Attached files
file | filename |
---|---|
EX-23 - EX-23 - PARKVALE FINANCIAL CORP | l41082exv23.htm |
EX-31.2 - EX-31.2 - PARKVALE FINANCIAL CORP | l41082exv31w2.htm |
EX-31.1 - EX-31.1 - PARKVALE FINANCIAL CORP | l41082exv31w1.htm |
EX-32.1 - EX-32.1 - PARKVALE FINANCIAL CORP | l41082exv32w1.htm |
EX-10.17 - EX-10.17 - PARKVALE FINANCIAL CORP | l41082exv10w17.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended June 30, 2010
Commission File Number 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 | |
(Address of principal executive office) | (Zip code) |
Registrants telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($1.00 par value) | Name of Exchange on which registered | |
(Title of Class) | Nasdaq Select |
Securities registered pursuant to Section 12(g) of the Act- None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Exchange Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
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 registrants 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The closing sales price of the Registrants Common stock on November 8, 2010 was $8.33 per share.
Number of shares of Common Stock outstanding as of November 8, 2010 was 5,529,211.
Explanatory Note
Parkvale Financial Corporation (the Company) originally filed its Form 10-K for the year
ended June 30, 2010 on September 13, 2010. It was subsequently determined that the calculation of
the disallowed portion of the Companys deferred tax asset was inadvertently overlooked with
respect to the Tier I Capital calculation. The result of the oversight is that the Tier I Capital
ratio on page 50 of the original Form 10-K (Liquidity and Capital Resources section of Managements
Discussion and Analysis of Financial Condition and Results of Operations), and regulatory capital
amounts and ratios disclosed in Note G (Regulatory Capital) to the financial statements on page 80
of the original Form 10-K were not correctly disclosed at June 30, 2010. In all instances, the
revised regulatory capital amounts and corresponding ratios, as disclosed in this Form 10-K/A
filing (pages 43-44), result in the Company continuing to be categorized as well capitalized under regulatory
framework.
Items 7 and 8 of Form 10-K are being re-filed in their entirety to provide the corrected
information, and certain exhibits are being re-filed pursuant to Item 15.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The purpose of this discussion is to summarize the financial condition and results of
operations of Parkvale Financial Corporation (PFC) and provide other information which is not
readily apparent from the consolidated financial statements included in this report. Reference
should be made to those statements, the notes thereto and the selected financial data presented
elsewhere in this report for a complete understanding of the following discussion and
analysis.
INTRODUCTION
PFC is a unitary savings and loan holding company incorporated under the laws of the
Commonwealth of Pennsylvania. Its main operating subsidiary is Parkvale Savings Bank (the Bank),
which 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 Columbus, Ohio area through its wholly
owned subsidiary, Parkvale Mortgage Corporation (PMC).
THE BANK
General
The Bank conducts business in the greater tri-state area through 47 full-service offices using
the trade name Parkvale Bank with 40 offices in Allegheny, Beaver, Butler, Fayette, Washington and
Westmoreland Counties of Pennsylvania, two branches in West Virginia and five branches in Ohio.
With total assets of $1.8 billion at June 30, 2010, Parkvale was the tenth largest financial
institution headquartered in the Pittsburgh metropolitan area and twelfth 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, interest on investments,
and, to a lesser extent, service charges and fees. Parkvales principal expenses are interest on
deposits and borrowings and operating expenses. Lending activities are funded principally by
deposits, loan repayments, and operating earnings.
Lower housing demand in Parkvales primary lending areas, relative to its deposit growth, has
spurred the Bank to purchase residential mortgage loans from other financial institutions in the
secondary market. This purchase strategy
2
also achieves geographic asset diversification. Parkvale purchases adjustable rate residential
mortgage loans subject to its normal underwriting standards. Parkvale purchased $6.3 million of
fixed mortgage loans during fiscal 2010 and did not purchase loans during fiscal 2009 as a result
of uncertainties related to the secondary mortgage market.
Financial Condition
Parkvales average interest-earning assets increased $13.2 million or 0.7% for the year ended June
30, 2010 over fiscal year 2009. Average balances decreased by $109.4 million in loans, while
average federal funds sold increased $58.0 million and average investments increased by $64.5
million during the fiscal 2010 period. Average deposit liabilities rose $18.1 million in fiscal
year 2010, and average borrowings increased by $5.0 million in fiscal 2010, resulting in a $9.9
million decline in net interest-earning assets. In addition, our average interest rate spread
declined from 2.29% in fiscal 2009 to 2.06% in fiscal 2010. The decreases in net interest-earning
assets and in the average interest rate spread resulted in a $4.3 million or 10.3% decrease in net
interest income in fiscal 2010 compared to fiscal 2009.
Asset and Liability Management
Parkvale functions as a financial intermediary, and as such, its financial condition should be
examined in terms of its ability to manage interest rate risk (IRR) and diversify credit risk.
Parkvales asset and liability management (ALM) is driven by the ability to manage the
exposure of current and future earnings and capital to fluctuating interest rates. This exposure
occurs because the present value of future cash flows, and in many cases the cash flows themselves,
change when interest rates change. One of Parkvales ALM goals is to minimize this exposure.
IRR is measured and analyzed using static interest rate sensitivity gap indicators, net
interest income simulations and net present value sensitivity measures. These combined methods
enable Parkvales management to regularly monitor both the direction and magnitude of potential
changes in the pricing relationship between interest-earning assets and interest-bearing
liabilities.
Interest rate sensitivity gap analysis provides one indicator of potential interest rate risk
by comparing interest-earning assets and interest-bearing liabilities maturing or repricing at
similar intervals. The gap ratio is defined as rate-sensitive assets minus rate-sensitive
liabilities for a given time period divided by total assets. Parkvale continually monitors gap
ratios, and within the IRR framework and in conjunction with net interest income simulations,
implements actions to reduce exposure to fluctuating interest rates. Such actions have included
maintaining high liquidity, increasing the repricing frequency of the loan portfolio, purchasing
adjustable-rate investment securities and lengthening the overall maturities of interest-bearing
liabilities. Management believes these ongoing actions minimize Parkvales vulnerability to
fluctuations in interest rates. The one-year gap ratio increased from 9.46% at June 30, 2009 to
12.45% as of June 30, 2010, the three-year gap ratio went from 1.49% at June 30, 2009 to 1.38% at
June 30, 2010 and the five-year gap ratio was 9.14% at June 30, 2009 versus 5.91% at June 30, 2010.
The increase in the asset sensitivity in the one-year GAP ratio is due to an increase in federal
funds sold, investments and ARM loans scheduled to reprice or mature within one-year and projected
calls on agency step-up securities.
Gap indicators of IRR are not necessarily consistent with IRR simulation estimates. Parkvale
utilizes net interest income simulation estimates under various assumed interest rate environments
to more fully capture the details of IRR. Assumptions included in the simulation process include
measurement over a probable range of potential interest rate changes, prepayment speeds on
amortizing financial instruments, other imbedded options, loan and deposit volumes and rates,
non-maturity deposit assumptions and managements capital requirements. The estimated impact on
projected net interest income in fiscal 2011 assuming an immediate parallel and instantaneous shift
in current interest rates, would result in the following percentage changes over fiscal 2010 net
interest income: +100 basis points (bp), +10.66%; +200 bp, +7.62%; -100 bp, +4.21%; -200 bp,
+9.04%. This compares to projected net interest income for fiscal 2010 made at June 30, 2009 of:
+100 bp, +0.9%; +200 bp, +0.1%; -100 bp, +0.9%; -200 bp, -8.0%. The fluctuation in projected net
interest income between fiscal 2011 and 2010 relates to lower yields on shorter-term liquid assets
and is reflective of Parkvales investment and interest rate risk management strategy of shortening
the duration of its investment portfolio by purchasing short-term agency callable and multi-step
securities in anticipation of rising interest rates.
3
Interest-Sensitivity Analysis. The following table reflects the maturity and repricing
characteristics of Parkvales assets and liabilities at June 30, 2010:
(Dollars in thousands):
Interest sensitive assets | <3 months | 4-12 Months | 1-5 Years | 5+Years | Total | |||||||||||||||
ARM and other variable rate loans |
$ | 193,639 | $ | 237,506 | $ | 167,470 | $ | 14,969 | $ | 613,584 | ||||||||||
Fixed-rate loans, net (1) |
12,030 | 36,604 | 173,866 | 214,671 | 437,171 | |||||||||||||||
Variable rate mortgage-backed securities and CMOs |
38,271 | 76,953 | 91,131 | | 206,355 | |||||||||||||||
Fixed rate mortgage-backed securities and CMOs (1) |
576 | 531 | 10,996 | 8,246 | 20,349 | |||||||||||||||
Investments and federal funds sold |
253,008 | 44,223 | 87,223 | 46,408 | 430,862 | |||||||||||||||
Equities, primarily FHLB |
1 | 4,760 | 14,357 | 1,205 | 20,323 | |||||||||||||||
Total interest-sensitive assets |
$ | 497,525 | $ | 400,577 | $ | 545,043 | $ | 285,499 | $ | 1,728,644 | ||||||||||
Ratio of interest-sensitive assets to total assets |
27.0 | % | 21.7 | % | 29.6 | % | 15.5 | % | 93.8 | % | ||||||||||
Interest-sensitive liabilities |
||||||||||||||||||||
Passbook deposits and club accounts (2) |
$ | 11,559 | $ | 39,022 | $ | 46,242 | $ | 127,443 | $ | 224,266 | ||||||||||
Checking accounts (3) |
26,659 | 20,184 | 40,372 | 220,368 | 307,583 | |||||||||||||||
Money market deposit accounts |
70,032 | 44,000 | 44,000 | | 158,032 | |||||||||||||||
Certificates of deposit |
158,618 | 245,581 | 352,500 | 34,710 | 791,408 | |||||||||||||||
FHLB advances and other borrowings |
27,695 | 25,000 | 182,566 | 20,089 | 255,350 | |||||||||||||||
Total interest-sensitive liabilities |
$ | 294,563 | $ | 373,787 | $ | 665,680 | $ | 402,610 | $ | 1,736,640 | ||||||||||
Ratio of interest-sensitive liabilities to total
liabilities and equity |
16.0 | % | 20.3 | % | 36.1 | % | 21.9 | % | 94.3 | % | ||||||||||
Ratio of interest-sensitive assets to
interest-sensitive liabilities |
168.9 | % | 107.2 | % | 81.9 | % | 70.9 | % | 99.5 | % | ||||||||||
Periodic Gap to total assets |
11.0 | % | 1.5 | % | -6.6 | % | -6.4 | -0.4 | % | |||||||||||
Cumulative Gap to total assets |
11.0 | % | 12.5 | % | 5.9 | % | -0.4 | % |
(1) | Includes total repayments and prepayments at an assumed rate of 15% per annum for fixed-rate mortgage loans and mortgage-backed securities, with the amounts for other loans based on the estimated remaining loan maturity by loan type. | |
(2) | Based on historical data, assumes passbook deposits are rate sensitive at the rate of 21.0% per annum, compared with 18.1% for fiscal 2009. | |
(3) | Includes investment checking accounts, which are assumed to be immediately rate sensitive, with remaining interest-bearing checking accounts assumed to be rate sensitive at 10.0% in the first year and 5.0% per annum thereafter. Noninterest checking accounts are considered core deposits and are included in the 5+ years category. |
Asset Management. A primary goal of Parkvales asset management is to maintain a high level
of liquid assets. Parkvale defines the following as liquid assets: cash, federal funds sold,
certain corporate debt maturing in less than one year, U.S. Government and agency obligations
maturing in less than one year and short-term bank deposits. The average daily liquidity was 29.1%
for the quarter ended June 30, 2010. During fiscal 2010, in addition to maintaining high liquidity,
Parkvales investment strategy was to purchase primarily lower risk investment grade securities
rated AA or higher to enhance yields and reduce the risk associated with rate volatility.
Parkvales lending strategy has been designed to shorten the average maturity of its assets
and increase the rate sensitivity of the loan portfolio. In fiscal 2010, 2009 and 2008, 40.5%,
48.3% and 66.4%, respectively, of mortgage loans originated or purchased were adjustable-rate
loans. Parkvale has continually emphasized the origination and purchase of ARM loans. ARMs totaled
$511.8 million or 62.7% of total mortgage loans at June 30, 2010 versus $577.0 million or 65.2% of
total mortgage loans at June 30, 2009. To supplement local mortgage originations, Parkvale
purchased loans aggregating $6.3 million in fiscal 2010 from mortgage bankers and other financial
institutions. There were no loan purchases during fiscal 2009. The loan packages purchased were
fixed-rate residential loans. All of the fiscal 2010 purchases were residential loans. The loans
purchased from others are reviewed for underwriting standards
4
that include appraisals, creditworthiness and acceptable ratios of loan to value and debt to
income calculated at fully indexed rates. The practice of purchasing loans or ARM securities in the
secondary market was temporarily discontinued in fiscal 2009 due to the lack of acceptable product
availability. At June 30, 2010, Parkvale had commitments to originate mortgage loans totaling $3.9
million and commercial loans of $3.0 million. Commitments to fund construction loans in process at
June 30, 2010 were $7.2 million, which were funded from current liquidity.
Parkvale continues to focus on its consumer loan portfolio through new originations. Home
equity lines of credit are granted up to 90% of collateral value at competitive rates. In general,
these loans have shorter maturities and greater interest rate sensitivity and margins than
residential real estate loans. At June 30, 2010 and 2009, consumer loans were $184.2 million and
$185.8 million, which represented a 0.9% decrease and a 5.0% increase over the balances at June 30,
2009 and 2008, respectively, with fixed-rate second mortgage loans totaling $80.6 million, $89.7
million and $100.8 million of the total outstanding balances at June 30, 2010, 2009 and 2008,
respectively.
Investments in mortgage-backed securities and other securities, such as U.S. Government and
agency obligations and corporate debt, are primarily purchased to enhance Parkvales liquidity
position and to diversify asset concentration. During fiscal 2010, Parkvale purchased an aggregate
of $431.8 million of investment securities classified as held to maturity, compared to $284.6
million of such purchases in fiscal 2009 and $361.7 million in fiscal 2008. The fiscal 2010
purchases consist of government and agency securities, with the exception of $5.0 million of
taxable municipal securities. Substantially all of the 2010 purchases were either adjustable or
expected to be shorter term due to step up features. At June 30, 2010, the combined weighted
average yield on adjustable corporate securities, agency and collateralized mortgage obligations
was 3.58%. If the interest rate indices were to fall further, net interest income may decrease if
the yield, after discount amortization, on these securities, as well as other liquid assets and ARM
loans were to fall faster than liabilities would reprice. All debt securities, with the exception
of $59.8 million of non-agency CMOs, are classified as held to maturity and are not available for
sale or held for trading.
The credit quality of non-agency CMO securities rated below investment grade at June 30, 2010
as a result of downgrades by the national rating agencies was evaluated. Based upon recent and
future credit deterioration projections and results of the evaluation, the Bank intends to sell
fifteen non-agency CMO securities in the near term. The debt securities were reclassified from held
to maturity to available for sale at June 30, 2010, and other than temporary impairment charges of
$13.1 million were recognized in earnings during fiscal 2010 as the difference between the
respective investments amortized cost basis and fair value at June 30, 2010. The remaining
carrying value of the available for sale non-agency CMO securities is $59.8 million at June 30,
2010. Of the $59.8 million, all but three securities aggregating $8.5 million have been sold
subsequent to June 30, 2010. It is projected that the level of adversely classified investment
securities will decrease by over 60% compared to March 31, 2010 upon the sale of the respective
non-agency CMO securities along with the non-cash other than temporary impairment charges
recognized during the fourth quarter of fiscal 2010 related to the non-agency CMO and pooled trust
preferred securities.
Liability Management. Deposits are priced according to managements asset/liability
objectives, alternate funding sources and competitive factors. Certificates of deposits maturing
after one year as a percent of total deposits were 26.0% at June 30, 2010 and 20.1% at June 30,
2009. The increased percentage of longer-term certificates is reflective of consumer preference for
longer-terms. Over the past 5 years, Parkvale has made a concentrated effort to increase low cost
deposits by attracting new checking customers to our community branch offices. During fiscal 2010,
checking accounts increased by 12.4% compared to a 2.1% increase during fiscal 2009. Parkvales
primary sources of funds are deposits received through its branch network and advances from the
Federal Home Loan Bank (FHLB). FHLB advances can be used on a short-term basis for liquidity
purposes or on a long-term basis to support lending activities.
Contractual Obligations
Information concerning our future contractual obligations by payment due dates at June 30,
2010 is summarized as follows. Contractual obligations for deposit accounts do not include accrued
interest. Payments for deposits other than time, which consist of non-interest bearing deposits and
money market, NOW and savings accounts, are based on our historical experience, judgment and
statistical analysis, as applicable, concerning their most likely withdrawal behaviors.
5
(Dollars in thousands) | Due < one year | 1-3 years | 3-5 years | 5+ years | Total | |||||||||||||||
Deposits other than time |
$ | 211,456 | $ | 110,428 | $ | 20,186 | $ | 347,811 | $ | 689,881 | ||||||||||
Time deposits |
404,199 | 288,512 | 63,988 | 34,710 | 791,409 | |||||||||||||||
Advances from FHLB |
35,097 | 40,156 | 40,149 | 70,571 | 185,973 | |||||||||||||||
Term debt |
2,500 | 5,000 | 16,250 | | 23,750 | |||||||||||||||
Other debt |
13,865 | | | | 13,865 | |||||||||||||||
Mortgage loan
commitments |
3,907 | | | | 3,907 | |||||||||||||||
Operating leases |
1,104 | 1,496 | 851 | 2,317 | 5,768 | |||||||||||||||
Total |
$ | 672,128 | $ | 445,592 | $ | 141,424 | $ | 455,409 | $ | 1,714,553 | ||||||||||
Concentration of Credit Risk
Financial institutions, such as Parkvale, generate income primarily through lending and
investing activities. The risk of loss from lending and investing activities includes the
possibility that losses may occur from the failure of another party to perform according to the
terms of the loan or investment agreement. This possibility of loss is known as credit risk.
Credit risk is increased when lending and investing activities concentrate a financial
institutions earning assets in a way that exposes the institution to a material loss from any
single occurrence or group of related occurrences. Diversifying loans and investments to prevent
concentrations of risks is one manner a financial institution can reduce potential losses due to
credit risk. Examples of asset concentrations would include, but not be limited to, geographic
concentrations, loans or investments of a single type, multiple loans to a single borrower, loans
made to a single type of industry and loans of an imprudent size relative to the total
capitalization of the institution. For loans originated, Parkvale has taken steps to reduce
exposure to credit risk by emphasizing lower risk single-family mortgage loans, which comprise
62.8% of the gross loan portfolio as of June 30, 2010. The next largest component of the loan
portfolio is consumer loans at 17.5%, which generally consists of lower balance second mortgages
and home equity loans originated in the greater Pittsburgh area and Ohio Valley region and an auto
loan portfolio.
Nonperforming Loans and Foreclosed Real Estate
Nonperforming loans and foreclosed real estate (REO) consisted of the following at June 30:
(Dollars in thousands) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Nonaccrual Loans: |
||||||||||||||||||||
Mortgage |
$ | 20,674 | $ | 21,046 | $ | 6,004 | $ | 2,746 | $ | 1,700 | ||||||||||
Consumer |
651 | 623 | 582 | 416 | 567 | |||||||||||||||
Commercial |
5,195 | 6,266 | 5,943 | 1,177 | 1,321 | |||||||||||||||
Total nonaccrual loans |
26,520 | 27,935 | 12,529 | 4,339 | 3,588 | |||||||||||||||
Total foreclosed real estate, net |
8,637 | 5,706 | 3,279 | 1,857 | 976 | |||||||||||||||
Total amount of nonaccrual loans and
foreclosed real estate |
$ | 35,157 | $ | 33,641 | $ | 15,808 | $ | 6,196 | $ | 4,564 | ||||||||||
Total nonaccrual loans as a % of total loans |
2.52 | % | 2.48 | % | 1.02 | % | 0.35 | % | 0.29 | % | ||||||||||
Total nonaccrual loans and foreclosed
real estate as a percent of total assets |
1.91 | % | 1.76 | % | 0.85 | % | 0.34 | % | 0.25 | % | ||||||||||
A weak national economy and to a lesser extent local housing sector and credit markets have
contributed towards an increased level of non-performing assets. Nonperforming (delinquent 90 days
or more) and impaired loans and real estate owned in the aggregate represented 1.91%, 1.76% and
0.85% of total assets at June 30, 2010, 2009 and 2008 respectively. Such non-performing assets at
June 30, 2010 have increased to $35.2 million from $33.6 million at June 30, 2009, which includes
$26.5 million of non-accrual loans.
As of June 30, 2010, single-family mortgage loans delinquent 90 days or more include 54 loans
aggregating $17.1 million purchased from others and serviced by national service providers with a
cost basis ranging from $55,000
6
to $661,000 and 41 loans aggregating $3.5 million in Parkvales retail market area. Management
believes that these 95 delinquent single-family mortgage loans are adequately collateralized with
the exception of 38 loans with a remaining net book value of $8.2 million, which have the necessary
related allowances for losses provided. Loans 180 days or more delinquent are individually
evaluated for collateral values in accordance with banking regulations with specific reserves
recorded as appropriate.
Commercial loans and commercial real estate loans delinquent 90 days or more of $5.2 million
at June 30, 2010 includes a $1.3 million relationship with a now closed medical facility, a $1.5
million relationship to an entity for coal extraction and reclamation, and a $1.1 million
commercial office facility. The relationships are considered to be impaired at June 30, 2010 and
the necessary related allowances for losses have been provided.
Loans are placed on nonaccrual status when, in managements judgment, the probability of
collection of principal 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 has not been recognized in
interest income was $1.2 million for fiscal 2010, $825,000 for fiscal 2009 and $426,000 for fiscal
2008. Parkvale provides an allowance for the loss of accrued but uncollected interest on mortgage,
consumer and commercial business loans, which are 90 days or more contractually past due.
