SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
---------------- -----------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway, Monroeville, Pennsylvania 15146
----------------------------------------------------------
(Address of principal executive offices; zip code)
Registrant's telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
The closing sales price of the Registrant's Common Stock on January 27, 2003 was
$23.38 per share.
Number of shares of Common Stock outstanding as of January 27, 2003 was
5,554,989.
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
Item 1.
Consolidated Statements of Financial Condition as of December 31,
2002 and June 30, 2002 3
Consolidated Statements of Operations for the three and six months
ended December 31, 2002 and 2001 4
Consolidated Statements of Cash Flows for the six months ended
December 31, 2002 and 2001 5-6
Consolidated Statements of Shareholders' Equity as of December 31, 2002 6
Notes to Unaudited Interim Consolidated Financial Statements 7-8
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-15
Item 3.
Quantitative and Qualitative Disclosures about Market Risk 15
Item 4.
Controls and Procedures 15
Part II. Other Information 15
Signatures and Certifications 16-19
2
Item 1.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
DECEMBER 31, June 30,
ASSETS 2002 2002
---------- ----------
(unaudited)
Cash and noninterest earning deposits $ 25,942 $ 25,050
Federal funds sold 48,000 119,000
Interest-earning deposits in other banks 22,134 17,473
Investment securities available for sale (cost of
$17,681 at December 31 and $11,780 at June 30) 19,006 13,080
Investment securities held to maturity (fair value
of $248,175 at December 31 and $201,098 at June 30) 245,033 199,860
Loans, net of allowance of $15,159 at December 31
and $15,492 at June 30 1,220,721 1,217,639
Foreclosed real estate, net 2,775 1,717
Office properties and equipment, net 9,683 10,080
Intangible assets and deferred charges 11,792 11,787
Prepaid expenses and other assets 13,710 16,506
---------- ----------
Total Assets $1,618,796 $1,632,192
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $1,326,364 $1,349,339
Advances from Federal Home Loan Bank 146,114 131,121
Trust preferred securities 25,000 25,000
Other debt 12,416 16,875
Escrow for taxes and insurance 6,038 7,882
Other liabilities 5,936 4,571
---------- ----------
Total Liabilities 1,521,868 1,534,788
---------- ----------
SHAREHOLDERS' EQUITY
Preferred Stock ($1.00 par value; 5,000,000
shares authorized; 0 shares issued) -- --
Common Stock ($1.00 par value; 10,000,000 shares
authorized; 6,734,894 shares issued) 6,735 6,735
Additional Paid in Capital 4,238 4,293
Treasury Stock at cost (1,188,089 shares in December
and 1,034,483 in June) (22,927) (19,128)
Accumulated Other Comprehensive Income 841 826
Retained Earnings 108,041 104,678
---------- ----------
Total Shareholders' Equity 96,928 97,404
---------- ----------
Total Liabilities and Shareholders' Equity $1,618,796 $1,632,192
========== ==========
3
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
------- ------- ------- -------
(Unaudited)
Interest income:
Loans $18,470 $19,598 $38,215 $40,010
Investments 2,915 2,364 5,857 4,789
Federal funds sold 513 562 1,020 1,511
------- ------- ------- -------
Total interest income 21,898 22,524 45,092 46,310
------- ------- ------- -------
Interest expense:
Savings deposits 11,701 13,214 24,023 27,129
Borrowings 2,435 1,626 4,821 3,298
------- ------- ------- -------
Total interest expense 14,136 14,840 28,844 30,427
------- ------- ------- -------
Net interest income 7,762 7,684 16,248 15,883
Provision for loan losses 74 56 122 108
------- ------- ------- -------
Net interest income after
provision for losses 7,688 7,628 16,126 15,775
------- ------- ------- -------
Noninterest Income:
Service charges on deposit accounts 1,183 881 2,296 1,732
Other fees and service charges 311 274 642 511
Gain on sale of assets -- 795 -- 1,217
Miscellaneous 249 313 533 734
------- ------- ------- -------
Total other income 1,743 2,263 3,471 4,194
------- ------- ------- -------
Noninterest Expenses:
Compensation and employee benefits 3,162 2,639 6,429 5,348
Office occupancy 1,033 810 2,007 1,649
Marketing 161 143 312 261
FDIC insurance 57 54 115 106
Office supplies, telephone and postage 419 303 829 621
