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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, 1998
Commission file no 0-17411
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PARKVALE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1556590
- ----------------------- ---------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway
Monroeville, PA 15146
- -------------------------------------- ---------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area
code:(412)373-7200 Securities registered pursuant to
Section 12(b) of the Act - None
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock ($1.00 par value)
------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ X ]
As of September 18, 1998, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant, computed by reference to the reported closing
sale price of $29.75 per share on such date was $122,061,596. Excluded from this
computation are 726,438 shares held by all directors and executive officers as a
group and 427,584 shares held by the Employee Stock Ownership Plan.
Number of shares of Common Stock outstanding as of September 18, 1998:
5,106,937.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Annual Report to Shareholders for Fiscal Year ended June 30, 1998. With the
exception of those portions which are incorporated by reference in this Form
10-K Annual Report, the 1998 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 14, 1998. The
definitive proxy statement was filed with the Commission on September 14, 1998.
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.; Columbus, Ohio and Raleigh, North Carolina areas through its
wholly-owned subsidiary, Parkvale Mortgage Corporation ("PMC"). The primary
assets of PFC consist of the stock of Parkvale, equity securities and cash. See
Note N of Notes to the Consolidated Financial Statements in the 1998 Annual
Report to Shareholders filed as Exhibit 13 hereto ("1998 Annual Report") for
additional details regarding PFC. In July 1998, the Bank adopted the use of name
Parkvale Bank for advertising and signage purposes.
THE BANK
GENERAL
The Bank conducts business in the greater Pittsburgh metropolitan area through
29 full-service offices in Allegheny, Beaver, Butler and Westmoreland Counties.
With total assets of $1.1 billion at June 30, 1998, Parkvale was the fifth
largest financial institution headquartered in the Pittsburgh metropolitan area
and twelveth 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 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.
Lower housing demand in Parkvale's primary lending areas, relative to its
deposit growth, has spurred the Bank to purchase residential mortgage loans from
other financial institutions. This purchase strategy also achieves geographic
asset diversification. Parkvale purchases adjustable rate residential mortgage
loans subject to its normal underwriting standards. Parkvale purchased loans
aggregating $183.0 million and $104.4 million in fiscal 1998 and 1997,
respectively. These represent 65.4% and 63.5% of total mortgage loan
originations and purchases for the fiscal year 1998 and 1997, respectively. In
addition, Parkvale operates loan production offices through its subsidiary, PMC
with offices in Fairfax, Virginia; Columbus, Ohio and Raleigh, North Carolina.
During fiscal 1998, PMC originated a total of $54.9 million or 19.6% of total
mortgage loan originations and purchases for inclusion in Parkvale's loan
portfolio. See "Lending Activities" and "Sources of Funds."
Total nonperforming assets, comprised of nonaccrual loans and foreclosed real
estate, increased from $2.7 million at June 30, 1997 to $4.7 million at June 30,
1998. The $2.0 million increase in fiscal 1998 related primarily to foreclosed
real estate activity. 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 the Asset and Liability Management section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1998 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 was 0.07% of total assets at June 30, 1998
compared to -4.44% of total assets at June 30, 1997. Similarly, the cumulative
five year gap ratio has been reduced from -0.43% at June 30, 1997 to 0.86% at
June 30, 1998. Key components of the asset and liability management program are
as follows: ARM loans represented approximately 66.5% of the Bank's real estate
loan portfolio at June 30, 1998 compared to 63.8% and 56.9% at June 30, 1997 and
1996, respectively. Deposits with terms in excess of one year or more increased
$92 million from $477.7 million at June 30, 1997 to $569.9 million at June 30,
1998.
Parkvale's main office is located at 4220 William Penn Highway, Monroeville, PA
15146, and its telephone number is (412) 373-7200.
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THE SAVINGS INDUSTRY
The earnings of Parkvale are affected by the competitive, economic and
regulatory environment in which the savings industry operates. Consolidation, a
fundamental trend in the financial services industry, confronts the banking
industry with the challenge to survive and prosper in a dynamic market. Strong
alliances are likely as banks move to trim costs, expand geographically and
consolidate market strengths by diversifying the financial products offered.
The industry continues its consolidation efforts with an operating focus on
improving profitability, reallocation of capital and expense management. The
traditional banks' share of the overall loan market has been reduced
significantly. Corporate lending has abated since public companies found raising
funds on Wall Street is faster and cheaper via commercial paper and medium term
notes. At the same time, retail customers are increasingly abandoning
traditional commercial and local banks in favor of nonbank financial
institutions. Instead of buying a CD or opening a passbook savings account,
consumers increasingly place their savings and retirement funds with investment
management firms. Mutual fund total assets have increased substantially
throughout the 1990's to exceed total FDIC insured deposits. Banks in today's
market are faced with substantial competition from an array of outside financial
service providers, including brokerage firms, insurance companies and mutual
fund companies. These nonbanking entities continue to take lending and deposit
market share away from the banking industry without the regulatory burdens, FDIC
insurance premiums, assessments and other associated costs imposed upon banks
and savings institutions.
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 low inflation. The Federal Reserve has not moved the federal funds
target rate since the third quarter of fiscal 1997. This generally resulted in
only slight fluctuations in consumer and commercial loan interest rates
throughout most of fiscal 1998. Deposit interest rates were also relatively
stable throughout the year.
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 discussion of asset/liability management, see the Asset and Liability
Management section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1998 Annual Report.
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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.
<TABLE>
<CAPTION>
1998 1997 1996
(In Thousands)
<S> <C> <C> <C>
TOTAL LOANS RECEIVABLE AT BEGINNING OF YEAR.....................$732,326 $644,794 $544,956
-------- -------- --------
Real estate loan originations:
Residential:
Single family (1)........................................... 76,719 41,692 72,349
Multifamily 1,530 2,487 1,560
Construction -Single family................................... 6,325 7,584 4,411
Commercial 12,076 8,259 6,019
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TOTAL REAL ESTATE LOAN ORIGINATIONS............................. 96,650 60,022 84,339
Consumer loan originations...................................... 84,660 61,541 53,061
Commercial loan originations 11,904 7,846 10,227
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TOTAL LOAN ORIGINATIONS......................................... 193,214 129,409 147,627
Purchase of loans 182,974 104,428 104,940
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TOTAL LOAN ORIGINATIONS AND PURCHASES 376,188 233,837 252,567
-------- -------- --------
Principal loan repayments....................................... 101,850 77,650 69,511
Mortgage loan payoffs........................................... 150,004 66,897 80,739
Sales of whole loans 2,653 1,758 2,479
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Net increase in loans 121,681 87,532 99,838
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TOTAL LOANS RECEIVABLE- END OF YEAR............................. 854,005 732,326 644,794
Less:
Loans in process.............................................. 7,652 6,393 4,386
Allowance for loan losses..................................... 13,223 14,266 13,990
Unamortized discounts & loan fees 372 799 966
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NET LOANS RECEIVABLE AT END OF YEAR.............................$832,758 $710,868 $625,452
======== ======== ========
</TABLE>
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(1) Includes $54.9 million, $23.7 million and $39.7 million of loans
originated by PMC during fiscal 1998, 1997 and 1996, respectively.
At June 30, 1998, Parkvale's net loan portfolio amounted to $832.8 million,
representing 76.1% 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 multifamily residential properties amounted to
$690.2 million or 82.9% of the net loan portfolio at June 30, 1998, and loans
secured by commercial properties represented $24.9 million or 2.9% of the net
loan portfolio. FHA/VA loans accounted for an additional $6.3 million or 0.8% of
the net loan portfolio at June 30, 1998.
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The Bank is a traditional mortgage lender and if it were subject to the
"Qualified Thrift Lender" ("QTL") requirements, 93.9% of its assets are
considered to be "qualifying" at June 30, 1998.
Total consumer loans were $108.9 million or 13.1% of the net loan portfolio at
June 30, 1998. 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 at June 30.
<TABLE>
<CAPTION>
1998 1997 1996
Amount % Amount % Amount %
------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential:
Single family (1) $677,175 81.3 $578,906 81.4 $507,566 81.2
Multi-family (2) 13,024 1.6 16,825 2.4 17,375 2.8
FHA/VA 6,329 0.8 7,829 1.1 9,516 1.5
Commercial 24,869 2.9 17,724 2.5 19,516 3.1
Other (3) 12,085 1.5 9,329 1.3 2,387 0.4
----------- ------ ---------- ------ ---------- ------
Total real estate loans 733,482 88.1 630,613 88.7 556,360 89.0
Consumer loans (4) 106,266 12.8 90,305 12.7 76,224 12.2
Deposit loans 2,665 0.3 3,076 0.4 3,285 0.5
Commercial loans 11,592 1.4 8,332 1.2 8,925 1.4
----------- ------ ---------- ------ ---------- ------
Total loans receivable 854,005 102.6 732,326 103.0 644,794 103.1
Less:
Loans in process 7,652 0.9 6,393 0.9 4,386 0.7
Allowance for losses 13,223 1.6 14,266 2.0 13,990 2.2
Unamortized premiums
and discounts 372 0.1 799 0.1 966 0.2
----------- ------ ------------ ------ -------- ------
Net loans receivable $832,758 100.0% $710,868 100.0% $625,452 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
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(1) Includes first mortgages secured by one to four unit residences.
(2) Includes short-term construction loans to developers.
(3) Loans for purchase and development of land.
(4) Primarily includes home equity loans, home equity and personal
lines of credit, student loans, personal loans, deposit loans, charge
cards, home improvement loans and automobile loans.
The following table sets forth the percentage of loans in each category to total
loans at June 30.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Real estate loans 85.9% 86.1% 86.3% 85.9% 86.2%
Consumer loans 12.7 12.8 12.3 13.3 12.6
Commercial loans 1.4 1.1 1.4 0.8 1.2
----- ----- ----- ----- -----
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
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CONTRACTUAL MATURITIES OF LOANS
The following table presents information regarding loan contractual maturities
by loan categories during the periods indicated. Mortgage loans with adjustable
interest rates are shown in the year in which they are contractually due rather
than in the year in which they reprice. The amounts shown for each period do not
take into account loan prepayments and normal amortization of the Bank's loan
portfolio.
AMOUNTS DUE IN Real Estate Commercial
YEARS ENDING JUNE 30, Loans (1) Loans
- --------------------- ----------- ----------
(Dollars in Thousands)
1999 $ 6,755 $ 3,942
2000 - 2003 26,161 5,569
2004 and thereafter 700,566 2,081
------- -------
Gross loans receivable (2) $733,482 $11,592
======== =======
- ---------------------------
(1) Includes all residential and commercial real estate loans, and loans
for the purchase and development of land.
(2) Variable rate and ARM loans represent approximately 66.45% of gross
loans receivable at June 30, 1998. Of the $726.7 million principal
amount of loans maturing after June 30, 1999, loans with an aggregate
principal amount of $241.6 million have fixed interest rates and loans
with an aggregate principal amount of $485.1 million have variable or
adjustable interest rates.
The average life of mortgage loans has been substantially less than the average
contractual terms of such loans because of loan prepayments and, to a lesser
extent, because of enforcement of due-on-sale clauses, which enable Parkvale to
declare a loan immediately due and payable in the event that the borrower sells
or otherwise disposes of the real property. The average life of mortgage loans
tends to increase, however, when market rates on new mortgages substantially
exceed rates on existing mortgages and, conversely, decrease when rates on new
mortgages are substantially below rates on existing mortgages. Currently,
borrowers are refinancing their mortgage loans in order to take advantage of the
lower market rates, as was the case in the early 1990's.
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, 1998, 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, 45.3% and 37.3% of Parkvale's total mortgage loan portfolio at June 30,
1998 and 1997, respectively, represent loans serviced by others, the majority of
which are secured by properties located outside of Pennsylvania, including, in
order of loan concentration: Michigan, North Carolina, Colorado and Texas. The
increase in loans secured by out-of-state properties is due to the loan
purchases of $183.0 million which measures 65.4% of Parkvale's total origination
and purchases for fiscal 1998. See further discussion below.
Currently, new loans are originated by Parkvale primarily within its primary
market area or through the PMC offices. In addition, Parkvale purchases loan
participations and whole loans from other institutions.
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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 $350,000. At
least three executive officers must be present to hold a meeting of the Loan
Committee. Loans exceeding $350,000 must be approved by the Board of Directors.
Under policies adopted by Parkvale's Board of Directors, Parkvale limits the
loan-to-value ratio to 80% on newly originated residential mortgage loans, or up
to 95% with private mortgage insurance. Depending upon the amount of private
mortgage insurance obtained by the borrower, Parkvale's loan exposure may be
reduced to as low as 65% of the value of the property. Commercial real estate
loans generally do not exceed 80% of the value of the secured property. In
addition, it is Parkvale's policy to obtain title insurance policies insuring
that Parkvale has a valid first lien on mortgaged real estate.