In addition, loans totaling $4.4 million were classified as special mention and $4.4 million
were classified as substandard for regulatory purposes at June 30, 2010. The special mention loans
consist of $4.4 million performing single-family mortgage loans. The substandard loans consist of
commercial relationships exhibiting signs of weakness, or have been recently modified or refinanced
and are being monitored to assess if new payment terms are followed by the borrowers. These loans,
while current or less than 90 days past due, have previously exhibited characteristics which
warrant special monitoring. Examples of these concerns include irregular payment histories,
questionable collateral values, investment properties having cash flows insufficient to service
debt, and other financial inadequacies of the borrower. These loans are regularly monitored with
efforts being directed towards resolving the underlying concerns while continuing with the
performing status classification of such loans.
Loans that are 30 to 89 days past due at June 30, 2010 aggregated $16.4 million, including
$14.6 million of single-family loans, compared to $18.3 million at June 30, 2009 and $9.8 million
at June 30, 2008.
Foreclosed real estate was $8.6 million at June 30, 2010 compared to $5.7 million at June 30,
2009. The 2010 real estate owned includes $5.2 million in 24 single-family dwellings. The
single-family units include two unrelated foreclosures of seven and four single-family units in
residential developments with a net book value of $2.0 million. Foreclosed commercial real estate
aggregates $3.4 million, which includes two facilities used as automobile dealerships with a net
book value of $2.1 million. The properties are valued at the lower of cost or market less estimated
selling and holding costs with reserves established when deemed necessary.
Allowance for Loan Losses
The allowance for loan loss was $19.2 million at June 30, 2010 and $18.0 million at June 30,
2009 or 1.8% and 1.6% of gross loans at June 30, 2010 and June 30, 2009, respectively. The level of
non-accrual loans and foreclosed real estate peaked during the fiscal year to $40.9 million at
September 30, 2009 and was $35.2 million at June 30, 2010. Management determines the adequacy of
the allowance for loan loss after a thorough evaluation of 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 loan portfolio is monitored by management on a regular basis for potential risks to detect
potential credit deterioration in the early stages. Management then establishes reserves in the
allowance for loan loss based upon evaluation of the inherent risks in the loan portfolio.
Management believes the allowance for loan loss is adequate to absorb probable loan losses.
7
The following table sets forth the allowance for loan loss allocation at June 30:
(Dollars in thousands) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||||||
General Allowances: |
||||||||||||||||||||||||||||||||||||||||
Residential 1-4 mortgages |
$ | 5,343 | 27.8 | % | $ | 4,769 | 26.6 | % | $ | 3,788 | 24.8 | % | $ | 2,716 | 19.1 | % | $ | 2,855 | 19.2 | % | ||||||||||||||||||||
Commercial & multi-family
mortgage |
3,392 | 17.7 | % | 4,393 | 24.5 | % | 4,739 | 31.1 | % | 3,964 | 27.9 | % | 3,802 | 25.5 | % | |||||||||||||||||||||||||
Consumer Loans |
2,745 | 14.3 | % | 3,193 | 17.8 | % | 3,510 | 23.0 | % | 4,154 | 29.3 | % | 4,568 | 30.6 | % | |||||||||||||||||||||||||
Commercial Loans |
2,534 | 13.2 | % | 3,038 | 16.9 | % | 2,741 | 18.0 | % | 2,848 | 20.1 | % | 3,368 | 22.6 | % | |||||||||||||||||||||||||
Total General |
14,014 | 73.0 | % | 15,393 | 85.8 | % | 14,778 | 96.9 | % | 13,682 | 96.4 | % | 14,593 | 97.9 | % | |||||||||||||||||||||||||
Specific Allowances: |
||||||||||||||||||||||||||||||||||||||||
Residential 1-4 mortgage |
4,316 | 22.5 | % | 1,697 | 9.4 | % | 105 | 0.7 | % | 31 | 0.2 | % | 32 | 0.2 | % | |||||||||||||||||||||||||
Consumer |
383 | 2.0 | % | 324 | 1.8 | % | 288 | 1.9 | % | 426 | 3.0 | % | 256 | 1.7 | % | |||||||||||||||||||||||||
Commercial |
496 | 2.5 | % | 546 | 3.0 | % | 78 | 0.5 | % | 50 | 0.4 | % | 26 | 0.2 | % | |||||||||||||||||||||||||
Total Specific |
5,195 | 27.0 | % | 2,567 | 14.2 | % | 471 | 3.1 | % | 507 | 3.6 | % | 314 | 2.1 | % | |||||||||||||||||||||||||
Total Allowances for loan losses |
$ | 19,209 | 100.0 | % | $ | 17,960 | 100.0 | % | $ | 15,249 | 100.0 | % | $ | 14,189 | 100.0 | % | $ | 14,907 | 100.0 | % | ||||||||||||||||||||
The general allowance on residential 1-4 family loans is $5.3 million or 0.8% of the
residential 1-4 family loan portfolio at June 30, 2010, on commercial and multi-family loans the
general allowance is $3.4 million or 2.1% of the commercial and multi-family loan portfolio, on
consumer loans the general allowance is $2.7 million or 1.5% of the consumer loan portfolio and on
the commercial loan portfolio the general allowance is $2.5 million or 6.3%.
Results of Operations
Parkvale Financial Corporation reported a net loss to common shareholders for the fiscal year
ended June 30, 2010 of $18.1 million or $3.30 per diluted common share, compared to a net loss of
$10.4 million or $1.90 per diluted common share for the fiscal year ended June 30, 2009. The $7.7
million increase in the fiscal 2010 net loss reflects higher non-cash debt security impairment
charges of $39.0 million compared to $30.4 million for the fiscal year ended June 30, 2009,
partially offset by a $7.9 million increase in the income tax benefit. The impairment charges are
the result of credit deterioration related to pooled trust preferred and non-agency CMO securities.
The loan loss provision increased from $6.8 million for fiscal 2009 to $7.5 million for fiscal 2010
to address continued weakness in housing prices and high levels of unemployment. Noninterest
expense increased by $1.0 million during fiscal 2010 due primarily to a $1.7 million or 148%
increase in FDIC insurance premiums, which was partially offset by an $880,000 or 5.5% decrease in
compensation and employee benefit expense.
Interest Income
Interest income on loans decreased by $10.5 million or 15.7% in fiscal 2010 from fiscal 2009.
Average loans outstanding in fiscal 2010 were $1.1 billion, representing a decrease of $109 million
or 9.4% compared to fiscal 2009. Single-family residential loans declined by $66 million or 9.1%
from June 30, 2009 to June 30, 2010, and multi-family residential loans decreased by $2.1 million
or 6.2% over the same period. The lower interest income also reflected a lower average loan yield,
which was 5.72% in fiscal 2009 and 5.33% in fiscal 2010, due to the lower prevailing rates on new
loans along with ARM loans repricing down due to lower indices for periodic rate adjustments.
Interest income on loans decreased by $5.0 million or 6.9% from fiscal 2009 to 2008. The average
yield on loans decreased from 5.94% in fiscal 2008 to 5.72% in fiscal 2009, and the average loan
balance decreased by $41 million or 3.4% in fiscal 2009 compared to fiscal 2008.
Interest income on investments decreased by $3.8 million or 16.6% in fiscal 2010. This was the
result of a decrease in the average yield on investments to 3.38% in fiscal 2010 from 4.57% in
fiscal 2009, partially offset by an increase in the average balance of $64.5 million or 12.7% to
$572 million. The higher level of investment securities was primarily related to purchases of lower
risk short-term government and agency securities, which have lower yields than other investment
securities. Interest income on investments increased by $1.2 million or 5.3% from fiscal 2008 to
fiscal 2009 as a result of a $97.1 million or 23.7% increase in the average balance, partially
offset by a decrease in the average yield on investments to 4.57% in fiscal 2009 from 5.36% in
fiscal 2008.
8
Interest income on federal funds sold decreased by $307,000 or 44.7% from fiscal 2009 to
fiscal 2010. The decrease was attributable primarily to a decrease in the average yield from 0.74%
in fiscal 2009 to 0.25% in fiscal 2010 as a result of the federal reserve setting the current
Federal Fund target rate at 0.25%, offset by an increase in the average federal funds sold balance
from $92.6 million in fiscal 2009 to $150.6 million in fiscal 2010. The average balance of federal
funds sold decreased from $114.8 million in fiscal 2008 to $92.6 million in fiscal 2009, with
interest income decreasing $3.6 million from fiscal 2008 to 2009. The average yield decreased from
3.75% in fiscal 2008 to 0.74% in fiscal 2009.
Interest Expense
Interest expense on deposits decreased by $11.0 million or 28.6% from fiscal 2009 to fiscal
2010. The average deposit balance increased $18.1 million or 1.2% in fiscal 2010, while the average
cost decreased from 2.57% in fiscal 2009 to 1.81% in fiscal 2010. The lower rates paid in fiscal
2010 were reflective primarily of lower prevailing market rates on certificate accounts. Interest
expense on deposits decreased $8.2 million or 17.6% between fiscal 2008 and 2009. The average cost
decreased from 3.19% in fiscal 2008 to 2.57% in fiscal 2009, which was partially offset by an
increase in the average deposit balance of $31.6 million or 2.2% from fiscal 2008 to 2009.
Interest expense on borrowed money increased by $692,000 or 6.3% in fiscal 2010. This was due
to an increase of $5.0 million or 2.3% in the average balance due to $25 million of term debt
borrowings on December 30, 2008 and an increase in the average cost of borrowings from 4.68% in
fiscal 2009 to 4.88% in fiscal 2010. The increase in average cost of borrowings during fiscal 2010
is due primarily to a higher interest rate on PNC Bank, National Association term debt as a result
of not meeting a financial reporting covenant beginning in the second quarter of fiscal 2010. In
fiscal 2009, interest expense on borrowed money decreased by $576,000 or 5.3%, primarily due to a
$2.8 million decrease in average borrowings resulting from FHLB advance maturities and a decrease
in the average cost of borrowings from 4.88% in fiscal 2008 to 4.68% in fiscal 2009.
Yields Earned and Rates Paid
The results of operations of Parkvale depend substantially on its net interest income, which
is generally the largest component of Parkvales operating results. Net interest income is affected
by the difference or spread between yields earned by Parkvale on its loan and investment portfolios
and the rates of interest paid by Parkvale for 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 | ||||||||||||||||||||||||||||||||
2010 vs. 2009 | 2009 vs. 2008 | |||||||||||||||||||||||||||||||
(Dollars in thousands) | Rate | Volume | Rate/ Volume | Total | Rate | Volume | Rate/ Volume | Total | ||||||||||||||||||||||||
Interest-earning assets |
||||||||||||||||||||||||||||||||
Loans |
($4,540 | ) | ($6,256 | ) | $ | 325 | ($10,471 | ) | ($2,651 | ) | ($2,433 | ) | $ | 131 | ($4,953 | ) | ||||||||||||||||
Investments |
(6,033 | ) | 2,950 | (761 | ) | (3,844 | ) | (3,238 | ) | 5,207 | (796 | ) | 1,173 | |||||||||||||||||||
Federal funds sold |
(454 | ) | 429 | (282 | ) | (307 | ) | (3,455 | ) | (830 | ) | 666 | (3,619 | ) | ||||||||||||||||||
Total |
(11,027 | ) | (2,877 | ) | (718 | ) | (14,622 | ) | (9,344 | ) | 1,944 | 1 | (7,399 | ) | ||||||||||||||||||
Interest-bearing liabilities |
||||||||||||||||||||||||||||||||
Deposits |
(11,680 | ) | 464 | 193 | (11,023 | ) | (9,052 | ) | 1,007 | (194 | ) | (8,239 | ) | |||||||||||||||||||
FHLB advances and debt |
443 | 233 | 16 | 692 | (438 | ) | (134 | ) | (4 | ) | (576 | ) | ||||||||||||||||||||
Trust preferred securities |
| | | | (317 | ) | (317 | ) | 317 | (317 | ) | |||||||||||||||||||||
Total |
(11,237 | ) | 697 | 209 | (10,331 | ) | (9,807 | ) | 556 | 119 | (9,132 | ) | ||||||||||||||||||||
Net change in net interest
income (expense) |
$ | 210 | ($3,574 | ) | ($927 | ) | ($4,291 | ) | $ | 463 | $ | 1,388 | ($118 | ) | $ | 1,733 | ||||||||||||||||
9
The following table sets forth the average yields earned on Parkvales interest-earning assets
and the average rates paid on its interest-bearing liabilities for the periods indicated, the
resulting average interest rate spreads, the net yield on interest-earning assets and the weighted
average yields and rates at June 30, 2010:
Year Ended June 30, | At June 30, | |||||||||||||||
2010 | 2009 | 2008 | 2010 | |||||||||||||
Average yields on (1) |
||||||||||||||||
Loans |
5.33 | % | 5.72 | % | 5.94 | % | 5.16 | % | ||||||||
Investments (2) |
3.38 | % | 4.57 | % | 5.36 | % | 2.90 | % | ||||||||
Federal funds sold |
0.25 | % | 0.74 | % | 3.75 | % | 0.25 | % | ||||||||
All interest-earning assets |
4.27 | % | 5.13 | % | 5.66 | % | 4.08 | % | ||||||||
Average rates paid on (1) |
||||||||||||||||
Deposits |
1.81 | % | 2.57 | % | 3.19 | % | 1.42 | % | ||||||||
FHLB advances and other borrowings |
4.88 | % | 4.68 | % | 4.88 | % | 4.85 | % | ||||||||
Trust preferred securities |
0.00 | % | 0.00 | % | 9.10 | % | 0.00 | % | ||||||||
All interest-bearing liabilities |
2.21 | % | 2.84 | % | 3.42 | % | 1.87 | % | ||||||||
Average interest rate spread |
2.06 | % | 2.29 | % | 2.24 | % | 2.21 | % | ||||||||
Net yield on interest-earning assets (3) |
2.10 | % | 2.36 | % | 2.31 | % | ||||||||||
(1) | Average yields and rates are calculated by dividing the interest income or expense for the period by the average daily balance for the year. The weighted averages at June 30, 2010 are based on the weighted average contractual interest rates. Nonaccrual loans are excluded in the average yield and balance calculations. | |
(2) | Includes held-to-maturity and available-for-sale investments, including mortgage-backed securities and interest-earning deposits in other banks. | |
(3) | Net interest income on a tax equivalent basis divided by average interest-earning assets. |
The following table presents the average balances of each category of interest-earning
assets and interest-bearing liabilities for the periods indicated.
Year Ended June 30 | ||||||||||||
(Dollars in thousands) | 2010 | 2009 | 2008 | |||||||||
Interest-earning assets |
||||||||||||
Loans |
$ | 1,054,840 | $ | 1,164,206 | $ | 1,205,165 | ||||||
Investments, including FHLB stock |
571,545 | 506,996 | 409,856 | |||||||||
Federal funds sold |
150,610 | 92,633 | 114,770 | |||||||||
Total interest-earning assets |
1,776,995 | 1,763,835 | 1,729,791 | |||||||||
Noninterest-earning assets |
128,609 | 113,387 | 109,878 | |||||||||
Total assets |
$ | 1,905,604 | $ | 1,877,222 | $ | 1,839,669 | ||||||
Interest-bearing liabilities |
||||||||||||
Deposits |
$ | 1,515,540 | $ | 1,497,467 | $ | 1,465,883 | ||||||
FHLB advances and other borrowings |
226,607 | 221,619 | 224,376 | |||||||||
Trust preferred securities |
| | 3,484 | |||||||||
Total interest-bearing liabilities |
1,742,147 | 1,719,086 | 1,693,743 | |||||||||
Noninterest-bearing liabilities |
12,101 | 9,559 | 14,340 | |||||||||
Total Liabilities |
1,754,248 | 1,728,645 | 1,708,083 | |||||||||
Shareholders equity |
151,356 | 148,577 | 131,586 | |||||||||
Total liabilities and equity |
$ | 1,905,604 | $ | 1,877,222 | $ | 1,839,669 | ||||||
Net interest-earning assets |
$ | 34,848 | $ | 44,749 | $ | 36,048 | ||||||
Interest-earning assets as a % of
interest-bearing liabilities |
102.0 | % | 102.6 | % | 102.1 | % |
10
An excess of interest-earning assets over interest-bearing liabilities enhances a positive interest rate spread.
Net Interest Income
Net interest income is the difference between interest earned on loans, investments and
federal funds sold and interest paid for deposits and borrowings. A positive interest rate spread
is enhanced when interest-earning assets exceed interest-bearing liabilities, which results in
increased net interest income.
Net interest income decreased by $4.3 million or 10.3% from fiscal 2009 to fiscal 2010. The
average interest rate spread decreased to 2.06% in fiscal 2010 from 2.29% in fiscal 2009, and the
average net interest-earning assets decreased $9.9 million. In fiscal 2009, net interest income
increased by $1.7 million or 4.3%. The average interest rate spread increased from 2.24% in fiscal
2008 to 2.29% in fiscal 2009, and average net interest-earning assets increased $8.7 million
between the two years.
At June 30, 2010, the weighted average yield on loans, investments and federal funds sold was
4.08%. The average rate payable on liabilities was 1.42% for deposits, 4.85% for borrowings and
1.87% for combined deposits and borrowings.
Provision for Loan Losses
The provision for loan losses is the amount added to the allowance against which loan losses
are charged. The provision for loan losses was $7.4 million in fiscal 2010, $6.8 million in fiscal
2009, and $2.3 million in fiscal 2008. The provision increased by $694,000 or 10.3% in fiscal 2010
compared to fiscal 2009. Aggregate allowances were 1.83% of gross loans as of June 30, 2010
compared to 1.60% at June 30, 2009. Management believes the allowance for loan losses is adequate
to cover the amount of probable credit losses in the loan portfolio as of June 30, 2010. Parkvales
nonperforming assets and allowance for loan losses are discussed earlier in this section. In
addition, see Critical Accounting Policies and Judgments Allowance for Loan Losses.
Noninterest Income
Total noninterest income decreased by $8.8 million or 49.9% in fiscal 2010 due primarily to an
$8.6 million increase in non-cash debt security impairment charges of $39.0 million compared to
$30.4 million in fiscal 2009. Fee income derived from deposit accounts decreased $10,000 and other
fees and service charges on loan accounts decreased $7,000 or less than 1%. The net gain on sale of
securities increased by $126,000 or 5.6% in fiscal 2010. The fiscal 2010 writedowns were
attributable to pooled trust preferred and non-agency CMO securities. See Note J of Notes to the
Consolidated Financial Statements for additional details. Total noninterest income decreased by
$26.2 million or 309.4% in fiscal 2009. Fee income derived from deposit accounts decreased
$523,000, while other fees and service charges on loan accounts increased $103,000. The net loss on
sale and writedown of securities increased by $25.5 million. The fiscal 2009 net loss on writedowns
of securities of $28.1 million was partially offset by $186,000 of gains on held for sale mortgage
loans.
Other income decreased by $328,000 or 13.4% in fiscal 2010, and decreased $190,000 or 7.2% in
fiscal 2009. The income on bank owned life insurance decreased by $2,000 in fiscal 2010 compared to
a $24,000 increase in fiscal 2009. Investment service fee income earned by Parkvale Financial
Services investment representatives decreased to $892,000 in fiscal 2010 from $921,000 in fiscal
2009 and was $1.0 million fiscal 2008.
Noninterest Expense
Total noninterest expense increased by $1.0 million or 3.4% in fiscal 2010 and by $797,000 or
2.8% in fiscal 2009 over fiscal 2008.
Compensation and employee benefits decreased by $880,000 or 5.5% during fiscal 2010 and
by $507,000 or 3.1% during fiscal 2009 over the respective prior periods. Stock compensation
expense recognized for stock option grants was
11
$27,000 in fiscal 2010 compared to $89,000 in fiscal 2009. The decrease in compensation
expense during fiscal 2010 and fiscal 2009 is due primarily to a reduction in the amount of
incentive compensation being accrued. Parkvale is not able to pay or accrue any cash bonuses to
its five most highly compensated employees until the Series A Preferred Stock is redeemed, and
other benefits have been reduced.
Office occupancy expense decreased by $91,000 or 2.0% in fiscal 2010 and increased by $59,000
or 1.3% in fiscal 2009 over the respective prior periods. The 2010 decrease relates to lower levels
of depreciation. The 2009 increase relates to higher utility rates and repair costs to maintain the
main office building.
Marketing expenses decreased by $121,000 or 26.2% in fiscal 2010 and by $116,000 or 20.1% in
fiscal 2009 over the respective periods.
Deposits at the Bank are insured by the Federal Deposit Insurance Corporation (FDIC) through
the Deposit Insurance Fund (DIF). FDIC insurance expense was $2.9 million, $1.2 million and
$167,000 during fiscal years 2010, 2009 and 2008, respectively. The Bank received a credit of $1.5
million in June 2007 that was utilized throughout fiscal 2009 and fiscal 2008 to offset FDIC
premiums by $746,000 and $758,000, respectively. The credit balance was fully utilized by June 30,
2009. As a result of increased FDIC insurance premium rates and full utilization of the credit,
FDIC insurance expense increased to $2.9 million for fiscal 2010 compared to $1.2 million during
fiscal 2009. On May 22, 2009, the FDIC announced a five basis point special assessment on each
insured depository institutions assets minus its Tier 1 capital as of June 30, 2009. The amount of
the special assessment for any institution was not to exceed ten basis points times the
institutions domestic deposit assessment base for the second quarter 2009 risk-based assessment.
The FDIC special assessment of $880,000 was expensed at June 30, 2009, accounting for most of the
$988,000 increase in expense for fiscal 2009 compared to fiscal 2008. See Regulation Regulation
of the Bank Insurance of Accounts section in Item 1 of this report.
Other expense increased by $386,000 or 7.2% in fiscal 2010 primarily due to higher levels of
legal expense related to the collection of past due loans. The amortization expense of core deposit
intangibles was $909,000 in fiscal years 2010, 2009 and 2008. Other expense increased by $384,000
or 7.7% in fiscal 2009 compared to fiscal 2008 due to data processing expense related to
enhancements to products and services, primarily for image processing of check deposits.
Income Taxes
Federal and state income tax benefit increased by $7.9 million in fiscal 2010 due to an
increase in pre-tax loss compared to fiscal year 2009. In fiscal 2009, federal and state tax
expense decreased by $7.3 million due to a pre-tax loss in fiscal 2009, offset by an additional
valuation allowance on equity security writedowns of $2.4 million. In fiscal 2010, $734,000 of the
valuation allowance was reversed due to the subsequent recovery on the sale of preferred stock.
