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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1996
Commission file no 0-17411
PARKVALE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
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(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway
MONROEVILLE, PA 15146
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(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code:(412)-373-7200
Securities registered pursuant to Section 12(b) of the Act - None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($1.00 PAR VALUE)
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[ ]
As of September 16, 1996, the aggregate market value of the voting stock held
by non-affiliates of the Registrant, computed by reference to the reported
closing sale price of $28.50 per share on such date was $74,077,856. Excluded
from this computation are 355,232 shares held by all directors and executive
officers as a group and 279,023 shares held by the Employee Stock Ownership
Plan.
Number of shares of Common Stock outstanding as of September 16,
1996: 3,233,478.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Annual Report to Shareholders for Fiscal Year ended June 30, 1996. With the
exception of those portions which are incorporated by reference in this Form
10-K Annual Report, the 1996 Annual Report to Shareholders is not deemed to be
filed as part of this report. Part II
Proxy Statement for Annual Meeting of Shareholders dated September 16, 1996.
The definitive proxy statement was filed with the Commission on
September 16, 1996. Part III
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PART I.
ITEM 1. BUSINESS
INTRODUCTION
Parkvale Financial Corporation ("PFC") is a unitary savings and loan holding
company incorporated under the laws of the Commonwealth of Pennsylvania. Its
subsidiary, Parkvale Savings Bank ("Parkvale" or "the Bank"), is a Pennsylvania
chartered permanent reserve fund stock savings bank headquartered in
Monroeville, Pennsylvania. Parkvale is also involved in lending in the greater
Washington, D.C. and Columbus, Ohio area through its wholly-owned subsidiary,
Parkvale Mortgage Corporation ("PMC"), located in Fairfax, Virginia and
Columbus, Ohio. The primary assets of PFC consist of the stock of Parkvale,
equity securities and cash. See Note N of Notes to the Consolidated Financial
Statements in the 1996 Annual Report to Shareholders filed as Exhibit 13 hereto
("1996 Annual Report") for additional details regarding PFC.
THE BANK
GENERAL
The Bank conducts business in the greater Pittsburgh metropolitan area through
28 full-service offices in Allegheny, Beaver, Butler and Westmoreland Counties.
With total assets of $919.2 million at June 30, 1996, Parkvale was the fifth
largest financial institution headquartered in the Pittsburgh metropolitan area
and tenth largest financial institution with a significant presence in Western
Pennsylvania. Parkvale was originally chartered in 1943 as Park Savings and
Loan Association and was renamed as a result of its merger with Millvale
Savings and Loan Association in 1968. Parkvale intends to open its 29th branch
office in the fall of 1996, located in the Raceway Plaza in Scott Township, PA.
This office will be a full-service facility with the convenience of night
deposit and ATM service.
Parkvale converted to a state chartered savings bank in 1993. Such charter
conversion resulted in the replacement of the Office of Thrift Supervision
("OTS") by the Federal Deposit Insurance Corporation ("FDIC") and the
Pennsylvania Department of Banking ("Department") as the Bank's primary
regulators. As a Pennsylvania-chartered savings bank, deposits continue to be
insured by the FDIC and Parkvale retains its membership in the Federal Home
Loan Bank ("FHLB") of Pittsburgh. The savings bank continues to conduct
business in a manner substantially identical to the conduct of its business as
a savings association. The OTS retains jurisdiction over Parkvale Financial
Corporation due to its status as a unitary savings and loan holding company.
Parkvale is further subject to regulation by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") governing reserves to be
maintained against deposits and certain other matters.
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, mortgage-backed
securities, 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 Money Access Center ("MAC") System.
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Parkvale derives its income primarily from interest charged on loans and
interest on investments, and, to a lesser extent, service charges and fees.
Parkvale's principal expenses are interest on deposits and borrowings and
operating expenses. Funds for lending activities are provided principally by
deposits, loan repayments, FHLB advances and other borrowings, and earnings
provided by operations.
To supplement the demand for loans in its primary market area and to achieve
geographic asset diversification, Parkvale purchases adjustable rate
residential mortgage loans subject to its normal underwriting standards.
Parkvale purchased loans aggregating $104.9 million in fiscal 1996. These
represent 55.4% of total mortgage loan originations and purchases for the
fiscal year. In addition, Parkvale operates loan production offices through its
subsidiary, PMC with offices in Fairfax, Virginia and Columbus, Ohio. During
fiscal 1996, PMC originated a total of $39.7 million or 21.0% of total mortgage
loan originations and purchases for inclusion in Parkvale's loan portfolio. See
"Lending Activities" and "Sources of Funds."
Parkvale continues to emphasize the resolution and disposition of problem
assets. The total non-performing assets, comprised of non-accrual loans and
foreclosed real estate, decreased from $2.1 million at June 30, 1995 to $1.2
million at June 30, 1996. The $879,000 decrease in fiscal 1996 related to the
disposition of a $1.1 million apartment complex. See "Lending Activities-
Nonperforming Loans and Foreclosed Real Estate".
The exposure from interest rate risk (IRR) is the impact on Parkvale's current
and future earnings and capital from movements in interest rates. To properly
manage its historically liability sensitive position and mitigate the financial
impact of IRR, Parkvale's management has implemented an asset and liability
management plan to increase the interest rate sensitivity of its assets and
extend the average maturity of its liabilities. As part of this program,
Parkvale has, among other things (1) promoted the origination and purchase of
adjustable rate mortgage ("ARM") loans, (2) maintained a high level of
liquidity, (3) deployed excess liquidity, (4) emphasized the origination of
short-term and/or variable rate consumer loans, and (5) attempted to extend the
average maturity of its deposits through the promotion of certificate accounts
with terms of one year or more. For additional discussion of asset and
liability management, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset and Liability Management" in the
1996 Annual Report.
Interest rate sensitivity gap analysis provides one indicator of potential IRR
by comparing interest-earning assets and interest-bearing liabilities maturing
or repricing at similar intervals. More recently from a gap perspective, the
excess of interest-bearing assets over interest-earning liabilities which
reprice or mature in one year or less has been reduced to 0.24% of total assets
at June 30, 1996 from 6.03% of total assets at June 30, 1995. Similarly, the
cumulative five year gap ratio has been reduced from 12.25% at June 30, 1995 to
2.20% at June 30, 1996. Key components of the asset and liability management
program are as follows: Deployment of excess accumulated federal funds sold
from 13.0% of total assets at June 30, 1995 to 7.2% of total assets at June 30,
1996. ARM loans represented approximately 56.9% of the Bank's real estate loan
portfolio at June 30, 1996 compared to 50.9% and 46.4% at June 30, 1995 and
1994, respectively. Deposits with terms in excess of one year or more increased
$23.1 million from $433.6 million at June 30, 1995 to $456.7 million at June
30, 1996.
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Parkvale's main office is located at 4220 William Penn Highway, Monroeville, PA
15146, and its telephone number is (412) 373-7200.
THE SAVINGS INDUSTRY
The earnings of Parkvale are affected by the competitive, economic and
regulatory environment in which the savings industry operates. A fundamental
trend in the financial services industry-consolidation--confronts the banking
industry with the challenge to survive and prosper in an evolving market.
Continued alliances are likely as banks move to trim costs, expand
geographically and consolidate market strengths by diversifying the financial
products offered.
The industry is in the midst of a consolidation phase with an operating focus
on improving profitability, reallocation of capital and expense management. The
traditional banks' share of the overall loan market has been reduced
significantly. Corporate lending has abated since public companies found
raising funds on Wall Street is faster and cheaper via commercial paper and
medium-term notes. At the same time, retail customers are increasingly
abandoning traditional commercial and local banks in favor of nonbank financial
institutions. Instead of buying a CD or opening a passbook savings account,
consumers increasingly direct their IRA money and savings into mutual fund
companies. Mutual funds total assets have increased substantially in the 1990's
to exceed total FDIC insured deposits. Banks in today's market are faced with
growing competition from an array of outside financial-service providers,
including brokerage firms, insurance companies and mutual funds. These
non-banking entities continue to take a portion of market share of lending and
deposits away from the banking industry without the regulatory burdens, FDIC
insurance premiums and other associated costs imposed upon banks and savings
industry.
The challenge is the delivery of financial products at competitive prices. This
translates to spreading of costs of services over a greater number of customers
and has spurred banks to adopt technological skills so that customers will
ultimately do all their banking without ever having to walk into a branch,
consequently, reducing operating costs.
Parkvale does not foresee the dissolution of the community banking sector.
Parkvale expects a tiering of institutions with several large national and
regional firms on the one hand and a sizeable number of community institutions
and niche players on the other.
The economic outlook will be characterized by continuing moderate economic
growth and inflation. During fiscal 1996, the Federal Reserve lowered the
federal funds rate 75 basis points after raising rates 300 basis points between
February 1994 and February 1995. This generally resulted in increased mortgage,
consumer and commercial loan interest rates, with a somewhat smaller movement
in deposit interest rates due to excess liquidity remaining in the banking
system. Throughout fiscal 1995, the level of national and
Pittsburgh-area housing starts as well as sales of existing homes were low
compared to prior years.
Parkvale will continue to be affected by these and other market and economic
conditions, such as inflation and factors affecting the markets for debt and
equity securities, as well as legislative, regulatory, accounting and tax
changes which are beyond its control. Parkvale has positioned its liquidity
level to remain flexible to the high volatility of the financial market. For
additional
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discussion of asset/liability management, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset and Liability
Management" in the 1996 Annual Report.
Congress has removed most of the regulatory discretion of the Federal banking
regulatory agencies. As such, these agencies have shifted their collective
focus away from chartering and supervising financial institutions and are now
more focused on protecting the deposit insurance funds. Regulators today use
capital-based, differential regulation; i.e., the more highly capitalized, the
more freedom an institution has to operate.