ORIGINATIONS BY PARKVALE. Historically, mortgage loans have been originated by
Parkvale primarily through referrals from real estate brokers, builders and
direct customers, as well as through refinancings for existing customers.
Consumer and commercial loan originations are made by Parkvale within its
primary market area. Total loan originations for the fiscal years ending June
30, 1998, 1997 and 1996 were $193.2 million, $129.4 million and $147.6 million,
respectively. Similar to fiscal 1996, favorable rates throughout fiscal 1998
increased housing and refinancing demand as well as commercial and consumer loan
demand. Conversely, originations were relatively lower in fiscal 1997 due to a
decrease in mortgage demand.
LOAN PURCHASES. The asset/liability strategy of owning ARM loans to remain
flexible in a volatile interest rate environment was evident during fiscal 1998
as Parkvale increased loan purchases to $183.0 million from $104.4 million in
fiscal 1997. In fiscal 1998, $180.1 million or 98.4% 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% to 3% per adjustment period, with a 6% or
7% maximum rate increase over the life of the loan. ARMs comprised approximately
84.9%, 88.0% and 77.4% of total mortgage loan originations and purchases in
fiscal 1998, 1997 and 1996, respectively. At June 30, 1998, 66.5% of Parkvale's
total residential loan portfolio was represented by ARMs. ARM loans generally do
not adjust as rapidly as Parkvale's cost of funds. Parkvale has been emphasizing
the origination of adjustable-rate versus long-term fixed-rate residential
mortgages for its portfolio as part of the asset and liability plan to increase
the rate sensitivity of its assets.
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COMMERCIAL REAL ESTATE LOANS
The balance of commercial real estate mortgages increased from $17.7 million at
June 30, 1997 to $24.9 million at June 30, 1998.
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, automobile and sub-prime
loans. Total consumer loans outstanding at June 30, 1998 increased by 16.7% to
$108.9 million from $93.4 million at June 30, 1997. 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 $250,000. The amount of
the available line of credit is determined by the borrower's ability to pay,
their credit history and the amount of collateral equity. Personal and overdraft
lines of credit are generally unsecured and are extended for $500 to $50,000.
Line of credit interest rates are variable and are priced at a margin above
Parkvale's prime rate.
Parkvale offers student loans through its community banking network. Parkvale
receives a guaranteed rate on such loans indexed to the 91-day United States
Treasury bill rate and generally sells the loans to the Student Loan Marketing
Association when the student graduates or leaves school in order to avoid costly
servicing expenses.
Parkvale's deposit loans are made on a demand basis for up to 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.
Parkvale offers Visa and Visa Gold cards through the Independent Bankers
Association of America. Annual fees were waived through June 30, 1998. Credit
cards outstanding totalled $5.6 million, $5.0 million and $4.5 million at June
30, 1998, 1997 and 1996, respectively.
Parkvale began offering subprime loans through our subsidiary, Parkvale
Financial Service beginning in fiscal 1998. This new portfolio has generated
$4.6 million of secured loans during fiscal 1998.
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 $11.6 million
and $8.3 million at June 30, 1998 and 1997, respectively.
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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 $8.0 million
at June 30, 1997 to $5.8 million at June 30, 1998. There have been no mortgage
loan securitizations 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 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 $0.9 million, $1.1 million and $1.1
million at June 30, 1998, 1997 and 1996, 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 nonaccrual status when, in management's judgment, the
probability of collection of interest is deemed to be insufficient to warrant
further accrual. When a loan is placed on nonaccrual status, previously accrued
but unpaid interest is deducted from interest income. As a result, no
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uncollected interest income is included in earnings for loans which are on
nonaccrual status. Parkvale provides an allowance for the loss of accrued but
uncollected interest on mortgage, consumer and commercial business loans which
are more than 90 days contractually past due.
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 1.55%, 1.95% and 2.17% of gross
loans at June 30, 1998, 1997 and 1996, 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 nonaccrual loans
and foreclosed real estate at June 30.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans:
Mortgage $2,322 $2,489 $1,008 $2,031 $1,016
Consumer -- -- -- -- --
------ ------ ------ ------ ------
Total nonaccrual Loans $2,322 $2,489 $1,008 $2,031 $1,016
====== ====== ====== ====== ======
Total nonaccrual loans
as a percent of total loans 0.27% 0.34% 0.16% 0.37% 0.20%
Total foreclosed real estate, net $2,362 $ 165 $ 240 $ 96 $ 147
Total amount of nonaccrual
loans and foreclosed real estate $4,728 $2,654 $1,248 $2,127 $1,163
Total nonaccrual loans and
foreclosed real estate as a
percent of total assets 0.43% 0.27% 0.14% 0.24% 0.13%
</TABLE>
The amount of additional interest income that would have been included in
interest income for the years ended June 30, 1998 and 1997 if the nonaccrual
loans had been current in accordance with their original terms was $181,000 and
$285,000, respectively.
Assets classified as substandard/nonaccrual or foreclosed real estate in excess
of $250,000, net of reserves, at June 30, 1998 consist of commercial properties.
Parkvale has a $630,600 first mortgage lien on a racket club located in Irwin,
Pennsylvania which was originated in 1996 and matures February 1, 2001. This
credit is classified as substandard nonaccrual due to inadequate debt service
coverage. Parkvale also has foreclosed real estate due to a deed in lieu of the
foreclosure on office buildings previously owned by 200 Meyran Associates. See
Item 3. Legal Proceedings.
As of June 30, 1998, $456,000 or 19.6% of the nonaccrual mortgage loans totaling
$2.3 million were purchased from others and $110,000 or 4.6% of foreclosed real
estate represented properties located outside of Pennsylvania with loans
originally purchased from others.
11
<PAGE> 12
INVESTMENT ACTIVITIES
Investment decisions are made by authorized officers including the Chief
Executive Officer or the Chief Financial Officer of Parkvale in accordance with
policies established by Parkvale's Board of Directors.
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.
Parkvale's investment portfolio consisted of the following securities at June 30
for the years indicated.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
(In Thousands)
<S> <C> <C> <C>
Federal funds sold $124,900 $107,832 $66,557
U.S. Government and agency obligations 31,994 51,950 62,936
Municipal Obligations 6,630 -- --
Corporate debt 17,148 17,143 32,086
Mortgage backed securities 43,427 66,941 99,371
Equity securities (at market value) 14,793 13,546 10,493
-------- -------- --------
Total investment portfolio $238,892 $257,412 $271,443
======== ======== ========
</TABLE>
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 Treasury, while FHLMC and FNMA securities are
guaranteed by their respective agencies. At June 30, 1998, Parkvale had $43.4
million, or 4.0% of total assets invested in mortgage-backed securities, as
compared to 6.8% and 10.8% at June 30, 1997 and 1996, respectively. At June 30,
1998, the mortgage-backed securities consisted of FHLMC ($26.5 million); GNMA
($0.7 million); FNMA ($3.6 million); collateralized mortgage obligations,
including REMIC's ($11.3 million) and private participation certificates ($1.3
million).
The following table shows Parkvale's mortgage-backed security activity during
the years ended June 30.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning of year $ 66,941 $99,371 $100,881
Purchases -- -- 25,211
Principal repayments (23,515) (32,430) (26,721)
Sales -- -- --
-------- -------- --------
Mortgage-backed securities at end of year $ 43,426 $ 66,941 $ 99,371
======== ======== ========
</TABLE>
12
<PAGE> 13
HEDGING ACTIVITIES
The objective of Parkvale's financial futures policy is to reduce interest rate
risk by authorizing an asset and liability hedging program. The futures policy
permits Parkvale's President to hedge up to $10 million of assets and
liabilities. Hedges over $10 million and up to $25 million require the approval
of the Audit- Finance Committee of the Board of Directors, and hedges over $25
million require the approval of the Board of Directors. The objective of
Parkvale's financial options policy is to reduce interest rate risk in the
investment portfolio through the use of financial options. The options policy
permits the use of options on United States Treasury bills, notes, bonds and
bond futures and on mortgage-backed securities. The options policy generally
limits the use of puts and calls to $5.0 million per type of option. Parkvale's
President and Senior Vice President - Treasurer are authorized to conduct
options activities, which are monitored by the Audit-Finance Committee of the
Board of Directors. Parkvale has not engaged in any financial future or
financial option activity in the last three fiscal years.
Derivative instruments are various instruments used to construct a transaction
that is derived from and reflects the underlying value of assets, other
instruments or various indices. The primary purpose of derivatives, which
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. 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 and FHLB advances. Borrowings may be used on a short-term basis to
compensate for seasonal or other reductions in deposits or for inflows at less
than projected levels, as well as on a longer term basis to support expanded
lending and investment activities. Parkvale's ability to maintain high liquidity
levels has allowed investment decisions to be evaluated with the funding source
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, noninsured sweep accounts, checking
accounts, money market accounts, certificates of deposit ranging in terms from
31 days to ten years, IRA certificates and jumbo certificates of deposit. In
addition, Parkvale is a member of the MAC system with twenty 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
13
<PAGE> 14
intends to continue to promote longer term deposits to the extent possible in a
manner consistent with its asset and liability management goals. This is
apparent during fiscal 1998, due to the deposit increases that are attributable
to certificate if deposit specials that ranged in terms from 15 to 36 months
with rates ranging from 6.00% to 6.25%.
The following table shows the distribution of Parkvale's deposits by type of
deposit as of June 30.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
Balance % Balance % Balance %
------- ---- ------- ---- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $138,110 14.6% $139,089 15.8% $140,908 17.5%
Checking accounts 94,893 10.0 81,701 9.2 70,446 8.7
Money market accounts 42,895 4.5 44,804 5.1 47,657 5.9
Certificate accounts 613,836 64.7 566,677 64.3 509,694 63.1
Jumbo certificates 51,339 5.3 41,354 4.7 32,218 4.0
Accrued interest 8,379 0.9 7,619 0.9 6,164 0.8
-------- ----- -------- ----- -------- -----
Total Savings Deposits $949,452 100.0% $881,244 100.0% $807,087 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
The following table sets forth information regarding average balances and
average rates paid by type of deposit for the years ending June 30.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
Average Average Average
Balance % Balance % Balance %
------- ---- ------- ---- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $136,315 2.52% $137,184 2.61% $138,647 2.62%
Checking accounts 90,841 1.00 76,366 1.06 65,152 1.08
Money market accounts 44,020 2.94 45,825 2.93 49,159 2.95
Certificate accounts 632,471 5.86 577,691 5.78 542,390 5.95
Accrued interest 7,988 -- 6,637 -- 5,699 --
-------- ---- -------- ----- -------- ----
$911,635 4.68% $843,703 4.64% $801,047 4.75%
======== ===== ======== ===== ======== =====
</TABLE>
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.
14
<PAGE> 15
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 nonresidents of Pennsylvania at June 30, 1998.
The following table reflects the makeup of Parkvale's deposit accounts at June
30, 1998, including the scheduled quarterly maturity of CD accounts.
<TABLE>
<CAPTION>
Amount % of Total Average
in 000's Deposits Rates
-------- --------- -------
<S> <C> <C> <C>
Passbook and club accounts $138,110 14.55% 2.52%
Checking accounts 94,893 9.99 1.00
Money market accounts 42,895 4.52 2.94
-------- ------ ----
Total non-certificate accounts $275,898 29.06 2.46
-------- ------ ----
Certificate accounts maturing in quarter ending:
September 30, 1998 91,898 13.82 5.02
December 31, 1998 68,672 10.32 5.38
March 31, 1999 81,879 12.31 5.70
June 30, 1999 44,573 6.70 5.68
September 30, 1999 42,808 6.44 5.99
December 31, 1999 37,620 5.66 5.93
March 31, 2000 47,708 7.17 6.01
June 30, 2000 37,013 5.56 6.19
September 30, 2000 58,357 8.77 6.03
December 31, 2000 27,689 4.16 6.01
March 31, 2001 11,298 1.70 5.69
June 30, 2001 10,293 1.55 5.88
Thereafter 105,367 15.84 6.54
-------- ------
Total certificate accounts 665,175 70.06 5.90
-------- ------
Accrued interest 8,379 0.88 0.00
-------- ------
Total deposits $949,452 100.00% 4.64%
======== ======= =====
</TABLE>
The following table sets forth the net deposit flows of Parkvale during the
years ended June 30.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
(In Thousands)
<S> <C> <C> <C>
Increase (decrease) before interest credited $35,126 $44,550 ($15,624)
Interest credited 33,082 29,607 28,266
------- ------- --------
Net deposit increase $68,208 $74,157 $12,642
======= ======= ========
</TABLE>
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.