This additional benefit resulted in an overall effective tax rate of (39.2%) for fiscal 2010. The
effective tax benefit rate in fiscal 2009 is lower at (22.0%) than the federal statutory tax rate
due to the reversal of tax benefits from the recording of $2.4 million of tax valuation allowance
from equity securities writedowns. In fiscal 2008, the effective tax rate is lower at 26.5% as a
result of the tax benefits of certain investments made by the Company and its subsidiaries.
Commitments
At June 30, 2010, Parkvale was committed under various agreements to originate fixed and
adjustable-rate mortgage loans aggregating $3.1 million and $838,000, respectively, at rates
ranging from 4.344% to 5.217% for fixed rate and 3.729% to 5.00% for adjustable-rate loans, and had
$83.5 million of unused consumer lines of credit and $13.4 million in unused commercial lines of
credit. Parkvale was committed to fund commercial development loans in process of $3.4 million and
residential loans in process of $3.8 million. Parkvale was also committed to originate commercial
loans totaling $3.0 million at June 30, 2010. Outstanding letters of credit totaled $7.1 million at
June 30, 2010.
12
Liquidity and Capital Resources
Liquidity risk represents the inability to generate cash or otherwise obtain funds at
reasonable rates to satisfy commitments to borrowers, as well as the obligations to depositors and
debt holders. Parkvale uses its asset/liability management policy and contingency funding plan to
control and manage liquidity risk.
Federal funds sold decreased $14.7 million or 9.8% from June 30, 2009 to June 30, 2010.
Investment securities held to maturity decreased $60.6 million or 12.0% due primarily to the
reclassification of $59.8 million of non-agency CMO securities to available for sale,
interest-earning deposits in other institutions decreased $3.1 million or 79.5%, loans decreased
$76.6 million or 6.9% from June 30, 2009 to June 30, 2010, and prepaid expenses and other assets
increased $30.0 million or 62.9%. Deposits decreased $23.2 million or 1.5% from June 30, 2009 to
June 30, 2010, and advances from the Federal Home Loan Bank decreased $229,000 or 0.1%. Parkvale
Banks FHLB advance available maximum borrowing capacity was $547.1 million at June 30, 2010. If
Parkvale were to experience a deposit decrease in excess of the available cash resources and cash
equivalents, the FHLB borrowing capacity could be utilized to fund a rapid decrease in deposits.
During the December 2008 quarter, Parkvale borrowed $25.0 million and issued $31.8 million of
preferred stock. See the discussion below.
TARP Capital Purchase Program: On October 14, 2008, the United States Department of the
Treasury (the Treasury) announced a voluntary Capital Purchase Program (the CPP) under which
the Treasury will purchase senior preferred shares from qualifying financial institutions. The plan
is part of the $700 billion Emergency Economic Stabilization Act signed into law in October 2008.
On December 23, 2008, pursuant to the CPP established by the Treasury, Parkvale entered into a
Letter Agreement, which incorporates by reference the Securities Purchase Agreement Standard
Terms, with the Treasury (the Agreement), pursuant to which Parkvale issued and sold to the
Treasury for an aggregate purchase price of $31,762,000 in cash (i) 31,762 shares of its Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, par value $1.00 per share, having a liquidation
preference of $1,000 per share (the Series A Preferred Stock), and (ii) a ten-year warrant to
purchase up to 376,327 shares of common stock, par value $1.00 per share, of Parkvale (Common
Stock), at an initial exercise price of $12.66 per share, subject to certain anti-dilution and
other adjustments (the Warrant).
The Series A Preferred Stock pays cumulative dividends at a rate of 5% per annum on the
liquidation preference for the first five years, and thereafter at a rate of 9% per annum. The
Series A Preferred Stock has no maturity date and ranks senior to the Common Stock (and pari passu
with Parkvales other authorized shares of preferred stock, of which no shares are currently
outstanding) with respect to the payment of dividends and distributions and amounts payable in the
unlikely event of any future liquidation or dissolution of Parkvale. Parkvale may redeem the Series
A Preferred Stock at a price of $1,000 per share plus accrued and unpaid dividends, subject to the
concurrence of the Treasury and its federal banking regulators. Prior to December 23, 2011, unless
the Corporation has redeemed the Series A Preferred Stock or the Treasury has transferred the
Series A Preferred Stock to a third party, the consent of the Treasury will be required for the
Corporation to increase its Common Stock dividend or repurchase its Common Stock or other equity or
capital securities, other than in certain circumstances specified in the Agreement.
The Warrant is immediately exercisable. The Warrant provides for the adjustment of the
exercise price and the number of shares of Common Stock issuable upon exercise pursuant to
customary anti-dilution provisions, such as upon stock splits or distributions of securities or
other assets to holders of Common Stock, and upon certain issuances of Common Stock at or below a
specified price relative to the then-current market price of Common Stock. The Warrant expires ten
years from the issuance date. Pursuant to the Agreement, the Treasury has agreed not to exercise
voting power with respect to any shares of Common Stock issued upon exercise of the Warrant.
Term Debt: On December 30, 2008, the Corporation entered into a Loan Agreement
with PNC Bank, National Association (PNC) for a term loan in the amount of $25.0 million (the
Loan). The Loan pays interest at a rate equal to LIBOR plus three hundred and twenty five basis
points, payable quarterly. Principal on the Loan is due and payable in fifteen consecutive
quarterly payments of $625,000, commencing on March 31, 2010, with the remaining outstanding
balance, which is scheduled to be $15,625,000, due and payable on December 31, 2013 (the Maturity
Date). The outstanding balance due under the credit facility may be repaid, at any time, in whole
or in part at the Corporations option. In connection with the Loan, the Corporation executed a
Term Note, dated December 30, 2008, to evidence the Loan and a Pledge Agreement, dated December 30,
2008, whereby the Corporation granted PNC a security interest in the outstanding capital stock of
Parkvale Savings Bank, the wholly owned subsidiary of the Corporation. The Loan
13
Agreement contains customary and standard provisions regarding representations and warranties of the Corporation,
covenants and events of default. If the Corporation has an event of default, the interest rate of
the loan may increase by 2% during the period of default. As of June 30, 2010, the Corporation did
not meet the terms related to one of the financial covenants contained in the Loan Agreement, which is considered an event of default.
This increased the interest rate on the term debt by 2%, which will result in a $125,000 quarterly
increase in interest expense.
On January 7, 2009, the Corporation entered into swap arrangements with PNC to convert
portions of the LIBOR floating interest rates to fixed interest rates for three and five years.
Under the swap agreements after the effects of the add-on of 325 basis points to LIBOR, $5.0
million matures on December 31, 2011 at a rate of 4.92% and an additional $15.0 million matures on
December 31, 2013 at a rate of 5.41%.
In January 2009, the Corporation entered into interest rate swap contracts to modify the
interest rate characteristics of designated debt instruments from variable to fixed in order to
reduce the impact of changes in future cash flows due to interest rate changes. The Corporation
hedged its exposure to the variability of future cash flows for all forecasted transactions for a
maximum of three to five years for hedges converting an aggregate of $20.0 million in floating-rate
debt to fixed. The fair value of these derivatives, totaling an $819,000 loss at June 30, 2010, is
reported as a contra account in other liabilities and offset in accumulated other comprehensive
income for the effective portion of the derivatives. Ineffectiveness of these swaps, if any, is
recognized immediately in earnings. The change in value of these derivatives was ($819,000) for
fiscal 2010.
Interest rate swap contracts involve the risk of dealing with counterparties and their ability
to meet contractual terms. When the fair value of a derivative instrument contract is positive,
this generally indicates that the counter party or customer owes the Corporation, and results in
credit risk to the Corporation. When the fair value of a derivative instrument contract is
negative, the Corporation owes the customer or counterparty and therefore, has no credit risk.
In light of the significant loss incurred during the 2009 fiscal year, the Board of Directors
reduced the dividend from the rate of $0.22 per common share per quarter to $0.05 per common share
per quarter on June 18, 2009. In doing so, the Board of Directors considered various factors,
including the possibility of non-performing loans continuing to increase, the possibility of
additional impairment charges on investment securities and goodwill, the capital needs of the Bank,
the Corporations liquidity, and the level of dividends being paid by peer companies. If additional
investment securities become other than temporarily impaired or if the Corporations goodwill is
deemed impaired in a future quarter, impairment charges could have a material adverse effect on
Parkvales capital and results of operations. The quarterly dividend rate during fiscal 2010 was
$.05 per common share.
Shareholders equity decreased $31.8 million or 21.1% at June 30, 2010 compared to June 30,
2009. Accumulated other comprehensive (loss) income was ($13.4) million at June 30, 2010. Dividends
declared per common share in fiscal 2010 were $1.1 million (equal to $0.20 per common share),
representing 6.1% of net loss for the fiscal year ended June 30, 2010. No treasury stock was
purchased in fiscal 2010. The book value of Parkvales common stock decreased 28.1% to $15.77 per
share at June 30, 2010 from $21.92 per share at June 30, 2009, primarily due to the net loss
reported in fiscal 2010.
The Bank is a wholly owned subsidiary of PFC. The Banks primary regulators are the FDIC and
the Pennsylvania Department of Banking. The Office of Thrift Supervision retains jurisdiction over
Parkvale Financial Corporation due to its status as a unitary savings and loan holding company. The
Bank continues to maintain a well capitalized status, reporting a 6.19% Tier 1 capital level as
of June 30, 2010 compared to 7.57% Tier 1 capital level at June 30, 2009. Adequate capitalization
allows Parkvale to continue building shareholder value through traditionally conservative
operations and potentially profitable growth opportunities. Management is not aware of any trends,
events, uncertainties or recommendations by any regulatory authority that will have, or that are
reasonably likely to have, material adverse effects on Parkvales liquidity, capital resources or
operations. However, if additional provisions for loan losses or write-downs of investment
securities become material in a weak economy, our net income and capital ratios would be adversely
affected.
Critical Accounting Policies and Judgments
Parkvales consolidated financial statements are prepared based upon the application of
certain accounting policies, the most significant of which are described in Note A of the Notes to
Consolidated Financial Statements
14
Significant Accounting Policies. Certain policies require numerous estimates and strategic or economic assumptions that may prove to be inaccurate or subject
to variations and may significantly affect Parkvales reported results and financial position in future periods. Changes in underlying factors, assumptions, or estimates
in any of these areas could have a material impact on Parkvales future financial condition and
results of operations.
Allowance for Loan Losses. The allowance for loan losses is established as losses are
estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are
charged against the allowance when management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
managements periodic review of the collectability of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrowers
ability to repay, estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to
loans that are classified as impaired. For those loans that are classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or observable market
price) of the impaired loan is lower than the carrying value of that loan. The general component
covers nonclassified loans and is based on historical charge-off experience and expected loss
derived from Parkvales internal risk rating process. Other adjustments may be made to the
allowance for pools of loans after an assessment of internal or external influences on credit
quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable
that Parkvale will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis for commercial and construction loans by either the present value of expected future cash
flows discounted at the loans effective interest rate, the loans obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, Parkvale does not separately identify individual consumer and residential loans for
impairment disclosures, unless such loans are the subject of a restructuring agreement due to
financial difficulties of the borrower.
Securities Held to Maturity, Available for Sale and Other Than Temporarily Impaired.
Certain debt securities that management has the positive intent and ability to hold to maturity are
classified as held to maturity and recorded at amortized cost. Trading securities are recorded at
fair value with changes in fair value included in earnings. Securities not classified as held to
maturity or trading, including equity securities with readily determinable fair values, are
classified as available for sale and recorded at fair value, with unrealized gains and losses
excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts
are recognized in interest income using the interest method over the terms of the securities. Gains
and losses on the sale of securities are recorded on the trade date and are determined using the
specific identification method.
The recent accounting guidance amends the recognition guidance for other-than-temporary
impairments of debt securities and expands the financial statement disclosures for
other-than-temporary impairment losses on debt and equity securities. The recent guidance replaced
the intent and ability indication in current guidance by specifying that (a) if a company does
not have the intent to sell a debt security prior to recovery and (b) it is more likely than not
that it will not have to sell the debt security prior to recovery, the security would not be
considered other-than-temporarily impaired unless there is a credit loss. When an entity does not
intend to sell the security, and it is more likely than not the entity will not have to sell the
security before recovery of its cost basis, it will recognize the credit component of an
15
other-than-temporary impairment of a debt security in earnings and the remaining portion in other
comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary
impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment
should be amortized prospectively over the remaining life of the security on the basis of the
timing of future estimated cash flows of the security.
As a result of this guidance, Parkvales consolidated statement of operations as of June 30,
2010 reflects the full impairment (that is, the difference between the securitys amortized cost
basis and fair value) on debt securities that Parkvale intends to sell or would
more-likely-than-not be required to sell before the expected recovery of the amortized cost basis.
For available-for-sale and held-to-maturity debt securities that management has no intent to sell
and believes that it more-likely-than-not will not be required to sell prior to recovery, only the
credit loss component of the impairment is recognized in earnings, while the non-credit loss is
recognized in other comprehensive income, net of applicable taxes.
For equity securities, when Parkvale has decided to sell an impaired available-for-sale
security and the entity does not expect the fair value of the security to fully recover before the
expected time of sale, the security is deemed other-than-temporarily impaired in the period in
which the decision to sell is made. Parkvale recognizes an impairment loss when the impairment is
deemed other than temporary even if a decision to sell has not been made.
Foreclosed Real Estate. Real estate properties acquired through, or in lieu of, loan
foreclosure are recorded at the lower of the carrying amount or fair value of the property less
cost to sell. After foreclosure, management periodically performs valuations and a valuation
allowance is established for declines in the fair value less cost to sell below the propertys
carrying amount. Revenues, expenses and changes in the valuation allowance are included in the
statement of operations. Gains and losses upon disposition are reflected in earnings as realized.
Foreclosed real estate at June 30, 2010 included nine commercial properties aggregating $3.4
million of commercial property and 33 single-family properties aggregating $5.2.
Goodwill and Other Intangible Assets. At June 30, 2010, Parkvale has $2.9 million of core
deposit intangible assets subject to amortization and $25.6 million in goodwill, which is not
subject to periodic amortization. Parkvale determined the amount of identifiable intangible assets
based upon independent core deposit analyses.
Goodwill arising from business acquisitions represents the value attributable to
unidentifiable intangible elements in the business acquired. Parkvales goodwill relates to value
inherent in the banking business, and the value is dependent upon Parkvales ability to provide
quality, cost effective services in the face of competition from other market participants on a
regional basis. This ability relies upon continuing investments in processing systems, the
development of value-added service features, and the ease of use of Parkvales services. As such,
goodwill value is supported ultimately by revenue, which is driven by the volume of business
transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost
effective services over sustained periods can lead to impairment of goodwill, which could result in
a charge and adversely impact earnings in future periods. See Note A of Notes to Consolidated
Financial Statements for additional information as of June 30, 2010.
Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recorded on the consolidated balance sheet for future tax
consequences that arise from the difference between the financial statement and tax basis of assets
and liabilities as measured by the enacted tax rates that will be in effect when these differences
reverse. Changes in tax rates are recognized in the financial statements during the period they are
enacted. When a deferred tax asset or liability, or a change thereto, is recorded on the
consolidated balance sheet, deferred tax (benefit) or expense is recorded for GAAP purposes in the
income tax (benefit) expense line of the consolidated statement of operations for purposes of
determining the current periods net income. The principal types of differences between assets and
liabilities for financial statement and tax return purposes are net operating losses, allowance for
loan and lease losses, deferred loan fees, deferred compensation and unrealized gains or losses on
investment securities available for sale.
Deferred tax assets are recorded on the consolidated statement of financial condition at net
realizable value. An assessment is performed each reporting period to evaluate the amount of
deferred tax asset it is more likely than not to realize. Realization of deferred tax assets is
dependent upon the amount of taxable income expected in future periods, as
16
tax benefits require taxable income to be realized. If a valuation allowance is required, the deferred tax asset on the
consolidated statement of financial condition is reduced via a corresponding income tax expense in the consolidated statement of operations
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in accordance
with accounting principles generally accepted in the United States, 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
institutions 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
Certain statements in this report are forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995, which statements generally can be identified by the use
of forward-looking terminology, such as may, will, expect, estimate, anticipate,
believe, target, plan, project or continue or the negatives thereof or other variations
thereon or similar terminology, and are made on the basis of managements current plans and
analyses of the Corporation, its business and the industry as a whole. These forward-looking
statements are subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory and legislative
changes. The above factors in some cases could affect the Corporations financial performance and
could cause actual results to differ materially from those expressed or implied in such
forward-looking statements. The Corporation does not undertake to update or revise its
forward-looking statements even if experience or future changes make it clear that the Corporation
will not realize any projected results expressed or implied therein.
17
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Parkvale Financial Corporation
Parkvale Financial Corporation
We have audited the consolidated statements of financial condition of Parkvale Financial
Corporation and subsidiaries as of June 30, 2010 and 2009 and the related consolidated statements
of operations, cash flows and shareholders equity for each of the years in the three-year period
ended June 30, 2010. These financial statements are the responsibility of the companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Parkvale Financial Corporation and subsidiaries as of
June 30, 2010 and 2009, and the results of their operations and their cash flows for each of the
years in the three-year period ended June 30, 2010 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note G to the consolidated financial statements, the Parkvale Financial
Corporations regulatory capital amounts for the year ended June 30, 2010 have been restated.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Parkvale Financial Corporations internal control over financial reporting
as of June 30, 2010, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated September 13, 2010 expressed an unqualified opinion.
/s/ ParenteBeard LLC
Pittsburgh, Pennsylvania
September 13, 2010, except for Note G, as to which the date is November 12, 2010
September 13, 2010, except for Note G, as to which the date is November 12, 2010
18
PARKVALE
FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data) | June 30, | |||||||||||
Assets | 2010 | 2009 | ||||||||||
Cash and noninterest-earning deposits |
$ | 17,736 | $ | 15,381 | ||||||||
Federal funds sold |
135,773 | 150,510 | ||||||||||
Cash and cash equivalents |
153,509 | 165,891 | ||||||||||
Interest-earning deposits in other banks |
801 | 3,899 | ||||||||||
Investment securities available for sale at fair value (cost of $65,778 in 2010
and $8,215 in 2009) (Note B) |
65,770 | 9,679 | ||||||||||
Investment securities held to maturity (fair value of $437,931
in 2010 and $438,745 in 2009) (Note B) |
443,452 | 504,029 | ||||||||||
Federal Home Loan Bank Stock, at cost (Note A) |
14,357 | 13,826 | ||||||||||
Loans, net of allowance of $19,209 in 2010 and $17,960 in 2009 (Note C) |
1,032,363 | 1,108,936 | ||||||||||
Foreclosed real estate, net (Note D) |
8,637 | 5,694 | ||||||||||
Office properties and equipment, net (Note D) |
17,374 | 18,073 | ||||||||||
Goodwill (Note A) |
25,634 | 25,634 | ||||||||||
Intangible assets and deferred charges (Note A) |
2,877 | 3,786 | ||||||||||
Prepaid expenses and other assets (Note L) |
77,606 | 47,659 | ||||||||||
Total assets |
$ | 1,842,380 | $ | 1,907,106 | ||||||||
Liabilities and Shareholders Equity |
||||||||||||
Liabilities |
||||||||||||
Deposits (Note E) |
$ | 1,488,073 | $ | 1,511,248 | ||||||||
Advances from Federal Home Loan Bank (Note F) |
185,973 | 186,202 | ||||||||||
Other debt (Note F) |
13,865 | 21,261 | ||||||||||
Term debt (Note F) |
23,750 | 25,000 | ||||||||||
Advance payments from borrowers for taxes and insurance |
7,526 | 7,359 | ||||||||||
Other liabilities (Note L) |
4,249 | 5,276 | ||||||||||
Total liabilities |
1,723,436 | 1,756,346 | ||||||||||
Shareholders Equity (Note G and I) |
||||||||||||
Preferred stock ($1.00 par value; 5,000,000 shares
authorized; 31,762 shares issued) |
31,762 | 31,762 | ||||||||||
Common stock ($1.00 par value; 10,000,000 shares authorized;
6,734,894 shares issued) |
6,735 | 6,735 | ||||||||||
Additional paid-in capital |
2,734 | 4,116 | ||||||||||
Treasury stock at cost 1,205,683 shares in 2010 and 1,307,199 shares in 2009 |
(25,193 | ) | (27,314 | ) | ||||||||
Accumulated other comprehensive loss |
(13,413 | ) | (10 | ) | ||||||||
Retained earnings |
116,319 | 135,471 | ||||||||||
Total shareholders equity |
118,944 | 150,760 | ||||||||||
Total liabilities and shareholders equity |
$ | 1,842,380 | $ | 1,907,106 | ||||||||
See Notes to Consolidated Financial Statements.
