SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2004
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
- ------------------------ ---------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway, Monroeville, Pennsylvania 15146
-----------------------------------------------------------
(Address of principal executive offices; zip code)
Registrant's telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No _
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No _
The closing sales price of the Registrant's Common Stock on October 27, 2004 was
$27.00 per share.
Number of shares of Common Stock outstanding as of October 27, 2004 was
5,580,967.
PARKVALE FINANCIAL CORPORATION
INDEX
Page
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Part I. Financial Information
Item 1.
Consolidated Statements of Financial Condition as of September 30, 2004
and June 30, 2004 3
Consolidated Statements of Operations for the three months ended
September 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the three months ended
September 30, 2004 and 2003 5-6
Consolidated Statements of Shareholders' Equity as of September 30, 2004 6
Notes to Unaudited Interim Consolidated Financial Statements 7-9
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-15
Item 3.
Quantitative and Qualitative Disclosures about Market Risk 15
Item 4.
Controls and Procedures 15
Part II - Other Information 15
Signatures 17
2
Item 1. PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
SEPTEMBER 30, June 30,
2004 2004
------------- -------------
(unaudited) (audited)
ASSETS
Cash and noninterest earning deposits $ 21,246 $ 23,814
Federal funds sold 65,000 14,000
------------- -------------
Cash and cash equivalents 86,246 37,814
Interest-earning deposits in other banks 7,449 13,547
Investment securities available for sale (cost of
$19,631 at September 30 and $20,304 at June 30) 19,778 20,372
Investment securities held to maturity (fair value
of $416,384 at September 30 and $475,759 at June 30) 414,909 477,574
Loans, net of allowance of $13,822 at September 30
and $13,808 at June 30 1,029,971 1,015,078
Foreclosed real estate, net 1,108 2,998
Office properties and equipment, net 8,919 10,049
Goodwill 7,561 7,561
Intangible assets and deferred charges 3,464 3,573
Prepaid expenses and other assets 22,830 23,887
------------- -------------
Total Assets $ 1,602,235 $ 1,612,453
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 1,258,463 $ 1,281,971
Advances from Federal Home Loan Bank 180,999 171,093
Trust preferred securities 25,000 25,000
Other debt 23,051 19,310
Escrow for taxes and insurance 2,845 6,030
Other liabilities 5,679 4,363
------------- -------------
Total Liabilities 1,496,037 1,507,767
------------- -------------
SHAREHOLDERS' EQUITY
Preferred Stock ($1.00 par value; 5,000,000
shares authorized; 0 shares issued) - -
Common Stock ($1.00 par value; 10,000,000 shares
authorized; 6,734,894 shares issued) 6,735 6,735
Additional Paid in Capital 3,593 3,616
Treasury Stock at cost (1,153,927 shares at September 30
and 1,153,806 at June 30) (22,708) (22,687)
Accumulated Other Comprehensive Income 87 43
Retained Earnings 118,491 116,979
------------- -------------
Total Shareholders' Equity 106,198 104,686
------------- -------------
Total Liabilities and Shareholders' Equity $ 1,602,235 $ 1,612,453
============= =============
3
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
---------- ----------
(unaudited)
Interest Income:
Loans $ 13,034 $ 15,419
Investments 4,227 2,548
Federal funds sold 243 262
---------- ----------
Total interest income 17,504 18,229
---------- ----------
Interest Expense:
Deposits 7,161 8,859
Borrowings 2,359 2,213
Trust preferred securities 339 295
---------- ----------
Total interest expense 9,859 11,367
---------- ----------
Net interest income 7,645 6,862
Provision for loan losses 57 47
---------- ----------
Net interest income after
provision for losses 7,588 6,815
---------- ----------
Noninterest Income:
Service charges on deposit accounts 1,254 1,046
Other fees and service charges 321 362
Gain on sale of assets 14 406
Miscellaneous 314 385
---------- ----------
Total other income 1,903 2,199
---------- ----------
Noninterest Expenses:
Compensation and employee benefits 3,226 3,045
Office occupancy 1,009 1,057
Marketing 83 87
Office supplies, telephone, and postage 355 387
Miscellaneous 1,011 973
---------- ----------
Total other expenses 5,684 5,549
---------- ----------
Income before income taxes 3,807 3,465
Income tax expense 1,179 1,035
---------- ----------