15
<PAGE> 16
The following table presents, by various interest rate categories, the
outstanding amount of certificates of deposit at June 30, 1998 which mature
during the years ending June 30:
<TABLE>
<CAPTION>
1998 1999 2000 Thereafter Total
---------- ---------- ---------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Under 6.00% $234,268 $111,647 $53,871 $ 8,890 $408,676
6.00% to 7.99% 50,471 53,383 53,760 96,490 254,104
8.00% to 9.99% 2,375 20 -- -- 2,395
-------- -------- -------- -------- --------
Total certificates of deposits $287,114 $165,050 $107,631 $105,380 $665,175
======== ======== ======== ======== ========
</TABLE>
Maturities of certificates of deposit of $100,000 or more that were outstanding
as of June 30, 1998 are summarized as follows:
(In Thousands)
3 months or less $6,458
Over 3 months through 6 months 4,351
Over 6 months through 12 months 7,966
Over 12 months 32,564
------
Total $51,339
=======
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.
The following table sets forth information concerning Parkvale's advances from
the FHLB of Pittsburgh for the years ended June 30.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
(In Thousands)
<S> <C> <C> <C>
Average balance outstanding $23,176 $15,687 $20,658
Maximum amount outstanding at any month-end
during the period $40,671 $15,692 $20,699
Average interest rate 6.18% 6.87% 7.25%
Balance outstanding at June 30 $40,671 $15,682 $20,693
</TABLE>
The increase in the outstanding average balance from $15.7 million in 1997 to
$23.2 million in 1998 is due to additional advances drawn on the FHLB during
fiscal 1998.
16
<PAGE> 17
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 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 noninterest 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,
1998.
<TABLE>
<CAPTION>
Year Ended June 30, At June 30,
-----------------------
1998 1997 1996 1998
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Average yields on (1):
Loans 7.85% 8.01% 8.23% 7.78%
Mortgage-backed securities 6.88 6.72 6.61 6.98
Investments (2) 5.94 5.97 5.96 5.72
Federal funds sold 5.57 5.41 5.67 5.50
---- ---- ---- ----
All interest-earning assets 7.37 7.38 7.45 7.35
---- ---- ---- ----
Average rates paid on (1):
Savings deposits 4.70 4.64 4.75 4.65
Borrowings 5.54 6.20 6.19 5.65
---- ---- ---- ----
All interest-bearing liabilities 4.72 4.67 4.79 4.69
---- ---- ---- ----
Average interest rate spread 2.65% 2.71% 2.66% 2.66%
===== ===== ===== =====
Net yield on interest-earning assets(3) 2.97% 3.03% 2.98%
===== ===== =====
</TABLE>
- ---------------------------------
(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, 1998 are based on the weighted average contractual
interest rates. Nonaccrual loans are excluded in the average yield and
balance calculations.
(2) Includes held-to-maturity and available-for-sale investments and
interest-bearing deposits.
(3) Net interest income on a tax equivalent basis 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.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest-earning assets: (In Thousands)
Loans $ 749,866 $641,575 $566,134
Mortgage-backed securities 55,157 82,626 102,470
Investments 79,362 88,967 119,573
Federal funds sold 119,947 113,324 99,382
--------- ------- --------
Total interest-earning assets 1,004,332 926,492 887,559
--------- ------- --------
Noninterest-earning assets 28,006 23,530 18,856
--------- ------- --------
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total assets $1,032,338 $950,022 $906,415
========== ======== ========
Interest-bearing liabilities:
Savings deposits 908,951 843,704 801,048
FHLB advances and other borrowings 27,130 19,579 25,634
---------- -------- --------
Total interest-bearing liabilities 936,081 863,283 826,682
---------- -------- --------
Noninterest-bearing liabilities 20,063 18,009 16,162
---------- -------- --------
Total liabilities 956,144 881,292 842,844
Shareholders' equity 76,194 68,730 63,571
---------- -------- --------
Total liabilities and equity $1,032,338 $950,022 $906,415
========== ======== ========
Net interest-earning assets $ 68,251 $ 63,209 $ 60,877
========== ======== ========
Interest-earning assets as a % of interest-
bearing liabilities 107.3% 107.3% 107.4%
</TABLE>
An excess of interest-earning assets over interest-bearing liabilities will
enhance a positive interest rate spread and result in greater net interest
income. Net interest income has been favorably impacted by higher volumes of
loan originations and purchases since fiscal 1996. Parkvale's net yield on
average interest-earning assets was relatively constant at 2.97% in fiscal 1998,
3.03% in fiscal 1997 and 2.98% in fiscal 1996.
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).
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------
1998 vs. 1997 1997 vs. 1996
----------------------- -----------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
---- ------ ------ ----- ---- ------ ------ -----
(In Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans ($1,027) $ 8,674 ($191) $ 7,456 ($1,245) $6,209 ($161) $ 4,803
Mortgage-backed securities 132 (1,846) (48) (1,762) 113 (1,312) (19) (1,218)
Federal funds sold 181 358 15 554 (258) 791 (38) 495
Investments (27) (573) (8) (608) 12 (1,824) (5) (1,817)
------- ------- ----- ------- ------- ------ ----- -------
Total (741) 6,613 (232) 5,640 (1,378) 3,864 (223) 2,263
------- ----- ------- ------- ------ ----- -------
Interest-bearing liabilities:
Deposits 506 3,027 15 3,548 (881) 2,026 (51) 1,094
FHLB advances and
other borrowings (129) 468 (49) 290 3 (375) (1) (373)
------- ------- ----- ------- ------- ------ ----- -------
Total 377 3,495 (34) 3,838 (878) 1,651 (52) 721
------- ------- ----- ------- ------- ------ ----- -------
Net change in net interest
income (expense) ($1,118) $ 3,118 ($198) $ 1,802 ($ 500) $2,213 ($171) $ 1,542
======= ======= ===== ======= ======= ====== ===== =======
</TABLE>
18
<PAGE> 19
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 service corporations and an additional 1%
of its assets when the additional funds are utilized for community or inner-city
development or investment. At June 30, 1998, Parkvale was authorized to have an
investment of $32.9 million in the capital stock and other securities in its
service corporation subsidiaries. At June 30, 1998, Parkvale had equity
investments of less than $6.0 million in its subsidiary corporations.
Parkvale's wholly-owned subsidiaries include Parkvale Mortgage Corporation
("PMC"), P.V. Financial Service Inc. ("PVFS") and Renaissance Corporation
("Renaissance"). PMC was acquired in 1986 and currently operates three offices
originating residential mortgage loans for the Bank. For additional information
regarding PMC, see "Lending Activities". PVFS was incorporated in 1972 and on
July 1, 1997, PVFS began operating as a subprime lending subsidiary with the
intent of extending consumer loans to individuals who may otherwise not be able
to obtain funds based on their unfavorable or nonexistent credit history. At
June 30, 1998, PVFS had net assets of $4.9 million. Renaissance completes
collateral evaluations for consumer lending activities for the Bank. The sole
asset of Renaissance at June 30, 1998 is $34,000 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. A
third city office is scheduled to open in October 1998 at Fourth and Wood.
19
<PAGE> 20
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 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, 1998, Parkvale and its subsidiaries had 259 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 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 files reports with the Pennsylvania Department of Banking and the FDIC
describing its activities and financial condition and is periodically examined
to test compliance with various regulatory requirements. This supervision and
regulation is intended primarily for the protection of depositors. Certain of
these regulatory requirements are referred to below or elsewhere in this
document.
INSURANCE AND REGULATORY STRUCTURE. Pursuant to the provisions of Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("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 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
addition, FIRREA established the OTS. 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
20
<PAGE> 21
risk-weighted assets. At June 30, 1998, Parkvale was in compliance with all
applicable regulatory requirements, with Tier I and Tier II ratios of 7.6% and
14.2%, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required, among other things, each federal banking agency to revise its
risk-based capital standards for insured institutions to ensure that those
standards take adequate account of interest-rate risk ("IRR"), concentration of
credit risk, and the risks of nontraditional activities, as well as to reflect
the actual performance and expected risk of loss on multifamily residential
loans. On June 26, 1996, the FDIC, the FRB and the Office of the Comptroller of
the Currency ("OCC"), collectively, "the agencies", jointly issued a policy
statement providing bankers guidance on sound interest rate risk management
practices. This policy statement augments the action taken by the agencies in
August 1995 to implement the portion 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.
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
21
<PAGE> 22
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. Parkvale fully complies with regulations governing
investments in corporate debt securities.
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 the OTS
administers and regulates the activities of registered savings and loan holding
companies and the acquisition of savings banks by any company. Savings and loan
holding companies, such as Parkvale Financial Corporation, are no longer
required to receive regulatory approval prior to incurring debt. Savings banks
which are subsidiaries of a holding company, as well as other savings banks, are
now deemed to be member banks for purposes of Sections 23A and 23B of the
Federal Reserve Act and, as a result, are subject to the transaction with
affiliate rules contained in those sections. Savings and loan holding companies
now may also purchase up to 5% of the stock of unaffiliated savings bank or
savings and loan holding companies without prior regulatory approval.
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.
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.
22
<PAGE> 23
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 $7.2 million investment in stock of the FHLB of Pittsburgh at
June 30, 1998, 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, 1998, the Bank had
$40.7 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.
FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require savings banks to maintain
noninterest-earning reserves against their transaction accounts (primarily
checking accounts) and certain nonpersonal time deposits. Money market deposit
accounts are subject to the reserve requirement applicable to nonpersonal time
deposits when held by a person other than a natural person. Because required
reserves must be maintained in the form of vault cash or a non-interest bearing
account at a Federal Reserve Bank, the effect of this reserve requirement is to
reduce the Bank's interest-earning assets. Parkvale satisfies 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
23
<PAGE> 24
extensive rulemaking power and administrative discretion to the Department so
that the supervision and regulation of state-chartered banks may be flexible and
readily responsive to changes in economic conditions and in savings and lending
practices.
One of the declared purposes of the Banking Code is to provide banks with the
opportunity to be competitive with each other and with other financial
institutions existing under other state, federal and foreign laws.
A Pennsylvania savings bank may locate or change the location of its principal
place of business and establish an office anywhere in the Commonwealth, with the
prior approval of the Department.
The Department generally examines each savings bank at least once every two
years. The Banking Code permits the Department to accept the examinations and
reports of the FDIC in lieu of the Department's examination. The present
practice is for the Department and the FDIC to conduct examinations annually on
an alternating basis. The Department may order any bank to discontinue any
violation of law or unsafe or unsound business practice and may direct any
director, officer, attorney or employee of a bank engaged in an objectionable
activity, after the Department has ordered the activity to be terminated, to
show cause at a hearing before the Department why such person should not be
removed.
TAXATION
FEDERAL TAXATION
For federal income tax purposes, PFC and its subsidiaries file a consolidated
return on a calendar year basis and report their income and expenses on the
accrual basis of accounting.
Since 1987, corporations are subject to the corporate alternative minimum tax to
the extent this tax would exceed the regular tax liability. 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 1997, 1996 and 1995 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 for calendar 1994 and prior years have been either accepted as filed or
settled with the IRS with such settlements not resulting in a significant charge
to income.
STATE TAXATION
For state tax purposes, Parkvale reports its income and expenses on the accrual
basis of accounting and files its tax returns on a calendar year basis. 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.
24
<PAGE> 25
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 28 branch
offices located in the Pittsburgh metropolitan area. Parkvale owns the building
and land for 14 of its offices and leases its remaining 15 offices. Such leases
expire through 2014. PMC leases facilities outside of Pennsylvania for three
loan origination centers. At June 30, 1998, Parkvale's land, building and
equipment had a net book value of $2.4 million.
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: In June 1993, lawsuits were
instituted in the Court of Common Pleas of Allegheny County, Pennsylvania,
against Parkvale, by the owners of the former Parkvale headquarters building
which was sold in 1984. On March 26, 1998, Parkvale agreed to settle the dispute
and end the litigation with the limited partnership. The settlement involved
$1.9 million in cash payments and related legal expenses of $250,000. Prior to
this settlement, Parkvale purchased the first mortgage loan on this building
from another bank. As of June 30, 1998, Parkvale took possession of the
property, which is classified as Foreclosed Real Estate.
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.
25
<PAGE> 26
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS
- ------- ---------------------------------------------------------------
MATTERS.
--------
The information required herein is incorporated by reference from page 36 of the
PFC's 1998 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
- ------- ------------------------
The information required herein is incorporated by reference from page 4 of
PFC's 1998 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 13
of PFC's 1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The information required herein is incorporated by reference from pages 14 to 33
of PFC's 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ----------------------------------------------------------------
FINANCIAL DISCLOSURES.
----------------------
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
The information required herein with respect to directors and executive officers
of PFC and Parkvale is incorporated by reference from pages 5 to 9 of the
definitive proxy statement of the Corporation for the 1998 Annual Meeting of
Stockholders, which was filed on September 14, 1998 (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.
