assets:
Loans ($12,357) ($4,524) $ 747 ($16,134) ($10,512) $3,973 ($ 556) ($ 7,095)
Federal funds sold (499) (41) 13 (527) (947) (153) 50 (1,050)
Investments (1,676) 2,752 (402) 674 (2,176) 4,281 (875) 1,230
-------- ------- ------- -------- -------- ------ ------ --------
Total (14,532) (1,813) 358 (15,987) (13,635) 8,101 (1,381) (6,915)
-------- ------- ------- -------- -------- ------ ------ --------
Interest-bearing liabilities:
Deposits (11,686) (1,434) 341 (12,779) (11,484) 3,684 (761) (8,561)
Trust preferred securities (85) 1 (1) (85) (24) 1,020 (68) 928
FHLB advances and debt (274) 925 (32) 619 (473) 1,213 (141) 1,599
-------- ------- ------- -------- -------- ------ ------ --------
Total (12,045) (508) 308 (12,245) (11,981) 6,917 (970) (6,034)
-------- ------- ------- -------- -------- ------ ------ --------
Net change in net interest
income (expense) ($ 2,487) ($1,305) $ 50 ($ 3,742) ($ 1,654) $1,184 ($ 411) ($ 881)
======== ======= ======= ======== ======== ====== ====== ========
SUBSIDIARIES
Parkvale Financial Corporation maintains two subsidiaries. Parkvale Statutory
Trust I ("PSTI") is a Connecticut chartered investment company, and Parkvale
Savings Bank ("Parkvale" or "the Bank") is a Pennsylvania chartered permanent
reserve fund stock savings bank headquartered in Monroeville, Pennsylvania. PSTI
is a subsidiary formed in March 2002 which has borrowed $25 million with $16
million contributed to the Bank in the form of Tier 1 capital.
Pennsylvania law permits a Pennsylvania-chartered, federally-insured savings
institution to invest up to 2% of its assets in the capital stock, paid-in
surplus and unsecured obligations of service corporations and an additional 1%
of its assets when the additional funds are utilized for community or inner-city
development or investment. Because Parkvale's subsidiaries are operating
subsidiaries rather than service corporations, this limitation does not apply.
At June 30, 2004, Parkvale had equity investments of less than $1.0 million in
its operating subsidiary corporations.
Parkvale Bank's wholly-owned subsidiaries include Parkvale Investment
Corporation ("PIC"), Parkvale Mortgage Corporation ("PMC"), P.V. Financial
Service Inc. ("PVFS") and Renaissance Corporation ("Renaissance"). The PIC was
formed in fiscal 2000 as a Delaware investment corporation. PMC was acquired in
1986 and currently operates two offices originating residential mortgage loans
for the Bank. For additional information regarding PMC, see "Lending
Activities". PVFS was incorporated in 1972 and from 1997 until 2002, PVFS
operated as a subprime lending subsidiary with the intent of extending
18
consumer loans to individuals who may otherwise not be able to obtain funds
based on their unfavorable or nonexistent credit history. At June 30, 2004, PVFS
had net assets of $3.9 million and $3.4 million of loans outstanding.
Renaissance completes collateral evaluations for consumer lending activities for
the Bank. The sole asset of Renaissance at June 30, 2004 is $130,000 in cash.
COMPETITION
Parkvale faces substantial competition both in the attraction of deposits and in
the making of mortgage and other loans in its primary market area. Competition
for the origination of mortgage and other loans principally comes from other
savings institutions, commercial banks, mortgage banking companies, credit
unions and other financial service corporations located in the Pittsburgh
metropolitan area. Because of the wide diversity and large number of
competitors, the exact number of competitors changes frequently. Parkvale's most
direct competition for deposits has historically come from other savings
institutions, commercial banks and credit unions located in the Pittsburgh area.
In times of higher interest rates, Parkvale also encounters significant
competition for investors' funds from short-term money market securities and
other corporate and government securities. During a lower interest rate
environment, Parkvale and other depository institutions experience increased
competition from stocks, mutual funds, and other direct investments offering the
potential for higher yields.