19
PARKVALE
FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, | ||||||||||||
(Dollar amounts in thousands, except per share data) | 2010 | 2009 | 2008 | |||||||||
Interest Income: |
||||||||||||
Loans |
$ | 56,178 | $ | 66,649 | $ | 71,602 | ||||||
Investments |
19,303 | 23,147 | 21,974 | |||||||||
Federal funds sold |
380 | 687 | 4,306 | |||||||||
Total interest income |
75,861 | 90,483 | 97,882 | |||||||||
Interest Expense: |
||||||||||||
Deposits (Note E) |
27,460 | 38,483 | 46,722 | |||||||||
Borrowings |
11,055 | 10,363 | 10,939 | |||||||||
Trust preferred securities |
| | 317 | |||||||||
Total interest expense |
38,515 | 48,846 | 57,978 | |||||||||
Net interest income |
37,346 | 41,637 | 39,904 | |||||||||
Provision for loan losses (Note C) |
7,448 | 6,754 | 2,331 | |||||||||
Net interest income after provision for loan losses |
29,898 | 34,883 | 37,573 | |||||||||
Noninterest Income: |
||||||||||||
Other-than-temporary impairment losses (Note J) |
(64,662 | ) | (31,629 | ) | (3,155 | ) | ||||||
Non-credit related losses recognized in other comprehensive income |
25,685 | 1,266 | | |||||||||
Net impairment losses recognized in earnings |
(38,977 | ) | (30,363 | ) | (3,155 | ) | ||||||
Service charges on deposit accounts |
6,448 | 6,458 | 6,981 | |||||||||
Other service charges and fees |
1,506 | 1,513 | 1,410 | |||||||||
Net gain on sale of assets (Note J) |
2,372 | 2,246 | 581 | |||||||||
Other |
2,117 | 2,445 | 2,635 | |||||||||
Total noninterest income |
(26,534 | ) | (17,701 | ) | 8,452 | |||||||
Noninterest Expense: |
||||||||||||
Compensation and employee benefits |
15,033 | 15,913 | 16,420 | |||||||||
Office occupancy |
4,508 | 4,599 | 4,540 | |||||||||
Marketing |
340 | 461 | 577 | |||||||||
FDIC insurance |
2,864 | 1,155 | 167 | |||||||||
Office supplies, telephone and postage |
1,911 | 1,902 | 1,851 | |||||||||
Other |
5,776 | 5,390 | 5,068 | |||||||||
Total noninterest expense |
30,432 | 29,420 | 28,623 | |||||||||
(Loss) income before income tax expense |
(27,068 | ) | (12,238 | ) | 17,402 | |||||||
Income tax (benefit) expense (Note H) |
(10,603 | ) | (2,696 | ) | 4,599 | |||||||
Net (loss) income |
($16,465 | ) | ($9,542 | ) | $ | 12,803 | ||||||
Preferred Stock Dividend |
1,588 | 829 | | |||||||||
(Loss) income to common stockholders |
($18,053 | ) | ($10,371 | ) | $ | 12,803 | ||||||
Net (loss) income per share: |
||||||||||||
Basic |
($3.30 | ) | ($1.90 | ) | $ | 2.33 | ||||||
Diluted |
($3.30 | ) | ($1.90 | ) | $ | 2.31 |
See Notes to Consolidated Financial Statements.
20
PARKVALE
FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, | ||||||||||||
(Dollar amounts in thousands) | 2010 | 2009 | 2008 | |||||||||
Cash flows from operating activities: |
||||||||||||
Interest received |
$ | 75,279 | $ | 88,425 | $ | 98,392 | ||||||
Loan fees received |
545 | 672 | 320 | |||||||||
Disbursements of student loans |
| (30 | ) | (1,244 | ) | |||||||
Proceeds from sales of student loans |
| 365 | 1,004 | |||||||||
Other fees and commissions received |
8,971 | 9,313 | 9,948 | |||||||||
Interest paid |
(38,706 | ) | (49,073 | ) | (58,346 | ) | ||||||
Cash paid to suppliers and employees |
(38,154 | ) | (28,757 | ) | (22,239 | ) | ||||||
Income taxes paid |
(1,720 | ) | (4,300 | ) | (7,510 | ) | ||||||
Net cash provided by operating activities |
6,215 | 16,615 | 20,325 | |||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from sales of investment securities available for sale |
2,381 | 3,012 | 2,284 | |||||||||
Proceeds from maturities of investments |
376,195 | 178,175 | 285,875 | |||||||||
Purchase of investment securities available for sale |
(532 | ) | | (9,018 | ) | |||||||
Purchase of investment securities held to maturity |
(431,824 | ) | (284,640 | ) | (361,665 | ) | ||||||
Maturity (purchase) of deposits in other banks |
3,098 | 3,353 | (2,449 | ) | ||||||||
Purchase of loans |
(6,270 | ) | | (87,667 | ) | |||||||
Principal collected on loans |
242,077 | 234,634 | 307,564 | |||||||||
Loan sales |
7,527 | 16,237 | | |||||||||
Loans made to customers, net of loans in process |
(177,290 | ) | (167,949 | ) | (190,745 | ) | ||||||
Capital expenditures, net of proceeds from sales of capital assets |
(300 | ) | (316 | ) | (2,693 | ) | ||||||
Net cash provided by (used in) investing activities |
15,062 | (17,494 | ) | (58,514 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Net increase in checking and savings accounts |
67,900 | 19,799 | 22,550 | |||||||||
Net (decrease) increase in certificates of deposit |
(91,076 | ) | (2,235 | ) | 2,132 | |||||||
Repayment of FHLB advances |
(25 | ) | (5,024 | ) | (20,024 | ) | ||||||
Net (decrease) increase in other borrowings |
(7,396 | ) | (705 | ) | 8,860 | |||||||
Repayment of term debt |
(1,250 | ) | | | ||||||||
Proceeds from term debt |
| 25,000 | | |||||||||
Redemption of trust preferred securities |
| | (7,200 | ) | ||||||||
Net increase (decrease) in borrowers advances for tax and insurance |
167 | (396 | ) | 89 | ||||||||
Proceeds from issuance of preferred stock |
| 31,762 | | |||||||||
Dividends paid |
(2,682 | ) | (5,427 | ) | (4,861 | ) | ||||||
Contribution to benefit plans |
703 | | 864 | |||||||||
Payment for treasury stock |
| (717 | ) | (4,949 | ) | |||||||
Proceeds from exercise of stock options |
| 21 | 172 | |||||||||
Net cash used in financing activities |
(33,659 | ) | (62,078 | ) | (2,367 | ) | ||||||
Net (decrease) increase in cash and cash equivalents |
(12,382 | ) | 61,199 | (40,556 | ) | |||||||
Cash and cash equivalents at beginning of year |
165,891 | 104,692 | 145,248 | |||||||||
Cash and cash equivalents at end of year |
$ | 153,509 | $ | 165,891 | $ | 104,692 | ||||||
21
Years ended June 30, | ||||||||||||
(Dollar amounts in thousands) | 2010 | 2009 | 2008 | |||||||||
Reconciliation of net (loss) income to net cash provided by operating activities: |
||||||||||||
Net (loss) income |
($16,465 | ) | ($9,542 | ) | $ | 12,803 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
1,907 | 2,004 | 2,138 | |||||||||
Accretion and amortization of fees and discounts |
(1,526 | ) | (2,675 | ) | (1,358 | ) | ||||||
Loan fees collected and deferred |
152 | 105 | 73 | |||||||||
Provision for loan losses |
7,448 | 6,754 | 2,331 | |||||||||
Net loss on sale and writedown of securities |
36,605 | 28,117 | 2,574 | |||||||||
Increase in accrued interest receivable |
820 | 634 | 1,610 | |||||||||
Increase in other assets |
(30,780 | ) | (6,997 | ) | (3,439 | ) | ||||||
Increase (Decrease) in accrued interest payable |
37 | (34 | ) | (181 | ) | |||||||
Increase (decrease) in other liabilities |
8,017 | (1,751 | ) | 3,774 | ||||||||
Total adjustments |
22,680 | 26,157 | 7,522 | |||||||||
Net cash provided by operating activities |
$ | 6,215 | $ | 16,615 | $ | 20,325 | ||||||
See Notes to Consolidated Financial Statements.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | Shareholders | ||||||||||||||||||||||
(Dollar amounts in thousands) | Stock | Stock | Capital | Stock | (Loss) Income | Earnings | Equity | |||||||||||||||||||||
Balance at July 1, 2007 |
$ | | $ | 6,735 | $ | 3,717 | ($22,695 | ) | $ | 176 | $ | 141,737 | $ | 129,670 | ||||||||||||||
2008 net income |
12,803 | 12,803 | ||||||||||||||||||||||||||
Accumulated other comprehensive
income: |
||||||||||||||||||||||||||||
Change in unrealized gain (loss)
on securities, net of deferred
tax
expense of $(439) |
(763 | ) | ||||||||||||||||||||||||||
Reclassification adjustment, net
of taxes of $(939) |
(1,635 | ) | (2,398 | ) | ||||||||||||||||||||||||
Comprehensive income |
10,405 | |||||||||||||||||||||||||||
Treasury stock purchased |
(4,949 | ) | (4,949 | ) | ||||||||||||||||||||||||
Treasury stock contributed to
benefit plans |
864 | 864 | ||||||||||||||||||||||||||
Recognition of stock option
compensation expense |
272 | 272 | ||||||||||||||||||||||||||
Exercise of stock options |
37 | 162 | 199 | |||||||||||||||||||||||||
Cash dividends declared on
common stock at $0.88 per share |
(4,830 | ) | (4,830 | ) | ||||||||||||||||||||||||
Balance at June 30, 2008 |
$ | | $ | 6,735 | $ | 4,026 | ($26,618 | ) | $ | (2,222 | ) | $ | 149,710 | $ | 131,631 | |||||||||||||
2009 net (loss) |
(9,542 | ) | (9,542 | ) | ||||||||||||||||||||||||
Accumulated other comprehensive
income: |
||||||||||||||||||||||||||||
Change in swap liability |
326 | |||||||||||||||||||||||||||
Change in unrealized gain (loss)
on securities, net of deferred
tax expense of $(1,976) |
(3,437 | ) | ||||||||||||||||||||||||||
Reclassification adjustment, net
of taxes of $3,060 |
5,323 | 2,212 | ||||||||||||||||||||||||||
22
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | Shareholders | ||||||||||||||||||||||
(Dollar amounts in thousands) | Stock | Stock | Capital | Stock | (Loss) Income | Earnings | Equity | |||||||||||||||||||||
Comprehensive income |
(7,330 | ) | ||||||||||||||||||||||||||
Issuance of Preferred Stock |
$ | 31,762 | 31,762 | |||||||||||||||||||||||||
Treasury stock purchased |
(717 | ) | (717 | ) | ||||||||||||||||||||||||
Recognition of stock option
compensation expense |
90 | 90 | ||||||||||||||||||||||||||
Exercise of stock options |
| 21 | 21 | |||||||||||||||||||||||||
Cash dividends declared on 5%
preferred stock |
(829 | ) | (829 | ) | ||||||||||||||||||||||||
Cash dividends declared on common
stock at $0.71 per share |
(3,868 | ) | (3,868 | ) | ||||||||||||||||||||||||
Balance at June 30, 2009 |
$ | 31,762 | $ | 6,735 | $ | 4,116 | ($27,314 | ) | ($10 | ) | $ | 135,471 | $ | 150,760 | ||||||||||||||
2010 net (loss) |
(16,465 | ) | (16,465 | ) | ||||||||||||||||||||||||
Change in Swap Liability |
(819 | ) | ||||||||||||||||||||||||||
Change in unrealized gain on
securities, net of deferred tax
expense $6,769 |
10,660 | |||||||||||||||||||||||||||
Reclassification adjustment, net
of taxes of $(13,361) |
(23,244 | ) | (13,403 | ) | ||||||||||||||||||||||||
Comprehensive income |
(29,868 | ) | ||||||||||||||||||||||||||
Recognition of stock option
compensation expense |
27 | 27 | ||||||||||||||||||||||||||
Allocation of treasury
stock to retirement plans |
(1,409 | ) | 2,121 | 712 | ||||||||||||||||||||||||
Cash dividends declared on 5%
preferred stock |
(1,588 | ) | (1,588 | ) | ||||||||||||||||||||||||
Cash dividends declared on common
stock at $0.20 per share |
(1,099 | ) | (1,099 | ) | ||||||||||||||||||||||||
Balance at June 30, 2010 |
$ | 31,762 | $ | 6,735 | $ | 2,734 | ($25,193 | ) | ($13,413 | ) | $ | 116,319 | $ | 118,944 | ||||||||||||||
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Note A Significant Accounting Policies
(Dollar amounts in thousands, except per share data)
(Dollar amounts in thousands, except per share data)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Parkvale
Financial Corporation (PFCor the Corporation), its wholly owned subsidiary, Parkvale Savings
Bank (the Bank) and its wholly owned subsidiaries. PFC and the Bank are collectively referred to
as Parkvale. All significant intercompany transactions and balances have been eliminated in
consolidation.
Business
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 tri-state area, which comprises its primary market area. Parkvale is
subject to the regulations of certain federal and state agencies and undergoes periodic
examinations by certain regulatory authorities.
23
Revenue Recognition
Income on loans and investments is recognized as earned on the accrual method. Service
charges and fees on loans and deposit accounts are recognized at the time the customer account is
charged.
Operating Segments
An operating segment is defined as a component of an enterprise that engages in business
activities, which generates revenue and incurs expense, and with the operating results reviewed by
management. Parkvales business activities are currently confined to one operating segment, which
is community banking.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of income and expense during the reported period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate
to the determination of the allowance for loan losses, securities (held to maturity, available for
sale and other than temporarily impaired), foreclosed real estate, goodwill and intangible assets
and income taxes, including valuation of deferred tax assets.
Reclassification
Certain amounts in the 2009 and 2008 consolidated financial statements have been
reclassified to conform to the 2010 presentation.
Subsequent Events
The Corporation evaluated and disclosed all material subsequent events that provide
evidence about conditions that existed as of June 30, 2010.
Cash and Noninterest-Earning Deposits
The Bank is required to maintain cash and reserve balances with the Federal Reserve Bank.
The reserve calculation is currently 0% of the first $10,700 of checking deposits, 3% of the next
$44,500 of checking deposits and 10% of total checking deposits over $55,200. These required
reserves, net of allowable credits, amounted to $5,374 at June 30, 2010. Such reserves are
generally maintained with vault cash and to a lesser extent balances with the Federal Reserve.
Securities Held to Maturity, Available for Sale and Other than Temporary Impairment
Certain debt securities that management has the positive intent and ability to hold to
maturity are classified as held to maturity and recorded at amortized cost. Trading securities
are recorded at fair value with changes in fair value included in earnings. Securities not
classified as held to maturity or trading, including equity securities with readily determinable
fair values, are classified as available for sale and recorded at fair value, with unrealized
gains and losses excluded from earnings and reported in other comprehensive income. Purchase
premiums and discounts are recognized in interest income using the interest method over the terms
of the securities. Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.
The recent accounting guidance amends the recognition guidance for other-than-temporary
impairments of debt securities and expands the financial statement disclosures for
other-than-temporary impairment losses on debt and equity securities. The recent guidance replaced
the intent and ability indication in current guidance by specifying that (a) if a company does
not have the intent to sell a debt security prior to recovery and (b) it is more likely than not
that it will not have to sell the debt security prior to recovery, the security would not be
considered other-than-temporarily impaired unless there is a credit loss. When an entity does not
intend to sell the security, and it is more likely than not, the entity will not have to sell the
security before recovery of its cost basis, it will recognize the credit component of an
other-than-temporary impairment of a debt security in earnings and the remaining portion in other
comprehensive
24
income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment
recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary
impairment should be amortized prospectively over the remaining life of the security on the basis
of the timing of future estimated cash flows of the security.
As a result of this guidance, Parkvales consolidated statement of operations as of June 30,
2010 reflects the full impairment (that is, the difference between the securitys amortized cost
basis and fair value) on debt securities that Parkvale intends to sell or would
more-likely-than-not be required to sell before the expected recovery of the amortized cost basis.
For available-for-sale and held-to-maturity debt securities that management has no intent to sell
and believes that it more-likely-than-not will not be required to sell prior to recovery, only the
credit loss component of the impairment is recognized in earnings, while the non-credit loss is
recognized in other comprehensive income, net of applicable taxes.
For equity securities, when Parkvale has decided to sell an impaired available-for-sale
security and the entity does not expect the fair value of the security to fully recover before the
expected time of sale, the security is deemed other-than-temporarily impaired in the period in
which the decision to sell is made. Parkvale recognizes an impairment loss when the impairment is
deemed other-than-temporary even if a decision to sell has not been made.
Federal Home Loan Bank Stock
Parkvale, as a member of the Federal Home Loan Bank (FHLB) system, is required to
maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB,
the stock has no quoted market value and is carried at cost. In December 2008, the FHLB declared a
moratorium on the redemption of its stock. At its discretion, the FHLB may declare dividends on the
stock. However, since 2009 the FHLB suspended its dividend. Management reviews for impairment based
on the ultimate recoverability of the cost basis in the FHLB stock.
Members do not purchase stock in the FHLB for the same reasons that traditional equity
investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain
access to the low-cost products and services offered by the FHLB. Unlike equity securities of
traditional for-profit enterprises, the stock of FHLB does not provide its holders with an
opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased,
redeemed and transferred at par value.
At June 30, 2010 and June 30, 2009, the Banks FHLB stock totaled $14,357 and $13,826,
respectively. The Bank accounts for the stock based on U.S. GAAP, which requires the investment to
be carried at cost and evaluated for impairment based on the ultimate recoverability of the par
value.
The Bank periodically evaluates its FHLB investment for possible impairment based on, among
other things, the capital adequacy of the FHLB and its overall financial condition. The FHLB
exceeds all regulatory capital requirements established by the Federal Housing Finance Agency, the
regulator of the FHLB. Failure by the FHLB to meet this regulatory capital requirement would
require an in-depth analysis of other factors including:
| the members ability to access liquidity from the FHLB; | ||
| the members funding cost advantage with the FHLB compared to alternative sources of funds; | ||
| a decline in the market value of FHLBs net assets relative to book value which may or may not affect future financial performance or cash flow; | ||
| the FHLBs ability to obtain credit and source liquidity, for which one indicator is the credit rating of the FHLB; | ||
| the FHLBs commitment to make payments taking into account its ability to meet statutory and regulatory payment obligations and the level of such payments in relation to the FHLBs operating performance; and | ||
| the prospects of amendments to laws that affect the rights and obligations of the FHLB. |
The Bank believes its holdings in the stock are ultimately recoverable at par value at
June 30, 2010 and, therefore, determined that FHLB stock was not other-than-temporarily impaired.
In addition, the Bank has ample liquidity and does not require redemption of its FHLB stock in the
foreseeable future.
25
Loans
Parkvale grants mortgage, commercial and consumer loans to customers. The ability of
Parkvales debtors to honor their contracts is dependent upon the real estate and general economic
conditions in the tri-state area.
Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted
for unearned income, the allowance for loan losses, and any unamortized deferred fees or costs on
originated loans, and premiums or discounts on purchased loans.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance.
Loan origination fees, net of certain direct origination costs, as well as premiums and discounts,
are deferred and amortized as a level yield adjustment over the respective term of the loan.
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan
is 90 days past due unless the credit is well-secured and in process of collection. Credit card
loans and other personal loans are typically charged off no later than 180 days past due. Past due
status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off
is reversed against interest income. The interest on these loans is accounted for on the cash-basis
or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and future
payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
managements periodic review of the collectability of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrowers
ability to repay and estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates that are susceptible
to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to
loans that are classified as impaired. For those loans that are classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or observable market
price) of the impaired loan is lower than the carrying value of that loan. The general component
covers nonclassified loans and is based on historical charge-off experience and expected loss
derived from Parkvales internal risk rating process. Other adjustments may be made to the
allowance for pools of loans after an assessment of internal or external influences on credit
quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable
that Parkvale will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis for commercial and construction loans by either the present value of
26
expected future cash flows discounted at the loans effective interest rate, the loans
obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, Parkvale does not separately identify individual consumer and residential loans for
impairment disclosures, unless such loans are the subject of a restructuring agreement due to
financial difficulties of the borrower.
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share for the
three years ended June 30:
2010 | 2009 | 2008 | ||||||||||
Numerator for basic and diluted earnings per share: |
||||||||||||
Net (loss) income |
($16,465 | ) | ($9,542 | ) | $ | 12,803 | ||||||
Less: Preferred stock dividend |
1,588 | 829 | | |||||||||
Net (loss) income to common shareholders |
($18,053 | ) | ($10,371 | ) | $ | 12,803 | ||||||
Denominator |
||||||||||||
Weighted average shares for basic earnings per share |
5,478,332 | 5,451,295 | 5,506,550 | |||||||||
Effect of dilutive employee stock options |
| 1,058 | 39,556 | |||||||||
Weighted average shares for
dilutive earnings per share |
5,478,332 | 5,452,353 | 5,546,106 | |||||||||
Net (loss) income per common share |
||||||||||||
Basic |
($3.30 | ) | ($1.90 | ) | $ | 2.33 | ||||||
Diluted |
($3.30 | ) | ($1.90 | ) | $ | 2.31 |
Office Property and Equipment
Land is carried at cost. Office property and equipment is recorded at cost less
accumulated depreciation. Depreciation is computed using the straight-line method over the useful
lives of the various classes of assets. Amortization of leasehold improvements is computed using
the straight-line method over the useful lives of the leasehold. Land has an indefinite useful
life, office buildings and leasehold improvements have a useful life ranging from 5-40 years and
the useful life for furniture, fixtures and equipment ranges from 3-10 years. Office property and
equipment have been evaluated for impairment in accordance with US GAAP and management has
determined that office property and equipment are not impaired at June 30, 2010.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are held for
sale and initially recorded at fair value of the property less cost to sell. After foreclosure,
management periodically performs valuations, and a valuation allowance is established for any
declines in the fair value less cost to sell below the propertys carrying amount. Revenues,
expenses and changes in the valuation allowance are included in the statement of operations. Gains
and losses upon disposition are reflected in earnings as realized. Loans transferred to foreclosed
real estate, which is a non-cash activity, were $8,858 during fiscal 2010, $8,836 in 2009 and
$3,005 in 2008. The foreclosures in the last three years were primarily due to loans on
single-family dwellings foreclosed throughout the year.
Stock Compensation Plans
Stock compensation accounting guidance requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements. That cost will be measured
based on the grant date fair value of the equity or liability instruments issued. The stock
compensation accounting guidance covers a wide range of share based compensation arrangements
including stock options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. At June 30, 2010, Parkvales option shares are vested.
27
The stock compensation accounting guidance requires that compensation cost for all stock
awards be calculated and recognized over the employees service period, generally defined as the
vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line
basis over the requisite service period for the entire award. A Black-Sholes model is used to
estimate the fair value of stock options, while the market price of Parkvales common stock at the
date of grant is used for restricted stock awards.
Statement of Cash Flows
For the purposes of reporting cash flows, cash and cash equivalents include cash and
noninterest-earning deposits and federal funds sold. Additionally, allocation of treasury stock to
retirement plans includes exercise of stock options and allocation to the employee stock ownership
plan.
Treasury Stock
The purchase of PFC common stock is recorded at cost. At the date of subsequent reissue,
the treasury stock account is reduced by the cost of such stock on the average cost basis, with any
excess proceeds being credited to additional paid-in capital.