Miscellaneous 970 764 1,906 1,465
------- ------- ------- -------
Total other expenses 5,802 4,713 11,598 9,450
------- ------- ------- -------
Income before income taxes 3,629 5,178 7,999 10,519
Income tax expense 1,124 1,794 2,632 3,648
------- ------- ------- -------
Net income $ 2,505 $ 3,384 $ 5,367 $ 6,871
======= ======= ======= =======
Net income per share:
Basic $ 0.45 $ 0.60 $ 0.96 $ 1.21
Diluted $ 0.45 $ 0.59 $ 0.95 $ 1.20
4
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
SIX MONTHS ENDED
DECEMBER 31,
2002 2001
--------- ---------
(Unaudited)
Cash flows from operating activities:
Interest received $ 47,312 $ 47,302
Loan fees received (686) 413
Other fees and commissions received 3,472 2,891
Interest paid (28,847) (30,495)
Cash paid to suppliers and others (11,063) (7,642)
Income taxes paid 1,029 (3,700)
--------- ---------
Net cash provided by operating activities 11,217 8,769
Cash flows from investing activities:
Proceeds from sale of investment securities available for sale -- 1,311
Proceeds from maturities of investments 96,388 13,335
Purchase of investment securities held to maturity (137,141) (13,561)
Maturity of deposits in other banks (4,661) (10,360)
Purchase of loans (303,635) (132,276)
Proceeds from sales of loans 1,506 1,994
Principal collected on loans 381,961 271,826
Loans made to customers, net of loans in process (95,294) (101,636)
Other (245) (218)
--------- ---------
Net cash used in investing activities (61,121) 30,415
Cash flows from financing activities:
Net increase in checking and savings accounts 7,097 19,796
Net (decrease) increase in certificates of deposit (30,072) (15,797)
Proceeds from FHLB advances 20,000 --
Repayment of FHLB advances (5,007) (5,007)
Net decrease in other borrowings (4,460) (216)
Decrease in borrowers' advances for taxes and insurance (1,843) (1,677)
Cash dividends paid (2,004) (2,041)
Acquisition of treasury stock (3,915) (15)
--------- ---------
Net cash provided by financing activities (20,204) (4,957)
--------- ---------
Net increase in cash and cash equivalents (70,108) 34,227
Cash and cash equivalents at beginning of period 144,050 115,208
--------- ---------
Cash and cash equivalents at end of period $ 73,942 $ 149,435
========= =========
5
Reconciliation of net income to net cash provided SIX MONTHS ENDED
by operating activities: DECEMBER 31,
2002 2001
------- -------
Net income $ 5,367 $ 6,871
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 861 428
Accretion and amortization of loan fees and discounts 1,566 294
Loan fees collected and deferred (686) 413
Provision for loan losses 122 108
Gain on sale of assets -- (1,217)
Decrease in accrued interest receivable 381 932
Increase in other assets 3,049 113
(Increase) in accrued interest payable (3) (68)
Increase in other liabilities 560 895
------- -------
Total adjustments 5,850 1,898
------- -------
Net cash provided by operating activities $11,217 $ 8,769
======= =======
For purposes of reporting cash flows, cash and cash equivalents include cash and
noninterest earning deposits, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods. Loans transferred to foreclosed
assets aggregated $770 for the six months ended December 31, 2002 and $684 for
the six months ended December 31, 2001.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
Accumulated
Additional Other Total
Common Paid-in Treasury Comprehensive Retained Shareholders'
Stock Capital Stock Income Earnings Equity
------ ---------- -------- ------------- --------- -------------
Balance, June 30, 2002 $6,735 $4,293 ($19,128) $826 $104,678 $97,404
Net income, six months
ended December 31, 2002 5,367 5,367
Unrealized security gains (losses) on
available-for-sale securities 15 15
-------
Comprehensive Income 5,382
Treasury stock purchased (3,915) (3,915)
Dividends on common stock at
$0.36 per share (2,004) (2,004)
Exercise of stock options (55) 116 61
------ ------ -------- ---- -------- -------
Balance, December 31, 2002 $6,735 $4,238 ($22,927) $841 $108,041 $96,928
====== ====== ======== ==== ======== =======
6
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in
thousands, except share data)
1. Statements of Operations
The statements of operations for the three and six months ended December 31,
2002 and 2001 are unaudited, but in the opinion of management, reflect all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation of the results of operations for those periods. The results of