Net income $ 2,628 $ 2,430
========== ==========
Net income per share:
Basic $ 0.47 $ 0.44
Diluted $ 0.47 $ 0.43
4
Parkvale Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
------------ ------------
(unaudited)
Cash flows from operating activities:
Interest received $ 18,789 $ 21,045
Loan fees received (premiums paid) (59) (1,207)
Other fees and commissions received 1,769 1,657
Interest paid (9,837) (11,229)
Cash paid to suppliers and others (4,266) (5,770)
Income taxes paid (350) (1,070)
------------ ------------
Net cash provided by operating activities 6,046 3,426
Cash flows from investing activities:
Proceeds from sale of investment securities available for sale - 561
Proceeds from maturities of investments 94,960 27,251
Purchase of investment securities available for sale (74) -
Purchase of investment securities held to maturity (31,987) (53,074)
Maturity of deposits in other banks 6,098 3,557
Purchase of loans (61,997) (129,029)
Proceeds from sales of loans 1,209 886
Principal collected on loans 87,044 221,424
Loans made to customers, net of loans in process (39,478) (41,107)
Other 845 (121)
------------ ------------
Net cash provided by investing activities 56,620 30,348
Cash flows from financing activities:
Net (decrease) increase in checking and savings accounts (5,233) 4,967
Net (decrease) increase in certificates of deposit (18,275) (39,235)
Proceeds from FHLB advances 10,000 -
Repayment of FHLB advances (94) (3)
Net increase in other borrowings 3,740 3
Decrease in borrowers' advances for tax & insurance (3,185) (3,872)
Cash dividends paid (1,117) (997)
Acquisition of treasury stock (70) (472)
------------ ------------
Net cash used in financing activities (14,234) (39,609)
------------ ------------
Net increase (decrease) in cash and cash equivalents 48,432 (5,835)
Cash and equivalents at beginning of period 37,814 104,067
------------ ------------
Cash and equivalents at end of period $ 86,246 $ 98,232
============ ============
5
Reconciliation of net income to net cash provided THREE MONTHS ENDED
by operating activities: SEPTEMBER 30,
2004 2003
------------ ------------
Net income $ 2,628 $ 2,430
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 411 462
Accretion and amortization of loan fees and discounts 650 1,763
Loan fees collected and deferred (59) (1,208)
Provision for loan losses 57 47
Gain on sale of assets (14) (406)
Decrease in accrued interest receivable 568 826
Increase (decrease) in other assets 490 (636)
Decrease in accrued interest payable 1,293 139
Increase in other liabilities 22 8
------------ ------------
Total adjustments 3,418 996
------------ ------------
Net cash provided by operating activities $ 6,046 $ 3,426
============ ============
For purposes of reporting cash flows, cash and cash equivalents include cash and
noninterest earning deposits, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods. Loans transferred to foreclosed
assets aggregated $31 for the three months ended September 30, 2004 and $144 for
the three months ended September 30, 2003.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
Accumulated
Additional Other Total
Common Paid-in Treasury Comprehensive Retained Shareholders'
Stock Capital Stock Income Earnings Equity
---------- ---------- ----------- ------------- ---------- -------------
Balance, June 30, 2004 $ 6,735 $ 3,616 ($ 22,687) $ 43 $ 116,979 $ 104,686
Net income, three months
ended September 30, 2004 2,628 2,628
Accumulated other comprehensive income:
Change in unrealized gain on securities,
net of deferred tax expense $26 44 44
----------
Comprehensive income 2,672
Treasury stock purchased (70) (70)
Dividends on common stock at
$0.20 per share (1,116) (1,116)
Exercise of stock options (23) 49 26
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 2004 $ 6,735 $ 3,593 ($ 22,708) $ 87 $ 118,491 $ 106,198
========== ========== ========== ========== ========== ==========
6
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share data)
Statements of Operations
The statements of operations for the three months ended September 30, 2004 and
2003 are unaudited, but in the opinion of management, reflect all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the results of operations for those periods. The results of operations for
the three months ended September 30, 2004 are not necessarily indicative of the
results which may be expected for fiscal 2005. The Annual Report on Form 10-K
for the year ended June 30, 2004 contains additional information and should be
read in conjunction with this report.