The repurchase program approved on June 19, 2008 expired on June 30, 2009. During fiscal 2010,
Parkvale did not approve a repurchase program.
Goodwill and Other Intangible Assets
Goodwill is the excess of the purchase price over the fair value of assets acquired in
connection with a business acquisition accounted for as a purchase, and intangible assets with
indefinite lives are not amortized but are reviewed annually, requiring a two-step process, or more
frequently if impairment indicators arise, for impairment. Separable intangible assets that are not
deemed to have an indefinite life continue to be amortized over their useful lives. Parkvale
applied the non-amortization provisions to goodwill recorded on December 31, 2004 as a result of
the acquisition of Advance Financial Corporation (AFB or Advance). AFB core deposit intangibles
valued at $4,600 at acquisition represented 4.7% of core deposit accounts, and the premium is being
amortized over the average life of 8.94 years. Resulting goodwill of $18,100 is not subject to
periodic amortization. Core deposit intangible amortization expense for AFB acquired on December
31, 2004 and for Second National Bank of Masontown (SNB or Masontown) acquired on January 31,
2002 was $517 and $392 in fiscal 2010, respectively. Amortization over the next four years is
expected to aggregate $1,767 and $1,110 for AFB and SNB, respectively. Goodwill and amortizing core
deposit intangibles are not deductible for federal income tax purposes.
Goodwill of $25,634 shown on the Statement of Financial Condition relates to acquisitions in
fiscal 2002 (Masontown) and 2005 (Advance). The operations of both acquisitions have been fully
integrated into Parkvales operations. All of the offices and business activities of both Masontown
and Advance have been retained, remain open and are performing as expected. The market price of
Parkvales common stock was $8.38 per share at June 30, 2010, which is below the book value of
$15.77 at such date. The difference between the market value and the book value at June 30, 2010 is
primarily related to the significant deterioration in the financial markets, a weakening economy
and a near global credit crisis. Goodwill is tested on an annual basis as of June 30 of each year
in conjunction with the Corporations fiscal year end but can be tested for impairment at any time
if circumstances warrant.
An independent third party was retained for the fiscal year ended June 30, 2010 to assist in
determining whether an impairment of goodwill was appropriate. In a report dated July 23, 2010, the
third party certified goodwill non-impairment based on the discounted cash flow estimate of fair
value, and deal value to book value of equity ratios observed in recent comparable banking sector
merger and acquisition transactions. Anecdotal evidence for goodwill non-impairment is also shown
in the strong underlying financial foundations of Parkvales fair value. The third party reviewed
the premiums paid in acquisitions of financial institutions that were announced or completed
between October 1, 2007 and July 20, 2010. The third party reviewed the premiums paid in 36
acquisitions in the mid-Atlantic states during such period, as well as 325 acquisitions nationwide
during such period. In addition to reviewing the book value multiples of all acquisitions announced
or completed during the above period, the third party also reviewed the multiples for those
acquisitions announced or completed since June 30, 2008, which were lower than the multiples for
the entire period noted above.
28
Based on their report, management determined that goodwill was not impaired at June 30, 2010.
If Parkvales stock continues to trade significantly below its book value, if discounted cash flow
estimates materially decline, or if the multiples in comparable banking sector mergers and
acquisitions decline, then a goodwill impairment charge may become appropriate in a future quarter.
Marketing Costs
Marketing costs are expensed as incurred.
Derivative Financial Instruments
Derivatives are recognized as assets and liabilities on the consolidated statement of
financial condition and measured at fair value. For exchange-traded contracts, fair value is based
on quoted market prices. For nonexchange traded contracts, fair value is based on dealer quotes,
pricing models, discounted cash flow methodologies, or similar techniques for which the
determination of fair value may require significant management judgment or estimation.
Interest Rate Swap Agreements. For asset/liability management purposes, Parkvale uses
interest rate swap agreements to hedge various exposures or to modify interest rate characteristics
of various balance sheet accounts. Interest rate swaps are contracts in which a series of interest
rate flows are exchanged over a prescribed period. The notional amount on which the interest
payments are based is not exchanged. These swap agreements are derivative instruments and generally
convert a portion of Parkvales variable-rate debt to a fixed rate (cash flow hedge), and convert a
portion of its fixed-rate loans to a variable rate (fair value hedge).
The gain or loss on a derivative designated and qualifying as a fair value hedging instrument,
as well as the offsetting gain or loss on the hedged item attributable to the risk being hedged, is
recognized currently in earnings in the same accounting period. The effective portion of the gain
or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially
reported as a component of other comprehensive income and subsequently reclassified into earnings
in the same period or periods during which the hedged transaction affects earnings. The ineffective
portion of the gain or loss on the derivative instrument, if any, is recognized currently in
earnings.
For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes
in the value of the hedged debt is deferred and amortized into net interest income over the life of
the hedged debt. For fair value hedges, the net settlement (upon close-out or termination) that
offsets changes in the value of the loans adjusts the basis of the loans and is deferred and
amortized to loan interest income over the life of the loans. The portion, if any, of the net
settlement amount that did not offset changes in the value of the hedged asset or liability is
recognized immediately in noninterest income.
Interest rate derivative financial instruments receive hedge accounting treatment only if they
are designated as a hedge and are expected to be, and are, effective in substantially reducing
interest rate risk arising from the assets and liabilities identified as exposing Parkvale to risk.
Those derivative financial instruments that do not meet specified hedging criteria would be
recorded at fair value with changes in fair value recorded in income. If periodic assessment
indicates derivatives no longer provide an effective hedge, the derivative contracts would be
closed out and settled, or classified as a trading activity.
Cash flows resulting from the derivative financial instruments that are accounted for as
hedges of assets and liabilities are classified in the cash flow statement in the same category as
the cash flows of the items being hedged.
Income Taxes
The income tax accounting guidance results in two components of income tax expense:
current and deferred. Current income tax expense reflects taxes to be paid or refunded for the
current period by applying the provisions of the enacted tax law to the taxable income or excess of
deductions over revenues. Parkvale determines deferred income taxes using the liability (or balance
sheet) method. Under this method, the net deferred tax asset or liability is based on the tax
29
effects of the differences between the book and tax bases of assets and liabilities, and
enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities
between periods. Deferred tax assets are recognized if it is more-likely-than not, based on the
technical merits, that the tax position will be realized or sustained upon examination. The term
more-likely-than not means a likelihood of more than 50 percent; the terms examined and upon
examination also include resolution of the related appeals or litigation processes, if any. A tax
position that meets the more-likely-than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of
being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position has met the more-likely-than-not
recognition threshold considers the facts, circumstances, and information available at the
reporting date and is subject to managements judgment. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence available, it is more-likely-than not that
some portion or all of a deferred tax asset will not be realized.
Parkvale recognizes interest and penalties on income taxes as a component of income tax
expense.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains on securities available for sale, unrealized losses
related to factors other than credit on debt securities, and unrealized gains and losses on cash
flow hedges, which are also recognized as separate components of equity.
Recent Accounting Standards
In February 2010, FASB issued ASU 2010-08, Technical Corrections to Various Topics. This
ASU resulted from a review by the FASB of its standards to determine if any provisions are
outdated, contain inconsistencies, or need clarifications to reflect the FASBs original intent.
The FASB believes the amendments do not fundamentally change U.S. GAAP. However, certain
clarifications on embedded derivatives and hedging reflected in Topic 815, Derivatives and Hedging,
may cause a change in the application of the guidance in Subtopic 815-15. Accordingly, the FASB
provided special transition provisions for those amendments. The ASU contains various effective
dates. The clarifications of the guidance on embedded derivatives and hedging (Subtopic 815-15) are
effective for fiscal years beginning after December 15, 2009. The amendments to the guidance on
accounting for income taxes in a reorganization (Subtopic 852-740) applies to reorganizations for
which the date of the reorganization is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. All other amendments are effective as of the first
reporting period (including interim periods) beginning after the date this ASU was issued.
In April 2010, FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan is Part of
a Pool That is Accounted for as a Single Asset. ASU No. 2010-18 provides that modifications of
acquired loans with deteriorated credit quality that are accounted for within a pool do not result
in removal of those loans from the pool even if the modification of those loans would otherwise be
considered a troubled asset restructuring. ASU No. 2010-18 is effective for modifications occurring
in the first interim or annual reporting period ending on or after July 15, 2010. The adoption of
this standard is not anticipated to have a material effect on the financial statements, results of
operations or liquidity of the Corporation.
In July 2010, FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses. The disclosures will provide
financial statement users with additional information about the nature of credit risks inherent in
entities financing receivables, how credit risk is analyzed and assessed when determining the
allowance for credit losses and the reasons for the change in the allowance for credit losses. This
requirement is effective for all periods ending on or after December 15, 2010, although certain
disclosures will have a deferred effective date. The accounting standards update requires
additional disclosure and will have no impact on the Consolidated Financial Statements.
30
Notes to Consolidated Financial Statements (Continued)
Note B Investment Securities
(Dollar amounts in thousands)
The amortized cost, gross unrecorded gains and losses and fair values for investment
securities classified as available for sale or held to maturity at June 30 are as follows:
2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Available for sale: |
||||||||||||||||
CMOs Non Agency (Residential) |
$ | 59,804 | $ | | $ | | $ | 59,804 | ||||||||
Mutual Funds ARM mortgages |
5,500 | 24 | 240 | 5,284 | ||||||||||||
Other common equities (Financial Services) |
474 | 208 | | 682 | ||||||||||||
Total equity investments available for sale |
65,778 | 232 | 240 | 65,770 | ||||||||||||
Held to maturity: |
||||||||||||||||
U.S. Government and agency obligations due: |
||||||||||||||||
Within 1 year |
10,000 | 334 | | 10,334 | ||||||||||||
Within 5 years |
145,084 | 1,078 | 6 | 146,156 | ||||||||||||
Within 10 years |
39,164 | 269 | 3 | 39,430 | ||||||||||||
After 10 years |
| | | | ||||||||||||
Total U.S. Government and agency obligations |
194,248 | 1,681 | 9 | 195,920 | ||||||||||||
Municipal obligations: |
||||||||||||||||
Within 1 year |
7,023 | 19 | | 7,042 | ||||||||||||
Within 5 years |
10,719 | 469 | | 11,188 | ||||||||||||
Within 10 years |
1,653 | 42 | | 1,695 | ||||||||||||
After 10 years |
2,246 | 174 | | 2,420 | ||||||||||||
Total municipal obligations |
21,641 | 704 | | 22,345 | ||||||||||||
Individual trust preferred securities after 10 years |
9,322 | 205 | 1,550 | 7,977 | ||||||||||||
Pooled trust preferred securities after 10 years |
24,229 | | 7,380 | 16,849 | ||||||||||||
Corporate debt: |
||||||||||||||||
Within 1 year |
10,693 | 161 | | 10,854 | ||||||||||||
Within 5 years |
16,419 | 1,079 | | 17,498 | ||||||||||||
Total corporate debt |
27,112 | 1,240 | | 28,352 | ||||||||||||
Total U.S. Government and agency obligations, municipal
obligations, corporate debt and individual and pooled
trust preferred securities |
276,552 | 3,830 | 8,939 | 271,443 | ||||||||||||
Mortgage-backed securities: (All Residential) |
||||||||||||||||
FHLMC |
20,549 | 431 | 44 | 20,936 | ||||||||||||
FNMA |
31,126 | 1,052 | | 32,178 | ||||||||||||
GNMA |
41,569 | 371 | 3 | 41,937 | ||||||||||||
SBA |
4 | | | 4 | ||||||||||||
Collateralized mortgage obligations (CMOs) Agency |
10,357 | 273 | | 10,630 | ||||||||||||
CMOs Non Agency |
63,295 | 2,387 | 4,879 | 60,803 | ||||||||||||
Total mortgage-backed securities |
166,900 | 4,514 | 4,926 | 166,488 | ||||||||||||
Total investments classified as held to maturity |
443,452 | 8,344 | 13,865 | 437,931 | ||||||||||||
Total investment portfolio |
$ | 509,230 | $ | 8,576 | $ | 14,105 | $ | 503,701 | ||||||||
31
Notes to Consolidated Financial Statements (Continued)
2009 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Available for sale: |
||||||||||||||||
Preferred stocks: |
||||||||||||||||
FHLMC Series M Pfd |
$ | 20 | $ | 29 | $ | | $ | 49 | ||||||||
FHLMC Series S Pfd |
30 | 43 | | 73 | ||||||||||||
Bank of America Corp Pfd Series J |
2,192 | 1,488 | | 3,680 | ||||||||||||
Mutual Funds ARM mortgages |
5,500 | 10 | 208 | 5,302 | ||||||||||||
Other common equities (Financial Services) |
473 | 161 | 59 | 575 | ||||||||||||
Total equity investments available for sale |
8,215 | 1,731 | 267 | 9,679 | ||||||||||||
Held to maturity: |
||||||||||||||||
U.S. Government and agency obligations due: |
||||||||||||||||
Within 5 years |
78,509 | 1,360 | 127 | 79,742 | ||||||||||||
Within 10 years |
29,658 | 8 | 225 | 29,441 | ||||||||||||
After 10 years |
515 | 21 | | 536 | ||||||||||||
Total U.S. Government and agency obligations |
108,682 | 1,389 | 352 | 109,719 | ||||||||||||
Municipal obligations: |
||||||||||||||||
Within 1 year |
2,001 | 10 | | 2,011 | ||||||||||||
Within 5 years |
12,809 | 157 | 2 | 12,964 | ||||||||||||
Within 10 years |
1,811 | 41 | | 1,852 | ||||||||||||
After 10 years |
2,544 | 78 | 84 | 2,538 | ||||||||||||
Total municipal obligations |
19,165 | 286 | 86 | 19,365 | ||||||||||||
Individual trust preferred securities after 10 years |
9,354 | 166 | 3,033 | 6,487 | ||||||||||||
Pooled trust preferred securities after 10 years |
68,306 | | 33,850 | 34,456 | ||||||||||||
Corporate debt: |
||||||||||||||||
Within 1 year |
30,344 | 256 | 61 | 30,539 | ||||||||||||
Within 5 years |
27,120 | 462 | 273 | 27,309 | ||||||||||||
Total corporate debt |
57,464 | 718 | 334 | 57,848 | ||||||||||||
Total U.S. Government and agency obligations,
municipal obligations, corporate debt and individual
and pooled trust preferred securities |
262,971 | 2,559 | 37,655 | 227,875 | ||||||||||||
Mortgage-backed securities (All Residential): |
||||||||||||||||
FHLMC |
20,764 | 107 | 62 | 20,809 | ||||||||||||
FNMA |
41,459 | 382 | 1 | 41,840 | ||||||||||||
GNMA |
1,144 | 18 | | 1,162 | ||||||||||||
SBA |
6 | | 1 | 5 | ||||||||||||
Collateralized mortgage obligations (CMOs) Agency |
1,540 | 24 | 6 | 1,558 | ||||||||||||
CMOs Non Agency |
176,145 | 632 | 31,281 | 145,496 | ||||||||||||
Total mortgage-backed securities |
241,058 | 1,163 | 31,351 | 210,870 | ||||||||||||
Total investments classified as held to maturity |
504,029 | 3,722 | 69,006 | 438,745 | ||||||||||||
Total investment portfolio |
$ | 512,244 | $ | 5,453 | $ | 69,273 | $ | 448,424 | ||||||||
Investment securities with an estimated fair value of $23,648 and $22,015 were pledged to
secure public deposits and other purposes at June 30, 2010 and 2009, respectively. Investment
securities with an estimated fair value of $17,769 and $22,858 were pledged to secure commercial
investment agreements at June 30, 2010 and 2009, respectively. Mortgage-backed securities and CMOs
are not due at a single maturity date; periodic payments are received on the securities based on
the payment patterns of the underlying collateral.
32
Notes to Consolidated Financial Statements (Continued)
The following table represents gross unrealized losses and fair value of investments
aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position at June 30, 2010:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. government and agency obligations |
$ | 29,990 | $ | 9 | $ | | $ | | $ | 29,990 | $ | 9 | ||||||||||||
Individual trust preferred securities |
| | 5,054 | 1,550 | 5,054 | 1,550 | ||||||||||||||||||
Pooled trust preferred securities |
| | 10,197 | 7,380 | 10,197 | 7,380 | ||||||||||||||||||
Total U.S. Government and agency
obligations and individual and pooled
trust preferred securities |
29,990 | 9 | 15,251 | 8,930 | 45,241 | 8,939 | ||||||||||||||||||
Mortgaged-backed securities |
5,300 | 47 | | | 5,300 | 47 | ||||||||||||||||||
Non agency CMOs |
| | 18,024 | 4,879 | 18,024 | 4,879 | ||||||||||||||||||
Mutual Funds ARM mortgages |
| | 5,000 | 240 | 5,000 | 240 | ||||||||||||||||||
Totals |
$ | 35,290 | $ | 56 | $ | 38,275 | $ | 14,049 | $ | 73,565 | $ | 14,105 | ||||||||||||
As of June 30, 2010, securities with unrealized losses of less than 12 months include four
investments in U.S. government and agency obligations and two investments in residential
mortgage-backed securities.
As of June 30, 2010, securities with unrealized losses of greater than 12 months include five
investments in individual trust preferred securities, four investments in pooled trust preferred
securities, five investments in non-agency CMOs and one mutual fund investment.
The following table represents gross unrealized losses and fair value of investments
aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position at June 30, 2009:
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
U.S. government and agency obligations |
$ | 39,454 | $ | 352 | $ | | $ | | $ | 39,454 | $ | 352 | ||||||||||||
Municipal obligations |
5,698 | 86 | | | 5,698 | 86 | ||||||||||||||||||
Individual trust preferred securities |
400 | 91 | 4,147 | 2,942 | 4,547 | 3,033 | ||||||||||||||||||
Pooled trust preferred securities |
3,788 | 2,823 | 32,344 | 31,027 | 36,132 | 33,850 | ||||||||||||||||||
Corporate debt |
10,267 | 273 | 2,767 | 61 | 13,034 | 334 | ||||||||||||||||||
Total U.S. Government and agency
obligations, municipal obligations,
corporate debt and individual and
pooled trust preferred securities |
59,607 | 3,625 | 39,258 | 34,030 | 98,865 | 37,655 | ||||||||||||||||||
Mortgaged-backed securities |
14,690 | 62 | 153 | 2 | 14,843 | 64 | ||||||||||||||||||
Agency CMOs |
| | 306 | 6 | 306 | 6 | ||||||||||||||||||
Non agency CMOs |
40,913 | 5,210 | 91,151 | 26,071 | 132,064 | 31,281 | ||||||||||||||||||
Mutual Funds ARM mortgages |
| | 5,000 | 208 | 5,000 | 208 | ||||||||||||||||||
Other common equities |
242 | 59 | | | 242 | 59 | ||||||||||||||||||
Totals |
$ | 115,452 | $ | 8,956 | $ | 135,868 | $ | 60,317 | $ | 251,320 | $ | 69,273 | ||||||||||||
As of June 30, 2009, securities with unrealized losses of less than 12 months include eight
investments in U.S. government and agency obligations and corporations, two investments in
municipals, one investment in an individual trust preferred security, two investments in pooled
trust preferred securities, four investments in corporate debt, three investments in residential
mortgage-backed securities, six investments in non agency CMOs and two investments in common
equities.
33
Notes to Consolidated Financial Statements (Continued)
As of June 30, 2009, securities with unrealized losses of greater than 12 months include five
investments in individual trust preferred securities, fifteen investments in pooled trust preferred
securities, one investment in corporate debt, seven investments in residential mortgage-backed
securities, one investment in agency CMOs, eighteen investments in non-agency CMOs and one mutual
fund investment.
The credit quality of non-agency CMO securities rated below investment grade at June 30, 2010
as a result of downgrades by the national rating agencies was evaluated. Based upon recent and
future credit deterioration projections and results of the evaluation, the Bank intends to sell
fifteen non-agency CMO securities in the near term. These debt securities were reclassified from
held to maturity to available for sale at June 30, 2010, and other than temporary impairment
charges of $13,100 were recognized in earnings during fiscal 2010 as the difference between the
respective investments amortized cost basis and fair value at June 30, 2010. The remaining
carrying value of the available for sale non-agency CMO securities is $59,804 at June 30, 2010. It
is projected that the level of adversely classified investment securities will decrease by over 60%
compared to March 31, 2010 upon the sale of the respective non-agency CMO securities along with the
non-cash other than temporary impairment charges recognized during the fourth quarter of fiscal
2010 related to the non-agency CMO and pooled trust preferred securities.
During fiscal 2010, certain investments considered to be other than temporarily impaired were
written down to fair value with a net charge to earnings of $38,977; see Note J. Other than
temporary impairment charges of $14,030 and $24,947 were recognized on non-agency CMO and pooled
trust preferred securities respectively. Write-downs were based on the credit performance of
individual securities and the issuers ability to make its contractual principal and interest
payments. Of the aggregate impairment charges of $24,947 related to pooled trust preferred
securities, a total of $21,322 was recognized during the fourth quarter of fiscal 2010 as a result
of management adjusting assumptions related to default probabilities, recoveries and discount
factors. The adjustments resulted from credit deterioration of underlying issuers and an increase
in the level and duration of payment deferrals experienced during the fourth quarter of fiscal
2010. Based on managements evaluation of the securities, management determined that the remaining
investments in debt and equity securities were not other than temporarily impaired at June 30,
2010. Should credit quality continue to deteriorate, it is possible that additional writedowns may
be required. During fiscal 2009, certain investments considered to be other than temporarily
impaired were written down to fair value with a net charge to earnings of $30,363; see Note J.
Write-downs were based on the credit performance of individual securities and the issuers ability
to make its contractual principal and interest payments. Based on managements evaluation of the
securities, management determined that the remaining investments in debt and equity securities were
not other than temporarily impaired at June 30, 2009.
U.S. government and agency obligations in a continuous unrealized loss position of less than
12 months had an aggregate fair value of $29,990 with unrealized losses of $9 at June 30, 2010.
Agency mortgage-backed securities in a continuous unrealized loss position of less than 12 months
had an aggregate fair value of $5,300 with unrealized losses of $47 at June 30, 2010. Based on
managements evaluation of these securities, including the respective governmental or agency
guaranty, management determined that the investment in these securities was not other than
temporarily impaired at June 30, 2010.