operations for the three and six months ended December 31, 2002 are not
necessarily indicative of the results which may be expected for fiscal 2003. The
Annual Report on Form 10-K for the year ended June 30, 2002 contains additional
information and should be read in conjunction with this report.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three and six months ended December 31:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Numerator for basic and diluted
earnings per share:
Net income $ 2,505 $ 3,384 $ 5,367 $ 6,871
Denominator:
Weighted average shares
for basic earnings per share 5,545,100 5,667,244 5,592,261 5,667,261
Effect of dilutive employee stock options 79,259 71,730 86,523 81,830
---------- ---------- ---------- ----------
Weighted average shares for
dilutive earnings per share 5,624,360 5,738,974 5,678,708 5,749,090
========== ========== ========== ==========
Net income per share:
Basic $ 0.45 $ 0.60 $ 0.96 $ 1.21
========== ========== ========== ==========
Diluted $ 0.45 $ 0.59 $ 0.95 $ 1.20
========== ========== ========== ==========
3. Loans
Loans are summarized as follows:
DECEMBER 31, June 30,
2002 2002
----------- -----------
Mortgage loans:
Residential:
1-4 Family $ 906,418 $ 895,330
Multifamily 18,978 18,140
Commercial 56,898 59,136
Other 34,757 35,108
----------- -----------
1,017,051 1,007,714
Consumer loans 159,041 167,956
Commercial business loans 54,489 53,055
Loans on savings accounts 3,208 3,224
----------- -----------
1,233,789 1,231,949
Less: Loans in process 258 205
Allowance for loan losses 15,159 15,492
Unamortized discount (premiums) and deferred loan fees (2,349) (1,387)
----------- -----------
Loans, net $ 1,220,721 $ 1,217,639
=========== ===========
7
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Continued (Dollar
amounts in thousands, except share data)
The following summarizes the activity in the allowance for loan losses for the
six months ended December 31:
2002 2001
------- -------
Beginning balance $15,492 $13,428
Provision for losses - mortgage loans 12 1
Provision for losses - consumer loans 63 107
Provision for losses - commercial loans 47 --
Loans recovered 74 55
Loans charged off (529) (160)
------- -------
Ending balance $15,159 $13,431
======= =======
Included in the $906.4 million of 1-4 family residential mortgage loans,
$743,000 are classified as held-for-sale. At December 31, 2002, the market value
of these loans is $750,000.
The increase of loan charge offs in the current period primarily consists of
commercial lease loans that are not actively originated at this time and
previously classified commercial and consumer loans.
4. Comprehensive Income
Sources of comprehensive income not included in net income are limited to
unrealized gains and losses on certain investments in equity securities. For the
six months ended December 31, 2002 and 2001, total comprehensive income amounted
to $5,382 and $5,921, respectively.
5. New Accounting Pronouncements
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes FASB 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of. This statement is effective for
fiscal years beginning after December 15, 2001. Management has evaluated the
impact of this statement and has determined that there is no material effect on
Parkvale's financial position or results of operations.
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which establishes financial
accounting and reporting for costs associated with exit or disposal activities.
This statement is effective for disposal activities initiated after December 31,
2002. To date, Parkvale has not initiated any such sales after December 31,
2002.
Statement of Financial Accounting Standards No. 147, Acquisition of Certain
Financial Instruments, which clarifies FASB 142 that, if certain conditions are
met, an acquisition of less-than-whole financial institutions should be
accounted for as a business combination. As a result of statement 147, entities
are required to reclassify and restate both the goodwill and amortization
expense as of the date FASB 142 was adopted. This statement is effective October
1, 2002. Management has evaluated the impact of this statement and has
determined that there is no material effect on Parkvale's financial position or
results of operations.