Stock Based Compensation
Pro forma information regarding net income and earnings per share as required by
FAS 123, has been determined as if Parkvale Financial Corporation ("PFC") had
accounted for its stock options using that method. The fair value for these
options was estimated at the date of the grants using a Black-Scholes option
pricing model.
In management's opinion, existing stock option valuation models do not provide a
reliable single measure of the fair value of employee stock options that have
vesting provisions and are not transferable. In addition, option valuation
models require input of highly subjective assumptions including the expected
stock price volatility. Because PFC's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. PFC's pro forma
information is as follows:
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. PFC's pro forma
information is as follows:
For the three months ended September 30,
2004 2003
------------------ ------------------
Net income before stock options $ 2,628 $ 2,430
Compensation expense from stock
options, net of tax:
Three months ended September 30 - 51
---------- ----------
Pro forma net income $ 2,628 $ 2,379
========== ==========
Basic - Proforma $ 0.47 $ 0.43
Basic - as reported $ 0.47 $ 0.44
Diluted - proforma $ 0.47 $ 0.42
Diluted - as reported $ 0.47 $ 0.43
7
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)
On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a
proposed Statement, Share-Based Payment an Amendment of FASB Statements No. 123
and APB No. 95, that addresses the accounting for share-based payment
transactions in which an enterprise receives services in exchange for (a) equity
instruments of the enterprise of (b) liabilities that are based on the fair
value of the enterprise's equity instruments of that may be settled by the
issuance of such equity instruments. Under the FASB's proposal, all forms of
share-based payments to employees, including employee stock options, would be
treated the same as other forms of compensation by recognition the related cost
in the income statement. The expense of the award would generally be measured at
fair value at the grant date. Current accounting guidance requires that the
expense relating to so-called fixed plan employee stock options only be
disclosed in the footnotes to the financial statements. The proposed Statement
would eliminate the ability to account for share-based compensation transactions
using APB Opinion No. 25, Accounting for Stock Issued to Employees. PFC is
currently evaluating this proposed statement and its effects on its results of
operations.
Loans
Loans are summarized as follows:
SEPTEMBER 30, June 30,
2004 2004
-------------- --------------
Mortgage loans:
Residential:
1-4 Family $ 737,907 $ 723,551
Multifamily 24,472 23,910
Commercial 83,389 82,186
Other 12,164 12,987
-------------- --------------
857,932 842,634
Consumer loans 142,223 143,476
Commercial business loans 39,651 38,869
Loans on savings accounts 3,309 2,790
-------------- --------------
1,043,115 1,027,769
Less: Loans in process 105 313
Allowance for loan losses 13,822 13,808
Unamortized discount (premiums) and deferred loan fees (783) (1,430)
-------------- --------------
Loans, net $ 1,029,971 $ 1,015,078
============== ==============
The following summarizes the activity in the allowance for loan losses for the
three months ended September 30:
2004 2003
-------------- --------------
Beginning balance $ 13,808 $ 15,013
Provision for losses 57 47
Loans recovered 5 5
Loans charged off (48) (189)
-------------- --------------
Ending balance $ 13,822 $ 14,876
============== ==============
8
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar
amounts in thousands, except share data)
Comprehensive Income
Sources of comprehensive income not included in net income are limited to
unrealized gains and losses on certain investments in equity securities. For the
three months ended September 30, 2004 and 2003, total comprehensive income
amounted to $2,672 and $2,143, respectively.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three months ended September 30:
2004 2003
------------- -------------
Numerator for basic and diluted earnings per share:
Net Income $ 2,628 $ 2,430
Denominator:
Weighted average shares for basic earnings per share 5,580,097 5,537,810
Effect of dilutive stock options 62,694 89,344
------------- -------------
Weighted average shares for dilutive earnings per share 5,642,791 5,627,154
============= =============
Net income per share:
Basic $ 0.47 $ 0.44
Diluted $ 0.47 $ 0.43
Dividends per share $ 0.20 $ 0.18
Pending Acquisition
On September 1, 2004, Parkvale Financial Corporation entered into a definitive
agreement to purchase Advance Financial Bancorp ("AFB") based in West Virginia.
The acquisition is expected to close late 2004 or early 2005. After the
acquisition, Parkvale will have approximately $1,900 in total assets and a total
of 46 branch offices. The AFB shareholders will receive $26.00 per share in
cash. The transaction has been approved by the boards of directors of both
companies. The acquisition is valued at $38,000. This reflects approximately
167% of AFB's book value at June 30, 2004 and 14.4 times AFB's last 12-month
earnings.