The ARM mortgage mutual fund with a fair value of $5,000 and unrealized loss of $240 has been
in a continuous unrealized loss position for more than 12 months at June 30, 2010. Based on
managements evaluation of this security, it was determined that the investment is not other than
temporarily impaired at June 30, 2010.
A significant portion of the Corporations unrealized losses primarily relate to investments
in pooled trust preferred securities, which consist of securities issued primarily by banks, with
some of the pools including a limited number of insurance companies. Investments in pooled
securities are primarily mezzanine tranches, except for two investments in senior tranches, and are
secured by over-collateralization or default protection provided by subordinated tranches.
Unrealized losses on investments in pooled trust preferred securities are attributable to temporary
illiquidity and the uncertainty affecting these markets, as well as changes in interest rates.
The Corporation prices its holdings of pooled trust preferred securities using Level 3 inputs.
In this regard, currently available information is evaluated in estimating the future cash flows of
these securities to determine whether there has been favorable or adverse changes in estimated cash
flows from those previously projected. The Corporation considers the structure and term of the pool
and the financial condition of the underlying issuers. Specifically, the
34
evaluation incorporates factors such as over-collateralization and interest coverage tests,
interest rates and appropriate risk premiums, the timing and amount of interest and principal
payments and the allocation of payments to the various tranches. When evaluating these debt
securities, the credit portion and noncredit portion of the impairment is determined. The credit
portion is recognized in earnings and represents the expected shortfall in future cash flows. The
noncredit portion is recognized in other comprehensive income and represents the difference between
the fair value of the security and the amount of credit related impairment. A discounted cash flow
analysis provides the best estimate of credit related portion of the impairment for these
securities. We consider the discounted cash flow analysis to be our primary evidence when
determining whether credit related impairment exists.
Results of a discounted cash flow test are significantly affected by other variables such as
the estimate of future cash flows, credit worthiness of the underlying banks and determination of
probability of default of the underlying collateral. The following provides additional information
for each of these variables.
| Estimate of future cash flows cash flows are constructed on Intex software. Intex is a proprietary software program recognized as the industry standard for analyzing all types of collateralized debt obligations. It includes each deals structural features updated with information from trustee reports, including collateral/hedge agreement/cash flow detail, as it becomes available. A present value analysis is then performed on the modeled cash flows to determine any cash flow shortages to our respective holdings, if any. | ||
| Credit analysis A quarterly credit evaluation is performed for each of the banks comprising the collateral across the various pooled trust preferred securities. The credit evaluation considers all evidence available and includes the nature of the issuers business and geographic footprint. The analysis focuses on shareholders equity, loan loss reserves, non-performing assets, credit quality ratios and capital adequacy. | ||
| Probability of default A probability of default is determined for each bank and is used to calculate the expected impact of future deferrals and defaults in the expected cash flows. Each bank in the collateral pool is assigned a probability of default with an emphasis on near term probability. Banks currently defaulted are assigned a 100% probability of loss and banks currently deferring are assumed to default prior to their next payment date. All banks in the pool are assigned a probability of loss ranging from .36% to 100%, with ranges based upon the results of the credit analysis. The probability of loss of .36% is assigned to only the strongest financial institutions. The probability of default is updated quarterly with data provided by trustees and other sources. Recovery rates are projected at 20%. |
In addition to the above factors, we calculate the excess subordination levels for each pooled
trust preferred security. The results of this excess subordination allows management to identify
those pools that are a greater risk for a future break in cash flows so that we can monitor banks
in those pools more closely for potential deterioration of credit quality.
The Corporations portfolio of trust preferred collateralized debt obligations consists of 16
pooled issues and 8 single issue securities. Two of the pooled issues are senior tranches and the
remaining 14 are mezzanine tranches. At June 30, 2010, the 16 pooled trust preferred securities
have an amortized cost basis of $24,229 and an estimated fair value of $16,849, while the
single-issuer trust preferred securities have an amortized cost basis of $9,322 and an estimated
fair value of $7,977. Because Parkvale does not have the intent to sell these investments prior to
recovery and it is more likely than not that Parkvale will not have to sell these securities prior
to recovery, Parkvale does not consider the remaining value of these assets to be other than
temporarily impaired at June 30, 2010.
35
Notes to Consolidated Financial Statements (Continued)
The following table provides information relating to the Corporations trust preferred securities
as of June 30, 2010.
(Dollar amounts in thousands)
Excess | ||||||||||||||||||||||||||||||||||||||||
Expected Defaults | Subordination (as a | |||||||||||||||||||||||||||||||||||||||
Unrealized Gain | Lowest Credit | Actual Deferral % | (% of performing | % of performing | ||||||||||||||||||||||||||||||||||||
Deal | Note Class | Par Value | Book Value | Fair Value | (Loss) | Ratings | # of Issuers | Actual Default % (1) | (1) (2) | collateral) (3) | collateral) (4) | |||||||||||||||||||||||||||||
Pooled
Investments |
||||||||||||||||||||||||||||||||||||||||
P1 |
C1 | 5,000 | 350 | 350 | 0 | C | 81 | 19.4 | % | 14.5 | % | 12.3 | % | 0.0 | % | |||||||||||||||||||||||||
P2 |
A2A | 5,000 | 4,590 | 2,350 | (2,240 | ) | CCC- | 76 | 15.9 | % | 13.4 | % | 17.2 | % | 15.3 | % | ||||||||||||||||||||||||
P3 |
C1 | 4,592 | 1,010 | 1,010 | 0 | C | 85 | 9.5 | % | 9.1 | % | 15.0 | % | 0.0 | % | |||||||||||||||||||||||||
P4 |
C1 | 5,058 | 404 | 404 | 0 | C | 72 | 11.1 | % | 13.0 | % | 16.2 | % | 0.0 | % | |||||||||||||||||||||||||
P5 |
C1 | 5,023 | 151 | 151 | 0 | C | 93 | 12.7 | % | 17.2 | % | 15.5 | % | 0.0 | % | |||||||||||||||||||||||||
P6 |
C1 | 3,075 | 31 | 31 | 0 | C | 68 | 19.1 | % | 14.0 | % | 15.9 | % | 0.0 | % | |||||||||||||||||||||||||
P8 |
C | 3,219 | 129 | 129 | 0 | C | 56 | 11.7 | % | 17.8 | % | 12.8 | % | 0.0 | % | |||||||||||||||||||||||||
P9 |
B | 2,008 | 181 | 181 | 0 | Ca | 54 | 10.0 | % | 27.1 | % | 14.6 | % | 0.0 | % | |||||||||||||||||||||||||
P10 |
B1 | 5,000 | 4,863 | 3,700 | (1,163 | ) | B- | 25 | 0.0 | % | 5.8 | % | 16.7 | % | 9.6 | % | ||||||||||||||||||||||||
P11 |
Mezz | 1,500 | 555 | 555 | 0 | C | 29 | 18.0 | % | 20.9 | % | 10.0 | % | 0.0 | % | |||||||||||||||||||||||||
P12 |
B2 | 1,003 | 291 | 291 | 0 | C | 51 | 14.4 | % | 14.8 | % | 13.5 | % | 0.0 | % | |||||||||||||||||||||||||
P13 |
B | 3,909 | 3,759 | 469 | (3,290 | ) | C | 71 | 14.3 | % | 13.1 | % | 13.1 | % | 0.0 | % | ||||||||||||||||||||||||
P14 |
A1 | 4,715 | 4,365 | 3,678 | (687 | ) | BB | 79 | 17.0 | % | 14.5 | % | 12.0 | % | 30.0 | % | ||||||||||||||||||||||||
P15 |
B | 5,000 | 1,700 | 1,700 | 0 | C | 34 | 24.0 | % | 9.3 | % | 19.5 | % | 0.0 | % | |||||||||||||||||||||||||
P16 |
C1 | 5,000 | 1,100 | 1,100 | 0 | C | 47 | 16.2 | % | 6.7 | % | 10.8 | % | 0.0 | % | |||||||||||||||||||||||||
P17 |
C1 | 5,000 | 750 | 750 | 0 | C | 43 | 18.2 | % | 9.6 | % | 12.9 | % | 0.0 | % | |||||||||||||||||||||||||
Subtotal |
16 | 64,102 | 24,229 | 16,849 | (7,380 | ) | ||||||||||||||||||||||||||||||||||
Single Issuer
Investments |
||||||||||||||||||||||||||||||||||||||||
S1 |
N/A | 1,000 | 927 | 663 | (264 | ) | BB | 1 | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||
S2 |
N/A | 2,000 | 1,968 | 1,321 | (647 | ) | BB | 1 | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||
S3 |
N/A | 3,000 | 2,771 | 2,331 | (440 | ) | BBB+ | 1 | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||
S4 |
N/A | 500 | 445 | 284 | (161 | ) | B | 1 | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||
S5 |
N/A | 1,000 | 1,005 | 1,135 | 130 | NR | 1 | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||||||
S6 |
N/A | 700 | 713 | 742 | 29 | NR | 1 | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||||||
S7 |
N/A | 529 | 493 | 455 | (38 | ) | B+ | 1 | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||||||||||||||||
S8 |
N/A | 1,000 | 1,000 | 1,046 | 46 | BB+ | 1 | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||||||
Subtotal |
8 | 9,729 | 9,322 | 7,977 | (1,345 | ) | ||||||||||||||||||||||||||||||||||
Grand total
of Trust
Preferred
holdings |
73,831 | 33,551 | 24,826 | (8,725 | ) |
The above listings do not include 7 trust preferred investments written off in previous quarters.
Notes: | ||
(1) | As a percentage of the total collateral. | |
(2) | Includes deferrals that have not paid current interest payments as permitted by the debt instruments. | |
(3) | Expected defaults are determined by an analysis of each security. | |
(4) | Excess subordination measures the performing collateral coverage of the outstanding liabilities (as a % of performing collateral). |
Non-agency CMOs:
The entire CMO portfolio is backed by prime residential mortgage loans and generally
includes loans in excess of GSE conforming loan amounts at the date of origination. While there are
no sub-prime, option ARMs or home equity loans in any of the CMO pools, approximately 64% of the
loans supporting the obligations contained an interest only feature at origination. All pools held
by the Bank were rated AAA when purchased and have additional collateral provided by support
tranches. The non-agency CMO securities of $123,099 at June 30, 2010 are supported by underlying
collateral that was originated as follows:
36
Notes to Consolidated Financial Statements (Continued)
Year originated | Book Value | Fair Value | ||||||
2003
|
$ | 29,316 | $ | 31,043 | ||||
2004
|
36,775 | 34,902 | ||||||
2005
|
43,898 | 44,047 | ||||||
2006
|
2,090 | 2,090 | ||||||
2007
|
6,885 | 4,366 | ||||||
2008
|
4,135 | 4,159 | ||||||
$ | 123,099 | $ | 120,607 | |||||
The non-agency CMO portfolio at June 30, 2010 contains investments that were all rated AAA at the
time of purchase. The amortized cost and fair value by the most recent investment rating at June
30, 2010 is as follows:
Book Value | Fair Value | |||||||
AAA/Aaa by Moodys, S&P, or Fitch |
$ | 28,439 | $ | 29,620 | ||||
AA/Aa by Moodys or S&P |
6,973 | 7,260 | ||||||
A by Moodys |
9,473 | 8,190 | ||||||
BBB/Baa by Moodys |
11,526 | 11,283 | ||||||
BB/Ba by Moodys or S&P |
12,928 | 13,014 | ||||||
B by Moodys or S&P |
20,252 | 17,732 | ||||||
CCC/Caa by Moodys, S&P, or Fitch |
29,085 | 29,085 | ||||||
CC/Ca by Moodys, S&P or Fitch |
4,423 | 4,423 | ||||||
$ | 123,099 | $ | 120,607 | |||||
Securities with a remaining carrying value as of June 30, 2010 that have incurred OTTI charges are
summarized as follows:
Unadjusted | OTTI | OTTI | 6/30/10 | 6/30/10 | ||||||||||||||||
Carrying | Charge to | Charge to | Carrying | Fair | ||||||||||||||||
Security | Value | earnings | OCI | Value | Value | |||||||||||||||
Non Agency CMO |
$ | 69,744 | $ | 15,083 | $ | | $ | 54,661 | $ | 54,661 | ||||||||||
Pooled trust preferred security |
44,227 | 17,707 | 19,868 | 6,652 | 6,652 |
The following chart shows the balance of other comprehensive income charges related to fair value:
Trust preferred securities | Non Agency CMO | |||||||
Balance at June 30, 2009 |
$ | 552 | $ | 714 | ||||
Total losses realized/unrealized |
37,358 | 5,350 | ||||||
Included as a charge to earnings |
(18,042 | ) | (6,064 | ) | ||||
Balance at June 30, 2010 |
$ | 19,868 | $ | | ||||
The following table displays the cumulative credit component of OTTI recognized in earnings on debt
securities held for the year ended June 30, 2010:
Trust preferred securities | Non Agency CMO | |||||||
Balance, beginning of the year |
180 | 1,052 | ||||||
Addition for the credit component
on debt securities in which OTTI
was not previously recognized |
17,707 | 814 | ||||||
Reduction for securities for which
amount previously recognized in
other comprehensive income was
recognized in earnings due to
intent to sell |
| (1,866 | ) | |||||
Reduction for securities written-off |
(180 | ) | | |||||
Balance, end of the year |
17,707 | | ||||||
37
Notes to Consolidated Financial Statements (Continued)
The amount of securities with OTTI charges to earnings are as follows:
Recorded in September 2009 |
$ | 2,761 | $ | | ||||
Recorded in December 2009 |
648 | 134 | ||||||
Recorded in March 2010 |
216 | 828 | ||||||
Recorded in June 2010 |
21,322 | 13,068 | ||||||
$ | 24,947 | $ | 14,030 |
The above OTTI charge to earnings amounts are categorized as of June 30, 2010 as follows:
Writeoffs no longer reflected as investments |
$ | 7,458 | $ | | ||||
Charged to earnings: |
||||||||
Level III Pooled TPS |
17,489 | | ||||||
Level III Non Agency CMO |
| 14,030 |
Note C Loans
(Dollar amounts in thousands)
(Dollar amounts in thousands)
Loans at June 30 are summarized as follows:
2010 | 2009 | 2008 | ||||||||||
Mortgage loans: |
||||||||||||
Residential: |
||||||||||||
1-4 Family |
$ | 660,685 | $ | 726,586 | $ | 828,516 | ||||||
Multifamily |
32,104 | 34,216 | 29,737 | |||||||||
Commercial |
117,054 | 114,827 | 113,622 | |||||||||
Other |
10,833 | 14,806 | 17,497 | |||||||||
820,676 | 890,435 | 989,372 | ||||||||||
Consumer loans |
184,207 | 185,818 | 176,948 | |||||||||
Commercial business loans |
40,445 | 44,602 | 43,643 | |||||||||
Loans on savings accounts |
5,427 | 5,031 | 6,147 | |||||||||
Gross loans |
1,050,755 | 1,125,886 | 1,216,110 | |||||||||
Less: |
||||||||||||
Loans in process |
135 | 60 | 236 | |||||||||
Allowance for loan losses |
19,209 | 17,960 | 15,249 | |||||||||
Unamortized discount (premium) and deferred loan fees |
(952 | ) | (1,070 | ) | (1,040 | ) | ||||||
$ | 1,032,363 | $ | 1,108,936 | $ | 1,201,665 | |||||||
38
Notes to Consolidated Financial Statements (Continued)
The following summary sets forth the activity in the allowance for loan losses for the years ended
June 30:
2010 | 2009 | 2008 | ||||||||||
Beginning balance |
$ | 17,960 | $ | 15,249 | $ | 14,189 | ||||||
Provision for loan losses |
7,448 | 6,754 | 2,331 | |||||||||
Loans recovered: |
||||||||||||
Commercial loans |
3 | 4 | 18 | |||||||||
Consumer loans |
46 | 31 | 54 | |||||||||
Mortgage loans |
1 | | 241 | |||||||||
Total recoveries |
50 | 35 | 313 | |||||||||
Loans charged off: |
||||||||||||
Commercial loans |
(752 | ) | (344 | ) | (372 | ) | ||||||
Consumer loans |
(542 | ) | (324 | ) | (453 | ) | ||||||
Mortgage loans |
(4,955 | ) | (3,410 | ) | (759 | ) | ||||||
Total charge-offs |
(6,249 | ) | (4,078 | ) | (1,584 | ) | ||||||
Net recoveries (charge-offs) |
(6,199 | ) | (4,043 | ) | (1,271 | ) | ||||||
Ending balance |
$ | 19,209 | $ | 17,960 | $ | 15,249 | ||||||
The following table sets forth the allowance for loan loss allocation for the years ended June 30:
2010 | 2009 | 2008 | ||||||||||
Residential mortgages |
$ | 9,659 | $ | 6,336 | $ | 3,893 | ||||||
Commercial mortgages |
3,789 | 4,523 | 4,739 | |||||||||
Consumer loans |
3,128 | 3,517 | 3,797 | |||||||||
Commercial loans |
2,633 | 3,584 | 2,820 | |||||||||
Total allowance for loan losses |
$ | 19,209 | $ | 17,960 | $ | 15,249 | ||||||
The loan portfolio is reviewed on a periodic basis to ensure Parkvales allowance for loan
losses is adequate to absorb potential losses due to inherent risk in the portfolio.
At June 30, 2010, Parkvale was committed under various agreements to originate fixed and
adjustable rate mortgage loans aggregating $3,069 and $838, respectively, at rates ranging from
4.344% to 5.217% for fixed rate and 3.729% to 5.00% for adjustable rate loans, and had $83,542 of
unused consumer lines of credit and $13,442 in unused commercial lines of credit. Parkvale was also
committed to originate commercial loans totaling $2,975 at June 30, 2010. Parkvale was committed to
fund commercial development loans in process of $3,391 and residential loans in process of $3,764.
Outstanding letters of credit totaled $7,064. Substantially all commitments are expected to expire
within a year.
At June 30, Parkvale serviced loans for others as follows: 2010 $62,484, 2009 $62,060
and 2008 $53,086.
At June 30, 2010, Parkvales loan portfolio consisted primarily of residential real estate
loans collateralized by single and multifamily residences, nonresidential real estate loans secured
by industrial and retail properties and consumer loans including lines of credit.
Parkvale has geographically diversified its mortgage loan portfolio, having loans outstanding
in 47 states and the District of Columbia. Parkvales highest concentrations are in the following
states/areas along with their respective share of the outstanding mortgage loan balance:
Pennsylvania -43.7%; Ohio -14.2%; and West Virginia -6.1%. The ability of debtors to honor these
contracts depends largely on economic conditions affecting the Pittsburgh, Columbus and
Steubenville, Ohio metropolitan areas, with repayment risk dependent on the cash flow of the
individual debtors. Substantially all mortgage loans are secured by real property with a loan
amount of generally no more than 80% of the appraised value at the time of origination. Mortgage
loans in excess of 80% of appraised value generally require private mortgage insurance.
39
Notes to Consolidated Financial Statements (Continued)
The recorded balance of impaired loans was $9,687 with a related allowance for loan losses of
$5,195 at June 30, 2010 compared to impaired loans of $7,440 with a related allowance for loan
losses of $2,567 at June 30, 2009. The recorded balance of impaired loans without a related
allowance for loan losses was $21,041 at June 30, 2010 and $15,345 at June 30, 2009. The average
recorded balance of impaired loans was $27,159 and $17,380 during fiscal 2010 and 2009
respectively. The amount of interest income that has not been recognized on nonaccrual and impaired
loans was $1,211 for fiscal 2010, $825 for fiscal 2009 and $426 for fiscal 2008.
Note D Office Properties and Equipment and Foreclosed Real Estate
(Dollar amounts in thousands)
(Dollar amounts in thousands)
Office properties and equipment at June 30 are summarized by major classification as follows:
2010 | 2009 | 2008 | ||||||||||
Land |
$ | 4,708 | $ | 4,708 | $ | 4,708 | ||||||
Office buildings and leasehold improvements |
17,902 | 17,863 | 17,779 | |||||||||
Furniture, fixtures and equipment |
13,495 | 13,234 | 13,026 | |||||||||
36,105 | 35,805 | 35,513 | ||||||||||
Less accumulated depreciation and amortization |
18,731 | 17,732 | 16,662 | |||||||||
Office properties and equipment, net |
$ | 17,374 | $ | 18,073 | $ | 18,851 | ||||||
Depreciation expense for the year |
$ | 998 | $ | 1,095 | $ | 1,229 | ||||||
A summary of foreclosed real estate at June 30 is as follows:
2010 | 2009 | 2008 | ||||||||||
Real estate acquired through foreclosure |
$ | 9,426 | $ | 6,470 | $ | 3,536 | ||||||
Allowance for losses |
(789 | ) | (776 | ) | (257 | ) | ||||||
$ | 8,637 | $ | 5,694 | $ | 3,279 | |||||||
Changes in the allowance for losses on foreclosed real estate for the years ended June 30 were as
follows:
2010 | 2009 | 2008 | ||||||||||
Beginning balance |
$ | 776 | $ | 257 | $ | 113 | ||||||
Provision for losses |
745 | 989 | 279 | |||||||||
Less charges to allowance |
(732 | ) | (470 | ) | (135 | ) | ||||||
Ending Balance |
$ | 789 | $ | 776 | $ | 257 | ||||||
40
Notes to Consolidated Financial Statements (Continued)
Note E Savings Deposits
(Dollar amounts in thousands)
(Dollar amounts in thousands)
The following schedule sets forth interest expense for the years ended June 30 by type of deposit:
2010 | 2009 | 2008 | ||||||||||
Checking and money market accounts |
$ | 1,877 | $ | 3,130 | $ | 4,644 | ||||||
Passbook and statement savings accounts |
877 | 1,280 | 1,569 | |||||||||
Certificates |
24,706 | 34,073 | 40,509 | |||||||||
$ | 27,460 | $ | 38,483 | $ | 46,722 | |||||||
A summary of savings deposits at June 30 is as follows:
2010 | 2009 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Transaction accounts: |
||||||||||||||||
Checking and money market accounts |
$ | 384,654 | 25.8 | $ | 342,596 | 22.7 | ||||||||||
Checking accounts noninterest-bearing |
80,961 | 5.4 | 75,615 | 5.0 | ||||||||||||
Passbook and statement savings accounts |
224,266 | 15.1 | 203,756 | 13.5 | ||||||||||||
689,881 | 46.3 | 621,967 | 41.2 | |||||||||||||
Certificates of deposit |
791,409 | 53.2 | 878,433 | 58.1 | ||||||||||||
1,481,290 | 99.5 | 1,500,400 | 99.3 | |||||||||||||
Accrued Interest |
6,783 | 0.5 | 10,848 | 0.7 | ||||||||||||
$ | 1,488,073 | 100.0 | $ | 1,511,248 | 100.0 | |||||||||||
The aggregate amount of time deposits over $100 was $202,483 and $218,527 at June 30, 2010 and
2009, respectively.