Parkvale competes for loans principally through the interest rates and loan fees
it charges on its loan programs. In addition, Parkvale believes it offers a high
degree of professionalism and quality in the services it provides borrowers and
their real estate brokers. It competes for deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal privileges. Parkvale
believes that its office locations in various neighborhoods of Pittsburgh and
the surrounding suburbs outside of downtown Pittsburgh provide Parkvale with
both an opportunity to become an integral part of these smaller communities and
the means of competing with larger financial institutions doing business within
the Pittsburgh metropolitan area. In addition, Parkvale has three offices
located in downtown Pittsburgh to provide services to the business community and
to its suburban customers working and shopping in the city.
MARKET AREA
The greater Pittsburgh metropolitan area, which is a heavily populated and
predominately industrialized region, ranks 21st in population of the
metropolitan areas in the country according to the 2000 census. The region's
economy is primarily dependent on a combination of the manufacturing trade,
services, government, and transportation industries. The economy has experienced
a transition away from the steel and steel-related industries to the service
industries, such as transportation, health care, education and finance. In
addition to containing the corporate headquarters of major industrial and
financial corporations, Pittsburgh is also a major regional health and education
center, and a large number of high technology firms have established operations
in Pittsburgh due to the wide range of support services available.
EMPLOYEES
As of June 30, 2004, Parkvale and its subsidiaries had 345 full-time equivalent
employees. These employees are not represented by a collective bargaining agent
or union, and Parkvale believes it has satisfactory relations with its
personnel.
19
REGULATION
GENERAL
Following conversion to a Pennsylvania Savings Bank charter in fiscal 1993, the
Bank is subject to extensive regulation by the FDIC and the Pennsylvania
Department of Banking, and is no longer directly subject to regulation by the
OTS. Nonetheless, several requirements which were applicable to the Bank as a
Pennsylvania chartered savings association regulated by the OTS remain
applicable to the Bank as a Pennsylvania chartered savings bank. The FDIC has
adopted a regulation which provides that the same restrictions on activities,
investments in subsidiaries, loans to one borrower, and affiliate transactions
apply to the Bank as if the Bank had not converted to a savings bank charter.
However, the capital requirements applicable to the Bank as a savings bank are
the FDIC's capital maintenance regulations rather than the comparable OTS
regulations.
The Bank files reports with the Pennsylvania Department of Banking and the FDIC
describing its activities and financial condition and is periodically examined
to test compliance with various regulatory requirements. This supervision and
regulation is intended primarily for the protection of depositors. Certain of
these regulatory requirements are referred to below or elsewhere in this
document.
INSURANCE AND REGULATORY STRUCTURE. An insurance fund administered by the FDIC
and named the SAIF insures the deposits of savings associations and certain
savings banks. The FDIC fund known as the BIF insures the deposits of commercial
banks and certain savings banks. Although the FDIC administers both funds, the
assets and liabilities are not commingled.
CAPITAL STANDARDS. The Bank is required to maintain Tier I (Core) capital equal
to at least 4% of the institution's adjusted total assets, and total risk-based
capital equal to at least 8.0% of risk-weighted assets. Total capital includes
both Tier I and Tier II (supplementary) capital, with Tier II capital limited to
no more than the amount of Tier I capital. At June 30, 2004, Parkvale was in
compliance with all applicable regulatory requirements, with Tier I and total
capital ratios of 7.4% and 14.3%, respectively. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") required, among other things,
each federal banking agency to revise its risk-based capital standards for
insured institutions to ensure that those standards take adequate account of
interest-rate risk ("IRR"), concentration of credit risk, and the risks of
nontraditional activities, as well as to reflect the actual performance and
expected risk of loss on multifamily residential loans. On June 26, 1996, the
FDIC, the Federal Reserve Board ("FRB") and the Office of the Comptroller of the
Currency ("OCC"), collectively, "the agencies", jointly issued a policy
statement providing bankers guidance on sound interest rate risk management
practices. This policy statement augments the action taken by the agencies in
August 1995 to implement the portion of FDICIA addressing risk-based capital
standards for interest rate risk. The agencies elected not to pursue a
standardized measure and explicit capital charge for interest rate risk.