New Accounting Pronouncement
In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued EITF
Abstract 03-1, The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments (EITF 03-1). The quantitative and qualitative
disclosure provisions of EITF 03-1 were effective for years ending after
December 15, 2003 and were included in the Corporation's fiscal 2004 Form 10-K.
In March 2004, the EITF issued a Consensus on Issue 03-1 requiring that the
provisions of EITF 03-1 be applied for reporting periods beginning after June
15, 2004 to investments accounted for under SFAS No. 115 and 124. On September
30, 2004, the FASB delayed the effective date for the measurement and
recognition guidance contained in paragraphs 10-20 of EITF 03-1. EITF 03-1
establishes a three-step approach for determining whether an investment is
considered impaired, whether that impairment is other-than-temporary, and the
measurement of an impairment loss. PFC in the process of determining the impact
that this EITF may have on its financial statements.
9
Item 2.
PARKVALE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Balance Sheet Data:
SEPTEMBER 30,
2004 2003
------------ ------------
Total assets $ 1,602,235 $ 1,605,320
Loans, net 1,029,971 1,189,799
Interest-earning deposits and federal funds sold 72,449 93,020
Total investments 434,687 255,204
Savings deposits 1,258,463 1,297,492
FHLB advances 180,999 161,104
Shareholders' equity 106,198 100,246
Book value per share $ 19.03 $ 18.11
Statistical Profile:
THREE MONTHS ENDED
SEPTEMBER 30, (1)
2004 2003
------------ ------------
Average yield earned on all
interest-earning assets 4.53% 4.70%
Average rate paid on all
interest-bearing liabilities 2.65% 3.00%
Average interest rate spread 1.88% 1.70%
Net yield on average
interest-earning assets 1.98% 1.77%
Other expenses to average assets 1.41% 1.37%
Taxes to pre-tax income 30.97% 29.87%
Return on average assets 0.65% 0.60%
Return on average equity 9.92% 9.72%
Average equity to average total assets 6.57% 6.16%
AT SEPTEMBER 30,
2004 2003
------------ ------------
One year gap to total assets 2.04% 7.35%
Intangibles to total equity 10.38% 11.43%
Ratio of nonperforming assets to total assets 0.30% 0.48%
Number of full-service offices 39 39
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
10
NONPERFORMING LOANS AND FORECLOSED REAL ESTATE:
Nonperforming and impaired loans and foreclosed real estate (REO) consisted of
the following at September 30, 2004 versus year-end June 30, 2004.
SEPTEMBER 30, 2004 June 30, 2004
------------------ -------------
(Dollars in 000's)
Delinquent single-family mortgage loans $ 2,069 $ 2,610
Delinquent other loans 1,510 2,205
---------- ----------
Total of nonperforming loans $ 3,579 $ 4,815
Total of impaired loans 140 140
Real estate owned, net 1,108 2,998
---------- ----------
Total $ 4,827 $ 7,953
========== ==========
Nonperforming and impaired loans and real estate owned represent 0.30% and 0.49%
of total assets at the respective balance sheet dates. Delinquent single-family
mortgage loans at September 30, 2004 consisted of 33 single family owner
occupied homes. As of September 30, 2004, $1.0 million or 47.6% of the
nonaccrual mortgage loans totaling $2.1 million were purchased from others. The
$1.0 million of the delinquent loans purchased by others are comprised of 5
loans which management believes are well collateralized.
Loans are placed on nonaccrual status when, in management's 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 had not been
recognized in interest income was $136,000 at September 30, 2004 and $152,000 at
June 30, 2004. Parkvale provides an allowance for the loss of accrued but
uncollected interest on mortgage, consumer and commercial business loans which
are more than 90 days contractually past due.