26
<PAGE> 27
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):
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors...............................................................14
Consolidated Statements of Financial Condition at June 30, 1998 and 1997.....................15
Consolidated Statements of Operations for each of the three years
in the period ended June 30, 1998...................................................16
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1998...................................................17
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended June 30, 1998...................................................18
Notes to Consolidated Financial Statements.............................................19 to 33
</TABLE>
(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.........................................................C
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..............................D
10(e) Consulting Agreement with Robert D. Pfischner..................~
10(f) Employment Agreement with Robert J. McCarthy, Jr...............#
10(g) Employee Stock Ownership Plan..................................E
10(h) Executive Deferred Compensation Plan...........................F
10(i) Supplemental Employee Benefit Plan.............................+
13 Excerpts of the 1998 Annual Report to Shareholders filed herewith.
Such Annual Report, except those portions thereof that are
expressly incorporated by reference herein, is furnished
27
<PAGE> 28
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 Independent Auditors.................................I
* Incorporated by reference to the Registrant's Form 8-B filed with
the Commission on January 5, 1989.
@ 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.
# Incorporated by reference to Form 10-K filed by the Registrant
with the Commission on September 19, 1997.
(b) REPORTS ON FORM 8-K
--- -------------------
There were no reports on Form 8-K filed during the 1998 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.
(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.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PARKVALE FINANCIAL CORPORATION
Date: September 22, 1998 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 22, 1998
- -------------------------- ------------------
Robert J. McCarthy, Jr., Date
Director, President and
Chief Executive Officer
/S/ TIMOTHY G. RUBRITZ September 22, 1998
- ---------------------- ------------------
Timothy G. Rubritz, Date
Vice President - Treasurer
(Chief Financial & Accounting Officer)
/S/ ROBERT D. PFISCHNER September 22, 1998
- ----------------------- ------------------
Robert D. Pfischner, Chairman of the Board Date
/S/ FRED P. BURGER, JR. September 22, 1998
- ---------------------- ------------------
Fred P. Burger, Jr., Director Date
/S/ ANDREA F. FITTING September 22, 1998
- --------------------- ------------------
Andrea F. Fitting, Director Date
/S/ GEORGE W. NEWLAND September 22, 1998
- --------------------- ------------------
George W. Newland, Director Date
/S/ WARREN R. WENNER September 22, 1998
- -------------------- ------------------
Warren R. Wenner, Director Date
29
<PAGE> 1
Exhibit 3(b)
BYLAWS OF
PARKVALE FINANCIAL CORPORATION
AS AMENDED AUGUST 20, 1998
--------------------------
ARTICLE I
PRINCIPAL PLACE OF BUSINESS
The principal place of business of the Corporation shall be at William
Penn Highway, Monroeville, Pennsylvania 15146 or such other place within
Allegheny County, Pennsylvania as the Board of Directors may determine.
ARTICLE II
SEAL
The Corporation's seal shall have inscribed thereon the name of the
Corporation and the year in which the Corporation was first organized.
ARTICLE III
STOCKHOLDERS
Section 1. Place of Meeting. Meetings of the stockholders shall be held
at the Corporation's principal place of business or at such other place within
the Commonwealth of Pennsylvania as the Board of Directors may determine.
Section 2. Annual Meeting. There shall be an annual meeting of the
Corporation for the election of directors and any other business which the
stockholders may present to that meeting. The annual meeting shall be held on
the fourth Thursday in October of each year, if not a legal holiday, or if a
legal holiday, then on the next day following which is not a legal holiday at
the same time, or on such other date as the Board of Directors may determine by
resolution.
Section 3. Special Meetings. Special meetings of the stockholders may
be called at any time by the President, by the Board of Directors and by the
stockholders entitled to cast at least one-fifth of the votes which all
stockholders are entitled to cast at the particular meeting. At any time, upon
the written request of a person or persons who are entitled to call a special
meeting, the Secretary shall call a special meeting at such date as the
Secretary shall fix, not less than thirty (30) nor more than sixty (60) days
after receipt of the request and shall give notice thereof. If the Secretary
shall fail to fix the date or give notice within thirty (30) days after receipt
of the request, the person or persons making the request may call upon the
Pennsylvania Department of State to issue an order to compel the calling and
holding of such meeting.
<PAGE> 2
Section 4. Notice.
(a) Written notice of the annual meeting of stockholders shall be given
to each stockholder of record entitled to vote at the meeting at least ten (10)
and not more than sixty (60) days prior to the date thereof, unless a longer
period of notice is required by the Pennsylvania Business Corporation Law, as
amended and supplemented (the "Business Corporation Law"). The notice shall
specify the place, day and hour of the meeting and the general nature of the
business to be transacted.
(b) Written notice of each special meeting of the stockholders shall be
given to each member of record entitled to vote at the meeting at least ten (10)
and not more than sixty (60) days prior to the date thereof, unless a longer
period of notice is required by the Business Corporation Law. The notice shall
specify the place, day and hour of the meeting and the general nature of the
business to be transacted.
Section 5. Quorum. A meeting of the stockholders duly called shall not
be organized for the transaction of business unless a quorum is present. The
presence, in person or by proxy, of stockholders entitled to cast at least a
majority of the votes which all stockholders are entitled to cast on a
particular matter shall constitute a quorum for the purpose of considering such
matter.
Section 6. Action by Stockholders. A quorum being present, the acts of
the stockholders present who are entitled to cast at least a majority of the
votes which all stockholders present are entitled to cast shall be the acts of
the stockholders, except as otherwise provided in the Corporation's Articles of
Incorporation.
Section 7. Voting. Every stockholder entitled to vote at any
stockholder meeting shall be entitled, unless otherwise provided in the Articles
of Incorporation or by law, to one vote for every share of stock appearing in
his name on the books of the Corporation. Voting may be in person or by proxy.
All proxies shall be in writing and filed with the Secretary. Stockholders may
not cumulate votes for the election of directors.
Section 8. Conduct of Meetings. All meetings of stockholders shall be
called to order and presided over by the Chairman of the Board or in his absence
by a person designated by the Board of Directors. Any stockholder proposal to be
considered at the annual meeting, including any proposal to amend these bylaws
or to change any action of the Board of Directors with respect thereto, shall be
stated in writing and filed with the Secretary at least thirty (30) days prior
to the date of the annual meeting. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting; (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business; (c) the class and number of shares of
the Corporation's stock which are beneficially owned by the stockholder on the
date of such stockholder notice; and (d) any financial interest of the
stockholder in such proposal. No proposal which has not been so stated and filed
shall be considered. Minutes shall be kept of all meetings.
2
<PAGE> 3
ARTICLE IV
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its Board of Directors of not less than five (5)
nor more than fifteen (15) directors, the exact size to be resolved from time to
time by the Board and subject to Section 4 of this Article IV. The Board of
Directors shall elect a Chairman from amongst its membership at the first Board
of Directors meeting following the Annual Meeting and the Chairman shall preside
at all meetings of the Board of Directors and of stockholders of the
Corporation.
Section 2. Term in Office. The directors shall serve for a term of
three (3) years in office and until their successors are duly elected and
qualified and shall be divided into three classes as nearly equal in number as
possible with the term in office of one class to expire each year.
Section 3. Nomination. The Corporation shall have a Nominating
Committee consisting of three (3) or more persons who are directors of the
Corporation. In case a person is to be elected to the Board by the Board of
Directors because of a vacancy existing on the Board, nominations shall be made
by the Nominating Committee pursuant to the affirmative vote of a majority of
its entire membership. The Nominating Committee shall also make nominations for
directors to be elected by the stockholders of the Corporation as provided in
the remainder of this section. The Nominating Committee shall deliver to the
Secretary a written nomination for each directorship to be filled at each annual
meeting of the stockholders at least sixty (60) days in advance of the date of
that meeting. If the Nominating Committee makes such nominations, only its
nominations and that of any stockholder made in writing and delivered to the
Secretary of the Corporation at least thirty (30) days in advance of the annual
meeting shall be voted upon at the annual meeting. Such stockholder's notice
shall set forth as to each person whom the stockholder proposes to nominate for
election or re-election as a director (a) the name, age, business address and
residence address of such person; (b) the principal occupation or employment of
such person; (c) the class and number of shares of Corporation stock which are
beneficially owned by such person on the date of the stockholder notice, and (d)
any other information relating to such person that is required to be disclosed
in solicitation of proxies with respect to nominees for election as directors
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
and any successor thereto. The Board of Directors may reject any nomination by a
stockholder not made in accordance with the terms hereof.
Section 4. Vacancies. Vacancies existing on the Board of Directors
shall be filled by a majority vote of the remaining directors, though less than
a quorum, following the nominating procedure of Section 3 of this Article, and
each person so designated as director shall serve for the unexpired term to
which he is appointed and until his successor is duly elected and qualified.
Vacancies created by an increase in the number of directors shall be similarly
filled by the Board of Directors and each person so designated as director shall
serve until the next annual meeting of the stockholders and until his successor
is duly elected and qualified.
3
<PAGE> 4
Section 5. Meetings. The Board of Directors shall hold a regular
meeting at least once each month at the time and place fixed by resolution of
the Board of Directors. No notice of regular meetings need be given. Special
meetings of the Board of Directors may be held at any time and place and shall
be called by the Secretary upon the written request of the President, or any
three (3) directors specifying the general purpose of the meeting. Upon receipt
of such a request, the Secretary shall fix the place and time for such special
meeting, which shall not be less than five (5) nor more than thirty (30) days
after receipt of the request. The Secretary shall give at least three (3) days
prior written notice of a special meeting to each director, stating the place,
time and purpose of the meeting; provided however, that such notice may be
waived in writing before or after such meeting. Minutes shall be kept of all
meetings.
Section 6. Quorum. A majority of all the directors in office shall
constitute a quorum for the transaction of business and actions of a majority of
those present at a meeting at which a quorum is present shall be actions of the
Board.
Section 7. Committees. The Board of Directors may by resolution adopted
by a majority of the whole Board delegate three or more of its number to
constitute a committee or committees which, to the extent provided in the
resolution, shall have and exercise the authority of the Board of Directors in
the management of the business of the Corporation. Minutes shall be kept of all
meetings.
Section 8. Age Limitation of Directors. No person shall be eligible for
election, re-election, appointment or re-appointment to the Board of Directors
of the Corporation who is, at the time of such action, more than seventy (70)
years of age; provided, however, that this Section 8 shall not apply to any
director who was a member of the Board of Directors of Parkvale Savings
Association, Pittsburgh, Pennsylvania, as of January 18, 1973.
Section 9. Action Without a Meeting. Any action which may be taken at a
meeting of the Board of Directors or at any meeting of a committee thereof may
be taken without a meeting if consent or consents in writing setting forth the
action shall be signed by all the directors or all of the members of the
committee and filed with the Secretary. One or more directors may participate in
a meeting of the Board of Directors or of a committee of the Board of Directors
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Section 10. Resignations of Directors. A director may resign at any
time by written resignation delivered to the Secretary. Unless otherwise
specified in the resignation, it shall take effect upon receipt by the
Secretary. More than three consecutive absences from regular meetings of the
Board of Directors, unless excused by resolution of the Board of Directors,
shall automatically constitute a resignation, effective upon acceptance by the
Board of Directors.
Section 11. Other Powers. In addition to the powers and authorities
expressly granted by these Bylaws, the Board of Directors may exercise all
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
4
<PAGE> 5
Section 12. Advisory Boards. The Board of Directors may establish any
number of Advisory Boards and may appoint any number of individuals to such
Boards. Any individual so appointed may be compensated but may not attend any
meeting of the Board of Directors, except pursuant to an invitation. They shall
not have any official responsibility or be subject to any liability.
ARTICLE V
DIRECTORS' COMMITTEES
Section 1. Committees Established. Until further action of the Board of
Directors by resolution, the following Committees shall constitute committees of
the Board of Directors which shall be responsible for making recommendations to
the Board and which shall have and exercise the authority of the Board of
Directors in the management of the business of the Corporation, which authority,
however, shall be subject to ratification and approval by the full Board of
Directors: Executive Committee, Audit Finance Committee and Nominating
Committee. The members of these committees shall be appointed by the President
with the approval of the Board of Directors. The President, with the concurrence
of the Board, may establish additional committees of the Board other than those
listed herein. Members of the Board of Directors and the Advisory Directors are
eligible for appointment to committees of the Corporation.
Section 2. Executive Committee. The Executive Committee shall consist
of not less than three (3) director members. The Committee shall have a Chairman
appointed from its members by the Board of Directors. The Executive Committee
shall have the authority to exercise all the powers of the Board of Directors
between Board meetings.
Section 3. Audit-Finance Committee. The Audit-Finance Committee shall
consist of not less than three (3) director members, none of whom shall be
full-time employees of the Corporation. The Committee shall have a Chairman
appointed from its members by the Board of Directors. The Committee, which shall
meet as often as deemed necessary by the Chairman but not less frequently than
annually with the Corporation's independent auditors, shall review the
Corporation's budget, the scope and results of the audit performed by the
Corporation's independent auditors, the Corporation's system of internal control
and audit with management and such independent auditors, and monitor compliance
with the Corporation's established investment, financial futures and options
policies. In addition, the Committee shall consider and act upon all
transactions with respect to the investment portfolio and hedging activities
within the guidelines and parameters approved by the Board of Directors. It
shall meet with the executive officers of the Corporation and with others as it
deems appropriate and shall report to the Board of Directors not less frequently
than annually.