Instead, the policy statement encourages banks to use their own internal models
to measure IRR but emphasizes that they must have adequate board and senior
management oversight and a comprehensive process for managing IRR. Parkvale's
management does not anticipate difficulty in meeting the capital requirements in
the future. However, there can be no assurance that this will be the case.
Failure to maintain minimum levels of required capital will result in the
submission to the applicable FDIC Regional Director for review and approval of a
reasonable plan describing the means and timing by which the bank shall achieve
its minimum Tier I ratio and may result in the imposition by the Pennsylvania
Department of Banking or the FDIC of various operational restrictions, including
limitations as to the rate of interest that may be paid on deposit accounts, the
taking of deposits, the issuance of new accounts, the ability to originate
particular types of loan, and the purchase of loans or the making of specified
other investments.
20
Alternatively, the institution may be placed into receivership or
conservatorship under the FDIC, which would be charged with managing the
institution until it could be sold or liquidated.
INVESTMENT IN SUBSIDIARIES. Investments in and extensions of credit to
subsidiaries not engaged in activities permissible for national banks must
generally be deducted from capital. However, certain exemptions generally apply
where: (i) a subsidiary is engaged in activities impermissible for national
banks solely as an agent for its customers and (ii) the subsidiary is engaged
solely in mortgage-banking activities. These provisions have not reduced or
limited Parkvale's business activity or resulted in any deductions to capital.
INVESTMENT RULES. The permissible amount of loans to one borrower follows the
national bank standards for all loans made by savings banks. The national bank
standard generally does not permit loans to one borrower to exceed 15% of
unimpaired capital and surplus. Loans in an amount equal to an additional 10% of
unimpaired capital and surplus also may be made to a borrower if the loans are
fully secured by readily marketable securities. Parkvale has historically made
loans with lesser dollar balances than permitted by federal regulations.
Savings banks and subsidiaries may not acquire or retain investments in
corporate debt securities that at the time of acquisition were not rated in one
of the four highest rating categories by at least one nationally recognized
rating organization. Parkvale fully complies with regulations governing
investments in corporate debt securities.
ACQUISITIONS BY BANK HOLDING COMPANIES. Bank holding companies are able to
acquire any savings institution, including healthy as well as troubled
institutions. Current regulations do not impose any geographic restrictions on
such acquisitions, and as a result, a number of savings institutions have been
acquired by bank holding companies.
SAVINGS AND LOAN HOLDING COMPANY JURISDICTION. The Director of the OTS
administers and regulates the activities of registered savings and loan holding
companies and the acquisition of savings banks by any company. Savings and loan
holding companies, such as Parkvale Financial Corporation, are no longer
required to receive regulatory approval prior to incurring debt. Savings banks
which are subsidiaries of a holding company, as well as other savings banks, are
now deemed to be member banks for purposes of Sections 23A and 23B of the
Federal Reserve Act and, as a result, are subject to the transaction with
affiliate rules contained in those sections. Savings and loan holding companies
now may also purchase up to 5% of the stock of unaffiliated savings bank or
savings and loan holding companies without prior regulatory approval.
ENFORCEMENT. The FDIC's enforcement powers extend to all
"institution-affiliated" parties, including shareholders, attorneys, appraisers
and accountants who knowingly or recklessly participate in wrongful action
having or likely to have an adverse effect on an insured institution. Civil
penalties are classified into three levels, with amounts increasing with the
severity of the violation. The first tier provides for civil penalties up to
$5,000 per day for violation of law or regulation. A civil penalty of up to
$25,000 per day may be assessed if more than a minimal loss to an institution or
action that results in a substantial pecuniary gain or other benefit. Criminal
penalties are increased to $1 million per violation, up to $5 million for
continuing violations or for the actual amount of gain or loss. These monetary
penalties may be combined with prison sentences of up to five years.
21
Regulators can impose enforcement action on an institution that fails to comply
with its regulatory requirements, particularly with respect to the capital
requirements. Possible enforcement actions include the imposition of a capital
plan and termination of deposit insurance. The FDIC also may recommend that the
Department of Banking take enforcement action. If action is not taken by the
Department, the FDIC would have authority to compel such action under certain
circumstances.