Nonaccrual, substandard and doubtful commercial and other real estate loans are
assessed for impairment. Loans are considered impaired when the fair value is
insufficient as compared to the contractual amount due. Parkvale excludes
single-family loans, and installment consumer loans in the determination of
impaired loans consistent with the exception under paragraph 6 of SFAS 114 of
loans measured for impairment. Parkvale Bank had $140,000 of loans classified as
impaired at September 30, 2004 and at June 30, 2004. The average recorded
investment in impaired loans was $140,000 for the September 2004 quarter. The
amount of interest income that has not been recognized was $31,000 at September
30, 2004. Impaired assets include $1.1 million of foreclosed real estate as of
September 30, 2004. Foreclosed real estate properties are recorded at the lower
of the carrying amount or fair value of the property less the cost to sell. The
net book value of foreclosed real estate primarily consists of 1-4 family single
family dwellings with $365,000 of vacant land at September 30, 2004.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses was $13.8 million at September 30, 2004 and at
June 30, 2004 and $14.9 million at September 30, 2003 or 1.33%, 1.34% and 1.24%
of gross loans at September 30, 2004, June 30, 2004 and September 30, 2003. The
adequacy of the allowance for loan loss is determined by management through
evaluation of the loss potential on individual nonperforming, delinquent and
high
11
dollar loans, economic and business trends, growth and composition of the loan
portfolio and historical loss experience, as well as other relevant factors.
The allowance for loan losses is continually monitored by management to identify
potential portfolio risks and detect potential credit deterioration in the early
stages. Management then establishes reserves based upon its evaluation of the
inherent risks in the loan portfolio. Changes to the levels of reserves are made
quarterly based upon perceived changes in risk. Management believes the
allowance for loan losses is adequate to absorb loan losses.
LIQUIDITY AND CAPITAL RESOURCES:
Federal funds sold increased $51 million or 364.3% from June 30, 2004 to
September 30, 2004. Investment securities held to maturity decreased $62.7
million or 13.1% and loans increased $14.9 million or 1.5% from June 30, 2004 to
September 30, 2004. Deposits decreased $23.5 million or 1.8% from June 30, 2004
to September 30, 2004. Escrow for taxes and insurance decreased by $3.2 million
or 52.8% as a result of the remittance of property taxes to the various taxing
districts during the quarter. Parkvale Bank's FHLB advance available maximum
borrowing capacity is $752.6 million. If Parkvale were to experience a deposit
decrease in excess of the available cash resources and cash equivalents,
available FHLB borrowing capacity could be utilized to fund a rapid decrease in
deposits.
Shareholders' equity was $106.2 million or 6.6% of total assets at September 30,
2004. An extension stock repurchase program approved in June 2004 permits the
purchase of 3.9% of outstanding stock or 218,400 shares during fiscal 2005 at
prevailing prices in open-market transactions. Through September 30, 2004, 2,650
shares were purchased at an average price of $26.55 per share, representing
0.05% of the outstanding stock. The Bank is required to maintain Tier I (Core)
capital equal to at least 4% of the institution's adjusted total assets, and
Tier II (Supplementary) risk-based capital equal to at least 8% of the
risk-weighted assets. At September 30, 2004, Parkvale was in compliance with all
applicable regulatory requirements, with Tier I and Tier II ratios of 7.51% and
14.61%, respectively.
The regulatory capital ratios for Parkvale Bank at September 30, 2004 are
calculated as follows:
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------------- ------------- -------------
Equity Capital (1) $ 131,336 $ 131,336 $ 131,336
Less non-allowable intangible assets (11,025) (11,025) (11,025)
Less unrealized securities gains (77) (77) (77)
Plus permitted valuation allowances (2) - - 11,322
Plus allowable unrealized holding gains (3) - - 55
------------- ------------- -------------
Total regulatory capital 120,234 120,234 131,611
Minimum required capital 63,938 36,158 72,316
------------- ------------- -------------
Excess regulatory capital $ 56,296 $ 84,076 $ 59,295
Adjusted total assets $ 1,598,459 $ 903,949 $ 903,949
12
Regulatory capital as a percentage 7.52% 13.30% 14.56%
Minimum capital required as a percentage 4.00% 4.00% 8.00%
------------- ------------- -------------
Excess regulatory capital as a percentage 3.52% 9.33% 6.56%
============= ============= =============
Well capitalized requirement 5.00% 6.00% 10.00%
============= ============= =============
- ----------
(1) Represents equity capital of the consolidated Bank as reported to the
Pennsylvania Department of Banking and FDIC on Form 041 for the quarter
ended September 30, 2004.
(2) Limited to 1.25% of risk adjusted total assets.
(3) Limited to 45% of pretax net unrealized holding gains.