Section 4. Nominating Committee. This committee shall consist of at
least three (3) director members, as provided in Section 3 of Article IV of
these Bylaws. It shall perform the functions described in Article IV, Section 3
and will establish fair and equitable levels of director compensation and the
basis of performance to qualify therefor. In doing so, it will attempt to
establish director compensation, within the ability of the Corporation to pay,
in an amount which will attract and retain qualified and competent persons of
mature judgment as members of the Board of Directors.
5
<PAGE> 6
ARTICLE VI
OFFICERS
Section 1. Officers. The officers of the Corporation shall include a
President, one or more Vice Presidents (which may include Executive or Senior
Vice Presidents), a Treasurer, and a Secretary. The Board of Directors may also
elect one or more Assistant Vice Presidents, one or more Assistant Treasurers,
one or more Assistant Secretaries, and such other officers as it deems
desirable. The same individual may hold two offices except that the President
(who, in accordance with applicable law, shall be a member of the Board of
Directors) shall not hold any other of the specified offices. The
responsibilities of the persons holding Executive Management positions may be
clarified, if the Board of Directors directs, by adding descriptive words to the
office they hold such as "Chief Executive Officer," "Chief Administrative
Officer," "Chief Operating Officer," and "Chief Financial Officer."
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the Board of Directors held
after each annual meeting of the stockholders. Each officer shall hold office
until his successor shall have been duly elected and qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided. A vacancy in an officership may be filled by the Board of
Directors at any time for the unexpired portion of the term.
Section 3. Removal of Officers. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors, by
a vote of the majority of the Board of Directors whenever, in its sole judgment,
the best interests of the Corporation will be served thereby.
Section 4. President. The President shall manage the affairs of the
Corporation. He shall see that all resolutions and orders of the Board of
Directors are carried into effect and shall have the power to appoint such
subordinate officers and agents other than those actually appointed or elected
by the Board of Directors as the business of the Corporation may require. The
President shall exercise all the powers and perform all the duties of the
Chairman of the Board of Directors in the case of a vacancy in such office, the
absence or disability of the Chairman, or when so requested by the Chairman. He
shall perform such other duties and exercise such other powers as may be
assigned from time to time by the Board of Directors.
Section 5. Treasurer. The Treasurer, in addition to the powers and
duties prescribed by law, shall perform all duties and have all powers incident
to the office of treasurer and shall perform such other duties as may be
assigned from time to time by the Board of Directors.
Section 6. Secretary. The Secretary, in addition to the powers and
duties prescribed by law, shall perform all duties and have all powers incident
to the office of secretary, and shall perform such other duties as may be
assigned from time to time by the Board of Directors.
Section 7. Vice President. The Vice President or Vice Presidents shall
perform such duties and exercise such powers as may be assigned by the President
or by the Board of Directors.
6
<PAGE> 7
Section 8. Other Officers. Other officers, agents and employees shall
perform such duties and exercise such powers as may be assigned to them from
time to time by the President or by the Board of Directors.
ARTICLE VII
STOCK CERTIFICATES
Section 1. Stock Certificates. Stock certificates shall be in such form
as the Board of Directors may from time to time determine. Every stock
certificate shall be signed by the President or any Vice President and
countersigned by the Treasurer or an Assistant Treasurer or by the Secretary or
an Assistant Secretary and sealed with the corporate seal, which may be an
engraved or printed facsimile.
Section 2. Transfers. Shares of the Corporation shall, upon surrender
and cancellation of the certificate or certificates representing the same, be
transferred upon the books of the Corporation at the request of the holder
thereof named in the surrendered certificate or certificates, in person or by
his legal representative, or by his attorney duly authorized by written power of
attorney filed with the corporation.
Section 3. Loss or Destruction of Certificates. In case of loss or
destruction of a stock certificate, another may be issued in lieu thereof in
such manner and upon such terms as the Board of Directors shall determine.
Section 4. Determination of Stockholders of Record. The Board of
Directors may fix a time, not more than sixty (60) days prior to the date of any
meeting of stockholders or the date fixed for the payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or go in effect, as a
record date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares. In such case, only such stockholders as shall be stockholders of record
on the date so fixed shall be entitled to notice of, and to vote at, such a
meeting, or to receive payment of such dividend, to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record date
fixed, as aforesaid.
The Board of Directors may close the books of the Corporation against
transfer of shares during the whole or any part of such period, and in such
case, written or printed notice thereof shall be mailed at least ten (10) days
before the closing thereof to each stockholder of record at the address
appearing on the records of the Corporation or supplied by him to the
Corporation for the purpose of notice. While the stock transfer books of the
Corporation are closed, no transfer of shares shall be made thereon.
Unless a record date is fixed by the Board of Directors for the
determination of stockholders entitled to receive notice of, or vote at, a
stockholders' meeting, transferees of shares which are transferred on the
7
<PAGE> 8
books of the Corporation within ten (10) days next preceding the date of such
meeting shall not be entitled to notice of or to vote at such meeting.
ARTICLE VIII
Section 1. Personal Liability of Directors. A director of the
Corporation shall not be personally liable for monetary damages for any action
taken, or any failure to take any action, as a director except to the extent
that by law a director's liability for monetary damages may not be limited.
Section 2. Indemnification. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, including actions by or in the
right of the Corporation, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Corporation, against expenses (including attorney's fees),
judgments, fines, excise taxes and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent permissible under Pennsylvania law.
Section 3. Advancement of Expenses. Reasonable expenses incurred by an
officer or director of the Corporation in defending a civil or criminal action,
suit or proceeding described in Section 2 shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that the person is not entitled to be indemnified
by the Corporation.
Section 4. Other Rights. The indemnification and advancement of
expenses provided by or pursuant to this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under the Corporation's Articles of Incorporation, any
insurance or other agreement, vote of stockholders or directors or otherwise,
both as to actions in their official capacity and as to actions in another
capacity while holding an office, and shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 5. Insurance. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of these Bylaws.
Section 6. Security Fund; Indemnity Agreements. By action by the Board
of Directors (notwithstanding their interest in the transaction), the
Corporation may create and fund a trust fund or fund of any nature, and may
enter into agreements with its officers and directors, for the purpose of
securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article.
8
<PAGE> 9
Section 7. Modification. The duties of the Corporation to indemnify and
to advance expenses to a director or officer provided in this Article shall be
in the nature of a contract between the Corporation and each such director or
officer, and no amendment or repeal of any provision of this Article, and no
amendment or termination of any trust or other fund created pursuant to Section
6 shall alter, to the detriment of such director or officer, the right of such
person to the advance of expenses or indemnification related to a claim based on
an act or failure to act which took place prior to such amendment, repeal or
termination.
ARTICLE IX
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall begin on the first day of July
in each year and end on the last day of June in the following calendar year. The
Corporation shall be subject to an annual audit as of the end of its fiscal year
by independent public accountants appointed by and responsible to the Board of
Directors.
ARTICLE X
CHANGES TO BYLAWS
Section 1. Power of Directors. The Board of Directors may make, alter,
amend and repeal the Bylaws of the Corporation except any part thereof relating
to the qualification, classification, and terms of office of directors, subject
to the power of the stockholders to change such action.
Section 2. Power of Stockholders. The stockholders may change any
action of the directors pursuant to Article X, Section 1 and, in addition, shall
have the power to make, alter, amend and repeal the Bylaws of this Corporation
insofar as they relate to the qualification, classification and terms in office
of directors.
Section 3. Vote Required. Unless otherwise specifically provided, the
powers conferred by this Article X shall be exercised by a vote of not less than
two-thirds of all of the directors or by a vote of not less than two-thirds of
the stockholders of the Corporation present in person or by proxy at any regular
or special meeting.
9
<PAGE> 1
Exhibit 10(d)
PARKVALE FINANCIAL CORPORATION
1993 DIRECTORS' STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Parkvale Financial Corporation (the "Corporation") hereby establishes
this 1993 Directors' Stock Option Plan (the "Plan") upon the terms and
conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation by attracting and retaining qualified non-employee directors and
providing such directors with a proprietary interest in the Corporation through
non-discretionary grants of non-qualified stock options (an "Option" or
"Options") to purchase shares of the Corporation's common stock, par value $1.00
per share ("Common Stock").
ARTICLE III
ADMINISTRATION OF THE PLAN
3.01 Administration. This Plan shall be administered by the entire
Board of Directors of the Corporation (the "Board"). The Board shall have the
power, subject to and within the limits of the express provisions of this Plan,
to exercise such powers and to perform such acts as are deemed necessary or
expedient to promote the best interests of the Corporation with respect to this
Plan.
3.02 Compliance with Law and Regulations. All Options granted
hereunder shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as may
be required. The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification of or obtaining of consents or approvals with
respect to such shares under any federal or state law or any rule or regulation
of any government body, which the Corporation shall, in its sole discretion,
determine to be necessary or advisable. Moreover, no Option may be exercised if
such exercise or issuance would be contrary to applicable laws and regulations.
3.03 Restrictions on Transfer. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Option granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE IV
ELIGIBILITY
Options shall be granted pursuant to the terms hereof to each director
of the Corporation
<PAGE> 2
who is not an employee of the Corporation or any subsidiary of the Corporation
("non-employee director"). No honorary directors, advisory directors or
directors emeritus shall be entitled to receive Options hereunder.
ARTICLE V
COMMON STOCK COVERED BY THE PLAN
5.01 Option Shares. The aggregate number of shares of Common Stock of
the Corporation which may be issued pursuant to this Plan, subject to adjustment
as provided in Article VIII, shall be 50,000 shares of the Corporation's Common
Stock. None of such shares shall be the subject of more than one Option at any
time, but if an Option as to any shares is surrendered before exercise or
expires or terminates for any reason without having been exercised in full, or
for any other reason ceases to be exercisable, the number of shares covered
thereby shall again become available for grant under the Plan as if no Options
had been previously granted with respect to such shares.
5.02 Source of Shares. The shares of Common Stock issued under this
Plan shall be authorized but previously unissued shares.
ARTICLE VI
OPTION GRANTS
6.01 Option Grants. Options to purchase shares of Common Stock shall
be granted to non-employee directors of the Corporation at the following times
and in the following amounts:
(a) on the date this Plan is approved by the stockholders of the
Corporation, each person who serves as a non-employee director of the
Corporation immediately following the last adjournment of the 1993 Annual
Meeting of Stockholders shall be granted an Option to purchase 1,000 shares of
Common Stock (as adjusted pursuant to Article VIII hereof);
(b) at each Annual Meeting of Stockholders of the Corporation held in
1994, 1995, 1996 and 1997, each person who serves as a non-employee director of
the Corporation immediately following the last adjournment of such annual
meeting shall be granted as of such date an Option to purchase 1,000 shares of
Common Stock (as adjusted pursuant to Article VIII hereof); and
(c) at each Annual Meeting of Stockholders of the Corporation held in
1998 or subsequent years, each person who serves as a non-employee director of
the Corporation immediately following the last adjournment of such annual
meeting shall be granted as of such date an Option to purchase 2,000 shares of
Common Stock (as such number may be adjusted downward but not upward pursuant to
Article VIII hereof).
6.02 Allocation of Grants. If, on any date on which Options are to be
granted pursuant to this Plan, the number of shares of Common Stock remaining
available under this Plan (after
<PAGE> 3
taking into account both shares theretofore sold or issued and shares subject to
issuance upon exercise of outstanding Options) is insufficient for the grant of
Options to purchase the entire number of shares specified above, then Options to
purchase a proportionate amount of such available number of shares (rounded down
to the greatest number of whole shares) shall be granted to each non-employee
director entitled to receive an Option on such date.
ARTICLE VII
OPTION TERMS
Each Option granted hereunder shall be on the following terms and
conditions:
7.01 Option Agreement. The proper officers of the Corporation and each
optionee shall execute an Option Agreement which shall set forth the total
number of shares of Common Stock to which it pertains, the exercise price and
such other terms, conditions and provisions as are appropriate, provided that
they are not inconsistent with the terms, conditions and provisions of this
Plan. Each optionee shall receive a copy of his executed Option Agreement.
7.02 Option Exercise Price. The per share exercise price at which the
shares of Common Stock may be purchased upon exercise of an Option granted
pursuant to Section 6.01 hereof shall be equal to the fair market value of the
shares at the time of the grant of the Option. For purposes of this Plan, fair
market value shall be the mean of the high and low sales prices of a share of
Common Stock on the date in question (or, if such day is not a trading day in
the U.S. markets, on the nearest preceding trading day), as reported with
respect to the principal market (or the composite of the markets, if more than
one) or national quotation system in which such shares are then traded, or if no
such prices are reported, the mean between the closing high bid and low asked
prices of a share of Common Stock on that day on the principal market or
national quotation system then in use, or if no such quotations are available,
the price furnished by a professional securities dealer making a market in such
shares selected by the Board of Directors of the Corporation.