FDIC INSURANCE
Parkvale's savings deposits are insured by the FDIC up to a maximum of $100,000
for each insured depositor. The Bank currently pays deposit insurance premiums
to the FDIC based on a risk-based assessment system established by the FDIC for
all Savings Association Insurance Fund ("SAIF") member institutions. Under
applicable regulations, institutions are assigned to one of three capital
groups, which is based solely on the level of an institution's capital - "well
capitalized," "adequately capitalized," and "undercapitalized". Under the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has
total risk-based capital of 10.0% or more, has a Tier I risk-based capital
ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and
is not subject to any written capital order or directive; (ii) "adequately
capitalize" if it has a total risk-based capital ratio of 8.0% or more, a Tier
I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio
of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized," and (iii) "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, a Tier I risk-based
capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is
less than 4.0% (3.0% under certain circumstances). These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates ranging from 0.23%
for well capitalized, healthy institutions to 0.31% for undercapitalized
institutions with substantial supervisory concerns. The Bank is a
"well-capitalized" institution and therefore its insurance premium is 0.23% of
insured deposits. The total deposit insurance assessments amounted to $1.8
million yearly for the Bank in fiscal 1996, 1995 and 1994.
The deposit insurance premium rates may not be reduced by either the SAIF or
the insurer of commercial banks and certain savings banks, the Bank Insurance
Fund ("BIF"), until each fund has been recapitalized to a level of 1.25% of
insured deposits. In 1995, the BIF reached this required capitalization level.
Consequently, the well-capitalized BIF-insured financial institutions pay
effectively nothing for deposit insurance premium rates. This puts SAIF-insured
institutions at a competitive disadvantage since the average SAIF premium
currently remains at 24 basis points. To resolve this premium disparity,
regulators proposed legislation requiring thrifts to pay a one-time charge of
85-90 basis points in order to ultimately integrate both the thrift and bank
deposit insurance funds and charter. In August 1996, this proposed one-time
assessment was reduced to 68 basis points. If enacted, this one time assessment
could result in a pre-tax charge to Parkvale's earnings of approximately $5.3
million to $6.8 million. Upon recapitalization of the SAIF, both the SAIF and
the BIF would be merged into the DIF (Deposit Insurance Fund) in 1998 or 1999,
requiring both state and federally-chartered thrifts to convert to commercial
banks.
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A precondition to the charter realignment is the elimination of the "tax bad
debt deduction" granted solely to thrifts. The "tax bad debt deduction" allowed
thrifts to deduct various percentages of taxable income rather than actual bad
debt losses since 1953 in calculating taxable income. Currently, the deduction
consists of 8% of taxable income. On August 20, 1996, the Small Business Reform
Act was signed which eliminates such bad debt tax deduction, consequently
requiring the recapture of past taxes for permanent deductions arising from
"applicable excess reserve." The "applicable excess reserve" is the total
amount of the thrift's reserve over the base year reserve as of December 31,
1987 (the base year). At January 1, 1996, there was approximately $4.1 million
of applicable excess reserves. Subject to prevailing corporate tax rates,
Parkvale owes $1.4 million in federal taxes. The law exempts pre-1988 reserves
from recapture on acquisition by a commercial bank, asset diversification or
charter change. Such charges will not impact Parkvale's status as a
well-capitalized institution qualifying for the lowest SAIF insurance premium.
BUSINESS
LENDING ACTIVITIES
LOAN ACTIVITY AND PORTFOLIO COMPOSITION
The following table shows Parkvale's loan origination, purchase and sale
activity on a consolidated basis during the years ended June 30.
1996 1995 1994
-------- -------- --------
(In Thousands)
TOTAL LOANS RECEIVABLE AT BEGINNING OF YEAR................. $544,956 $517,417 $520,834
-------- -------- --------
Real estate loan originations:
Residential:
Single family (1)....................................... 72,349 43,237 83,998
Multi-family............................................ 1,560 2,300 4,800
Construction -Single family............................... 4,411 8,258 10,518
Commercial................................................ 6,019 1,287 1,769
-------- -------- --------
TOTAL REAL ESTATE LOAN ORIGINATIONS......................... 84,339 55,082 101,085
Consumer loan originations.................................. 53,061 45,364 47,471
Commercial loan originations................................ 10,227 2,764 5,450
-------- -------- --------
TOTAL LOAN ORIGINATIONS..................................... 147,627 103,210 154,006
Purchase of loans........................................... 104,940 27,808 15,209
-------- -------- --------
TOTAL LOAN ORIGINATIONS AND PURCHASES....................... 252,567 131,018 169,215
-------- ------- -------
Principal loan repayments................................... 69,511 60,990 61,620
Mortgage loan payoffs....................................... 80,739 39,911 109,001
Sales of whole loans........................................ 2,479 2,578 2,010
-------- -------- --------
Net increase (decrease)in loans.......................... 99,838 27,539 (3,417)
-------- -------- -------
TOTAL LOANS RECEIVABLE AT END OF YEAR....................... 644,794 544,956 517,417
Less:
Loans in process.......................................... 4,386 4,816 7,506
Allowance for loan losses................................. 13,990 13,136 12,056
Unamortized discounts & loan fees......................... 966 2,459 2,861
-------- -------- --------
NET LOANS RECEIVABLE AT END OF YEAR......................... $625,452 $524,545 $494,994
======== ======== ========
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(1) Includes $39.7 million, $20.2 million and $18.7 million of loans
originated by PMC during fiscal 1996, 1995 and 1994, respectively.
At June 30, 1996, Parkvale's net loan portfolio amounted to $625.5 million,
representing approximately 68% of Parkvale's total assets at that date.
Parkvale, like most other savings institutions, has traditionally concentrated
its lending activities on conventional first mortgage loans secured by
residential property. Conventional loans are not insured by the Federal Housing
Administration ("FHA") or guaranteed by the Department of Veteran's Affairs
("VA"). Conventional loans secured by single family and multi-family
residential properties amounted to $524.9 million or 84.0% of the net loan
portfolio at June 30, 1996, and conventional loans secured by commercial
properties represented $19.5 million or 3.1% of the net loan portfolio. FHA/VA
loans accounted for an additional $9.5 million or 1.5% of the net loan
portfolio at June 30, 1996. The Bank is a traditional mortgage lender and if it
were subject to the "Qualified Thrift Lender" ("QTL") requirements, 94.8% of
its assets are considered to be "qualifying" at June 30, 1996.
Total consumer loans were $79.5 million or 12.7% of the net loan portfolio at
June 30, 1996. Commercial loans represented 1.4% of the net loan portfolio at
that date.
The following table sets forth the composition of the Bank's loan portfolio by
type of loan as of June 30.
1996 1995 1994
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------ ----- ------ -----
Real estate loans:
Residential: (Dollars in Thousands)
Single family (1) $507,566 81.2 412,145 78.6 390,916 79.0
Multi-family (2) 17,375 2.8 22,894 4.4 22,735 4.6
FHA/VA 9,516 1.5 11,294 2.1 12,576 2.5
Commercial 19,516 3.1 18,435 3.5 18,113 3.6
Other (3) 2,387 0.4 3,196 0.6 1,931 0.4
-------- ------ -------- ------ -------- ------
Total real estate loans 556,360 89.0 467,964 89.2 446,271 90.1
Consumer loans (4) 76,224 12.2 69,197 13.2 61,805 12.5
Deposit loans 3,285 0.5 3,253 0.6 3,206 0.7
Commercial loans 8,925 1.4 4,542 0.9 6,135 1.2
-------- ------ -------- ------ -------- -----
Total loans receivable 644,794 103.1 544,956 103.9 517,417 104.5
Less:
Loans in process 4,386 0.7 4,816 0.9 7,506 1.5
Allowance for losses 13,990 2.2 13,136 2.5 12,056 2.4
Unamortized premiums
and discounts 966 0.2 2,459 0.5 2,861 0.6
-------- ------ -------- ------ -------- ------
Net loans receivable $625,452 100.0% $524,545 100.0% $494,994 100.0%
======== ===== ======== ===== ======== =====
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(1) Includes first mortgages secured by one to four unit residences.
(2) Includes short-term construction loans to developers.
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(3) Loans for purchase and development of land.
(4) Primarily includes home equity loans, home equity and personal lines of
credit, student loans, personal loans, deposit loans, charge cards, home
improvement loans and automobile loans.
The following table sets forth the percentage of loans in each category to
total loans at June 30.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Real estate loans 86.3% 85.9% 86.2% 87.0% 88.2%
Consumer loans 12.3 13.3 12.6 11.3 9.9
Commercial loans 1.4 0.8 1.2 1.7 1.9
----- ----- ----- ----- -----
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
CONTRACTUAL MATURITIES OF LOANS
The following table presents information regarding loan contractual maturities
by loan categories during the periods indicated. Mortgage loans with adjustable
interest rates are shown in the year in which they are contractually due rather
than in the year in which they reprice. The amounts shown for each period do
not take into account loan prepayments and normal amortization of the Bank's
loan portfolio.
AMOUNTS DUE IN Real Estate Consumer Commercial
YEARS ENDING JUNE 30, loans (1) loans (2) loans
- - --------------------- ----------------- ------------- ------------
( Dollars in Thousands )
1997 $5,126 $58,042 $3,222
1998 - 1999 8,715 4,395 1,476
2000 - 2001 15,011 6,526 1,447
2002 - 2006 49,735 8,942 2,500
2007 - 2016 121,745 1,604 280
After 2016 356,028 -- --
-------- ------- ------
Gross loans receivable (3) $556,360 $79,509 $8,925
======== ======= ======
- - ----------------------
(1) Includes all residential and commercial real estate loans, and loans
for the purchase and development of land.
(2) Includes home equity, personal, deposit, student, charge card,
automobile, mobile home loans and overdraft lines of credit.