At June 30, the scheduled maturities of certificate accounts were as follows:
Maturity Period | 2010 | 2009 | ||||||
1-12 months |
$ | 404,199 | $ | 575,408 | ||||
13-24 months |
157,341 | 113,058 | ||||||
25-36 months |
131,171 | 83,987 | ||||||
37-48 months |
22,036 | 51,827 | ||||||
49-60 months |
41,952 | 14,694 | ||||||
Thereafter |
34,710 | 39,459 | ||||||
$ | 791,409 | $ | 878,433 | |||||
41
Notes to Consolidated Financial Statements (Continued)
Note F Advances from Federal Home Loan Bank and Other Debt
(Dollar amounts in thousands)
(Dollar amounts in thousands)
The advances from the FHLB at June 30 consisted of the following:
2010 | 2009 | |||||||||||||||
Balance | Interest Rate | Balance | Interest Rate | |||||||||||||
Due within one year |
$ | 35,097 | 4.12-6.05 | % | $ | | | % | ||||||||
Due within five years |
80,305 | 3.00-6.75 | % | 85,628 | 3.00-6.05 | % | ||||||||||
Due within ten years |
70,571 | 4.32-6.27 | % | 100,574 | 4.32-6.75 | % | ||||||||||
$ | 185,973 | $ | 186,202 | |||||||||||||
Weighted average interest rate at end of period | 4.90 | % | 4.86 | % | ||||||||||||
Included in the $185,973 are advances of $85,500 of convertible select advances. These
advances may reset to the three-month London Interbank Offered Rate (LIBOR) Index and have various
spreads and call dates. The FHLB has the right to call any convertible select advance on its call
date or quarterly thereafter. Should such advances be called, Parkvale has the right to pay off the
advance without penalty. The FHLB advances are secured by Parkvales FHLB stock and investment
securities and are subject to substantial prepayment penalties.
On December 30, 2008, PFC entered into a Loan Agreement with PNC Bank, National Association
(PNC) for a term loan in the amount of $25,000 (the Loan). The Loan pays interest at a rate
equal to LIBOR plus three hundred and twenty five basis points, payable quarterly. Principal on the
Loan is due and payable in fifteen consecutive quarterly payments of $625, commenced on March 31,
2010, with the remaining outstanding balance, which is expected to be $15,625, due and payable on
December 31, 2013 (the Maturity Date). The outstanding balance due under the credit facility may
be repaid, at any time, in whole or in part at the Corporations option. In connection with the
Loan, the Corporation executed a Term Note, dated December 30, 2008, to evidence the Loan and a
Pledge Agreement, dated December 30, 2008, whereby the Corporation granted PNC a security interest
in the outstanding capital stock of Parkvale Savings Bank, the wholly owned subsidiary of the
Corporation. The Loan Agreement contains customary and standard provisions regarding
representations and warranties of the Corporation, covenants and events of default. If the
Corporation has an event of default, the interest rate of the loan may increase by 2% during the
period of default. As of June 30, 2010, the Corporation did not meet the terms related to one of
the financial covenants contained in the Loan Agreement, which is considered an event of default.
This increased the interest rate on the term debt by 2%, which will result in a $125,000 quarterly
increase in interest expense.
On January 7, 2009, the Corporation entered into swap arrangements with PNC to convert
portions of the LIBOR floating interest rates to fixed interest rates for three and five years.
Under the swap agreements, $5,000 matures on December 31, 2011 at a rate of 4.92% and an additional
$15,000 matures on December 31, 2013 at a rate of 5.41%.
Additionally, other debt consists of recourse loans, repurchase agreements and commercial
investment agreements with certain commercial checking account customers. These daily borrowings
had balances of $13,865 and $21,261 at June 30, 2010 and 2009, respectively.
42
Note G Regulatory Capital
(Dollar amounts in thousands)
(Dollar amounts in thousands)
The Bank is subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on Parkvales financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Banks assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Banks capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios of total and Tier I capital to risk weighted assets and of Tier
I capital to average assets. Management believes, as of June 30, 2010, that the Bank meets all
capital adequacy requirements to which it is subject.
As of June 30, 2010, the most recent notification from the Federal Deposit Insurance
Corporation categorized Parkvale Savings Bank as well capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events since that notification that
management believes have changed the Banks category.
RESTATEMENT OF THE CAPITAL RATIOS
Subsequent to the issuance of our 2010 Consolidated Financial Statements, we determined that
the calculation of the disallowed portion of the Companys deferred tax asset was inadvertently
overlooked with respect to the Tier I Capital calculation and as a result the Banks actual capital
regulatory ratios as of June 30, 2010 should be restated. In all instances, the revised regulatory
capital amounts and corresponding ratios, as disclosed below, result in the Bank continuing to be
categorized as well capitalized under the regulatory framework.
43
The effect of the restatement on the 2010 Banks regulatory capital amounts is as follows:
AS PREVIOUSLY REPORTED:
The Banks actual regulatory capital amounts and ratios compared to minimum levels are as
follows:
To Be Well | ||||||||||||||||||||||||
Capitalized Under | ||||||||||||||||||||||||
For Capital | Prompt Corrective | |||||||||||||||||||||||
Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of June 30, 2010: |
||||||||||||||||||||||||
Total Capital to Risk Weighted Assets |
$ | 139,305 | 11.30 | % | $ | 98,661 | 8.00 | % | $ | 123,327 | 10.00 | % | ||||||||||||
Tier I Capital to Risk Weighted Assets |
125,291 | 10.16 | % | 49,331 | 4.00 | % | 73,996 | 6.00 | % | |||||||||||||||
Tier I Capital to Average Assets |
125,291 | 6.70 | % | 74,780 | 4.00 | % | 93,475 | 5.00 | % | |||||||||||||||
As of June 30, 2009: |
||||||||||||||||||||||||
Total Capital to Risk Weighted Assets |
$ | 158,880 | 11.41 | % | $ | 111,352 | 8.00 | % | $ | 139,190 | 10.00 | % | ||||||||||||
Tier I Capital to Risk Weighted Assets |
142,872 | 10.26 | % | 55,676 | 4.00 | % | 83,514 | 6.00 | % | |||||||||||||||
Tier I Capital to Average Assets |
142,872 | 7.57 | % | 75,506 | 4.00 | % | 94,383 | 5.00 | % |
AS RESTATED:
To Be Well | ||||||||||||||||||||||||
Capitalized Under | ||||||||||||||||||||||||
For Capital | Prompt Corrective | |||||||||||||||||||||||
Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
As of June 30, 2010: |
||||||||||||||||||||||||
Total Capital to Risk Weighted Assets |
$ | 129,125 | 10.57 | % | $ | 97,775 | 8.00 | % | $ | 122,219 | 10.00 | % | ||||||||||||
Tier I Capital to Risk Weighted Assets |
115,111 | 9.42 | % | 48,888 | 4.00 | % | 73,331 | 6.00 | % | |||||||||||||||
Tier I Capital to Average Assets |
115,111 | 6.19 | % | 74,372 | 4.00 | % | 92,966 | 5.00 | % | |||||||||||||||
As of June 30, 2009: |
||||||||||||||||||||||||
Total Capital to Risk Weighted Assets |
$ | 158,880 | 11.41 | % | $ | 111,352 | 8.00 | % | $ | 139,190 | 10.00 | % | ||||||||||||
Tier I Capital to Risk Weighted Assets |
142,872 | 10.26 | % | 55,676 | 4.00 | % | 83,514 | 6.00 | % | |||||||||||||||
Tier I Capital to Average Assets |
142,872 | 7.57 | % | 75,506 | 4.00 | % | 94,383 | 5.00 | % |
The restatement does not affect our Consolidated Statements of Operations, Consolidated Statements
of Financial Condition, Consolidated Statements of Cash Flows or Consolidated Statement of
Shareholders Equity as of or for the years ended June 30, 2010, 2009 and 2008. Accordingly, our
previously reported revenues, net (loss) income, earnings per share and total assets as of and for
the years ended June 30, 2010, 2009 and 2008 remain unchanged.
44
Notes to Consolidated Financial Statements (Continued)
Note H Income Taxes
(Dollar amounts in thousands)
(Dollar amounts in thousands)
Income tax expense (credits) for the years ended June 30 are comprised of:
2010 | 2009 | 2008 | ||||||||||||||
Federal: |
Current | ($7,892 | ) | $ | 4,433 | $ | 6,355 | |||||||||
Deferred | (2,713 | ) | (7,129 | ) | (1,779 | ) | ||||||||||
State |
2 | | 23 | |||||||||||||
Total income tax (benefit) expense | ($10,603 | ) | ($2,696 | ) | $ | 4,599 | ||||||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of Parkvales deferred tax assets and liabilities at June 30
are as follows:
2010 | 2009 | 2008 | ||||||||||||||
Deferred tax assets: |
||||||||||||||||
Book bad debt reserves |
$ | 4,871 | $ | 5,354 | $ | 5,138 | ||||||||||
Deferred compensation |
422 | 408 | 361 | |||||||||||||
Interest on deposits |
213 | 807 | 1,180 | |||||||||||||
Net operating loss carryforward |
5,570 | | 1,277 | |||||||||||||
Other tax credit carryforward |
2,796 | | | |||||||||||||
Asset writedowns |
20,339 | 10,607 | 1,194 | |||||||||||||
Other |
80 | 357 | 457 | |||||||||||||
Total deferred tax assets |
34,291 | 17,533 | 9,607 | |||||||||||||
Deferred tax liabilities: |
||||||||||||||||
Purchase accounting adjustments |
138 | 279 | 354 | |||||||||||||
Fixed assets |
142 | 105 | 99 | |||||||||||||
Other, net |
49 | 49 | 49 | |||||||||||||
Deferred loan costs and premiums, net of fees |
(33 | ) | 19 | 57 | ||||||||||||
Unrealized gains on securities available for sale |
(1 | ) | 535 | | ||||||||||||
Total deferred tax liabilities |
295 | 987 | 559 | |||||||||||||
Valuation allowances on equity security writedowns |
(1,632 | ) | (2,366 | ) | | |||||||||||
Net deferred tax assets |
$ | 32,364 | $ | 14,180 | $ | 9,048 | ||||||||||
The net deferred tax asset of $32,364 as of June 30, 2010 includes $5,570 of net operating
loss carryforward that is available for a two- year carryback and a twenty-year carryforward
period. This net operating loss carryforward will begin to expire after December 31, 2029. The
$2,796 of other tax credit carryforward has an indefinite life. The valuation allowances recorded
at June 30, 2010 and June 30, 2009 were related to writedowns on equity securities that are
unlikely to be tax deductible or predicted to offset future capital gain income. The valuation
allowance decreased by $734 in fiscal 2010 due to the subsequent recovery on the sale of preferred
stock.
Parkvales effective tax rate differs from the expected federal income tax rate for the years
ended June 30 as
follows: | 2010 | 2009 | 2008 | |||||||||||||||||||||
Expected federal statutory income |
||||||||||||||||||||||||
Tax provision(benefit)/rate |
($9,474 | ) | (35.0 | %) | ($4,283 | ) | (35.0 | %) | $ | 6,091 | 35.0 | % | ||||||||||||
Tax-exempt interest |
(222 | ) | (0.8 | %) | (224 | ) | (1.8 | %) | (229 | ) | (1.3 | %) | ||||||||||||
Cash surrender value of life insurance |
(383 | ) | (1.4 | %) | (386 | ) | (3.1 | %) | (377 | ) | (2.2 | %) | ||||||||||||
Dividends paid to ESOP participants |
(50 | ) | (0.2 | %) | (184 | ) | (1.5 | %) | (175 | ) | (1.0 | %) | ||||||||||||
State income taxes, net of federal benefit |
| 0.0 | % | | 0.0 | % | 15 | 0.1 | % | |||||||||||||||
Valuation allowances on equity securities |
(734 | ) | (2.7 | %) | 2,366 | 19.3 | % | | 0.0 | % | ||||||||||||||
Other |
260 | 0.9 | % | 13 | 0.1 | % | (726 | ) | (4.1 | %) | ||||||||||||||
Effective total income tax (benefit) provision |
($10,603 | ) | (39.2 | %) | ($2,696 | ) | (22.0 | %) | $ | 4,599 | 26.5 | % | ||||||||||||
The Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax, which is calculated at
11.5% of Pennsylvania earnings based on accounting principles generally accepted in the United
States with certain adjustments.
45
Notes to Consolidated Financial Statements (Continued)
The Corporation had no material unrecognized tax benefits or accrued interest or penalties at
June 30, 2010. If applicable, interest and penalties will be recorded as a component of noninterest
expense. The Corporation is subject to income taxes in the U.S. and various state jurisdictions.
Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws
and regulations and require application of significant judgment. With few exceptions, the Company
is no longer subject to U.S. federal, state and local tax examinations by tax authorities for the
years before 2006.
Note I Employee Compensation Plans
(Dollar amounts in thousands)
(Dollar amounts in thousands)
Retirement Plan
Parkvale provides eligible employees participation in a 401(k) defined contribution plan.
Benefit expense was $257, $450 and $429 in fiscal years 2010, 2009 and 2008, respectively, which
represented a 50% company match on employees salary deferrals, up to a maximum of 6% of the
employees salary and for fiscal years 2009 and 2008, a profit sharing contribution equal to 2% of
eligible compensation.
Employee Stock Ownership Plan
Parkvale also provides an Employee Stock Ownership Plan (ESOP) to all employees who have met
minimum service and age requirements. Parkvale recognized expense of $584 in fiscal 2010, $560 in
fiscal 2009 and $675 in fiscal 2008 for ESOP contributions, which were used to allocate additional
shares of Parkvales Common Stock to the ESOP. Annual discretionary share awards are made on a
calendar year basis with expense recognition accrued ratably throughout the year based on expected
awards. At June 30, 2010, the ESOP owned 728,605 shares of Parkvale Common Stock, which are
outstanding shares for EPS purposes. Cash dividends are paid quarterly to the ESOP for either
dividend re-investment or distribution to vested participants at their election.
Stock Option Plans
Parkvale has Stock Option Plans for the benefit of directors, officers and other selected key
employees of Parkvale who are deemed to be responsible for the future growth of Parkvale. Under the
plans initiated in 1987 and 1993, there will be no further awards.
In October 2004, the 2004 Stock Incentive Plan (the Incentive Plan) was approved by the
shareholders with an aggregate of 267,000 shares of authorized but unissued shares reserved for
future grants. As of June 30, 2010, stock options for 174,500 shares have been granted and are
exercisable. Parkvale measures compensation costs for all share-based payments at fair value. Stock
option pre-tax compensation expense of $27, $90 and $272 has been recognized for fiscal 2010, 2009
and 2008, respectively in the Statement of Operations.
46
Notes to Consolidated Financial Statements (Continued)
The following table presents option share data related to the stock option plans for the years
indicated.
Exercise Price Per
Share |
$ | 8.49 | $ | 12.97 | $ | 15.00 | $ | 16.32 to $23.20 | $ | 21.10 | # | $ | 22.995 | $ | 25.71^ | $ | 26.79 | * | $ | 27.684 | $ | 31.80 | Total | |||||||||||||||||||||
Share balances at: |
||||||||||||||||||||||||||||||||||||||||||||
June 30, 2007 |
| | | 69,599 | 42,000 | 110,500 | 28,000 | | 10,000 | 12,000 | 272,099 | |||||||||||||||||||||||||||||||||
Granted |
95,500 | 95,500 | ||||||||||||||||||||||||||||||||||||||||||
Forfeited |
(3,586 | ) | (1,000 | ) | (4,586 | ) | ||||||||||||||||||||||||||||||||||||||
Exercised |
(16,373 | ) | (5,000 | ) | (750 | ) | (22,123 | ) | ||||||||||||||||||||||||||||||||||||
June 30, 2008 |
| | | 49,640 | 37,000 | 108,750 | 28,000 | 95,500 | 10,000 | 12,000 | 340,890 | |||||||||||||||||||||||||||||||||
Granted |
23,000 | 12,000 | 35,000 | |||||||||||||||||||||||||||||||||||||||||
Forfeited |
(48,640 | ) | (6,000 | ) | (1,000 | ) | (3,000 | ) | (58,640 | ) | ||||||||||||||||||||||||||||||||||
Exercised |
(1,000 | ) | (1,000 | ) | ||||||||||||||||||||||||||||||||||||||||
June 30, 2009 |
| 23,000 | 12,000 | | 31,000 | 107,750 | 28,000 | 92,500 | 10,000 | 12,000 | 316,250 | |||||||||||||||||||||||||||||||||
Granted |
12,000 | 12,000 | ||||||||||||||||||||||||||||||||||||||||||
Forfeited |
(16,000 | ) | (16,000 | ) | ||||||||||||||||||||||||||||||||||||||||
June 30, 2010 |
12,000 | 23,000 | 12,000 | | 15,000 | 107,750 | 28,000 | 92,500 | 10,000 | 12,000 | 312,250 | |||||||||||||||||||||||||||||||||
* | Represents the average exercise price of awards made in October 2007 and December 2007. | |
# | Represents the average remaining exercise price of awards made in fiscal 1999 through fiscal 2002. | |
^ | Represents the average remaining exercise price of Director awards made in fiscal 2003 through fiscal 2005. |
Black-Scholes option pricing model assumptions are as follows:
2010 | 2009 | 2008 | ||||||||||
Weighted average grant date fair value per option |
$ | 2.26 | $ | 2.55 | $ | 2.76 | ||||||
Risk-free rate |
2.86 | % | 1.17 | % | 3.82 | % | ||||||
Dividend yield |
2.36 | % | 2.60 | % | 3.28 | % | ||||||
Volatility factor |
0.28 | 0.38 | 0.21 | |||||||||
Expected Life in years |
8 | 8 | 7 | |||||||||
Note J Net Gain (Loss) on Sale and (Writedown) of Assets
(Dollar amounts in thousands)
(Dollar amounts in thousands)
The following chart summarizes the gains, losses and writedowns by fiscal year ended June 30:
2010 | 2009 | 2008 | ||||||||||
Loans held for sale |
$ | | $ | 186 | $ | | ||||||
Available for sale securities gains/recoveries |
2,372 | 2,060 | 581 | |||||||||
(Writedown) of securities: |
||||||||||||
Trust preferred securities |
(45,068 | ) | (18,060 | ) | | |||||||
Bank of America preferred stocks |
| (6,269 | ) | | ||||||||
Freddie Mac preferred stocks |
| (2,772 | ) | (1,441 | ) | |||||||
Common equities |
| (1,401 | ) | (1,714 | ) | |||||||
Corporate debt |
| (1,361 | ) | | ||||||||
Non-agency CMO |
(19,594 | ) | (1,766 | ) | | |||||||
Subtotal of writedowns and losses |
(64,662 | ) | (31,629 | ) | (3,155 | ) | ||||||
Non-credit related losses on securities
recognized in other comprehensive income |
25,685 | 1,266 | ||||||||||
Net loss on sale and writedown of assets |
$ | (36,605 | ) | $ | (28,117 | ) | $ | (2,574 | ) | |||
47
Notes to Consolidated Financial Statements (Continued)
Note K Leases
(Dollar amounts in thousands)
(Dollar amounts in thousands)
Parkvales rent expense for leased real properties amounted to approximately $1,319 in 2010,
$1,327 in 2009 and $1,308 in 2008. At June 30, 2010, Parkvale was obligated under 24 noncancellable
operating leases, which expire through 2041. The minimum rental commitments for the fiscal years
subsequent to June 30, 2010 are as follows: 2011 $1,104, 2012 $783, 2013 $713, 2014
$532, 2015 $319 and later years $2,317.