7.03 Vesting of Options. Options shall be immediately vested on the
date of grant.
7.04 Exercise and Duration of Options.
(a) Each Option or portion thereof shall be exercisable at any time
on or after the date of grant until ten (10) years after the date of grant,
provided that no Option or portion thereof may be exercised until the
stockholders of the Corporation have approved this Plan by such vote as may be
required by applicable laws and regulations, and provided further that at least
six (6) months shall have elapsed from the date of grant of the Option to the
date of disposition of either the Option (other than upon exercise or
conversion) or the underlying Common Stock.
(b) Exception for Termination Due to Death, Disability, Retirement or
Resignation. If an Optionee dies while serving as a non-employee director or
terminates his service as a non-employee director as a result of disability,
retirement or resignation without having fully exercised his Options or the
executors, administrators, legatees or distributees of his estate shall
<PAGE> 4
have the right to exercise such Options during the twelve-month period following
such death, disability, retirement or resignation, provided that no Option shall
be exercisable more than ten (10) years from the date it was granted.
(c) Options granted to a non-employee director who is removed for
pursuant to the Corporation's Bylaws shall, terminate as of the effective date
of such removal.
7.05 Nonassignability. Options shall not be transferable by an
optionee except by will or the laws of descent and distribution, and during an
optionee's lifetime shall be exercisable only by such Optionee or the Optionee's
guardian or legal representative.
7.06 Manner of Exercise. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be set
forth in the written Option Agreement provided for in Section 7.01.
7.07 Payment for Shares. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of an Option shall be
made to the Corporation upon exercise of the Option. Payment for shares may be
made by the Optionee in cash or by delivering shares of Common Stock (including
shares acquired pursuant to the exercise of an Option) equal in fair market
value to the purchase price of the shares to be acquired pursuant to the Option,
or any combination of the foregoing.
7.08 Voting and Dividend Rights. No optionee shall have any voting Or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option Prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
ARTICLE VIII
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for
issuance under this Plan, the number of shares to which any outstanding Option
relates and the exercise price per share of Common Stock under any outstanding
Option shall be proportionately adjusted for any increase or decrease in the
total number of outstanding shares of Common Stock issued subsequent to the
effective date of this Plan resulting from a split, subdivision or consolidation
of shares or any other capital adjustment, the payment of a stock dividend, or
other increase or decrease in such shares effected without receipt or payment of
consideration by the Corporation, and the number of shares specified in Section
6.01(c) of this Plan shall be subject to downward adjustments but not upward
adjustments for such capital changes. If, upon a merger, consolidation,
reorganization, liquidation, recapitalization or the like of the Corporation,
the shares of the Corporation's Common Stock shall be exchanged for other
securities of the Corporation or of another corporation, each recipient of an
Option shall be entitled, subject to the conditions herein stated, to purchase
or acquire such number of shares of Common Stock or amount of other securities
of the Corporation or such other corporation as were exchangeable for the number
of shares of Common Stock of the Corporation which such optionees would have
been entitled to purchase or
<PAGE> 5
acquire except for such action, and appropriate adjustments shall be made to the
per share exercise price of outstanding Options.
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate, amend or revise
this Plan with respect to any shares of Common Stock as to which Options have
not been granted, provided, however, that no amendment which (a) changes the
maximum number of shares that may be sold or issued under the Plan (other than
in accordance with the provisions of Article VIII) or (b) changes the class of
persons that may be granted Options shall become effective until it receives the
approval of the stockholders of the Corporation, and further provided that the
Board may determine that stockholder approval for any other amendment to this
Plan may be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the consent of the holder of an Option, alter or impair any
Option previously granted under this Plan except as specifically authorized
herein. Notwithstanding anything contained in this Plan to the contrary, the
provisions of Articles IV, VI and VII of this Plan shall not be amended more
than once every six months, other than to comport with changes in the Internal
Revenue Code of 1986, as amended, the Employee Retirement Income Security Act,
as amended, or the rules promulgated under such statutes.
ARTICLE X
RIGHTS TO CONTINUE AS A DIRECTOR
Neither this Plan nor the grant of any Options hereunder nor any action
taken by the Board in connection with this Plan shall create any right on the
part of any non-employee director of the Corporation to continue as such.
ARTICLE XI
WITHHOLDING
The Corporation may withhold from any cash payment made under this Plan
sufficient amounts to cover any applicable withholding and employment taxes, and
if the amount of such cash payment is insufficient, the Corporation may require
the optionee to pay to the Corporation the amount required to be withheld as a
condition to delivering the shares acquired pursuant to an Option.
ARTICLE XII
EFFECTIVE DATE OF THE PLAN; TERM
12.01 Effective Date of the Plan. This Plan shall become effective upon
the date of its adoption by the Corporation's Board ("Effective Date"), provided
that no shares of Common
<PAGE> 6
Stock may be issued pursuant to this Plan until this Plan is approved by the
stockholders of the Corporation by such vote as may be required by applicable
laws and regulations.
12.02 Term of Plan. Unless sooner terminated, this Plan shall remain
in effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of this Plan shall not affect any Options previously
granted and such Options shall remain valid and in effect until they (a) have
been fully exercised, (b) are surrendered, or (c) expire or are forfeited in
accordance with their terms.
ARTICLE XIII
MISCELLANEOUS
13.01 Governing Law. This Plan shall be construed under the laws of
the Commonwealth of Pennsylvania.
13.02 Pronouns. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
Approved by the Board of Directors of Parkvale Financial Corporation on this
19th day of August 1993.
/s/ ROBERT D. PFISCHNER /s/ GEORGE W. NEWLAND
/s/ WARREN R. WENNER /s/ FRED P. BURGER, JR.
/s/ PAUL A. MOONEY /s/ ROBERT J. MCCARTHY, JR.
Sections 6.01 and the first sentence of Article VIII were amended and the Plan
restated in its entirety as adopted by the Board of Directors on March 19, 1998.
<PAGE> 1
Exhibit 10(g)
PARKVALE FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
AS AMENDED JANUARY 1, 1997
(Amendment Number One)
ADOPTED MARCH 16, 1994
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS 19
2.2 DETERMINATION OF TOP HEAVY STATUS 19
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER 22
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY 22
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES 23
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR 23
2.7 RECORDS AND REPORTS 24
2.8 APPOINTMENT OF ADVISERS 24
2.9 INFORMATION FROM EMPLOYER 24
2.10 PAYMENT OF EXPENSES 25
2.11 MAJORITY ACTIONS 25
2.12 CLAIMS PROCEDURE 25
2.13 CLAIMS REVIEW PROCEDURE 25
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY 26
3.2 APPLICATION FOR PARTICIPATION 26
3.3 EFFECTIVE DATE OF PARTICIPATION 26
3.4 DETERMINATION OF ELIGIBILITY 26
3.5 TERMINATION OF ELIGIBILITY 27
3.6 MISSION OF ELIGIBLE EMPLOYEE 27
3.7 INCLUSION OF INELIGIBLE EMPLOYEE 27
1
<PAGE> 2
3.8 ELECTION NOT TO PARTICIPATE 27
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 28
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 28
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS 28
4.4 MAXIMUM ANNUAL ADDITIONS 35
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 38
4.6 TRANSFERS FROM QUALIFIED PLANS 39
4.7 DIRECTED INVESTMENT ACCOUNT 41
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY 41
5.2 APPLICATION OF CASH 41
5.3 TRANSACTIONS INVOLVING COMPANY STOCK 41
5.4 LOANS TO THE TRUST 43
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND 44
6.2 METHOD OF VALUATION 44
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT 45
7.2 DETERMINATION OF BENEFITS UPON DEATH 45
7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY 44
7.4 DETERMINATION OF BENEFITS UPON TERMINATION 44
7.5 DISTRIBUTION OF BENEFITS 50
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED 54
7.7 DISTRIBUTION FOR MINOR BENEFICIARY 55
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 55
7.9 RIGHT OF FIRST REFUSALS 55
7.10 STOCK CERTIFICATE LEGEND 57
2
<PAGE> 3
7.11 PUT OPTION 57
7.12 NONTERMINABLE PROTECTIONS AND RIGHTS 57
7.13 ADVANCE DISTRIBUTION FOR HARDSHIP 59
7.14 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION 59
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE 60
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE 60
8.3 OTHER POWERS OF THE TRUSTEE 61
8.4 VOTING COMPANY STOCK 64
8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS 66
8.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES 66
8.7 ANNUAL REPORT OF THE TRUSTEE 66
8.8 AUDIT 67
8.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE 67
8.10 TRANSFER OF INTEREST 68
8.11 DIRECT ROLLOVER 69
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT 69
9.2 TERMINATION 70
9.3 MERGER OR CONSOLIDATION 71
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS 71
10.2 ALIENATION 71
10.3 CONSTRUCTION OF PLAN 72
10.4 GENDER AND NUMBER 72
10.5 LEGAL ACTION 72
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS 72
10.7 BONDING 72
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 73
10.9 INSURER'S PROTECTIVE CLAUSE 73
10.10 RECEIPT AND RELEASE FOR PAYMENTS 73
10.11 ACTION BY THE EMPLOYER 73
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10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 73
10.13 HEADINGS 74
10.14 APPROVAL BY INTERNAL REVENUE SERVICE 74
10.15 UNIFORMITY 75
10.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL 75
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS 75
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS 76
11.3 DESIGNATION OF AGENT 76
11.4 EMPLOYEE TRANSFERS 76
11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION 76
11.6 AMENDMENT 77
11.7 DISCONTINUANCE OF PARTICIPATION 77
11.8 ADMINISTRATOR'S AUTHORITY 77
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PARKVALE FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT, hereby made and entered into this 16th day of March, 1994, and
amended and restated effective January 1, 1997 by motion on December 16, 1997 by
and between Parkvale Financial Corporation (herein referred to as the
"Employer") and Robert D. Pfischner, George W. Newland and Paul A. Mooney
(herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established an Employee Stock
Ownership Plan and Trust effective July 16, 1987 (hereinafter called the
"Effective Date") , known as Parkvale Savings Association Employee Stock
Ownership Plan and which Plan shall hereinafter be known as Parkvale Financial
Corporation Employee Stock Ownership Plan (herein referred to as the "Plan") in
recognition of the contribution made to its successful operation by its
employees and for the exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the
ability to amend the Plan, provided the Trustee joins in such amendment if the
provisions of the Plan affecting the Trustee are amended; and
WHEREAS, contributions to the Plan will be made by the Employer
and such contributions made to the trust will be invested primarily in the
capital stock of the Employer;
NOW, THEREFORE, effective January 1, 1994, except as otherwise
provided, the Employer and the Trustee in accordance with the provisions of the
Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.2 "Administrator" means the person or entity designated by the
Employer pursuant to Section 2.4 to administer the Plan on behalf of the
Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414 (c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
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1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 2.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
7.2 and 7.5.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
1.8 "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of which
the Employer is a member) which is readily tradeable on an established
securities market. If there is no common stock which meets the foregoing
requirement, the term "Company Stock" means common stock issued by the Employer
(or by a corporation which is a member of the same controlled group) having a
combination of voting power and dividend rights equal to or in excess of: (A)
that class of common stock of the Employer (or of any other such corporation)
having the greatest voting power, and (B) that class of common stock of the
Employer (or of any other such corporation) having the greatest dividend rights.
Noncallable preferred stock shall be deemed to be "Company Stock" if such stock
is convertible at any time into stock which constitutes "Company Stock"
hereunder and if such conversion is at a conversion price which (as of the date
of the acquisition by the Trust) is reasonable. For purposes of the preceding
sentence, pursuant to Regulations, preferred stock shall be treated as
noncallable if after the call there will be a reasonable opportunity for a
conversion which meets the requirements of the preceding sentence.
1.9 "Company Stock Account" means the account of a Participant which
is credited with the shares of Company Stock purchased and paid for by the Trust
Fund or contributed to the Trust Fund.
1.10 "Compensation" means the total earnings (including bonuses and
overtime compensation) that are paid to or accrued for an Employee for a Plan
Year by an Employer while a Participant, including amounts which are contributed
by the Employer pursuant to a salary reduction agreement or plan, including the
Employer's 401(k) profit sharing plan, which are not includible in the gross
income of the Participant, but excluding both matching and discretionary profit
sharing contributions made by the Employer to the Employer's 401(k) profit
sharing plan. In no event shall Covered Compensation be deemed to exceed
$150,000 for any Participant; provided, that said amount shall be adjusted for
increases in the cost of living in accordance with regulations issued under the
Internal Revenue Code.