8
Item 2.
PARKVALE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Balance Sheet Data: DECEMBER 31,
2002 2001
---------- ----------
Total assets $1,618,796 $1,409,656
Loans, net 1,220,721 1,071,422
Interest-earning deposits and federal funds sold 70,134 152,710
Total investments 264,039 142,631
Savings deposits 1,326,364 1,184,796
FHLB advances 146,114 111,127
Shareholders' equity 96,928 98,970
Book value per share $17.47 $17.46
Statistical Profile:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, (1) DECEMBER 31, (1)
2002 2001 2002 2001
------ ------ ------ ------
Average yield earned on all
interest-earning assets 5.58% 6.62% 5.75% 6.78%
Average rate paid on all
interest-bearing liabilities 3.60% 4.65% 3.69% 4.74%
Average interest rate spread 1.98% 1.97% 2.06% 2.04%
Net yield on average
interest-earning assets 1.98% 2.26% 2.07% 2.33%
Other expenses to average assets 1.43% 1.34% 1.43% 1.35%
Taxes to pre-tax income 30.97% 34.65% 32.90% 34.68%
Return on average assets 0.62% 0.97% 0.66% 0.98%
Return on average equity 10.46% 14.33% 11.18% 14.75%
Average equity to average total assets 5.89% 6.74% 5.90% 6.64%
Dividend per share $0.18 $0.18 $0.36 $0.36
AT DECEMBER 31,
2002 2001
----- -----
One year gap to total assets -5.90% 1.82%
Intangibles to total equity 12.17% 0.23%
Capital to assets ratio 5.99% 7.02%
Ratio of nonperforming assets to total assets 0.42% 0.65%
Number of full-service offices 38 33
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
9
NONPERFORMING LOANS AND FORECLOSED REAL ESTATE:
Nonperforming and impaired loans and foreclosed real estate (REO) consisted of
the following at December 31, 2002 versus year-end June 30, 2002.
DECEMBER 31, 2002 June 30, 2002
----------------- -------------
(Dollars in 000's)
Delinquent single-family mortgage loans $3,165 $2,373
Delinquent other loans 837 598
------ ------
Total of nonperforming loans $4,002 $2,971
Total of impaired loans 75 498
Real estate owned, net 2,775 1,717
------ ------
Total $6,852 $5,186
====== ======
Nonperforming and impaired loans and real estate owned represent 0.42% and 0.32%
of total assets at the respective balance sheet dates. Delinquent single-family
mortgage loans at December 31, 2002 consisted of 33 single family owner occupied
homes. As of December 31, 2002, $1.7 million or 53.4% of the nonaccrual mortgage
loans totaling $3.2 million were purchased from others. The $1.7 million of the
delinquent loans purchased by others is comprised of 7 loans. Management
believes all non-accrual mortgage loans are well collateralized.
Loans are placed on nonaccrual status when, in management's judgment, the
probability of collection of principle and interest is deemed to be insufficient
to warrant further accrual. When a loan is placed on nonaccrual status,
previously accrued but unpaid interest is deducted from interest income. As a
result, uncollected interest income is not included in earnings for nonaccrual
loans. The amount of interest income on nonaccrual loans that had not been
recognized in interest income was $138,000 at December 31, 2002 and $191,000 at
June 30, 2002. Parkvale provides an allowance for the loss of all accrued but
uncollected interest on mortgage, consumer and commercial business loans which
are more than 90 days contractually past due.
Nonaccrual, substandard and doubtful commercial and other real estate loans are
assessed for impairment. Loans are considered impaired when the fair value is
insufficient as compared to the contractual amount due. Parkvale excludes
single-family loans, credit card and installment consumer loans in the
determination of impaired loans consistent with the exception under paragraph 6
of SFAS 114 of loans measured for impairment. Parkvale Bank had two loans
totalling $75,000 classified as impaired at December 31, 2002 and $498,000 at
June 30, 2002.The average recorded investment in impaired loans is $440,000 for
the six months ended December 2002. The $498,000 impaired loan at June 30, 2002
was foreclosed upon in December 2002. The amount of interest income that has not
been recognized was $45,000 at foreclosure. Impaired assets include $2.8 million
of foreclosed real estate as of December 31, 2002. Foreclosed real estate
properties are recorded at the lower of the carrying amount or fair value of the
property less the cost to sell. Periodically, management assesses the need for a
valuation allowance or a writedown to account for declines in fair value.