USA PATRIOT ACT
The USA Patriot Act imposes additional obligations on U.S. financial
institutions, including banks and broker dealer subsidiaries, to implement
policies, procedures and controls that are reasonably designed to detect and
report instances of money laundering and the financing of terrorism. In
addition, provisions of the USA Patriot Act require the federal financial
institution regulatory agencies to consider the effectiveness of a financial
institution's anti-money laundering activities when reviewing bank mergers and
bank holding company acquisitions.
SARBANES-OXLEY ACT OF 2002
On July 30, 2002, President Bush signed into law the corporate-governance and
accounting-oversight bill, also known as the Sarbanes-Oxley Act of 2002 ("the
Act"). The bill creates an independent auditing-oversight board under the
Securities and Exchange Commission ("SEC"), by which the Bank's holding company,
Parkvale Financial Corporation, is regulated. The bill also increases penalties
for corporate wrongdoers, forces faster and more-extensive financial disclosure,
and creates avenues of recourse for aggrieved shareholders. The Act contains
separate provisions that require signed certifications to be made by the chief
executive officer and the chief financial officer of all public companies. The
Act provides criminal penalties of up to $1.0 million and imprisonment of up to
10 years for an officer that provides a certification knowing it to be untrue.
The Act also addresses functions and responsibilities of audit committees of
public companies. These requirements are as follows:
Responsibilities. Each audit committee is directly responsible for the
appointment, compensation and oversight of the work of the Company's outside
auditors, and the auditors must report directly to the audit committee;
Independence. Each audit committee member must be independent, which under the
Act means that he or she cannot (other than in his or her capacity as a member
of the audit committee, the board or any other board committee) accept any
consulting, advisory or other compensatory fees from the Company or be
affiliated with the Company or any of its subsidiaries;
Whistleblower Procedures. Each audit committee must establish procedures to
receive and respond to any complaints and concerns regarding the Company's
accounting, accounting controls or auditing matters. These procedures would
include enabling the Company's employees to transmit concerns regarding
questionable accounting or auditing matters by confidential, anonymous
submission;
Engagement of Advisors. In recognition of the audit committee's independent
status, each audit committee is authorized to engage independent counsel and
other advisors; and
Payment of Expenses. The Company must provide the appropriate funding, as
determined by the audit committee, for payment of compensation to the auditors
and advisors of the audit committee.
22
On September 5, 2002, the SEC published accelerated filing deadlines for Forms
10-K and Forms 10-Q. The accelerated guidelines as they affect Parkvale are as
follows:
For Form 10-K, fiscal 2004 filing deadline 75 days or 9/13/04; fiscal 2005 and
thereafter filing deadline is 60 days or 8/29/05.
For Form 10-Q, quarterly reports filing deadline during fiscal 2005 is 40 days,
i.e. 11/9/04 for the first quarter of 2005; quarterly reports filing deadline
during fiscal 2006 is 35 days, i.e. 11/4/05 for the first quarter of 2006.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional FHLBs,
each subject to supervision and regulation by the Federal Housing Finance Board.
The FHLBs provide a central credit facility primarily for member institutions.
The Bank, as a member of the FHLB of Pittsburgh, is required to acquire and hold
shares of capital stock in that FHLB in an amount equal to at least 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances (borrowings) from the FHLB of Pittsburgh, whichever is greater.
Parkvale had a $13.9 million investment in stock of the FHLB of Pittsburgh at
June 30, 2004 to comply with this requirement.
Advances from the FHLB of Pittsburgh are secured by a member's shares of stock
in the FHLB of Pittsburgh, certain types of mortgages and other assets. The
maximum amount of credit which the FHLB of Pittsburgh will advance for purposes
other than meeting deposit withdrawals fluctuates from time to time in
accordance with changes in policies of the FHLB of Pittsburgh. Interest rates
charged for advances vary depending upon maturity, the cost of funds to the FHLB
of Pittsburgh and the purpose of the borrowing. At June 30, 2004, the Bank had
$171.1 million of outstanding advances from the FHLB of Pittsburgh.
INTERSTATE ACQUISITIONS
The Commonwealth of Pennsylvania has enacted legislation which permits
interstate acquisitions and branching, subject to specific restrictions, for
savings banks located in Delaware, Kentucky, the District of Columbia, Maryland,
New Jersey, Ohio, Virginia and West Virginia ("the Region") if the state offers
reciprocal rights to savings institutions located in Pennsylvania.