(3) Variable rate consumer and commercial loans and ARM loans represent
approximately 58% of gross loans receivable at June 30, 1996. Of the
$578.4 million principal amount of loans maturing after June 30, 1997,
loans with an aggregate principal amount of $241.7 million have fixed
interest rates and loans with an aggregate principal amount of $336.7
million have variable or adjustable interest rates.
The average life of mortgage loans has been substantially less than the average
contractual terms of such loans because of loan prepayments and, to a lesser
extent, because of enforcement of due-on-sale clauses, which enable Parkvale to
declare a loan immediately due and payable in the event that the borrower sells
or otherwise disposes of the real property. The average life of mortgage loans
tends to increase, however, when market rates on new mortgages substantially
exceed rates on existing mortgages and, conversely, decrease when rates on new
mortgages are substantially below
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rates on existing mortgages. Such was the case in the early 1990's as many
borrowers refinanced their mortgage loans in order to take advantage of the
lower market rates.
ORIGINATION, PURCHASE AND SALE OF LOANS
As a Pennsylvania-chartered, federally-insured savings bank, Parkvale has the
ability to originate or purchase real estate loans secured by properties
located throughout the United States. At June 30, 1996, the majority of loans
in Parkvale's portfolio have been secured by real estate located in its primary
market area, which consists of the greater Pittsburgh metropolitan area.
However, 28.7% and 16.9% of Parkvale's total mortgage loan portfolio at June
30, 1996 and 1995, respectively, represent loans serviced by others, the
majority of which are secured by properties located outside of Pennsylvania,
including, in order of loan concentration: Ohio, Missouri, California,
Washington, Illinois, Texas, and Florida. The increase in loans secured by
out-of-state properties is due to the loan purchases of $104.9 million which
measures 55.4% of Parkvale's total origination and purchases for fiscal 1996.
See further discussion below.
Currently, new loans are originated by Parkvale primarily within its primary
market area or through the PMC offices in Fairfax, VA and Columbus, OH. In
addition, Parkvale purchases loan participations and whole loans from other
institutions.
All of Parkvale's mortgage lending is subject to its written underwriting
standards and to loan origination procedures approved by the Board of
Directors. Decisions on loan applications are made on a number of factors
including, but not limited to, property valuations by independent appraisers,
credit history and cash flow available to service debt. The Loan Committee of
Parkvale consists of executive officers and is authorized to approve all loans
up to $300,000. At least three executive officers must be present to hold a
meeting of the Loan Committee. Loans exceeding $300,000 must be approved by the
Board of Directors.
Under policies adopted by Parkvale's Board of Directors, Parkvale limits the
loan-to-value ratio to 80% on newly originated residential mortgage loans, or
up to 95% with private mortgage insurance. Depending upon the amount of private
mortgage insurance obtained by the borrower, Parkvale's loan exposure may be
reduced to as low as 65% of the value of the property. Commercial real estate
loans generally do not exceed 80% of the value of the secured property. In
addition, it is Parkvale's policy to obtain title insurance policies insuring
that Parkvale has a valid first lien on mortgaged real estate.
ORIGINATIONS BY PARKVALE. Historically, mortgage loans have been originated by
Parkvale primarily through referrals from real estate brokers, builders and
direct customers, as well as through refinancings for existing customers. All
consumer and commercial loan originations are made by Parkvale within its
primary market area. Total loan originations for the fiscal years ending June
30, 1996, 1995 and 1994 were $147.6 million, $103.2 million and $154.0 million,
respectively. In fiscal 1996, increased origination were experience in
mortgage, commercial and consumer loans. Originations in fiscal 1995 were lower
than 1996 and 1994 due to lower housing and refinancing demand, primarily
related to higher rates prevailing during fiscal 1995.
LOAN PURCHASES. The asset/liability strategy of owning ARM loans to remain
flexible in a volatile interest rate environment was evident in fiscal 1996 as
Parkvale significantly increased loan
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purchases to $104.9 million, compared to $27.8 million and $15.2 million in
fiscal 1995 and 1994, respectively. In 1996, $104.7 million or 99.8% of the
total purchased loans were ARM loans. Typically, Parkvale purchases loans to
supplement the portfolio during periods of loan origination shortfalls or when
yields on whole loans are greater than similarly securitized loans. These loan
purchases are subject to Parkvale's underwriting standards and are purchased
from reputable mortgage banking institutions.
RESIDENTIAL REAL ESTATE LOANS
Parkvale offers ARMs with amortization periods of up to 30 years. The monthly
payment amounts on all Parkvale residential mortgage ARMs are reset at each
interest rate adjustment period without affecting the maturity of the ARM.
Interest rate adjustments generally occur on either a one, three or five year
basis and allow a maximum change of 2% or 3% per adjustment period, with a 6%
or 7% maximum rate increase over the life of the loan. ARMs comprised
approximately 77.4%, 82.6% and 56.3% of total mortgage loan originations and
purchases in fiscal 1996, 1995 and 1994, respectively. At June 30, 1996,
approximately 56.9% of Parkvale's total residential loan portfolio was
represented by ARMs. Adjustable-rate loans generally do not adjust as rapidly
as Parkvale's cost of funds. Parkvale has been emphasizing the origination of
adjustable-rate versus long-term fixed rate residential mortgages for its
portfolio as part of the asset and liability plan to increase the rate
sensitivity of its assets.
COMMERCIAL REAL ESTATE LOANS
The balance of commercial real estate mortgages increased slightly from $18.4
million at June 30, 1995 to $19.5 million at June 30, 1996.
CONSUMER LOANS
Parkvale offers a full complement of consumer loans, including home equity
loans, home equity and personal lines of credit, student loans, personal loans,
deposit loans, home improvement loans, charge card and automobile loans. Total
consumer loan outstandings at June 30, 1996 increased by 10.2% to $76.2 million
from $69.2 million at June 30, 1995. Parkvale has been granting home equity
lines of credit at up to 120% of collateral value at competitive introductory
rates. These loans have shorter maturities and greater interest rate
sensitivity and margins than residential real estate loans.
Home equity lines are revolving and range from $5,000 to $150,000. The amount
of the available line of credit is determined by the borrower's ability to pay,
their credit history and the amount of collateral equity. Personal and
overdraft lines of credit are generally unsecured and are extended for $500 to
$50,000. Line of credit interest rates are variable and are priced at a margin
above Parkvale's prime rate.
Parkvale offers student loans through its community banking network. Parkvale
receives a guaranteed rate on such loans indexed to the 91-day United States
Treasury bill rate and generally sells the loans to the Student Loan Marketing
Association when the student graduates or leaves school in order to avoid
costly servicing expenses.
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Parkvale's deposit loans are made on a demand basis for up to 90% of the
balance of the account securing the loan. The interest rate on deposit loans
equals the rate on the underlying account plus a minimum of 200 basis points.
In fiscal 1994, Parkvale began offering Visa and Visa Gold cards through the
Independent Bankers Association of America. Annual fees have been waived
through June 30, 1997. Credit cards outstanding totalled $4.5 million, $3.4
million and $1.8 million at June 30, 1996, 1995 and 1994, respectively.
COMMERCIAL LOANS
Parkvale's commercial loans are primarily of a short-term nature and are
extended to small businesses and professionals located within the communities
served by Parkvale. Generally, the purpose of the loan dictates the basis for
its repayment. Both secured and unsecured commercial loans are offered by
Parkvale. In originating commercial loans, the borrower's historical and
projected ability to service the proposed debt is of primary importance.
Interest rates are generally variable and indexed to Parkvale's prime rate.
Fixed-rate commercial loans are extended based upon Parkvale's ability to match
available funding sources to loan maturities. Parkvale generally requires
personal guarantees on its commercial loans. Commercial loans were $8.9 million
and $4.5 million at June 30, 1996 and 1995, respectively.
LOAN SERVICING AND LOAN FEES
Interest rates and fees charged by Parkvale on mortgage loans are primarily
determined by funding costs and competitive rates offered in its market area.
Mortgage loan rates reflect factors such as general interest rate levels, the
availability of money and loan demand.
After originating fixed rate mortgage loans, Parkvale has the ability to sell
its loans in the secondary mortgage market, primarily to the Federal Home Loan
Mortgage Corporation ("FHLMC"). Parkvale generally retains the right to service
loans sold or securitized in order to generate additional servicing fee income.
The amount of loans serviced by Parkvale for others decreased from $15.6
million at June 30, 1995 to $13.0 million at June 30, 1996. There have been no
mortgage loan securitization or sale transactions since fiscal 1991, with the
exception of certain loans made in conjunction with various state and local
bond programs designed to assist first time and/or low income home buyers.
Parkvale may or may not be the servicer of these loans depending on the terms
of the specific program.
In addition to interest earned on loans and income from servicing of loans,
Parkvale generally receives fees in connection with loan commitments and
originations, loan modifications, late payments, changes of property ownership
and for miscellaneous services related to its loans. Income from these
activities varies with the volume and type of loans originated. The fees
received by Parkvale in connection with the origination of conventional
mortgage loans on single family properties vary depending on the loan terms
selected by the borrower.
Parkvale accounts for loan fees and costs in accordance with Statement of
Financial Accounting Standards No. 91 ("FAS 91"). FAS 91 requires deferral of
all loan origination and commitment fees over the contractual life of a loan as
an adjustment of yield. In addition, certain direct loan
11
12
origination costs are required to be deferred and recognized over the
contractual life of the loan as a reduction of yield. Indirect loan origination
costs are charged to expense as incurred.
Net deferred loan origination fees were $1.1 million, $1.2 million and $1.2
million at June 30, 1996, 1995 and 1994, respectively. The decreasing balance
reflects the offering of various mortgage products with minimal points being
charged to the customer.