Foreclosed real estate includes $1.7 million related to a 1998 foreclosure on a
vacant building, which is under renovation. A $6.5 million writedown was
established for this property during fiscal 2002 as estimated costs to
rehabilitate and renovate the building were higher than originally estimated. As
deemed necessary, management will continue to assess the need for a valuation
allowance on this property. The process will be influenced by factors such as
future additional capitalized costs required, current real estate market and
general economic conditions.
10
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses was $15.2 million at December 31, 2002, $15.5
million at June 30, 2002 and $13.4 million at December 31, 2001 or 1.23%, 1.26%
and 1.24% of gross loans at December 31, 2002, June 30, 2002 and December 31,
2001. The increase in the allowance during fiscal 2002 included $2.0 million of
allowances acquired via the SNB acquisition. The adequacy of the allowance for
loan loss is determined by management through evaluation of the loss potential
on individual nonperforming, delinquent and high dollar loans, economic and
business trends, growth and composition of the loan portfolio and historical
loss experience, as well as other relevant factors.
The allowance for loan losses is continually monitored by management to identify
potential portfolio risks and detect potential credit deterioration in the early
stages. Management then establishes reserves based upon its evaluation of the
inherent risks in the loan portfolio. Changes to the levels of reserves are made
quarterly based upon perceived changes in risk. Management believes the
allowance for loan losses is adequate to absorb probable loan losses.
LIQUIDITY AND CAPITAL RESOURCES:
Federal funds sold decreased $71 million or 59.7% from June 30, 2002 to December
31, 2002 due mainly to funds being invested in higher-yielding loans and
investment securities. Investment securities held to maturity increased $45.2
million or 22.6% from June 30, 2002 to December 31, 2002. Savings deposits
decreased by $23.0 million or 1.7%. Advances from FHLB increased $15.0 million
or 11.4%. Parkvale Bank's FHLB remaining advance available borrowing capacity is
$733.0 million. If Parkvale were to experience a deposit run off in excess of
the available cash resources invested in cash and cash equivalents, this
available FHLB borrowing capacity could be utilized to fund a rapid decrease in
deposits.
Shareholders' equity was $97.0 million or 6.0% of total assets at December 31,
2002. A stock repurchase program approved in June 2002 permits the purchase of
5% of outstanding stock or 285,000 shares during fiscal 2003 at prevailing
prices in open-market transactions. Through December 31, 2002, 159,606 shares
were purchased at an average price of $24.53 per share, representing 56% of the
authorized program. The Bank is required to maintain Tier I (Core) capital equal
to at least 4% of the institution's adjusted total assets, and Tier II
(Supplementary) risk-based capital equal to at least 8% of the risk-weighted
assets. At December 31, 2002, Parkvale was in compliance with all applicable
regulatory requirements, with Tier I and Tier II ratios of 6.64% and 11.75%,
respectively.
The regulatory capital ratios for Parkvale Bank at December 31, 2002 are
calculated as follows:
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
----------- ----------- -----------
Equity Capital (1) $ 119,835 $ 119,835 $ 119,835
Less non-allowable intangible assets (11,792) (11,792) (11,792)
Less unrealized securities gains (286) (286) (286)
Plus permitted valuation allowances (2) -- -- 12,874
Plus allowable unrealized holding gains (3) -- -- 203
----------- ----------- -----------
Total regulatory capital 107,757 107,757 120,834
Minimum required capital 64,873 41,122 82,244
----------- ----------- -----------
Excess regulatory capital $ 42,884 $ 66,635 $ 38,590
Adjusted total assets $ 1,621,834 $ 1,028,054 $ 1,028,054
Regulatory capital as a percentage 6.64% 10.48% 11.75%
Minimum capital required as a percentage 4.00% 4.00% 8.00%
----------- ----------- -----------
Excess regulatory capital as a percentage 2.64% 6.48% 3.75%
=========== =========== ===========
Well capitalized requirement 5.00% 6.00% 10.00%
=========== =========== ===========
(1) Represents equity capital of the consolidated Bank as reported to the
Pennsylvania Department of Banking and FDIC on Form 041 for the quarter
ended December 31, 2002.