Note L Selected Balance Sheet Information
(Dollar amounts in thousands)
(Dollar amounts in thousands)
Selected balance sheet data at June 30 is summarized as follows:
Prepaid expenses and other assets: | 2010 | 2009 | Other liabilities: | 2010 | 2009 | |||||||||||||||
Accrued interest on loans |
$ | 4,936 | $ | 4,989 | Accounts payable and accrued expenses | $ | 1,976 | $ | 2,130 | |||||||||||
Reserve for uncollected interest |
(1,211 | ) | (825 | ) | Other liabilities | 891 | 1,761 | |||||||||||||
Bank Owned Life Insurance |
25,288 | 24,188 | Dividends payable | 479 | 474 | |||||||||||||||
Accrued interest on investments |
2,473 | 2,853 | Accrued interest on debt | 902 | 865 | |||||||||||||||
Prepaid FDIC Insurance |
12,002 | 568 | Federal and state | |||||||||||||||||
Other prepaids |
1,754 | 1,706 | income taxes payable | 1 | 46 | |||||||||||||||
Net deferred tax asset |
32,364 | 14,180 | ||||||||||||||||||
Total prepaid expenses and other assets |
$ | 77,606 | $ | 47,659 | Total other liabilities | $ | 4,249 | $ | 5,276 | |||||||||||
Note M Quarterly Consolidated Statements of Operations (Unaudited)
(Dollar amounts in thousands, except per share data)
(Dollar amounts in thousands, except per share data)
Year | ||||||||||||||||||||
Three Months Ended | Ended | |||||||||||||||||||
Sep. 09 | Dec. 09 | Mar. 10 | June 10 | June 10 | ||||||||||||||||
Total interest income |
$ | 20,022 | $ | 19,300 | $ | 18,632 | $ | 17,907 | $ | 75,861 | ||||||||||
Total interest expense |
10,704 | 10,210 | 9,218 | 8,383 | 38,515 | |||||||||||||||
Net interest income |
9,318 | 9,090 | 9,414 | 9,524 | 37,346 | |||||||||||||||
Provision for loan losses |
2,289 | 1,398 | 1,164 | 2,597 | 7,448 | |||||||||||||||
Net interest income after
provision for losses |
7,029 | 7,692 | 8,250 | 6,927 | 29,898 | |||||||||||||||
Net impairment losses recognized in earnings |
(2,761 | ) | (782 | ) | (1,044 | ) | (34,390 | ) | (38,977 | ) | ||||||||||
Noninterest income |
3,664 | 3,588 | 2,551 | 2,640 | 12,443 | |||||||||||||||
Noninterest expense |
7,592 | 7,314 | 7,867 | 7,659 | 30,432 | |||||||||||||||
Income (loss) before income taxes |
340 | 3,184 | 1,890 | (32,482 | ) | (27,068 | ) | |||||||||||||
Income tax expense (benefit) |
(515 | ) | 759 | 472 | (11,319 | ) | (10,603 | ) | ||||||||||||
Net income (loss) |
$ | 855 | $ | 2,425 | $ | 1,418 | $ | (21,163 | ) | $ | (16,465 | ) | ||||||||
Preferred Stock Dividend |
397 | 397 | 397 | 397 | 1,588 | |||||||||||||||
Income (loss) to common shareholders |
$ | 458 | $ | 2,028 | $ | 1,021 | $ | (21,560 | ) | $ | (18,053 | ) | ||||||||
Net income (loss) per common share: |
||||||||||||||||||||
Basic |
$ | 0.08 | $ | 0.38 | $ | 0.18 | $ | (3.94 | ) | $ | (3.30 | ) | ||||||||
Diluted |
$ | 0.08 | $ | 0.38 | $ | 0.18 | $ | (3.94 | ) | $ | (3.30 | ) | ||||||||
48
Notes to Consolidated Financial Statements (Continued)
Year | ||||||||||||||||||||
Three Months Ended | Ended | |||||||||||||||||||
Sep. 08 | Dec. 08 | Mar. 09 | June 09 | June 09 | ||||||||||||||||
Total interest income |
$ | 23,820 | $ | 23,135 | $ | 22,028 | $ | 21,500 | $ | 90,483 | ||||||||||
Total interest expense |
12,923 | 12,513 | 12,068 | 11,342 | 48,846 | |||||||||||||||
Net interest income |
10,897 | 10,622 | 9,960 | 10,158 | 41,637 | |||||||||||||||
Provision for loan losses |
1,027 | 2,129 | 1,826 | 1,772 | 6,754 | |||||||||||||||
Net interest income after
provision for losses |
9,870 | 8,493 | 8,134 | 8,386 | 34,883 | |||||||||||||||
Net impairment losses recognized in earnings |
(3,940 | ) | (1,060 | ) | (20,909 | ) | (4,454 | ) | (30,363 | ) | ||||||||||
Noninterest income |
2,758 | 2,613 | 2,714 | 4,577 | 12,662 | |||||||||||||||
Noninterest expense |
7,096 | 7,151 | 7,246 | 7,927 | 29,420 | |||||||||||||||
Income (loss) before income taxes |
1,592 | 2,895 | (17,307 | ) | 582 | (12,238 | ) | |||||||||||||
Income tax expense |
487 | 830 | (3,237 | ) | (776 | ) | (2,696 | ) | ||||||||||||
Net income (loss) |
$ | 1,105 | $ | 2,065 | $ | (14,070 | ) | $ | 1,358 | $ | (9,542 | ) | ||||||||
Preferred Stock Dividend |
0 | 35 | 397 | 397 | 829 | |||||||||||||||
Income (loss) to common shareholders |
$ | 1,105 | $ | 2,030 | $ | (14,467 | ) | $ | 961 | $ | (10,371 | ) | ||||||||
Net income (loss) per common share: |
||||||||||||||||||||
Basic |
$ | 0.20 | $ | 0.37 | $ | (2.65 | ) | $ | 0.18 | $ | (1.90 | ) | ||||||||
Diluted |
$ | 0.20 | $ | 0.37 | $ | (2.65 | ) | $ | 0.18 | $ | (1.90 | ) | ||||||||
Note N Parent Company Condensed Financial Statements
(Dollar amounts in thousands)
(Dollar amounts in thousands)
The condensed balance sheets and statements of income and cash flows for Parkvale Financial
Corporation as of June 30, 2010 and 2009 and the years then ended are presented below. PFCs
primary subsidiary is Parkvale Savings Bank (PSB).
Statements of Financial Condition | 2010 | 2009 | ||||||
Assets: |
||||||||
Investment in PSB |
$ | 140,889 | $ | 172,292 | ||||
Cash |
1,750 | 2,790 | ||||||
Other equity investments |
680 | 574 | ||||||
Other assets |
343 | 433 | ||||||
Deferred taxes |
157 | 220 | ||||||
Total assets |
$ | 143,819 | $ | 176,309 | ||||
Liabilities and Shareholders Equity: |
||||||||
Accounts payable |
$ | 645 | $ | 75 | ||||
Term debt |
23,750 | 25,000 | ||||||
Dividends payable |
480 | 474 | ||||||
Shareholders equity |
118,944 | 150,760 | ||||||
Total liabilities and shareholders equity |
$ | 143,819 | $ | 176,309 | ||||
49
Notes to Consolidated Financial Statements (Continued)
Statements of Operations | 2010 | 2009 | 2008 | |||||||||
Dividends from PSB |
$ | 3,400 | $ | 1,950 | $ | 17,050 | ||||||
(Loss) gain on sale of assets |
| (1,376 | ) | (1,714 | ) | |||||||
Other income |
162 | 200 | 360 | |||||||||
Operating expenses |
(1,274 | ) | (1,002 | ) | 5 | |||||||
Income before equity in undistributed
earnings
of subsidiary |
2,288 | (228 | ) | 15,701 | ||||||||
Equity in undistributed income (loss) of PSB |
(18,753 | ) | (9,314 | ) | (2,898 | ) | ||||||
Net income (loss) |
$ | (16,465 | ) | $ | (9,542 | ) | $ | 12,803 | ||||
Year ended June 30, | ||||||||||||
Statements of Cash Flows | 2010 | 2009 | 2008 | |||||||||
| | | | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Management fee income received |
$ | 144 | $ | 144 | $ | 144 | ||||||
Dividends received |
3,400 | 1,950 | 17,050 | |||||||||
Taxes received from PSB |
425 | 276 | 182 | |||||||||
Payment of trust preferred securities |
| | (7,200 | ) | ||||||||
Cash paid to suppliers |
(1,779 | ) | (797 | ) | (352 | ) | ||||||
Net cash provided by operating activities |
2,190 | 1,573 | 9,824 | |||||||||
Cash flows from investing activities: |
||||||||||||
(Repayment) proceeds of term debt |
(1,250 | ) | 25,000 | | ||||||||
Proceeds of TARP CPP |
| 31,762 | | |||||||||
Additional Investment in PSB |
| (50,000 | ) | | ||||||||
Proceeds from available for sale security sales |
| 368 | 111 | |||||||||
Purchases of available for sale securities |
| | (1,168 | ) | ||||||||
Net cash (used in) provided by investing activities |
(1,250 | ) | 7,130 | (1,057 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Payment for treasury stock |
| (717 | ) | (4,949 | ) | |||||||
Allocation of treasury stock to benefit plans |
703 | | 838 | |||||||||
Dividends paid to stockholders |
(2,683 | ) | (5,426 | ) | (4,860 | ) | ||||||
Stock options exercised |
| 21 | 172 | |||||||||
Net cash used in financing activities |
(1,980 | ) | (6,122 | ) | (8,799 | ) | ||||||
Net increase (decrease) in cash and cash equivalents |
(1,040 | ) | 2,581 | (32 | ) | |||||||
Cash and cash equivalents at beginning of year |
2,790 | 209 | 241 | |||||||||
Cash and cash equivalents at end of year |
$ | 1,750 | $ | 2,790 | $ | 209 | ||||||
Net (loss) income |
$ | (16,465 | ) | $ | (9,542 | ) | $ | 12,803 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||
Distributed (undistributed) income of PSB |
18,753 | 9,314 | 2,898 | |||||||||
Taxes received from PSB |
425 | 276 | 182 | |||||||||
Decrease of trust preferred securities |
| | (7,200 | ) | ||||||||
(Increase) in other assets |
90 | 1,482 | 793 | |||||||||
Decrease (increase) in accrued expenses |
(613 | ) | 43 | 348 | ||||||||
Net cash (used in) provided by operating activities |
$ | 2,190 | $ | 1,573 | $ | 9,824 | ||||||
50
Note O Fair Value of Financial Instruments
(Dollar amounts in thousands)
(Dollar amounts in thousands)
US GAAP requires a hierarchal disclosure framework associated with the level of pricing
observations utilized in measuring assets and liabilities at fair value. This hierarchy requires
the use of observable market data when available. The three broad levels of hierarchy are as
follows:
Level I
|
Quoted prices are available in the active markets for identical assets or liabilities as of the measurement date. | |
Level II
|
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the measurement date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed. | |
Level III
|
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Level III valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. |
The following table presents the assets and liabilities reported on the consolidated statements of
financial condition at their fair value as of June 30, 2010 by level within the fair value
hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. Equity securities in the
available-for-sale security portfolio are measured at fair value using quoted market prices and
classified within Level I of the valuation hierarchy. OTTI held to maturity investments without
quoted market prices are classified within Level III of the valuation hierarchy. Interest rate
swaps are fair valued using other similar financial instruments and are classified as Level II.
Financial Instruments - Measured on a recurring basis | Level I | Level II | Level III | Total | ||||||||||||
Assets: Available for sale securities Non-agency CMOs |
$ | | $ | 59,804 | | $ | 59,804 | |||||||||
Available for sale securities Common equities |
682 | 682 | ||||||||||||||
Available for sale securities Mutual fund |
5,284 | 5,284 | ||||||||||||||
Interest rate swaps |
| 494 | | 494 |
The following table presents the assets measured on a nonrecurring basis on the consolidated
statements of financial condition at their fair value as of June 30, 2010. In cases where valuation
techniques included inputs that are unobservable and are based on estimates and assumptions
developed by the reporting entity based on the best information available under each circumstance,
the asset valuation is classified as Level III inputs. Trust preferred securities and impaired
loans are measured using Level III valuation hierarchy. The estimated fair value of foreclosed
real estate is determined by an independent market based appraisal less costs to sell and is
classified as Level II.
Level I | Level II | Level III | Total | |||||||||||||
Assets Measured on a Nonrecurring Basis: |
||||||||||||||||
OTTI Held to maturity trust preferred securities |
| | $ | 6,652 | $ | 6,652 | ||||||||||
Impaired loans |
| | 9,687 | 9,687 | ||||||||||||
Impaired foreclosed real estate |
| 2,347 | | 2,347 |
US GAAP requires the determination of fair value for certain assets, liabilities and contingent
liabilities. The carrying amount approximates fair value for the following categories:
Cash and Noninterest-Bearing Deposits, which includes noninterest-bearing demand deposits
Federal Funds Sold
Interest-Earning Deposits in Other Banks
Accrued interest
Cash Surrender Value (CSV) of Bank Owned Life Insurance (BOLI)
Checking, savings and money market accounts
Federal Funds Sold
Interest-Earning Deposits in Other Banks
Accrued interest
Cash Surrender Value (CSV) of Bank Owned Life Insurance (BOLI)
Checking, savings and money market accounts
51
The following methods and assumptions were used to estimate the fair value of other classes of
financial instruments as of June 30, 2010 and June 30, 2009.
Investment Securities: The fair values of investment securities are obtained from the Interactive
Data Corporation pricing service and various investment brokers for securities not available from
public sources. Prices on certain trust preferred securities were calculated using a cash flow
model discounted using current LIBOR plus a market spread for longer term securities as permitted
for Level III assets when market quotes are not available. See accompanying notes for additional
information on investment securities.
Loans Receivable: Fair values were estimated by discounting contractual cash flows using interest
rates currently being offered for loans with similar credit quality adjusted for prepayment
assumptions.
Deposit Liabilities: Fair values of commercial investment agreements and fixed-maturity
certificates of deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on commercial investment agreements or time deposits of
similar remaining maturities.
Advances from Federal Home Loan Bank: Fair value is determined by discounting the advances using
estimated incremental borrowing rates for similar types of borrowing arrangements.
Term Debt and Other Debt: Fair value is determined by discounting the term and other debt using
estimated incremental borrowing rates for similar types of borrowing arrangements.
Off-Balance-Sheet Instruments: Fair value for off-balance-sheet instruments (primarily loan
commitments) are estimated using internal valuation models and are limited to fees charged to enter
into similar agreements, taking into account the remaining terms of the agreements and the
counterparties credit standing. Unused consumer and commercial lines of credit are assumed equal
to the outstanding commitment amount due to the variable interest rate attached to these lines of
credit.
2010 | 2009 | |||||||||||||||
Estimated | Carrying | Estimated | Carrying | |||||||||||||
Fair Value | Value | Fair Value | Value | |||||||||||||
Financial Assets: |
||||||||||||||||
Cash and noninterest-earning deposits |
$ | 17,736 | $ | 17,736 | $ | 15,381 | $ | 15,381 | ||||||||
Federal funds sold |
135,773 | 135,773 | 150,510 | 150,510 | ||||||||||||
Interest-earning deposits in other
banks |
801 | 801 | 3,899 | 3,899 | ||||||||||||
Investment securities AFS |
65,770 | 65,778 | 9,679 | 8,215 | ||||||||||||
Investment securities HTM |
437,931 | 443,452 | 504,029 | 438,745 | ||||||||||||
FHLB stock |
14,357 | 14,357 | 13,826 | 13,826 | ||||||||||||
Loans receivable |
1,087,009 | 1,050,755 | 1,154,459 | 1,125,886 | ||||||||||||
Accrued interest receivable |
7,409 | 7,409 | 7,842 | 7,842 | ||||||||||||
CSV of BOLI |
25,288 | 25,288 | 24,188 | 24,188 | ||||||||||||
Financial Liabilities: |
||||||||||||||||
Checking, savings and
money market accounts |
$ | 689,881 | $ | 689,881 | $ | 621,967 | $ | 621,967 | ||||||||
Certificates of deposit |
812,339 | 791,709 | 900,017 | 878,433 | ||||||||||||
Advances from Federal
Home Loan Bank |
204,699 | 185,973 | 199,156 | 186,202 | ||||||||||||
Term Debt |
24,244 | 23,750 | 24,673 | 25,000 | ||||||||||||
Commercial investment agreements |
13,156 | 13,865 | 21,136 | 21,261 | ||||||||||||
Accrued interest payable |
902 | 902 | 865 | 865 | ||||||||||||
Off-Balance Sheet Instruments
Loan Commitments |
$ | 118 | $ | | $ | 13 | $ | | ||||||||
52
Part IV.
Item 9A. Controls and Procedures.
The Corporations management, under the supervision of and with the participation of the
Corporations Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of
the design and effectiveness of the Corporations disclosure controls and procedures as defined in
Rule 13a-15e and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period
covered by this amended report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the Corporations disclosure
controls and procedures are designed to ensure that all material information required to be
disclosed in reports the Corporation files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms.
There were no significant changes in the Corporations internal control over financial reporting
that occurred during the period covered by this amended report that have materially affected, or
that are reasonably likely to affect, our internal control over financial reporting.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Parkvale Financial Corporation (the Company) is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
| Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | ||
| Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the board of directors of the Company; and | ||
| Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to risk that controls may become inadequate because of changes in conditions or because of
declines in the degree of compliance with the policies or procedures.
The Companys management assessed the effectiveness of the Companys internal control over
financial reporting as of June 30, 2010. In making this assessment, the Companys management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
As of June 30, 2010, based on managements assessment, the Companys internal control over
financial reporting was effective.
ParenteBeard LLC, the Companys independent registered public accounting firm, has issued an
audit report on our assessment of the Companys internal control over financial reporting. See
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting within this report.
Robert J. McCarthy, Jr.
|
Gilbert A. Riazzi | ||
President and Chief Executive Officer
|
Chief Financial Officer | ||
November 12, 2010 |
53
Report of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting
On Internal Control Over Financial Reporting
Board of Directors and Shareholders
Parkvale Financial Corporation
Parkvale Financial Corporation
We have audited Parkvale Financial Corporation and subsidiaries internal control over financial
reporting as of June 30, 2010, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Parkvale Financial Corporations management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Parkvale Financial Corporation and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of June 30, 2010, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated statement of financial condition of Parkvale Financial
Corporation and subsidiaries as of June 30, 2010, and the related consolidated statements of
operations, shareholders equity, and cash flows for the year then ended, and our report dated
September 13, 2010 expressed an unqualified opinion.
/s/ ParenteBeard LLC
Pittsburgh, Pennsylvania
September 13, 2010, except for Note G, as to which the date is November 12, 2010
September 13, 2010, except for Note G, as to which the date is November 12, 2010
54
Item 15. Exhibits and Financial Statement Schedules
(a) (1) Financial Statements
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Item 7 | |
Managements Report on Internal Control over Financial Reporting
|
Item 9A | |
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
|
Item 9A | |
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
|
Item 8 | |
Consolidated Statements of Financial Condition at June 30, 2010 and 2009
|
Item 8 | |
Consolidated Statements of Operations for each of the three years in the period ended June 30, 2010
|
Item 8 | |
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2010
|
Item 8 | |
Consolidated Statements of Shareholders Equity for each of the three years in the period ended
June 30, 2010
|
Item 8 | |
Notes to Consolidated Financial Statements
|
Item 8 |
(a) (2) Financial Statements Schedules
All financial statement schedules have been omitted as the required information is
inapplicable or has been included in the Consolidated Financial Statements or notes thereto.
(a) (3) Exhibits
No. | Exhibits | Reference | ||
3.1
|
Articles of Incorporation | A | ||
Amendment to Articles of Incorporation | D | |||
3.2
|
Statement with respect to Shares (certificate of Designations) for the Series A Preferred Stock | G | ||
3.3
|
Amended and Restated Bylaws | D | ||
4.1
|
Common Stock Certificate | A | ||
4.2
|
Form of Stock Certificate for the Series A Preferred Stock | G | ||
4.3
|
Warrant to Purchase Shares of Common Stock | G | ||
10.1
|
1993 Key Employee Stock Compensation Program | B | ||
10.2
|
1993 Directors Stock Option Plan | E | ||
10.3
|
Amended and Restated 2004 Stock Incentive Plan | D | ||
10.4
|
Consulting Agreement with Robert D. Pfischner | C | ||
10.5
|
Amended and Restated Employment Agreement with Robert J. McCarthy, Jr. | D | ||
10.6
|
Change in Control Severance Agreement with Gilbert A. Riazzi | F | ||
10.7
|
Amended and Restated Change in Control Severance Agreement with Gail B. Anwyll | D | ||
10.8
|
Amended and Restated Change in Control Severance Agreement with Thomas R. Ondek | D | ||
10.9
|
Amended and Restated Executive Deferred Compensation Plan | D | ||
10.10
|
Amended and Restated Supplemental Executive Benefit Plan | D | ||
10.11
|
Letter Agreement (including the Securities Purchase Agreement Standard Terms) Between Parkvale Financial Corporation and the United States Department of the Treasury, dated December 23, 2008 | G | ||
10.12
|
Form of Waiver executed by each of Robert J. McCarthy, Jr., Gilbert A. Riazzi, Thomas R. Ondek and Gail B. Anwyll | G | ||
10.13
|
Form of Letter Agreement between Parkvale Financial Corporation and each of Robert J. McCarthy, Jr., Gilbert A. Riazzi, Thomas R. Ondek and Gail B. Anwyll | G | ||
10.14
|
Letter Agreement for Term Loan between Parkvale Financial Corporation and PNC Bank, National Association, dated December 30, 2008 | H | ||
10.15
|
Term Note between Parkvale Financial Corporation and PNC Bank, National Association, dated December 30, 2008 | H | ||
10.16
|
Pledge Agreement between Parkvale Financial Corporation and PNC Bank, National Association, dated December 30, 2008 | H | ||
10.17
|
Waiver and First Amendment to Loan Documents between Parkvale Financial Corporation and PNC Bank, National Association, dated June 30, 2010 | |||
23
|
Consent of Independent Registered Public Accounting Firm | |||
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 | |||
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 | |||
32.1
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
55
A
|
Incorporated by reference to the Registrants Form 8-B filed with the SEC on January 5, 1989. | |
B
|
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. | |
C
|
Incorporated by reference to Form 10-K filed by the Registrant with the SEC on September 28, 1994. | |
D
|
Incorporated by reference to Form 8-K filed by the Registrant with the SEC on December 28, 2007. | |
E
|
Incorporated by reference to Form 10-K filed by the Registrant with the SEC on September 24, 1998. | |
F
|
Incorporated by reference to Form 8-K filed by the Registrant with the SEC on February 3, 2010. | |
G
|
Incorporated by reference to Form 8-K filed by the Registrant with the SEC on December 24, 2008. | |
H
|
Incorporated by reference to Form 8-K filed by the Registrant with the SEC on December 31, 2008. |
56
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: November 12, 2010 | 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.
|
November 12, 2010
|
|||
Robert J. McCarthy, Jr.
|
Date | |||
Director, President and |
||||
Chief Executive Officer |
||||
/s/ Gilbert A. Riazzi
|
November 12, 2010 | |||
Gilbert A. Riazzi
|
Date | |||
Chief Financial Officer |
||||
/s/ Robert D. Pfischner
|
November 12, 2010 | |||
Robert D. Pfischner, Chairman of the Board
|
Date | |||
/s/ Fred P. Burger, Jr.
|
November 12, 2010 | |||
Fred P. Burger, Jr., Director
|
Date | |||
/s/ Andrea F. Fitting
|
November 12, 2010 | |||
Andrea F. Fitting, Director
|
Date | |||
/s/ Stephen M. Gagliardi
|
November 12, 2010 | |||
Stephen M. Gagliardi, Director
|
Date | |||
/s/ Patrick J. Minnock
|
November 12, 2010 | |||
Patrick J. Minnock, Director
|
Date | |||
/s/ Harry D. Reagan
|
November 12, 2010 | |||
Harry D. Reagan, Director
|
Date |
57