NONPERFORMING LOANS AND FORECLOSED REAL ESTATE
A loan is considered delinquent when a borrower fails to make contractual
payments on the loan. If the delinquency exceeds 90 days, Parkvale generally
institutes legal action to remedy the default. In the case of real estate
loans, this includes foreclosure action. If a foreclosure action is instituted
and the loan is not reinstated, paid in full or refinanced, the property is
sold at a judicial sale at which, in most instances, Parkvale is the buyer. The
acquired property then becomes "foreclosed real estate" until it is sold. In
the case of consumer and commercial business loans, the measures to remedy
defaults include the repossession of the collateral, if any, and initiation of
proceedings to collect and/or liquidate the collateral and/or act against
guarantees related to the loans.
Loans are placed on non-accrual status when, in management's judgment, the
probability of collection of interest is deemed to be insufficient to warrant
further accrual. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income. As a result, no
uncollected interest income is included in earnings for loans which are on
non-accrual status. Parkvale provides an allowance for the loss of accrued but
uncollected interest on mortgage, consumer and commercial business loans which
are more than 90 days contractually past due.
Parkvale's policy is to establish specific reserves for potential losses on
delinquent loans, foreclosed real estate, and other assets where perceived
values have been impaired on the underlying assets. Loan loss reserves,
including general valuation allowances, were 2.17%, 2.41% and 2.33% of gross
loans at June 30, 1996, 1995 and 1994, respectively. The adequacy of these
reserves in relation to current or anticipated trends in the loan portfolio
will continue to be monitored by management.
The following table sets forth information regarding Parkvale's non-accrual
loans and foreclosed real estate at June 30.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in Thousands)
Non-accrual Loans:
Mortgage $1,008 $2,031 $1,016 $ 989 $2,663
Consumer -- -- -- -- --
------ ------ ------ ------ ------
Total non-accrual Loans $1,008 $2,031 $1,016 $ 989 $2,663
====== ====== ====== ====== ======
Total non-accrual loans
as a percent of total loans 0.16% 0.37% 0.20% 0.20% 0.51%
Total foreclosed real estate, net $240 $96 $147 $4,683 $1,772
Total amount of non-accrual
loans and foreclosed real estate $1,248 $2,127 $1,163 $5,672 $4,435
Total non-accrual loans and
foreclosed real estate as a
percent of total assets 0.14% 0.24% 0.13% 0.64% 0.49%
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The amount of additional interest income that would have been included in
interest income for the years ended June 30, 1996 and 1995 if the non-accrual
loans had been current in accordance with their original terms was $137,000 and
$127,000, respectively.
Each asset classified as substandard/non-accrual or foreclosed real estate in
excess of $250,000, net of reserves, at June 30, 1996 is described below.
Parkvale has an aggregate $476,000 of first mortgage loans on rental properties
located in the Mount Washington area of Pittsburgh which are classified as
non-accrual substandard at June 30, 1996. These include 12 loans that originated
between 1974 through 1989 with various maturities. These credits are classified
as non-accrual substandard due to inadequate debt service coverage. Management
does not anticipate any loss on the resolution of this credit relationship.
Management does not believe that any asset not herein disclosed which is
classified for regulatory purposes as loss, doubtful, substandard, or special
mention will materially impact future operating results, liquidity, or capital
resources.
As of June 30, 1996, $227,000 or 22.5% of the non-accrual mortgage loans
totaling $1.0 million were purchased from others and $194,000 or 75.1% of
foreclosed real estate represented properties located outside of Pennsylvania
with loans originally purchased from others.
During fiscal 1994, Parkvale made a $4.8 million first mortgage loan to
facilitate the sale of a multi-family apartment complex located in the
Pittsburgh suburb of Penn Hills. This loan was classified as special mention
for regulatory purposes due to the loan to value ratio being higher than the
Bank's normal underwriting standards for multi-family loans. The gain resulting
from the sale of this property was deferred and accreted into income over the
term of the loan in accordance with FAS 66. As the loan was paid off in the
third quarter of fiscal 1996, the remaining deferred gain of $969,000 was
recognized into income as gain on sale of assets.
INVESTMENT ACTIVITIES
Investment decisions are made by authorized officers including the Chief
Executive Officer or the Chief Financial Officer of Parkvale in accordance with
policies established by Parkvale's Board of Directors.
Under federal regulations, Parkvale is permitted to invest in commercial paper
having one of the two highest investment ratings of two nationally recognized
investment rating agencies and certain types of rated corporate debt
securities, provided, among other limitations, that the average maturity of
Parkvale's portfolio of such corporate debt securities does not exceed six
years. In addition, Parkvale may invest up to 1% of its total assets in
commercial paper and corporate debt securities that do not meet these rating
and maturity requirements, but which Parkvale has reasonable grounds to believe
will be repaid.
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Parkvale's investment portfolio consisted of the following securities at June
30 for the years indicated.
1996 1995 1994
-------- -------- ------
(In Thousands)
Federal funds sold $ 66,557 $116,581 $ 84,900
US Government and agency obligations 62,936 86,860 73,002
Corporate debt 32,086 36,957 79,224
Mortgage backed securities 99,371 100,881 115,043
Equity securities (1) 10,493 8,738 5,597
-------- -------- --------
Total investment portfolio $271,443 $350,017 $357,766
======== ======== ========
- - ------------------
(1) Equity securities available for sale are stated at market value at June
30, 1996 and 1995.
As part of its investment strategy, Parkvale invests in mortgage-backed
securities, the majority of which are guaranteed by the Federal Home Loan
Mortgage Corporations ("FHLMC"), the Federal National Mortgage Association
("FNMA") or the Government National Mortgage Association ("GNMA"). GNMA
securities are guaranteed as to principal and interest by the full faith and
credit of the United States, while FHLMC and FNMA securities are guaranteed by
their respective agencies. At June 30, 1996, Parkvale had $99.4 million, or
10.8% of total assets invested in mortgage-backed securities, as compared to
11.3% and 13.2% at June 30, 1995 and 1994, respectively. At June 30, 1996, the
mortgage-backed securities consisted of FHLMC ($61.7 million); GNMA ($1.3
million); FNMA ($7.8 million); collateralized mortgage obligations, including
REMIC's ($27.0 million) and private participation certificates ($1.6 million).
The following table shows Parkvale's mortgage-backed security activity during
the years ended June 30.
1996 1995 1994
---- ---- ----
(In Thousands)
Mortgage-backed securities at beginning of year $100,881 $115,043 $ 98,771
Purchases 25,211 -- 60,450
Principal repayments (26,721) (14,162) (44,178)
Sales -- -- --
--------- -------- --------
Mortgage-backed securities at end of year $ 99,371 $100,881 $115,043
========= ======== ========
HEDGING ACTIVITIES
The objective of Parkvale's financial futures policy is to reduce interest rate
risk by authorizing an asset and liability hedging program. The futures policy
permits Parkvale's President to hedge up to $10 million of assets and
liabilities. Hedges over $10 million and up to $25 million require the approval
of the Audit-Finance Committee of the Board of Directors, and hedges over $25
million require the approval of the Board of Directors. Parkvale has not
engaged in any financial futures activity since the beginning of fiscal 1986.
The objective of Parkvale's financial options policy is to reduce interest rate
risk in the investment portfolio through the use of financial options. The
options policy permits the use of options on United States Treasury bills,
notes, bonds and bond futures and on mortgage-backed securities. The options
policy generally limits the use of puts and calls to $5.0 million per type of
option. Parkvale's President and Senior Vice President - Treasurer
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are authorized to conduct options activities, which are monitored by the
Audit-Finance Committee of the Board of Directors. Parkvale has not engaged in
any financial options activity in the last four fiscal year.
Derivative instruments are various instruments used to construct a transaction
that is derived from and reflects the underlying value of assets, other
instruments or various indices. The primary purpose of derivatives, which
included such items as forward contracts, interest rate swap contracts, options
and futures, is to transfer price risk associated with the fluctuations of
financial instrument value. During the year ended June 30, 1996, Parkvale has
not entered into any forward contracts, interest rate swap contracts, options
or futures.
SOURCES OF FUNDS
GENERAL
Savings accounts and other types of deposits have traditionally been the
principal source of Parkvale's funds for use in lending and for other general
business purposes. In addition to deposits, Parkvale derives funds from loan
repayments, FHLB advances, and whole loan and mortgage-backed security sales.
Borrowings may be used on a short-term basis to compensate for seasonal or
other reductions in deposits or for inflows at less than projected levels, as
well as on a longer term basis to support expanded lending and investment
activities. Parkvale's ability to maintain high liquidity levels has allowed
investment decisions to be evaluated with the funding source a secondary issue.
DEPOSITS
Parkvale has established a complete program of deposit products designed to
attract both short-term and long-term savings by providing an assortment of
accounts and rates. The deposit products currently offered by Parkvale include
passbook and statement savings accounts, non-insured sweep accounts, checking
accounts, money market accounts, certificates of deposit ranging in terms from
31 days to ten years, IRA certificates and jumbo certificates of deposit. In
addition, Parkvale is a member of the MAC system with sixteen ATMs currently
operated by Parkvale.
Parkvale is generally competitive in the types of accounts and in the interest
rates it offers on its deposit products, although it generally does not lead
the market with respect to the level of interest rates offered. Parkvale
intends to continue its efforts to attract deposits as a principal source of
funds for supporting its lending activities because the cost of these funds
generally is less than other borrowings. Although market demand generally
dictates which deposit maturities and rates will be accepted by the public,
Parkvale intends to continue to promote longer term deposits to the extent
possible in a manner consistent with its asset and liability management goals.
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The following table shows the distribution of Parkvale's deposits by type of
deposit as of June 30.