(2) Limited to 1.25% of risk adjusted total assets.
(3) Limited to 45% of pretax net unrealized holding gains.
11
Management is not aware of any trends, events, uncertainties or current
recommendations by any regulatory authority that will have (if implemented), or
that are reasonably likely to have, material effects on Parkvale's liquidity,
capital resources or operations.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 2002
AND 2001
For the three months ended December 31, 2002, Parkvale reported net income of
$2.5 million or $0.45 per diluted share down 26.0%, or 24.5% on a per share
basis, from net income of $3.4 million or $0.59 per diluted share for the
quarter ended December 31, 2001.The $879,000 decrease in net income for the
December 2002 quarter reflects an increase in non-interest expense of $1.1
million and a decrease in non-interest income of 520,000, offset slightly by a
$78,000 increase in net interest income. Absent a $795,000 security gain in the
prior quarter non-interest income increased $275,000. Net interest income
increased to $7.8 million from $7.7 million for the quarter ended December 31,
2002. Return on average equity was 10.46% for the December 2002 quarter compared
to 14.33% for the December 2001 quarter.
INTEREST INCOME:
Parkvale had interest income of $21.9 million for the three months ended
December 31, 2002 versus $22.5 million during the comparable period in 2001.
This decrease of $626,000 or 2.8% is the result of 104 basis point decrease in
the average yield from 6.62% in 2001 to 5.58% in 2002, offset by a $208.4
million or 15.3% increase in the average balance of interest-earning assets. The
decrease in yields is attributable to loan payoffs and refinancings, the lower
earning rates on Federal funds sold and prime rate loans combined with the lower
rates on reinvestment of proceeds. Interest income from loans decreased $1.1
million or 5.8% resulting from a 86 basis point decrease in the average yield
from 7.09% in 2001 to 6.23% in 2002, offset by an increase in the average
outstanding loan balances of $79.2 million or 7.2%. The decrease in the average
yield reflects the adverse impact of loan repayments of $580 million in fiscal
2002 plus the additional $218 million in payments during the December 2002
quarter. Investment interest income increased by $551,000 or 23.3% from the 2001
quarter due to an increase of $96.5 million or 64.9% in the average balance,
offset by a 160 basis point decrease in the average yield from 6.36% in 2001 to
4.76% in 2002. Interest income earned on federal funds sold decreased $49,000 or
8.7% from the 2001 quarter due to a 64 basis point decrease in the average yield
from 2.11% in 2001 to 1.47% in 2002, offset by an increase in the average
balance of $32.8 million or 30.1%. At December 31, 2002, the weighted average
yield on all interest-earning assets was 5.74% compared to 6.58% at December 31,
2001.
INTEREST EXPENSE:
Interest expense decreased by $704,000 or 4.7% from the 2001 quarter to the 2002
quarter. This decrease was due to a 105 basis point decrease in the average rate
paid on deposits and borrowings from 4.65% in 2001 to 3.60%, offset by an
increase in the average deposits and borrowings of $255.5 million or
12
20.0% in 2002. The interest rate reduction's are attributable to the lower cost
of new and renewing certificate rates compared to maturing certificates with
average rate reductions of more than 2%. At December 31, 2002, the average rate
payable on liabilities was 3.27% for deposits, 5.14% for borrowings, 5.07% for
trust preferred securities and 3.49% for combined deposits, borrowings and trust
preferred.
PROVISION FOR LOAN LOSSES:
Provision for loan losses increased by $18,000 or 32.1% from the 2001 quarter to
the 2002 quarter. Aggregate valuation allowances were 1.23% of gross loans at
December 31, 2002, 1.26% of gross loans at June 30, 2002 and 1.24% of gross
loans at December 31, 2001.