Management is not aware of any trends, events, uncertainties or current
recommendations by any regulatory authority that will have (if implemented), or
that are reasonably likely to have, material effects on Parkvale's liquidity,
capital resources or operations.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2004 AND
2003
For the three months ended September 30, 2004, Parkvale reported net income of
$2.6 million or $0.47 per diluted share, compared to net income of $2.4 million
or $0.43 per diluted share for the quarter ended September 30, 2003. The
$198,000 increase in net income for the September 2004 quarter reflects
increased margins on net earning assets, offset by a decrease in non-interest
expense and a decreased gain on sale of assets and investment securities. The
September 2004 quarter reflects a gain on the sale of assets of $14,000
(pre-tax) as compared to the prior quarter gain on investment securities of
$406,000 (pre-tax). Net interest income increased to $7.6 million from $6.9
million for the prior period. Return on average equity was 9.92% for the
September 2004 quarter compared to 9.72% for the September 2003 quarter.
INTEREST INCOME:
Parkvale had interest income of $17.5 million during the three months ended
September 30, 2004 versus $18.2 million during the comparable period in 2003.
The $725,000 decrease is the result of a 17 basis point decrease in the average
yield from 4.70% in 2003 to 4.53% in 2004 coupled with a $5.8 million or 0.4%
decrease in the average balance of interest-earning assets. Interest income from
loans decreased $2.4 million or 15.5% resulting from a decrease in the average
outstanding loan balances of $207.2 million or 17.0%, offset by an increase of
10 basis points in the average yield from 5.05% in 2003 to 5.15% in 2004. The
small increase in the average yield reflects the recent two rate increases.
Investment interest income increased by $1.7 million or 65.9% due to an increase
of $236.4 million or 102.9% in the average balance and offset by a 81 basis
point decrease in the average yield from 4.44% in 2003 to 3.63% in 2004.
Interest income earned on federal funds sold decreased $19,000 or 7.3% from the
2003 quarter due to a decrease in the average balance of $34.9 million or 34.5%,
offset by a 43 basis point increase in the average yield from 1.03% in 2003 to
1.46% in 2004. The weighted average yield on all interest earning assets was
4.54% at September 30, 2004 and 4.79% at September 30, 2003.
INTEREST EXPENSE:
Interest expense decreased $1.5 million or 13.3% from the 2004 to the 2003
quarter. The decrease was due to an 35 basis point decrease in the average rate
paid on deposits and borrowings from 3.00% in 2003 to 2.65% in 2004 and by a
decrease in the average deposits and borrowings of $22.9 million or 1.5%. At
September 30, 2004, the average rate payable on liabilities was 2.22% for
deposits, 4.77% for borrowings, 5.55% for trust preferred securities and 2.63%
for combined deposits and borrowings.
13
PROVISION FOR LOAN LOSSES:
The provision for loan losses is an amount added to the allowance against which
loan losses are charged. Parkvale's provision for loan losses increased by
$10,000 from the 2003 to the 2004 quarter. Aggregate valuation allowances were
1.33% and 1.34% of gross loans at September 30, 2004 and June 30, 2004,
respectively.
Nonperforming loans and real estate owned were $4.8 million, $8.0 million and
$7.7 million at September 30, 2004, June 30, 2004 and September 30, 2003,
representing 0.30%, 0.49% and 0.48% of total assets at the respective balance
sheet dates. Total loan loss reserves at September 30, 2004 were $13.8 million.
Management considers loan loss reserves sufficient when compared to the value of
underlying collateral. Collateral is considered and evaluated when establishing
provision for loan losses and the sufficiency of the allowance for loan losses.
Management believes the allowance for loan losses is adequate to cover the
amount of probable loan losses.
OTHER INCOME:
Total other income decreased by $296,000 or 13.5% in 2004 due mainly to a
decrease in gain on the sale of assets and securities of $392,000. Other income
absent this gain increased $96,000 or 5.4% due to increases to service charges
on deposit accounts for new products and services.
OTHER EXPENSE:
Total other expense increased by $135,000 or 2.4% for the three months ended
September 30, 2004. This increase is due principally to increases in
compensation of $181,000, or 5.9% and mitigated be decreases in office occupancy
of $48,000, or 4.5%. Compensation has increased over the prior year due to
normal merit pay increases and increases in benefit expenses. Office occupancy
has decreased due to the sale of under utilized buildings. Annualized
noninterest expense as a percentage of average assets were 1.41% for the quarter
ended September 30, 2004 as compared to 1.37% for the quarter ended September
30, 2003.