1996 1995 1994
--------------- ----------------- ---------------
BALANCE % BALANCE % BALANCE %
------- ----- ------- ------ ------- ----
(Dollars in Thousands)
Passbook accounts $140,908 17.5% $141,791 17.9% $167,513 21.5%
Checking accounts 70,446 8.7 62,578 7.9 65,271 8.4
Money market accounts 47,657 5.9 51,148 6.4 72,506 9.3
Certificate accounts 509,694 63.1 501,597 63.1 443,945 57.0
Jumbo certificates 32,218 4.0 32,234 4.1 25,218 3.3
Accrued interest 6,164 0.8 5,097 0.6 4,102 0.5
-------- ---- -------- ----- -------- -----
Total Savings Deposits $807,087 100.0% $794,445 100.0% $778,555 100.0%
======== ===== ======== ===== ======== =====
The following table sets forth information regarding average balances and
average rates paid by type of deposit for the years ending June 30.
1996 1995 1994
---------- ---------- -------
Average Average Average
BALANCE % BALANCE % BALANCE %
------- --- ------- ---- ------- ----
(Dollars in Thousands)
Passbook accounts $138,647 2.62% $151,029 2.63% $165,726 2.68%
Checking accounts 65,152 1.08 64,879 1.14 61,066 1.66
Money market accounts 49,159 2.95 60,807 2.66 77,874 2.62
Certificate accounts 542,390 5.95 487,426 5.65 477,846 5.44
Accrued interest 5,699 -- 4,543 -- 4,144 --
-------- ---- -------- ---- -------- ----
$801,047 4.75% $768,684 4.41% $786,656 4.26%
======== ===== ======== ==== ======== =====
The wide range of deposit accounts offered has increased Parkvale's ability to
retain funds and allowed it to be more competitive in obtaining new funds, but
does not eliminate the threat of disintermediation. During periods of high
interest rates, certificate and money market accounts have been more costly
than traditional accounts. In addition, Parkvale has become much more subject
to short-term fluctuations in deposit flows as customers have become more rate
conscious and willing to move funds into higher yielding accounts. The ability
of Parkvale to attract and maintain deposits and Parkvale's cost of funds has
been, and will continue to be, significantly affected by market conditions.
The principal methods used by Parkvale to attract deposits include the offering
of a wide range of services and accounts, competitive interest rates, and
convenient office hours and locations. Parkvale utilizes traditional marketing
methods to attract new customers and deposits, including mass media advertising
and direct mail.
Parkvale's deposits are obtained primarily from persons who are residents of
Pennsylvania. Parkvale neither advertises for deposits outside of Pennsylvania
nor utilizes the services of deposit brokers. An insignificant amount of
Parkvale's deposits were held by non-residents of Pennsylvania at June 30,
1996.
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The following table sets forth the net deposit flows of Parkvale during the
years ended June 30.
1996 1995 1994
---------- ---------- -------
(In Thousands)
Increase (decrease) before interest credited ($15,624) ($9,187) ($37,334)
Interest credited 28,266 25,077 23,916
------- ------- --------
Net deposit increase (decrease) $12,642 $15,890 ($13,418)
======= ======= ========
Management carefully monitors the interest rates and terms of its deposit
products in order to maximize Parkvale's interest rate spread and to better
match its interest rate sensitivity. The following table reflects the makeup of
Parkvale's deposit accounts at June 30, 1996, including the scheduled quarterly
maturity of CD accounts.
Amount % of Total Average
In 000's Deposits Rates
------- -------- -----
Passbook and club accounts $140,908 17.46% 2.62%
Checking accounts 70,446 8.73 1.08
Money market accounts 47,657 5.90 2.95
-------- ------ -----
Total non-certificate accounts $259,011 32.09 2.29
-------- ------ ----
Certificate accounts maturing in quarter ending:
September 30, 1996 90,237 11.18 4.95
December 31, 1996 72,308 8.96 5.22
March 31, 1997 49,102 6.08 5.39
June 30, 1997 56,529 7.00 5.60
September 30, 1997 27,512 3.41 6.02
December 31, 1997 20,862 2.58 6.18
March 31, 1998 18,151 2.25 6.24
June 30, 1998 21,642 2.68 6.34
September 30, 1998 10,215 1.27 5.95
December 31, 1998 12,370 1.53 6.00
March 31, 1999 10,302 1.28 5.86
June 30, 1999 14,293 1.77 6.54
Thereafter 138,389 17.15 6.46
------- -----
Total certificate accounts 541,912 67.14 5.78
------- -----
Accrued interest 6,164 0.77 0.00
-------- ------
Total deposits $807,087 100.00% 4.75%
======== ====== ====
The following table presents, by various interest rate categories, the
outstanding amount of certificates of deposit at June 30, 1996 which mature
during the years ending June 30.
1997 1998 1999 Thereafter Total
---------- ---------- ---------- ---------- -------
(In Thousands)
Certificates of deposit:
Under 6.00% $225,135 $32,751 $26,276 $26,636 $310,798
6.00% to 7.99% 40,845 52,093 18,489 111,735 223,162
8.00% to 9.99% 2,197 3,322 2,415 18 7,952
-------- ------- ------- -------- --------
Total certificates of deposits $268,177 $88,166 $47,180 $138,389 $541,912
======== ======= ======= ======== ========
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Maturities of certificates of deposit of $100,000 or more that were outstanding
as of June 30, 1996 are summarized as follows:
(In Thousands)
3 months or less $4,700
Over 3 months through 6 months 3,101
Over 6 months through 12 months 4,729
Over 12 months 19,688
------
Total $32,218
=======
BORROWINGS
Parkvale's borrowings from the FHLB of Pittsburgh are collateralized with FHLB
capital stock, deposits with the FHLB of Pittsburgh and certain mortgage-backed
securities. See "Regulation Federal Home Loan Bank System". Borrowings are made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. FHLB advances are generally available to
meet seasonal and other withdrawals of savings accounts and to expand lending
and investment activities, as well as to aid the efforts of members to
establish better asset/liability management by extending the maturities of
liabilities. At June 30, 1996, Parkvale had $20.7 million of FHLB advances
outstanding.
The following table sets forth information concerning Parkvale's advances from
the FHLB of Pittsburgh for the years ended June 30.
1996 1995 1994
---------- ---------- -------
(In Thousands)
Average balance outstanding $20,658 $20,648 $24,317
Maximum amount outstanding at any month-end
during the period $20,699 $20,703 $25,622
Average interest rate 7.25% 7.26% 7.36%
The decrease in the outstanding average balance from $24.3 million in 1994 to
$20.6 million in 1995 is due to the maturity of a $5.0 million advance in April
1994.
YIELDS EARNED AND RATES PAID
The results of operations of Parkvale depend substantially on its net interest
income, which is the largest component of Parkvale's net income. Net interest
income is affected by the difference or spread between yields earned by
Parkvale on its loan, mortgage-backed security and investment portfolios and
the rates of interest paid by Parkvale for its deposits and borrowings, as well
as the relative amounts of its interest-earning assets and interest-bearing
liabilities. Parkvale's operating results are also affected by levels of
non-interest income and expenses.
The following table sets forth the average yields earned on Parkvale's
interest-earning assets and the average rates paid on its interest-bearing
liabilities, the resulting average interest rate spreads, the net yield on
interest-earning assets and the weighted average yields and rates at June 30,
1996.
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Year Ended June 30, At
----------------------- June 30,
1996 1995 1994 1996
-------- -------- -------- ---------
Average yields on (1):
Loans 8.23% 8.14% 8.15% 8.12%
Mortgage-backed securities 6.61 6.51 6.33 6.52
Investments (2) 5.96 5.30 5.25 5.76
Federal funds sold and
repurchase agreements 5.67 5.51 3.53 5.27
---- ---- ---- ----
All interest-earning assets 7.45 7.17 6.89 7.45
---- ---- ---- ----
Average rates paid on (1):
Savings deposits 4.75 4.41 4.26 4.56
Borrowings 6.19 6.31 6.77 6.02
---- ---- ---- ----
All interest-bearing liabilities 4.79 4.46 4.34 4.61
---- ---- ---- ----
Average interest rate spread 2.66% 2.71% 2.55% 2.84%
==== ==== ==== ====
Net yield on interest-earning assets(3) 2.98% 3.01% 2.78% N/A
==== ==== ==== ====
- - -----------------
(1) Average yields and rates are calculated by dividing the interest income or
expense for the period by the average balance for the year. The weighted
averages at June 30, 1996 are based on the weighted average contractual
interest rates. Non-accrual loans are excluded in the average yield and
balance calculations.
(2) Includes held-to-maturity and available-for-sale investments and
interest-bearing deposits.
(3) Net interest income divided by average interest-earning assets.
The following table presents for the periods indicated the average balances of
each category of interest-earning assets and interest-bearing liabilities.
Year Ended June 30,
-------------------------------------------
1996 1995 1994
-------- ------- --------
Interest-earning assets: (In Thousands)
Loans $566,134 $510,919 $495,596
Mortgage-backed securities 102,470 106,073 120,696
Investments 119,573 158,267 156,833
Federal funds sold and repurchase agreements 99,382 75,503 88,880
-------- -------- --------
Total interest-earning assets 887,559 850,762 862,005
-------- -------- --------
Non-interest-earning assets 18,856 16,364 21,696
-------- -------- --------
Total assets $906,415 $867,126 $883,701
======== ======== ========
Interest-bearing liabilities:
Savings deposits 801,367 768,684 786,656
FHLB advances and other borrowings 25,634 24,727 27,894
-------- -------- --------
Total interest-bearing liabilities 827,001 793,411 814,550
-------- -------- --------
Non-interest-bearing liabilities 15,843 15,600 16,340
-------- -------- --------
Total liabilities 842,844 809,011 830,890
Shareholders' equity 63,571 58,115 52,811
-------- -------- --------
Total liabilities and equity $906,415 $867,126 $883,701
======== ======== ========
Net interest-earning assets $ 60,558 $ 57,351 $ 47,455
======== ======== ========
Interest-earning assets as a % of interest-
bearing liabilities 107.3% 107.2% 105.8%
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20
An excess of interest-earning assets over interest-bearing liabilities will
enhance a positive interest rate spread and result in greater net interest
income. In fiscal 1996, increasing net interest income was favorably impacted
by higher loan volumes. In fiscal 1995, increasing net interest income was
favorably impacted by higher yielding investments and loans. This follows a
slight decline in fiscal 1994 which was attributable to high liquidity and low
yields available on short-term investments. Parkvale's net yield on average
interest-earning assets was 2.98% in fiscal 1996, 3.01% in fiscal 1995, and
2.78% in fiscal 1994.