Nonperforming loans and real estate owned were $6.9 million, $5.2 million and
$9.2 million at December 31, 2002, June 30, 2002 and December 31, 2001,
representing 0.42%, 0.32% and 0.65% of total assets at the respective balance
sheet dates. Total allowance for loan losses at December 31, 2002 was $15.2
million.
The allowance for loan loss is continually monitored by management to identify
potential portfolio risks and detect potential credit deterioration in the early
stages. Management then establishes reserves based upon its evaluation of the
inherent risks in the loan portfolio. Management believes the allowance for loan
loss is adequate to absorb probable loan losses at December 31, 2002.
OTHER INCOME:
Total other income decreased by $520,000 or 22.9% at December 31, 2002 due to a
prior period gain on the sale of assets of $795,000. Other income absent this
gain in the prior period increased $275,000 or 18.8% due to an increase on
service fees on all types of deposit and loan products acquired in the SNB
acquisition.
OTHER EXPENSE:
Total other expenses increased by $1.1 million or 23.1% from the quarter ended
December 2001 to the quarter ended December 2002. This increase is due
principally to increases in compensation and office occupancy of $523,000 and
$223,000, or 19.8% and 27.5%, respectively. Compensation has risen over the
prior year due mainly to an increase in full-time equivalents relating to the
acquisition of SNB offices. Office occupancy has increased due to the addition
of five branch offices from the SNB acquisition. Miscellaneous expense increased
$206,000, or 27.0% due to an increase of products and services as a result of
the SNB acquisition. Annualized noninterest expenses as a percentage of average
assets were 1.43% for the quarter ended December 31, 2002 as compared to 1.34%
for the quarter ended December 31, 2001.
INCOME TAX EXPENSE:
The effective tax rate for the current quarter was 31.0% compared to 34.6% for
the 2001 quarter. The overall tax rate for fiscal 2003 is lower than recognized
in fiscal 2002 due to the benefits of tax exempt interest income and the
deduction under Section 404(k) of dividends paid to vested ESOP participants.
The overall tax rate for the remaining quarters of fiscal 2003 is expected to be
31.0%
RESULTS OF OPERATIONS - COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 2002
AND 2001
For the six month period ended December 31, 2002, net income was $5.4 million or
$0.95 per diluted share, down 21.9% from net income of $6.9 million or $1.20 per
diluted share for the six month period
13
ended December 31, 2001. The $1.5 million decrease in net income for the
December 2002 six months is primarily attributable to a prior period gain on the
sale of assets of $1.2 million (pre-tax). Net interest income for the six months
ended December 31, 2001 increased to $16.2 million from $15.9 million for the
six months ended December 31, 2001.
INTEREST INCOME:
Parkvale had interest income of $45.1 million during the six months ended
December 31, 2002 versus $46.3 million during the comparable period in 2001. The
decrease of $1.2 million is attributable to an increase in the average
interest-earning asset portfolio of $201.0 million or 14.7%, offset by an 103
basis point decrease in the average yield from 6.78% in 2001 to 5.75% in 2002.
Interest income from loans decreased $1.8 million or 4.5% due to an 84 basis
point decrease in the average yield from 7.20% in 2001 to 6.36% in 2002,
mitigated by an increase in the average loan balance of $90.0 million or 8.1%.
Income from investments increased by $1.1 million or 22.3% from 2001 due to an
increase in the average investment balance of $91.0 million or 61.5% and offset
by a 156 basis point decrease in the average yield from 6.46% in 2001 to 4.90%
in 2002. Interest income earned on federal funds sold decreased $491,000 or
32.5% from the prior six months ended December 2001. This was due to a 121 basis
point decrease in the average yield from 2.82% in 2001 to 1.61% in 2002,
mitigated by an increase of the average federal fund balance of $19.9 million or
18.6% .
INTEREST EXPENSE:
Interest expense decreased by $1.6 million or 5.2% from the 2001 six month
period to the 2002 six month period. The decrease was due to a 105 basis point
decrease in the average rate paid from 4.74% in 2001 to 3.69% in 2002, offset
with a rise in average deposits and borrowings of $239.7 million.