IMPACT OF INFLATION AND CHANGING PRICES:
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles 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 institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services as
measured by the consumer price index.
FORWARD LOOKING STATEMENTS:
The statements in this Form 10-Q which are not historical fact are forward
looking statements. Forward looking information should not be construed as
guarantees of future performance. Actual results may differ from expectations
contained in such forward looking information as a result of factors including
but not limited to the interest rate environment, economic policy or conditions,
federal and state banking and tax regulations and competitive factors in the
marketplace. Each of these factors could affect estimates, assumptions,
uncertainties and risks considered in the development of forward looking
information and
14
could cause actual results to differ materially from management's expectations
regarding future performance.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are
presented at June 30, 2004 in item 7a of Parkvale Financial
Corporation's Form 10-K, filed with the SEC on September 13, 2004.
Management believes that there have been no material changes in
Parkvale's market risk since June 30, 2004.
Item 4. Controls and Procedures
Disclosure controls and procedures are monitored and supervised by the
Registrant's management, including the CEO and CFO, to the
effectiveness of the design and operation of the Registrant's
disclosure controls and procedures. The Registrant's management,
including the CEO and CFO, concluded that the Registrant's disclosure
controls and procedures were effective as of September 30, 2004. There
have been no significant changes in Registrant's internal controls or
in other factors that could significantly affect internal controls
subsequent to September 30, 2004.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2004 Annual Meeting of Shareholders of Parkvale Financial
Corporation was held on October 28, 2004. Of 5,580,967 shares eligible
to vote, 93.3% or 5,206,856 were voted by proxy.
(b) The shareholders voted to re-elect the nominees for director, as
described in the Proxy Statement for the Annual Meeting. The results
for the re-election of Robert J. McCarthy, Jr. as director were
4,572,044 shares in favor and 634,812 shares withheld. The results for
the re-election of Patrick J. Minock as director were 4,922,016 shares
in favor and 284,840 shares withheld.
(c) The recommendation by the Board of Directors to adopt the 2004 stock
incentive plan, as described in the Proxy Statement for the Annual
Meeting, was approved with 3,657,586 shares in favor and 677,367 shares
withheld.
(d) The recommendation by the Board of Directors to ratify the appointment
of Parente Randolph, LLC as the Corporation's independent auditors, as
described in the Proxy Statement for the Annual Meeting, was approved
with 5,179,294 shares in favor, 19,500 shares against and 8,062 shares
abstaining.
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
(a) No equity securities were sold by PFC during the period covered by this
report that were not registered under the Securities Act of 1933.
(b) Not Applicable
(c) During the quarter ended September 30, 2004, Parkvale purchased 2,650
shares at an average price per share of $26.55.
The following table sets forth information with respect to any purchase made by
or on behalf of Parkvale or any "affiliated purchaser,"as defined in section
240. 10b-18(a)(3) under the Exchange Act, of shares of Parkvale common stock
during the indicated periods.
Total Number of
Shares Purchased as Maximum Number of
Total Number Average Part of Publicly Shares that May Yet Be
of Shares Price Paid Announced Plans Purchased Under the
Period Purchased Per Share or Programs Plans or Programs (1)
- ------ ------------ ---------- ------------------- -----------------------
July 1-31, 2004 2,650 26.55 2,650 215,750
August 1-31, 2004 - - - 215,750
September 1-30, 2004 - - - 215,750
(1) The repurchase program approved on June 19, 2003 is now scheduled to expire
on June 30, 2005.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (as furnished as Exhibit 31.1)
31.2 Certification of Chief Financial Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (as furnished as Exhibit 31.2)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (as furnished as Exhibit 32.1)
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (as furnished as Exhibit 32.2)
(b) Reports on Form 8-K
A Form 8-K was filed July 27, 2004 for an earnings release dated
July 22, 2004.
A Form 8-K was filed September 1, 2004 for a material event dated
September 1, 2004.
A Form 8-K was filed September 8, 2004 for a material event dated
September 1, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Parkvale Financial Corporation
DATE: November 3, 2004 By: /s/ Robert J. McCarthy, Jr.
----------------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: November 3, 2004 By: /s/ Timothy G. Rubritz
----------------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
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