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,
--------------------------
1996 vs. 1995 1995 vs. 1994
----------------------- ------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
------ ------ ------ ----- ---- ------ ------ -----
(In Thousands)
Interest-earning assets:
Loans $ 460 $4,495 $ 63 $5,018 ($50) $1,249 ($36) $1,163
Mortgage-backed securities 106 (235) (3) (132) 217 (926) (21) (730)
Federal funds sold 121 1,316 35 1,472 1,760 (472) (266) 1,022
Investments 1,045 (2,051) (261) (1,267) 78 75 14 167
------ ------ ---- ------ ----- ------ ---- ------
Total 1,732 3,525 (166) 5,091 2,005 (74) (309) 1,622
------ ------ ----- ------ ----- ------ ---- ------
Interest-bearing liabilities:
Deposits 2,614 1,441 118 4,173 1,180 (766) (54) 360
FHLB advances and
other borrowings (30) 57 -- 27 (128) (214) 14 (328)
------ ----- ---- ---- ----- ----- --- -----
Total 2,584 1,498 118 4,200 1,052 (980) (40) 32
------ ------ ---- ----- ----- ----- --- -----
Net change in net interest
income (expense) ($852) $2,027 ($284) $891 $953 $906 ($269) $1,590
====== ====== ===== ==== ==== ==== ===== ======
SUBSIDIARIES
Pennsylvania law permits a Pennsylvania-chartered, federally-insured savings
institution to invest up to 2% of its assets in the capital stock, paid-in
surplus and unsecured obligations of subsidiary corporations or service
corporations and an additional 1% of its assets when the additional funds are
utilized for community or inner-city development or investment. Parkvale is
also authorized to invest up to 30% of its assets in finance subsidiaries whose
sole purpose is to issue debt or equity securities that Parkvale is authorized
to issue directly, subject to certain limitations.
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21
At June 30, 1996, Parkvale was authorized to have an investment in excess of
$25.0 million in the capital stock and other securities of its service
corporation subsidiaries. At June 30, 1996, Parkvale had equity investments of
$7,000, net of cash balances, in its service corporation subsidiaries.
Parkvale's wholly-owned service corporation, P.V. Financial Service Inc.
("PVFS"), was incorporated in 1972 and owns PMC as a wholly-owned subsidiary.
At June 30, 1996, PVFS and its subsidiary had net assets of $268,000. Gains of
$109,000 and $54,000 were recorded in fiscal 1995 and 1994, respectively, from
an investment in Interstate Service Corporation as certain contingencies were
resolved. PMC was acquired in 1986 and currently operates two offices
originating residential mortgage loans for the Bank. For additional information
regarding PMC, see "Lending Activities". In conjunction with a merger
conversion, Parkvale acquired Renaissance Corporation ("Renaissance"), a
wholly-owned subsidiary that performs collateral evaluations on consumer loans.
The sole asset of Renaissance at June 30, 1996 is $22,000 in cash.
COMPETITION
Parkvale faces substantial competition both in the attraction of deposits and
in the making of mortgage and other loans in its primary market area.
Competition for the origination of mortgage and other loans principally comes
from other savings institutions, commercial banks, mortgage banking companies,
credit unions and other financial service corporations located in the
Pittsburgh metropolitan area. Because of the wide diversity and large number of
competitors, the exact number of competitors is fluid. Parkvale's most direct
competition for deposits has historically come from other savings institutions,
commercial banks and credit unions located in the Pittsburgh area. In times of
high interest rates, Parkvale also encounters significant competition for
investors' funds from short-term money market securities and other corporate
and government securities. During the low interest rate environment, Parkvale
and other depository institutions have also experienced increased competition
from stocks, mutual funds, and other direct investments offering the potential
for higher yields.
Parkvale competes for loans principally through the interest rates and loan
fees it charges on its loan programs. In addition, Parkvale believes it offers
a high degree of professionalism and quality in the services it provides
borrowers and their real estate brokers. It competes for deposits by offering a
variety of deposit accounts at competitive rates, convenient business hours,
and convenient branch locations with interbranch deposit and withdrawal
privileges at each branch. Parkvale believes that its office locations in
various neighborhoods of Pittsburgh and the surrounding suburbs outside of
downtown Pittsburgh provide Parkvale with both an opportunity to become an
integral part of these smaller communities and the means of competing with
larger financial institutions doing business within the Pittsburgh metropolitan
area. In addition, Parkvale has two offices located in Downtown Pittsburgh to
provide services to the business community and to its suburban customers
working and shopping in the city.
MARKET AREA
The greater Pittsburgh metropolitan area, which is a heavily populated and
predominately industrialized region, ranks 19th in population of the
metropolitan areas in the country according to the 1990 census. The region's
economy is primarily dependent on a combination of the manufacturing trade,
services, government and transportation industries. The economy has
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experienced a transition away from the steel and steel-related industries to
the service industries, such as transportation, health care, education and
finance. In addition to containing the corporate headquarters of major
industrial and financial corporations, Pittsburgh is also a major regional
health and education center, and a large number of high technology firms have
located in Pittsburgh due to the wide range of support services available.
EMPLOYEES
As of June 30, 1996, Parkvale and its subsidiaries had 234 full-time equivalent
employees. These employees are not represented by a collective bargaining agent
or union, and Parkvale believes it has satisfactory relations with its
personnel.
REGULATION
GENERAL
Following conversion to a Pennsylvania chartered savings bank charter in fiscal
1993, the Bank is subject to extensive regulation by the FDIC and the
Department, and is no longer directly subject to regulation by the OTS.
Nonetheless, several requirements which were applicable to the Bank as a
Pennsylvania chartered savings association regulated by the OTS remain
applicable to the Bank as a Pennsylvania chartered savings bank. The FDIC has
adopted a regulation which provides that the same restrictions on activities,
investments in subsidiaries, loans to one borrower, and affiliate transactions
apply to the Bank as if the Bank had not converted to a savings bank charter.
However, the capital requirements applicable to the Bank as a savings bank are
the FDIC's capital maintenance regulations rather than the comparable OTS
regulations.
The Bank must file reports with the Pennsylvania Department of Banking and the
FDIC describing its activities and financial condition and is periodically
examined to test compliance with various regulatory requirements. This
supervision and regulation is intended primarily for the protection of
depositors. Certain of these regulatory requirements are referred to below or
elsewhere in this document.
FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989 ("FIRREA")
On August 9, 1989, major reform and financing legislation was enacted into law
in order to restructure the savings industry and to address the financial
condition of the FSLIC. The legislation has adversely affected the savings
industry in several ways, including more stringent capital requirements,
investment limitations and restrictions and holding company regulation. In
addition, the legislation enhances federal regulatory enforcement power and
draws upon the earnings of the Federal Home Loan Bank System in order to
partially address the large number of troubled savings institutions. Bank
holding companies are now permitted to acquire savings institutions.
INSURANCE AND REGULATORY STRUCTURE. Pursuant to the provisions of FIRREA, an
insurance fund administered by the FDIC and named the SAIF insures the deposits
of savings associations and certain savings banks. The FDIC fund existing
prior to the enactment of FIRREA is now known as the BIF and continues to
insure the deposits of commercial banks and certain savings banks. Although
the FDIC administers both funds, the assets and liabilities are not commingled.
In
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addition, FIRREA established the OTS, which is a bureau of the Department of
Treasury. The OTS is headed by a single Director who is appointed by the
President.
CAPITAL STANDARDS. The Bank is required to maintain Tier I (Core) capital equal
to at least 4% of the institution's adjusted total assets, and Tier II
(Supplementary) risk-based capital equal to at least 8.0% of risk-weighted
assets. At June 30, 1996, Parkvale was in compliance with all applicable
regulatory requirements, with Tier I and Tier II ratios of 7.1% and 14.9%,
respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
required, among other things, each federal banking agency to revise its
risk-based capital standards for insured institutions to ensure that those
standards take adequate account of interest-rate risk ("IRR"), concentration of
credit risk, and the risks of nontraditional activities, as well as to reflect
the actual performance and expected risk of loss on multi-family residential
loans. On June 26, 1996, the FDIC, the FRB and the Office of the Comptroller of
the Currency ("OCC"), collectively, "the agencies", have jointly issued a
policy statement providing bankers guidance on sound interest rate risk
management practices. This policy statement augments the action taken by the
agencies in August 1995 to implement the portion FDICIA addressing risk-based
capital standards for interest rate risk. It also replaces the proposed policy
statement that the agencies issued for comment in August 1995 regarding a
supervisory framework for measuring and assessing banks' interest rate
exposures. The agencies have elected not to pursue a standardized measure and
explicit capital charge for interest rate risk at this time. This decision
reflects concerns about the burden, accuracy, and complexity of a standardized
measure and recognition that industry techniques for measuring interest rate
risk are continuing to evolve. Rather than dampening incentives to improve risk
measures by adopting a standardized measure at this time, the agencies hope to
encourage these industry efforts. Nonetheless, the agencies will continue to
place significant emphasis on the level of a bank's interest rate risk exposure
and the quality of its risk management process when evaluating a bank's capital
adequacy.