For purposes of calculating the limitations upon Annual Additions
described in Section 4.4, the term "Compensation" shall mean a Participant's
earned income, wages, salaries and fees for professional services and other
amounts received for personal services actually
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rendered in the course of employment with an Employer maintaining the Plan
(including, but not limited to, compensation for services on the basis of a
percentage of profits, tips and bonuses), including amounts which are
contributed by the Employer pursuant to a salary reduction agreement or plan and
which are not includible in the gross income of the Participant, but excluding
the following:
(i) Matching and discretionary profit sharing contributions made by the
Employer's 401 (k) profit sharing plan;
(ii) Amounts realized from the exercise of a nonqualified stock option, or
when restricted stock (or property) held by the Employer either becomes
freely transferable or is no longer subject to a substantial risk or
forfeiture;
(iii) Amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option;
(iv) Commissions paid to salesmen, including commissions on insurance
premiums and commissions based on loan originations; and
(v) Other amounts which received special tax benefits, or contributions
made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Section
403(b) of the Code (whether or not the amounts are actually excludable
from the gross income of the Employee).
For purposes of this Section, the determination of Compensation shall be made
by:
(a) including amounts which are contributed by the Employer pursuant to
a salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and
Employee contributions described in Code Section 414 (h) (2) that are treated as
Employer contributions.
For a Participant's initial year of participation, Compensation shall be
recognized for the entire Plan Year.
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d), except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or one of the ten
(10)
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Highly Compensated Employees paid the greatest "415 Compensation" during the
year, shall be treated as a single Participant, except that for this purpose
Family Members shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19) before the close of
the year. If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's Compensation prior to
the application of this limitation, or the limitation shall be adjusted in
accordance with any other method permitted by Regulation.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, f or Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
If, as a result of such rules, the maximum "annual addition" limit of
Section 4.4 (a) would be exceeded for one or more of the affected Family
Members, the prorated Compensation of all affected Family Members shall be
adjusted to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall be adjusted
downward to the level needed to provide an allocation equal to such limit. The
prorated Compensation of affected Family Members not affected by such limit
shall then be adjusted upward on a pro rata basis not to exceed each such
affected Family Member's Compensation as determined prior to application of the
Family Member rule. The resulting allocation shall not exceed such individual's
maximum "annual addition" limit. If, after these adjustments, an "excess amount"
still results, such "excess amount" shall be disposed of in the manner described
in Section 4.5(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described in Code
Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
$200,000 limitation applies
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separately with respect to the Compensation of any Participant from each
Employer maintaining the Plan.
If, in connection with the adoption of this amendment and
restatement, the definition of Compensation has been modified, then, for Plan
Years prior to the Plan Year which includes the adoption date of this amendment
and restatement, Compensation means compensation determined pursuant to the Plan
then in effect.
For Plan Years beginning prior to January 1, 1989, the $200,000
limit (without regard to Family Member aggregation) shall apply only for Top
Heavy Plan Years and shall not be adjusted.
1.11 "Contract" or "Policy" means any life insurance policy,
retirement income or annuity policy, or annuity contract (group or individual)
issued pursuant to the terms of the Plan.
1.12 "Current Obligations" means Trust obligations arising from
extension of credit to the Trust and payable in cash within (1) year from the
date an Employer contribution is due. With respect to the estates of decedents
who died prior to July 13, 1989, Trust obligations shall include the liability
for payment of taxes imposed by Code Section 2001, which liability is incurred
pursuant to Code Section 2210(b).
1.13 "Early Retirement Date." This Plan does not provide for a
retirement date prior to Normal Retirement Date.
1.14 "Eligible Employee" means any Employee.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have specifically
adopted this Plan in writing.
1.15 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.16 "Employer" means Parkvale Financial Corporation and any
Participating Employer (as defined in Section 11.1) which shall adopt this Plan;
any successor which shall maintain this Plan; and any predecessor which has
maintained this Plan. The Employer is a corporation with principal offices in
the Commonwealth of Pennsylvania.
1.17 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 4975(e)(7) and Regulation 54.4975-11.
1.18 "Exempt Loan" means a loan made to the Plan by a disqualified
person or a loan to
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the Plan which is guaranteed by a disqualified person and which satisfies the
requirements of Section 2550.408b-3 of the Department of Labor Regulations,
Section 54.4975-7(b) of the Treasury Regulations and Section 5.4 hereof.
1.19 "Family Member" means, with respect to an affected Participant,
such Participant's spouse and such Participant's lineal descendants and
ascendants and their spouses, all as described in Code Section 414(q)(6)(B).
1.20 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.21 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January lst of each year and ending the following December 31st.
1.22 "Forfeiture" means that portion of a Participant's Account that
is not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Terminated Participant's Account, or
(b) the last day of the Plan Year in which the Participant incurs
five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of
a Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his Vested
benefit upon his termination of employment. Restoration of such amounts shall
occur pursuant to Section 7.4(g) (2). In addition, the term Forfeiture shall
also include amounts deemed to be Forfeitures pursuant to any other provision of
this Plan.
1.23 "Former Participant" means a person who has been a Participant,
but who has ceased to be a Participant for any reason.
1.24 "415 Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401 (a) and all other payments
of compensation by the Employer (in the course of the Employer's trade or
business) for a Plan Year for which the Employer is required to furnish the
Participant a written statement under Code Sections 6041(d), 6051(a)(3) and
6052. "415 Compensation" must be determined without regard to any rules under
Code Section 3401(a) that limit the remuneration included in wages based on the
nature or location of the employment or the services performed (such as the
exception for agricultural labor in Code Section 3401(a)(2)).
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If, in connection with the adoption of this amendment and
restatement, the definition of "415 Compensation" has been modified, then, for
Plan Years prior to the Plan Year which includes the adoption date of this
amendment and restatement, "415 Compensation" means compensation determined
pursuant to the Plan then in effect.
1.25 "Highly Compensated Employee" means an Employee described in
Code Section 414(q) and the Regulations thereunder, and generally means an
Employee who performed services for the Employer during the "determination yearn
and is in one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in Section 1.30(c).
(b) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $50,000 and were in the Top Paid Group of
Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the Regulations under
Code Section 416) and received "415 Compensation" during the "look-back year"
from the Employer greater than 50 percent of the limit in effect under Code
Section 415(b)(1)(A) for any such Plan Year. The number of officers shall be
limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or
10 percent of all employees. For the purpose of determining the number of
officers, Employees described in Section 1.50(a), (b), (c) and (d) shall be
excluded, but such Employees shall still be considered for the purpose of
identifying the particular Employees who are officers. If the Employer does not
have at least one officer whose annual '415 Compensation, is in excess of 50
percent of the Code Section 415 (b) (1) (A) limit, then the highest paid officer
of the Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees
paid the greatest "415 Compensation" during the "determination year" and are
also described in (b), (c) or (d) above when these paragraphs are modified to
substitute "determination year" for "look-back year".
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h), 403(b) or 457, and Employee contributions described in Code Section 414
(h) (2) that are treated as Employer contributions. Additionally, the dollar
threshold amounts specified in (b) and (c) above shall be adjusted at such time
and in such manner as is provided in
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Regulations. In the case of such an adjustment, the dollar limits which shall be
applied are those for the calendar year in which the "determination year" or
"look-back year" begins.
Effective for years after 1996, a "Highly Compensated Employee"
means an Employee described in Code Section 414(q) and the Regulations
thereunder, and generally means an Employee who performed services for the
Employer during the "determination year" and is in one or more of the following
groups:
(a) Employees who at anytime during the "determination year" or
"look-back year" were "five percent owners" as defined in Section 1.30(c).
(b) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $80,000 and were in the Top Paid Group of
Employees during the "look-back year."
The "determination year" shall be the Plan year for which testing
is being performed, and the "look-back year" shall be the immediately preceding
twelve-month period.
For purposes of this Section, for years after 1996, the determination
of "415 Compensation" shall be made by including amounts which axe contributed
by the Employer pursuant to a salary reduction agreement and which are not
includible in the gross income of the Participant under Code Sections 125,
402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described
in Code Section 414(h)(2) that are treated as Employer contributions.
Additionally, the dollar threshold amount specified in (b) above shall be
adjusted at such time and in the same manner required under Code Section 415(d),
except that the base period shall be the calendar quarter ending September 30,
1996.
In determining who is a Highly Compensated Employee, Employees who
are non-resident aliens and who received no earned income (within the meaning
of Code Section 9 11 (d) (2) ) from the Employer constituting United States
source income within the meaning of Code Section 861 (a) (3) shall not be
treated as Employees. Additionally, all Affiliated Employers shall be taken into
account as a single employer and Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such
Leased Employees are covered by a plan described in Code Section 414 (n) (5) and
are not covered in any qualified plan maintained by the Employer. The exclusion
of Leased Employees for this purpose shall be applied on a uniform and
consistent basis for all of the Employer's retirement plans. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees without regard
to whether they performed services during the 'determination year.,
1.26 "Highly Compensated Former Employee" means a former Employee who
had a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
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preceding the separation year) or any year after the Employee attains age 55 (or
the last year ending before the Employee's 55th birthday), the Employee either
received "415 Compensation" in excess of $50,000 or was a "five percent owner".
For purposes of this Section, 'determination year, "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.25. Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a 'Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.
1.27 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.28 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
Notwithstanding the, above, (i) no more than 501 Hours of Service
are required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made
by or due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or indirectly through, among others, a trust fund,
or insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of
determining a Year of Service, a year of participation for purposes of accrued
benefits, a 1-Year Break in Service, and employment commencement date (or
reemployment commencement date). In addition, Hours of
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Service will be credited for employment with other Affiliated Employers. The
provisions of Department of Labor regulations 2530.200b-2 (b) and (c) are
incorporated herein by reference.
1.29 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.30 "Key Employee" means an Employee as defined in Code Section
416(i) and the Regulations thereunder. Generally, any Employee or former
Employee (as well as each of his Beneficiaries) is considered a Key Employee if
he, at any time during the Plan Year that contains the "Determination Date" or
any of the preceding four (4) Plan Years, has been included in one of the
following categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual "415
Compensation" greater than 50 percent of the amount in effect under Code Section
415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation"
from the Employer for a Plan Year greater than the dollar limitation in effect
under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year
ends and owning (or considered as owning within the meaning of Code Section 318)
both more than one-half percent interest and the largest interests in the
Employer.
(c) a "five percent owner" of the Employer. "Five percent owner"
means any person who owns (or is considered as owning within the meaning of Code
Section 318) more than five percent (5%) of the outstanding stock of the
Employer or stock possessing more than five percent (5%) of the total combined
voting power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the capital or
profits interest in the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent owner" means
any person who owns (or is considered as owning within the meaning of Code
Section 318) more than one percent (1%) of the outstanding stock of the Employer
or stock possessing more than one percent (1%) of the total combined voting
power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than one percent (1%) of the capital or
profits interest in the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sections 414 (b), (c),
(m) and (o) shall be treated as separate employers. However, in determining
whether an individual has "415 Compensation" of more than $150,000, "415
Compensation" from each employer required to be aggregated under Code Sections
414 (b), (c), (m) and (o) shall be taken into account.
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For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h), 403(b) or 457, and Employee contributions described in Code Section 414
(h) (2) that are treated as Employer contributions.
1.31 "Late Retirement Date" means the first day of the month
coinciding with or next following a Participant's actual Retirement Date after
having reached his Normal Retirement Date.
1.32 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(a)(6)) on a substantially full time basis for a period of at least one year,
and such services are performed under primary direction or control by the
recipient.
Contributions or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for the recipient
employer shall be treated as provided by the recipient. employer. A Leased
Employee shall not be considered an Employee of the recipient:
(a) if such employee is covered by a money purchase pension plan
providing:
(1) a non-integrated employer contribution rate of at least
10% of compensation, as defined in Code Section 415(c)(3), but including amounts
which are contributed by the Employer pursuant to a salary reduction agreement
and which are not includible in the gross income of the Participant under Code
Sections 125, 402 (e) (3), 402 (h), 403 (b) or 457, and Employee contributions
described in Code Section 414(h)(2) that are treated as Employer contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of the,
recipient's non-highly compensated work force.
1.33 "Non-Highly Compensated Participant" means any Participant who is
not a Highly Compensated Employee.
1.34 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.35 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.36 "Normal Retirement Date" means the first day of the month
coinciding with or next
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following the Participant's Normal Retirement Age.
1.37 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence, and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence,"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence,"
shall not exceed 501.
1.38 "Other Investments Account" means the account of a Participant
which is credited with his share of the net gain (or loss) of the Plan,
Forfeitures and Employer contributions in other than Company Stock and which is
debited with payments made to pay for Company Stock.
1.39 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.40 "Participant's Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's contributions.
1.41 "Plan" means this instrument, including all amendments thereto.
1.42 "Plan Year" means the Plan's accounting year of twelve (12)
months commencing on January lst of each year and ending the following December
31st.
1.43 "Regulation" means the Income Tax Regulations as promulgated by
the Secretary
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of the Treasury or his delegate, and as amended from time to time.
1.44 "Retired Participant" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
1.45 "Retirement Date" means the date as of which a Participant
retires for reasons other than Total and Permanent Disability, whether such
retirement occurs on a Participant's Normal Retirement Date or Late Retirement
Date (see Section 7.1).