Of the states in the Region, Delaware, Kentucky, Maryland, New Jersey, Ohio and
West Virginia currently have laws that permit savings banks located in
Pennsylvania to branch into such states and/or acquire savings banks located in
such states.
FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require savings banks to maintain
noninterest-earning reserves against their transaction accounts (primarily
checking accounts) and certain nonpersonal time deposits. Money market deposit
accounts are subject to the reserve requirement applicable to nonpersonal time
deposits when held by a person other than a natural person. Because required
reserves must be maintained in the form of vault cash or a non-interest bearing
account at a Federal Reserve Bank, the effect of this reserve requirement is to
reduce the Bank's interest-earning assets. Parkvale satisfies its reserve
requirement with vault cash.
23
PENNSYLVANIA SAVINGS BANK LAW
The Bank is incorporated under the Pennsylvania Banking Code of 1965, as amended
("Banking Code"), which contains detailed provisions governing the organization,
location of offices, rights and responsibilities of directors, officers,
employees and members, as well as corporate powers, savings and investment
operations and other aspects of the Bank and its affairs. The Banking Code
delegates extensive rulemaking power and administrative discretion to the
Department so that the supervision and regulation of state-chartered banks may
be flexible and readily responsive to changes in economic conditions and in
savings and lending practices.
One of the declared purposes of the Banking Code is to provide banks with the
opportunity to be competitive with each other and with other financial
institutions existing under other state, federal and foreign laws.
A Pennsylvania savings bank may locate or change the location of its principal
place of business and establish an office anywhere in the Commonwealth, with the
prior approval of the Department.
The Department generally examines each savings bank at least once every two
years. The Banking Code permits the Department to accept the examinations and
reports of the FDIC in lieu of the Department's examination. The present
practice is for the Department and the FDIC to conduct examinations annually on
an alternating basis. The Department may order any bank to discontinue any
violation of law or unsafe or unsound business practice and may direct any
director, officer, attorney or employee of a bank engaged in an objectionable
activity, after the Department has ordered the activity to be terminated, to
show cause at a hearing before the Department why such person should not be
removed.
TAXATION
FEDERAL TAXATION
For federal income tax purposes, PFC and its subsidiaries file a consolidated
return on a calendar year basis and report their income and expenses on the
accrual basis of accounting. Since 1987, corporations are subject to the
corporate alternative minimum tax to the extent this tax would exceed the
regular tax liability. PFC has not been subject to this tax in the past and does
not anticipate being subject to this tax in future years given its current level
of financial and taxable income. With certain exceptions, no deduction is
allowed for interest expense allocable to the purchase or carrying of tax-exempt
obligations acquired after August 7, 1986.
PFC's income tax returns for calendar 2001, 2002 and 2003 have been filed with
the IRS and are open to examination. However, PFC has not yet been advised by
the IRS if an examination will be performed. All income tax returns for calendar
2000 and prior years have been either accepted as filed or settled with the IRS
with such settlements not resulting in a significant charge to income.
STATE TAXATION
For state tax purposes, Parkvale reports its income and expenses on the accrual
basis of accounting and files its tax returns on a calendar year basis. The Bank
is subject to the Pennsylvania Mutual Thrift Institutions Tax ("MTIT"). This tax
is imposed at the rate of 11.5% on net income computed substantially in
accordance with generally accepted accounting principles ("GAAP"). Under the
Mutual Thrift Institution Act, Parkvale is not subject to any state or local
taxes except for the MTIT described above and taxes imposed upon real estate and
the transfer thereof.
24
See Note H of Notes to Consolidated Financial Statements for additional
information regarding federal and state taxation.
ITEM 2. PROPERTIES.
Parkvale presently conducts its business from its main office and 39 branch
offices located in the greater Pittsburgh metropolitan area. Parkvale owns the
building and land for 23 of its offices and leases its remaining 16 offices.
Such leases expire through 2021. PMC leases facilities outside of Pennsylvania
for two loan origination centers. At June 30, 2004, Parkvale's land, building
and equipment had a net book value of $10.0 million.