Parkvale's management does not anticipate difficulty in meeting the capital
requirements in the future, however there can be no assurance that this will be
the case. Failure to maintain minimum levels of required capital will result in
the submission to the applicable FDIC regional director for review and approval
of a reasonable plan describing the means and timing by which the bank shall
achieve its minimum Tier I ratio and may result in the imposition by the
Pennsylvania Department of Banking or the FDIC of various operational
restrictions, including limitations as to the rate of interest that may be paid
on deposit accounts, the taking of deposits, the issuance of new accounts, the
ability to originate a particular type of loan, and the purchase of loans or
the taking of specified other investments. Alternatively, the institution may
be placed into receivership or conservatorship under the FDIC, which would be
charged with managing the institution until it could be sold or liquidated.
INVESTMENT IN SUBSIDIARIES. Under FIRREA, investments in and extensions of
credit to subsidiaries not engaged in activities permissible for national banks
must generally be deducted from capital. However, certain exemptions generally
apply where: (i) a subsidiary is engaged in activities impermissible for
national banks solely as an agent for its customers and (ii) the subsidiary is
engaged solely in mortgage-banking activities. These provisions have not
reduced or limited Parkvale's business activity.
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INVESTMENT RULES. FIRREA also materially affects the permissible investments of
savings banks. Under FIRREA, the permissible amount of loans to one borrower
now follows the national bank standards for all loans made by savings banks, as
compared to the pre-FIRREA rule that applied that standard only to commercial
loans made by federal associations. The national bank standard generally does
not permit loans to one borrower to exceed 15% of unimpaired capital and
surplus. Loans in an amount equal to an additional 10% of unimpaired capital
and surplus also may be made to a borrower if the loans are fully secured by
readily marketable securities. While Parkvale has historically made loans with
lesser dollar balances than was permitted by federal regulations, the
loans-to-one borrower limitation may limit its ability to do business with
certain customers.
Savings banks and subsidiaries may not acquire or retain investments in
corporate debt securities that at the time of acquisition were not rated in one
of the four highest rating categories by at least one nationally recognized
rating organization.
ACQUISITIONS BY BANK HOLDING COMPANIES. FIRREA permits bank holding companies
to acquire any savings institution, including healthy as well as troubled
institutions, and prohibits the Board of Governors of the Federal Reserve
System from imposing any tandem restrictions on transactions between the
savings institution and its holding company affiliates (other than those
required by Sections 23A and 23B of the Federal Reserve Act or by other
applicable laws). FIRREA does not impose any geographic restrictions on such
acquisitions, and as a result, a number of savings institutions have been
acquired by bank holding companies.
SAVINGS AND LOAN HOLDING COMPANY JURISDICTION. The Director of OTS administers
and regulates the activities of registered savings and loan holding companies
and the acquisition of savings banks by any company. Savings and loan holding
companies, such as Parkvale Financial Corporation, are no longer required to
receive regulatory approval prior to incurring debt. Savings banks which are
subsidiaries of a holding company, as well as other savings banks, are now
deemed to be member banks for purposes of Sections 23A and 23B of the Federal
Reserve Act and, as a result, are subject to the transaction with affiliate
rules contained in those sections. Savings and loan holding companies now may
also purchase up to 5% of the stock of unaffiliated savings bank or savings and
loan holding companies without prior regulatory approval. Cross-marketing
restrictions that prohibited an insured institution subsidiary of a diversified
savings and loan holding company from offering or marketing products or
services of an affiliate that are not permissible for bank holding companies
were also removed by FIRREA.
ENFORCEMENT. Other provisions of FIRREA include substantial changes to
enforcement powers available to regulators. FIRREA also expands jurisdiction of
the FDIC's enforcement powers to all "institution-affiliated" parties,
including shareholders, attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action having or likely to have an adverse
effect on an insured institution. Under FIRREA, civil penalties are classified
into three levels, with amounts increasing with the severity of the violation.
The first tier provides for civil penalties up to $5,000 per day for violation
of law or regulation. A civil penalty of up to $25,000 per day may be assessed
if more than a minimal loss to an institution or action that results in a
substantial pecuniary gain or other benefit. Criminal penalties are increased
to $1 million per violation, up to $5 million for continuing violations or for
the actual amount of gain or loss. These monetary penalties may be combined
with prison sentences of up to five years.
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FIRREA also provides regulators with far greater flexibility to impose
enforcement action on an institution that fails to comply with its regulatory
requirements, particularly with respect to the capital requirements. Possible
enforcement actions include the imposition of a capital plan and termination of
deposit insurance. The FDIC also may recommend that the Department of Banking
take enforcement action. If action is not taken by the Department, the FDIC
would have authority to compel such action under certain circumstances.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional FHLBs,
each subject to supervision and regulation by the Federal Housing Finance
Board. The FHLBs provide a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB of Pittsburgh, is required to
acquire and hold shares of capital stock in that FHLB in an amount equal to at
least 1% of the aggregate principal amount of its unpaid residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or 5% of its advances (borrowings) from the FHLB of Pittsburgh, whichever
is greater. Parkvale had a $5.9 million investment in stock of the FHLB of
Pittsburgh at June 30, 1996, which complied with this requirement.
Advances from the FHLB of Pittsburgh are secured by a member's shares of stock
in the FHLB of Pittsburgh, certain types of mortgages and other assets. The
maximum amount of credit which the FHLB of Pittsburgh will advance for purposes
other than meeting deposit withdrawals fluctuates from time to time in
accordance with changes in policies of the FHLB of Pittsburgh. Interest rates
charged for advances vary depending upon maturity, the cost of funds to the
FHLB of Pittsburgh and the purpose of the borrowing. At June 30, 1996, the Bank
had $20.7 million of outstanding advances from the FHLB of Pittsburgh.
INTERSTATE ACQUISITIONS
The Commonwealth of Pennsylvania has enacted legislation which permits
interstate acquisitions and branching, subject to specific restrictions, for
savings banks located in Delaware, Kentucky, the District of Columbia,
Maryland, New Jersey, Ohio, Virginia, and West Virginia ("the Region") if the
state offers reciprocal rights to savings institutions located in Pennsylvania.
Of the states in the Region, Delaware, Kentucky, Maryland, New Jersey, Ohio and
West Virginia currently have laws that permit savings banks located in
Pennsylvania to branch into such states and/or acquire savings banks located in
such states. However, Maryland and Ohio have not permitted Pennsylvania savings
banks to operate branches in their states.
FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require savings banks to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
accounts and regular checking accounts) and certain non-personal time deposits.
Money market deposit accounts are subject to the reserve requirement applicable
to non-personal time deposits when held by a person other than a natural
person. Because required reserves must be maintained in the form of vault cash
or a non-interest bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the
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Bank's interest-earning assets. Parkvale satisfies the majority of its reserve
requirement with vault cash.
PENNSYLVANIA SAVINGS BANK LAW
The Bank is incorporated under the Pennsylvania Banking Code of 1965, as
amended ("Banking Code"), which contains detailed provisions governing the
organization, location of offices, rights and responsibilities of directors,
officers, employees and members, as well as corporate powers, savings and
investment operations and other aspects of the Bank and its affairs. The
Banking Code delegates extensive rulemaking power and administrative discretion
to the Department so that the supervision and regulation of state-chartered
banks may be flexible and readily responsive to changes in economic conditions
and in savings and lending practices.
One of the declared purposes of the Banking Code is to provide banks with the
opportunity to be competitive with each other and with other financial
institutions existing under other state, federal and foreign laws. To this end,
the Banking Code provides Pennsylvania-chartered savings banks with all the
powers permitted federally chartered savings and loan associations and savings
banks, subject to regulation by the Department.
A Pennsylvania savings bank may locate or change the location of its principal
place of business and establish an office anywhere in the Commonwealth, with
the prior approval of the Department.
The Department generally examines each savings bank at least once every two
years. The Banking Code permits the Department to accept the examinations and
reports of the FDIC in lieu of the Department's examination. The present
practice is for the Department and the FDIC to conduct examinations annually on
an alternating basis. The Department may order any bank to discontinue any
violation of law or unsafe or unsound business practice and may direct any
director, officer, attorney or employee of a bank engaged in an objectionable
activity, after the Department has ordered the activity to be terminated, to
show cause at a hearing before the Department why such person should not be
removed.
TAXATION
FEDERAL TAXATION
For federal income tax purposes, PFC and its subsidiaries file consolidated
returns on a calendar year basis and report their income and expenses on the
accrual basis of accounting.
Under applicable provisions of the Internal Revenue Code of 1986 ("the Code"),
certain thrift institutions were allowed deductions for bad debts under rules
more favorable than those accorded to other corporate taxpayers, including
other depository institutions. On August 20, 1996, President Clinton signed a
bill that repealed the special deduction of bad debts under the reserve method
which allowed Parkvale to deduct 8% from taxable income before the deduction.
In making the change from the reserve method previously allowed, thrifts are
required to recapture the "applicable excess reserve." The applicable excess
reserve is the total amount of the thrift's reserve over the base year reserve
as of December 31, 1987. The law exempts pre-1988 reserves from recapture on
acquisition
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by a commercial bank, asset diversification or charter change. If Parkvale
meets an annual residential loan origination test, the payment of taxes can be
delayed up to two years.
Since 1987, corporations are subject to the corporate alternative minimum tax
to the extent this tax would exceed the regular tax liability. Parkvale has not
been subject to this tax in the past and does not anticipate being subject to
this tax in future years given its current level of financial and taxable
income.
With certain exceptions, no deduction is allowed for interest expense allocable
to the purchase or carrying of tax exempt obligations acquired after August 7,
1986.
Parkvale's income tax returns for calendar 1995, 1994 and 1993 have been filed
with the IRS and are open to examination. However, Parkvale has not yet been
advised by the IRS if such an examination will be performed. All income tax
returns prior to calendar 1993 have been settled with the IRS and settlement of
all issues did not result in a significant charge to income.
STATE TAXATION
For state tax purposes, Parkvale reports its income and expenses on the accrual
basis of accounting and files its tax returns on a calendar year basis.