PROVISION FOR LOAN LOSSES:
Provision for loan losses increased by $14,000 or 13.0% from the six month
period ended December 31, 2001 to December 31, 2002. Aggregate valuation
allowances were 1.23% of gross loans at December 31, 2002, 1.26% of gross loans
at June 30, 2002 and 1.24% of gross loans at December 31, 2001. Total loan loss
reserves at December 31, 2002 were $15.2 million.
OTHER INCOME:
Other income decreased by $723,000 or 17.2% for the six months ended December
31, 2002 from the six months ended December 31, 2001 due primarily to a prior
period gain on sale of assets of $1.2 million (pre-tax). Other income, absent
this prior period gain, increased $494,000 or 16.6% due to a $695,000 increase
on service fees on all types of deposit and loan products as a result of the SNB
acquisition and offset by a $201,000 decrease from investment service fee income
on nondeposit investment products offered directly to customers through an
operating division, Parkvale Financial Services.
OTHER EXPENSE:
Other expenses increased by $2.1 million for the six month period ended December
31, 2002 from the comparable period in 2001. This increase is due principally to
increases of $1.1 million, or 20.2% in compensation and employee benefits,
office occupancy of $358,000 or 21.7%, and miscellaneous expense of $441,000, or
30.1%. These increases are a result of the SNB acquisition. Annualized
noninterest expenses as a percentage of average assets were 1.43% for the six
months ended December 31, 2002 as compared to 1.35% for the six months ended
December 31, 2001.
14
IMPACT OF INFLATION AND CHANGING PRICES:
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, substantially all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services as measured by the consumer price
index.
FORWARD LOOKING STATEMENTS:
The statements in this Form 10-Q which are not historical fact are forward
looking statements. Forward looking information should not be construed as
guarantees of future performance. Actual results may differ from expectations
contained in such forward looking information as a result of factors including
but not limited to the interest rate environment, economic policy or conditions,
federal and state banking and tax regulations and competitive factors in the
marketplace. Each of these factors could affect estimates, assumptions,
uncertainties and risks considered in the development of forward looking
information and could cause actual results to differ materially from
management's expectations regarding future performance.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are
presented at June 30, 2002 in item 7a of Parkvale Financial
Corporation's Form 10-K, filed with the SEC on September 17, 2002.
Management believes that there have been no material changes in
Parkvale's market risk since June 30, 2002.
Item 4. Controls and Procedures
Disclosure controls and procedures are monitored and supervised by the
Registrant's management, including the CEO and CFO, to the
effectiveness of the design and operation of the Registrant's
disclosure controls and procedures. The Registrant's management,
including the CEO and CFO, concluded that the Registrant's disclosure
controls and procedures were effective as of December 31, 2002. There
have been no significant changes in Registrant's internal controls or
in other factors that could significantly affect internal controls
subsequent to December 31, 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Parkvale Financial Corporation
DATE: January 28, 2003 By: /s/ Robert J. McCarthy, Jr.
-------------------- ----------------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: January 28, 2003 By: /s/ Timothy G. Rubritz
---------------- -----------------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
16
CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. McCarthy, Jr., President and Chief Executive Officer of Parkvale
Financial Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Parkvale Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 28, 2003 /s/ Robert J. McCarthy, Jr.
----------------- ------------------------------------
Robert J. McCarthy, Jr.
President and Chief Executive Officer
17
CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy G. Rubritz, Vice President-Treasurer and Chief Financial Officer of
Parkvale Financial Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Parkvale Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 28, 2003 /s/ Timothy G. Rubritz
------------------ ------------------------------------
Timothy G. Rubritz
Vice President-Treasurer and Chief
Financial Officer
18
CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
The undersigned executive officers of the registrant hereby certify
that this Form 10-Q fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained herein fairly
presents, in all material respects, the financial condition and results of
operations of the registrant.
Parkvale Financial Corporation
Dated: January 28, 2003
By: /s/ Robert J. McCarthy, Jr.
------------------------------
Robert J. McCarthy, Jr.
Director, President and
Chief Executive Officer
By: /s/ Timothy G. Rubritz
------------------------------
Timothy G. Rubritz
Vice President-Treasurer and
Chief Financial Officer
19