ITEM 3. LEGAL PROCEEDINGS.
PFC and its subsidiaries, in the normal course of business, are subject to
various pending and threatened lawsuits in which claims for monetary damages are
asserted. Management, after consultation with legal counsel, does not anticipate
that the ultimate aggregate liability, if any, arising out of such other
lawsuits will have a material adverse effect on PFC's or its subsidiaries'
financial positions or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED STOCKHOLDERS
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The information required herein is incorporated by reference on pages 19 and 39
of PFC's 2004 Annual Report.
No equity securities were sold by PFC during the period covered by this report
that were not registered under the Securities Act of 1933.
(b) Not Applicable
(c) During the year ended June 30, 2004, Parkvale purchased 58,100 shares at
an average price per share of $25.49.
The following table sets forth information with respect to any purchase made by
or on behalf of Parkvale or any "affiliated purchaser,"as defined in section
240.10b-18(a)(3) under the Exchange Act, of shares of Parkvale common stock
during the indicated periods.
Total Number of
Shares Purchased as Maximum Number of
Total Number Average Part of Publicly Shares that May Yet Be
of Shares Price Paid Announced Plans Purchased Under the
Period Purchased Per Share or Programs Plans or Programs (1)
- ------ --------- --------- ----------- ---------------------
April 1-30, 2004 -- -- -- --
May 1-31, 2004 15,500 $26.63 15,500 241,000
June 1-30, 2004 22,600 $26.36 22,600 218,400
(1) The repurchase program approved on June 19, 2003 scheduled to expire on
June 30, 2004 was extended on June 18, 2004 to expire on June 30, 2005.
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from page 1 of
PFC's 2004 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required herein is incorporated by reference from pages 4 to 12
of PFC's 2004 Annual Report.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required herein is incorporated by reference from pages 4 to 12
of PFC's 2004 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is incorporated by reference from pages 13 to 31
of PFC's 2004 Annual Report.
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
On January 6, 2004, Ernst and Young, LLP ("E&Y") informed Parkvale that it has
resigned as the independent accountants for Parkvale for the fiscal year ending
June 30, 2004. E&Y and Parkvale were not able to agree on financial
arrangements for proposed audit services. The reports of E&Y on Parkvale's
financial statements for the past two fiscal years contain no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle.
On February 5, 2004, Parkvale's Audit Finance Committee approved Parente
Randolph, LLC of Pittsburgh, Pennsylvania as the new independent public
accountants for the fiscal year ending June 30, 2004.
ITEM 9A. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are designed to ensure that the information
required to be disclosed by us in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms
and are operating in an effective manner.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein with respect to directors and executive officers
of PFC and Parkvale is incorporated by reference from pages 5 to 12 of the
definitive proxy statement of the Corporation for the 2004 Annual Meeting of
Stockholders, which will be filed on or before September 20, 2004 (the
"definitive proxy statement").
Parkvale has adopted a code of ethics that applies to all of its directors,
officers (including its chief executive officer and chief financial officer) and
employees. The code of ethics may be found on our website at www.parkvale.com.
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from pages 9 to 17
of the definitive proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required herein is incorporated by reference from pages 2 to 4
of the definitive proxy statement.
The following table provides Equity Compensation Plan information as of June 30,
2004 with respect to shares of Parkvale Common Stock that may be issued under
our existing equity compensation plans, which consists of the 1993 Directors'
Stock Option Plan and the 1993 Key Employee Stock Compensation Program.
Number of Securities Weighted-average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding for future issuance
outstanding options, warrants under equity compensation
options, warrants and rights plans (excluding securities
and rights (a) (b) reflected in column(a)(c)
-------------- --- -------------------------
Equity compensation plans 328,188 $ 20.20 --
approved by security holders
Equity compensation plans not -- -- --
approved by security holders
------- ------- -------
Total 328,188 $ 20.20 --
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from page 18 to 19
of the definitive proxy statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required herein is incorporated by reference from page 25 of the
definitive proxy statement.