Parkvale is subject to the Pennsylvania Mutual Thrift Institutions Tax
("MTIT"). This tax is imposed at the rate of 11.5% on net income computed
substantially in accordance with Generally Accepted Accounting Principles
("GAAP"). Under the Mutual Thrift Institution Act, Parkvale is not subject to
any state or local taxes except for the MTIT described above and taxes imposed
upon real estate and the transfer thereof.
See Note H of Notes to Consolidated Financial Statements for additional
information regarding federal and state taxation.
ITEM 2. PROPERTIES
Parkvale presently conducts its business from its main office and 27 branch
offices located in the Pittsburgh metropolitan area. Parkvale owns the building
and land for thirteen of its offices and leases its remaining fifteen offices.
Such leases expire between July 1996 and August 2013. At June 30, 1996,
Parkvale's land, building and equipment had a net book value of $2.0 million.
The following table sets forth certain information regarding Parkvale's office
facilities at June 30, 1996.
LEASED % OF
OWNED OR EXPIRATION NET BOOK TOTAL
LOCATION LEASED DATE VALUE DEPOSITS
- - -------- --------- ----------- --------- --------
(in thousands)
MAIN OFFICE: Leased
4220 William Penn Hwy Headquarters 08/31/97
Monroeville, PA 15146 Branch 08/31/13 $175 13.1%
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BRANCH OFFICES:
913 23rd Street
Aliquippa, PA 15001 Owned -- 213 2.5%
160 Allegheny Center Mall
Pittsburgh, PA 15212 Leased 12/31/00 8 1.6%
2132 Arlington Avenue
Pittsburgh, PA 15210 Owned -- 34 2.6%
1400 Seventh Avenue
Beaver Falls, PA 15010 Owned -- 222 3.5%
650 CasteVillage
Pittsburgh, PA 15236 Leased 12/31/00 15 6.5%
10 Foster Avenue
Pittsburgh, PA 15205 Leased 04/30/04 27 3.2%
Cranberry Mall
Cranberry Twp., PA 16066 Leased 07/31/96 9 1.4%
559 Grant Street
Pittsburgh, PA 15219 Leased 01/31/05 118 1.2%
503 Greenfield Avenue
Pittsburgh, PA 15207 Owned -- 8 4.2%
1970 Greentree Road
Pittsburgh, PA 15220 Leased 04/17/99 61 0.9%
1789 Pine Hollow Road
McKees Rocks, PA 15136 Leased 12/30/97 20 3.2%
200 Fifth Avenue
Pittsburgh, PA 15222 Leased 09/30/96 8 3.3%
420 Grant Avenue
Millvale, PA 15209 Owned -- 96 4.3%
55 Wyoming Street
Pittsburgh, PA 15211 Owned -- 6 2.3%
4300 Murray Avenue
Pittsburgh, PA 15217 Owned -- 151 2.9%
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931 Fifth Avenue
New Kensington, PA 15068 Owned -- 27 4.9%
2300 Noblestown Road
Pittsburgh, PA 15205 Owned -- 67 3.3%
4885 McKnight Road
Pittsburgh, PA 15237 Leased 01/31/99 35 3.8%
90 Malts Lane
North Huntingdon, PA 15642 Owned -- 285 5.2%
3530 Forbes Avenue
Pittsburgh, PA 15213 Leased 04/30/99 2 2.4%
3908 Perrysville Avenue
Pittsburgh, PA 15214 Owned -- 97 2.5%
90 Tarentum Bridge Road
New Kensington, PA 15068 Owned -- 151 3.1%
1940 Murray Avenue
Pittsburgh, PA 15217 Leased 11/30/96 3 5.3%
736 Allegheny River Blvd.
Verona, PA 15147 Owned -- 105 2.8%
1500 Oxford Drive
Village Square, Suite 100
Bethel Park, PA 15102 Leased 12/31/98 40 3.1%
997 West View Park Drive
Pittsburgh, PA 15229 Leased 06/30/01 11 2.1%
4128 Brownsville Road
Pittsburgh, PA 15227 Leased 02/28/02 7 4.8%
MORTGAGE ORIGINATION OFFICES:
3900 Jermantown Road, Suite 180
Fairfax, VA 22030 Leased 12/31/96 2 --
2550 Corporate Exchange Drive
Suite 100
Columbus, OH 43231 Leased 12/31/96 2 --
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ITEM 3. LEGAL PROCEEDINGS.
Neither PFC nor any of its subsidiaries is involved in any pending legal
proceedings other than routine, insignificant litigation occurring in the
ordinary course of business, except as follows. The Bank is a defendant in two
related suits involving its former headquarters building in Pittsburgh.
Complaints have not yet been filed in either case, which makes it difficult to
determine the nature and amounts of potential exposure. See PFC's 1996 Annual
Report to Shareholders filed herewith as Exhibit 13 (the "1996 Annual Report"),
under "Capital Resources" in the Management Discussion and Analysis of
Financial Condition and Results of Operations section.
PFC and its subsidiaries, in the normal course of business, are subject to
various other pending and threatened lawsuits in which claims for monetary
damages are asserted. Management, after consultation with legal counsel, does
not anticipate that the ultimate aggregate liability, if any, arising out of
such other lawsuits will have a material adverse effect on PFC's nor its
subsidiaries' financial positions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS
MATTERS.
The information required herein is incorporated by reference from page 33 of
the PFC's 1996 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from page 4 of
PFC's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required herein is incorporated by reference from pages 5 to 12
of PFC's 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is incorporated by reference from pages 14 to
30 of PFC's 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
Not applicable.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein with respect to directors and executive
officers of PFC and Parkvale is incorporated by reference from pages 5 to 9 of
the definitive proxy statement of the Corporation for the 1996 Annual Meeting
of Shareholders, which was filed on September 16, 1996 (the "definitive proxy
statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from page 13 of
the definitive proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from pages 2 to 4
of the definitive proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from page 15 of
the definitive proxy statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) The following financial statements are incorporated by reference
from Item 8 hereof (see Exhibit 13):
PAGE
Report of Independent Auditors...............................................................13
Consolidated Statements of Financial Condition at June 30, 1996 and 1995.....................14
Consolidated Statements of Operations for each of the three years
in the period ended June 30, 1996...................................................15
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1996...................................................16
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended June 30, 1996...................................................17
Notes to Consolidated Financial Statements...................................................18
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(2) The following exhibits are filed as part of this Form 10-K and this
list includes Exhibit Index.
NO. EXHIBITS PAGE
3(a) Articles of Incorporation.............................................................*
3(b) Bylaws................................................................................#
3(c) Amendments to the Bylaws......................................................C-1 - C-9
10(a) Common Stock Certificate..............................................................*
10(b) 1987 Stock Option Plan................................................................@
10(c) 1993 Key Employee Stock Compensation Program..........................................x
10(d) 1993 Directors' Stock Option Plan.....................................................x
10(e) Consulting Agreement with Robert D. Pfischner.........................................!
10(f) Employment Agreement with Robert J. McCarthy, Jr......................................*
10(g) Employee Stock Ownership Plan.........................................................!
10(h) Executive Deferred Compensation Plan..................................................+
10(i) Supplemental Employee Benefit Plan....................................................+
13 Excerpts of the 1996 Annual Report to Shareholders filed herewith. Such Annual Report,
except those portions thereof that are expressly incorporated by reference herein,
is furnished for information of the Securities and Exchange Commission only and is not
deemed to be "filed" as part of this Form 10-K.
22 Subsidiaries of Registrant.......................................................... 20
Reference is made to Item 1. Business - Subsidiaries for the required information
23 Consent of Ernst & Young LLP, independent auditors..................................F-1
* Incorporated by reference to the Registrant's Form 8-B filed with the Commission on
January 5, 1989.
# Incorporated by reference to Form 10-K filed by the Registrant with the Commission on
September 28, 1988.
@ Incorporated by reference, as amended, to Form S-8 at File No. 33-26173 filed by the
Registrant with the Commission on November 1, 1995.
x Incorporated by reference, as amended, to Form S-8 at File No. 33-98812 filed by the
Registrant with the Commission on November 1, 1995.
! Incorporated by reference to Form 10-K filed by the Registrant with the Commission on
September 28, 1994.
+ Incorporated by reference to Form 10-K filed by the Registrant with the Commission on
September 21, 1995.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the 1996 fiscal
year or prior to the filing of this Form 10-K.
(c) See (a) (2) above for all exhibits filed herewith and the Exhibit
Index.
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(d) There are no other financial statements and financial statement
schedules which were excluded from the Annual Report to
Shareholders which are required to be included herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PARKVALE FINANCIAL CORPORATION
Date: September 17, 1996 By: /s/ ROBERT J. MCCARTHY, JR.
---------------------------
Robert J. McCarthy, Jr.
Director, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ ROBERT J. MCCARTHY, JR. September 17, 1996
- - --------------------------- ------------------
Robert J. McCarthy, Jr., Date
Director, President and Chief
Executive Officer
/s/ TIMOTHY G. RUBRITZ September 17, 1996
- - --------------------------- ------------------
Timothy G. Rubritz, Date
Vice President - Treasurer
(Chief Financial & Accounting Officer)
/s/ ROBERT D. PFISCHNER September 17, 1996
- - --------------------------- ------------------
Robert D. Pfischner, Chairman of the Board Date
/s/ FRED P. BURGER, JR. September 17, 1996
- - --------------------------- ------------------
Fred P. Burger, Jr., Director Date
/s/ PAUL A. MOONEY September 17, 1996
- - --------------------------- ------------------
Paul A. Mooney, Director Date
/s/ GEORGE W. NEWLAND September 17, 1996
- - --------------------------- ------------------
George W. Newland, Director Date
/s/ WARREN R. WENNER September 17, 1996
- - --------------------------- ------------------
Warren R. Wenner, Director Date
33