26
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) The following financial statements are incorporated by reference
from Item 8 hereof (see Exhibit 13):
Page
----
Consolidated Statements of Financial Condition at June 30, 2004 and 2003 13
Consolidated Statements of Operations for each of the three years
in the period ended June 30, 2004. 14
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 2004. 15
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended June 30, 2004. 16
Notes to Consolidated Financial Statements 17 to 31
Report of Independent Registered Public Accounting Firm 32
Report of Former Independent Registered Public Accounting Firm **
(2) The following exhibits are filed as part of this Form 10-K and this
list includes Exhibit Index.
No. Exhibits Page
- ------------ ----
3(a) Articles of Incorporation *
3(b) Bylaws &
10(a) Common Stock Certificate *
10(b) 1993 Key Employee Stock Compensation Program x
10(c) 1993 Directors' Stock Option Plan &
10(d) Consulting Agreement with Robert D. Pfischner ~
10(e) Employment Agreement with Robert J. McCarthy, Jr. #
10(f) Change in Control Severance Agreement with Timothy G. Rubritz @
10(g) Executive Deferred Compensation Plan &
27
10(h) Supplemental Employee Benefit Plan +
13 Excerpts of the 2004 Annual Report to Shareholders filed herewith. Such
Annual Report, except those portions thereof that are expressly
incorporated by reference herein, is furnished for information of the
Securities and Exchange Commission ("the SEC") only and is not deemed to
be "filed" as part of this Form 10-K.
22 Subsidiaries of Registrant 18
Reference is made to Item 1. Business - Subsidiaries for the required
information
23 Consent of Independent Registered Public Accounting Firm C-1
Consent of Former Independent Registered Public Accounting Firm C-2
31.1 Certification of Chief Executive Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (as
furnished as Exhibit 31.1)
31.2 Certification of Chief Financial Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (as
furnished as Exhibit 31.2)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(as furnished as Exhibit 32.1)
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(as furnished as Exhibit 32.2)
* Incorporated by reference to the Registrant's Form 8-B filed with the SEC
on January 5, 1989.
x Incorporated by reference, as amended, to Form S-8 at File No. 33-98812
filed by the Registrant with the SEC on November 1, 1995.
~ Incorporated by reference to Form 10-K filed by the Registrant with the
SEC on September 28, 1994.
+ Incorporated by reference to Form 10-K filed by the Registrant with the
SEC on September 21, 1995.
# Incorporated by reference to Form 10-K filed by the Registrant with the
SEC on September 19, 1997.
& Incorporated by reference to Form 10-K filed by the Registrant with the
SEC on September 24, 1998.
@ Incorporated by reference to Form 10-K filed by the Registrant with the
SEC on September 22, 2000.
28
** Incorporated by reference to Form 10-K filed by the Registrant with the
SEC on September 19, 2003.
(b) REPORTS ON FORM 8-K
A Form 8-K was filed April 21, 2004 for an earnings release dated April
15, 2004.
(c) See (a) (2) above for all exhibits filed herewith and the Exhibit Index.
(d) There are no other financial statements and financial statement schedules,
which were excluded from the Annual Report to Shareholders, which are
required to be included herein.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: September 9, 2004 By: /s/ Robert J. McCarthy, Jr.
--------------------------
Robert J. McCarthy, Jr.
Director, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Robert J. McCarthy, Jr. September 9, 2004
- ---------------------------- ---------------------
Robert J. McCarthy, Jr., Date
Director, President and
Chief Executive Officer
/s/ Timothy G. Rubritz September 9, 2004
- ---------------------------- ---------------------
Timothy G. Rubritz, Date
Vice President - Treasurer
(Chief Financial & Accounting Officer)
/s/ Robert D. Pfischner September 9, 2004
- ---------------------------- ---------------------
Robert D. Pfischner, Chairman of the Board Date
/s/ Fred P. Burger, Jr. September 9, 2004
- ---------------------------- ---------------------
Fred P. Burger, Jr., Director Date
/s/ Andrea F. Fitting September 9, 2004
- ---------------------------- ---------------------
Andrea F. Fitting, Director Date
/s/ Patrick J. Minnock September 9, 2004
- ---------------------------- ---------------------
Patrick J. Minnock, Director Date
/s/ Harry D. Reagan September 9, 2004
- ---------------------------- ---------------------
Harry D. Reagan, Director Date
30