1.46 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.47 "Terminated Participant" means a person who has been a
Participant, but whose employment has been terminated other than by death, Total
and Permanent Disability or retirement.
1.48 "Top Heavy Plan" means a plan described in Section 2.2 (a).
1.49 "Top Heavy Plan Year" means a Plan Year during which the Plan is
a Top Heavy Plan.
1.50 "Top Paid Group" means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked according
to the amount of "415 Compensation" (determined for this purpose in accordance
with Section 1.25) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414 (n) (5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section 861
(a) (3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17-1/2 hours per week;
(c) Employees who normally work less than six (6) months during
a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the
Employer are covered under agreements the Secretary of Labor finds to be
collective bargaining agreements between Employee representatives and the
Employer, and the Plan covers only Employees who are not covered under such
agreements, then Employees covered by such agreements shall be excluded from
both the total number of active Employees as well as from the identification of
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particular Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be
applied on a uniform and consistent basis for all purposes for which the Code
Section 414(q) definition is applicable.
1.51 "Total and Permanent Disability" means a physical or
mental condition of a Participant resulting from bodily injury, disease, or
mental disorder which renders him incapable of continuing his usual and
customary employment with the Employer. The disability of a Participant shall be
determined by a licensed physician chosen by the Administrator. The
determination shall be applied uniformly to all Participants.
1.52 "Trustee" means the person or entity named as trustee
herein or in any separate trust forming a part of this Plan, and any successors.
1.53 "Trust Fund" means the assets of the Plan and Trust as the
same shall exist from time to time.
1.54 "Unallocated Company Stock Suspense Account" means an
account containing Company Stock acquired with the proceeds of an Exempt Loan
and which has not been released from such account and allocated to the
Participants' Company Stock Accounts.
1.55 "Vested" means the nonforfeitable portion of any account
maintained on behalf of a Participant.
1.56 "Year of Service" means the computation period of twelve
(12) consecutive months, herein set forth, during which an Employee has at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service. An Employee who is credited
with the required Hours of Service in both the initial computation period (or
the computation period beginning after a 1-Year Break in Service) and the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service, shall be credited with two (2) Years of Service
for purposes of eligibility to participate.
For vesting purposes, the computation period shall be the Plan
Year, including periods prior to the Effective Date of the Plan. For all other
purposes, the computation period shall be the Plan Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with
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Department of Labor regulation 2530.203-2(c). However, in determining whether an
Employee has completed a Year of Service for benefit accrual purposes in the
short Plan Year, the number of the Hours of Service required shall be
proportionately reduced based on the number of full months in the short Plan
Year.
Years of Service with Parkvale Savings Association shall be
recognized.
Years of Service with any Affiliated Employer shall be
recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416 (b) pursuant to Section 7.4 of the Plan
and the special minimum allocation requirements of Code Section 416(c) pursuant
to Section 4.3 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in
which, as of the Determination Date, (1) the Present Value of Accrued Benefits
of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees
under this Plan and all plans of an Aggregation Group, exceeds sixty percent
(60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all
Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate Account balance
shall not be taken into account for purposes of determining whether this Plan is
a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which
includes this Plan is a Top Heavy Group) . In addition, if a Participant or
Former Participant has not performed any services for any Employer maintaining
the Plan at any time during the five year period ending on the Determination
Date, any accrued benefit for such Participant or Former Participant shall not
be taken into account for the 1 6 purposes of determining whether this Plan is a
Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan
Year in which, as of the Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key
Employees under this Plan and all plans of an Aggregation Group, exceeds ninety
percent (90%) of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
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(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Account balance as of the most recent
valuation occurring within a twelve (12) month period ending on the
Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any contributions
actually made after the valuation date but due on or before the Determination
Date, except for the first Plan Year when such adjustment shall also reflect the
amount of any contributions made after the Determination Date that are allocated
as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan Year that includes
the Determination Date or within the four (4) preceding Plan Years. However, in
the case of distributions made after the valuation date and prior to the
Determination Date, such distributions are not included as distributions for top
heavy purposes to the extent that such distributions are already included in the
Participant's Aggregate Account balance as of the valuation date.
Notwithstanding anything herein to the contrary, all distributions, including
distributions made prior to January 1, 1984, and distributions under a
terminated plan which if it had not been terminated would have been required to
be included in an Aggregation Group, will be counted. Further, distributions
from the Plan (including the cash value of life insurance policies) of a
Participant's account balance because of death shall be treated as a
distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified voluntary employee
contributions shall not be considered to be a part of the Participant's
Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a plan maintained
by one employer to a plan maintained by another employer), if this Plan provides
the rollovers or plan-to-plan transfers, it shall always consider such rollovers
or plan-to-plan transfers as a distribution for the purposes of this Section. If
this Plan is the plan accepting such rollovers or plan-to-plan transfers, it
shall not consider such rollovers or plan-to-plan transfers as part of the
Participant's Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan maintained by the
same employer), if this Plan provides the rollover or plan-to-plan transfer, it
shall not be counted as a distribution for purposes of this Section. If this
Plan is the plan accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the Participant's
Aggregate Account balance, irrespective of the date on which such rollover or
plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers are to
be treated as
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the same employer in (5) and (6) above, all employers aggregated under Code
Section 414 (b), (c), (m) and (o) are treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which a Key Employee
is a participant in the Plan Year containing the Determination Date or any of
the four preceding Plan Years, and each other plan of the Employer which enables
any plan in which a Key Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall
be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group will be
considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy
Group. No plan in the Required Aggregation Group will be considered a Top Heavy
Plan if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include
any other plan not required to be included in the Required Aggregation Group,
provided the resulting group, taken as a whole, would continue to satisfy the
provisions of Code Sections 401 (a)(4) and 410. Such group shall be known as a
Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is part of the
Required Aggregation Group will be considered a Top Heavy Plan if the Permissive
Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation
Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is
not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated in order to
determine whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years ending on the
Determination Date.
(e) "Determination Date," means (a) the last day of the preceding Plan
Year, or (b) in the case of the first Plan Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit
plan, the Present Value of Accrued Benefit for a Participant other than a Key
Employee, shall be as determined using the single accrual method used for all
plans of the Employer and Affiliated Employers, or if no such single method
exists, using a method which results in benefits accruing not more rapidly than
the slowest accrual rate permitted under Code Section 411(b)(1)(C). The
determination of the Present Value of Accrued Benefit shall be determined as of
the most recent valuation date that
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falls within or ends with the 12-month period ending on the Determination Date
except as provided in Code Section 416 and the Regulations thereunder for the
first and second plan years of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under
all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group, exceeds sixty percent (60%) of a
similar sum determined for all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee
and the Administrator from time to time as it deems necessary for the proper
administration of the Plan to assure that the Plan is being operated for the
exclusive benefit of the Participants and their Beneficiaries in accordance with
the terms of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and method," i.e.,
it shall determine whether the Plan has a short run need for liquidity (e.g., to
pay benefits) or whether liquidity is a long run goal and investment growth (and
stability of same) is a more current need, or shall appoint a qualified person
to do so. The Employer or its delegate shall communicate such needs and goals to
the Trustee, who shall coordinate such Plan needs with its investment policy.
The communication of such a "funding policy and method" shall not, however,
constitute a directive to the Trustee as to investment of the Trust Funds. Such
"funding policy and method" shall be consistent with the objectives of this Plan
and with the requirements of Title I of the Act.
(c) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or allocated by it
under the provisions of this Plan or pursuant to procedures established
hereunder. This requirement may be satisfied by formal periodic review by the
Employer or by a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other appropriate ways.
(d) The Employer will furnish Plan Fiduciaries and Participants with
notices and information statements when voting rights must be exercised pursuant
to Section 8.4.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any
person, including, but not limited to, the Employees of the Employer, shall be
eligible to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or
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be removed by the Employer by delivery of written notice of removal, to take
effect at a date specified therein, or upon delivery to the Administrator if no
date is specified.
The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a successor to this position.
If the Employer does not appoint an Administrator, the Employer will function as
the Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer
the Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401 (a) , and shall comply with the terms of the Act and
all regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant hereunder and to
receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the
amount and the kind of benefits to which any Participant shall be entitled
hereunder;
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(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of the
Plan;
(e) to interpret the provisions of the Plan and to make and publish
such rules for regulation of the Plan as are consistent with the terms hereof;
(f) to determine the size and type of any Contract to be purchased
from any insurer, and to designate the insurer from which such Contract shall be
purchased;
(g) to compute and certify to the Employer and to the Trustee from
time to time the sums of money necessary or desirable to be contributed to the
Plan;
(h) to consult with the Employer and the Trustee regarding the short
and long-term liquidity needs of the Plan in order that the Trustee can exercise
any investment discretion in a manner designed to accomplish specific
objectives;
(i) to establish and communicate to Participants a procedure, which
includes at least three (3) investment options pursuant to Regulations, for
allowing each Participant to direct the Trustee as to the investment of his
Company Stock Account pursuant to Section 4.7;
(j) to establish and communicate to Participants a procedure and
method to insure that each Participant will vote Company Stock allocated to such
Participant's Company Stock Account pursuant to Section 8.4;
(k) to enter into a written agreement with regard to the payment of
federal estate tax pursuant to Code Section 2210(b);
(l) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
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2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2. 5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
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choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of Service and has
attained age 21 shall be eligible to participate hereunder as of the date he has
satisfied such requirements. However, any Employee who was a Participant in the
Plan prior to the effective date of this amendment and restatement shall
continue to participate in the Plan. The Employer shall give each prospective
Eligible Employee written notice of his eligibility to participate in the Plan
prior to the close of the Plan Year in which he first becomes an Eligible
Employee.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
shall make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the
first day of the Plan Year in which such Employee met the eligibility
requirements of Section 3.1.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such
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determination shall be subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification of an
Eligible Employee to an ineligible Employee, such Former Participant shall
continue to vest in his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his Participant's Account shall
be forfeited or distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an eligible
class of Employees and becomes ineligible to participate but has not incurred a
1-Year Break in Service, such Employee will participate immediately upon
returning to, an eligible class of Employees. If such Participant incurs a
1-Year Break in Service, eligibility will be determined under the break in
service rules of the Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in
which the discovery is made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
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4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For each Plan Year, the Employer shall contribute to the Plan such
amount as shall be determined by the Employer.
(b) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum amount allowable as
a deduction to the Employer under the provisions of Code Section 404. All
contributions by the Employer shall be made in cash, Company Stock or in such
property as is acceptable to the Trustee.
(c) Except, however, to the extent necessary to provide the top heavy
minimum allocations, the Employer shall make a contribution even if it exceeds
the amount which is deductible under Code Section 404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
Employer contributions will be paid in cash, Company Stock or other
property as the Employer may from time to time determine. Company Stock and
other property will be valued at their then fair market value. The Employer
shall pay to the Trustee its contribution to the Plan for each Plan Year within
the time prescribed by law, including extensions of time, for the filing of the
Employer's federal income tax return for the Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as of each
Anniversary Date all amounts allocated to each such Participant as set forth
herein.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the Employer's
contributions for each Plan Year. Within a reasonable period of time after the
date of receipt by the Administrator of such information, the Administrator
shall allocate such contribution to each Participant's Account in the same
proportion that each such Participant's Compensation for the year bears to the
total Compensation of all Participants for such year.
Only Participants who have completed a Year of Service during the Plan
Year and are actively employed on the last day of the Plan Year shall be
eligible to share in the discretionary contribution for the year.
If the Plan Year is less than twelve months, then the Hours of Service
requirement for completing a Year of Service shall be prorated based on the
number of full calendar months in the short Plan Year. If the Plan is terminated
or a Change in Control as defined in Section 7.4(e) occurs, the date of
termination or Change in Control, as the case may be, shall be treated as the
last day of the Plan Year for purposes of this section.
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Shares received by the Plan from a defined benefit plan maintained by
the Employer ("Reversion Shares") shall be released from the Suspense Account in
a manner such that the number of shares released in a given year, when added to
the number of leveraged shares released from the Suspense Account in that same
year, will equal 12.5% of the total number of Reversion Shares and other shares
held in the Plan, either in allocated or unallocated accounts. The number of
Reversion shares released in a year shall not be less than the number of shares
needed to ensure that the total amount of Reversion Shares released to date is
not less than the total amount of Reversion Shares that would have been released
if they were released ratably over the eight year period beginning with 1987.
The Administrator shall keep adequate records to enable Participants to
determine the cost basis of the Company Stock allocated to their Accounts.
(c) The Company Stock Account of each Participant shall be credited as
of each Anniversary Date with Forfeitures of Company Stock and his allocable
share of Company Stock (including fractional shares) purchased and paid f or by
the Plan or contributed in kind by the Employer. Stock dividends on Company
Stock held in his Company Stock Account shall be credited to his Company Stock
Account when paid. Cash dividends on Company Stock held in his Company Stock
Account shall, in the sole discretion of the Administrator, either be credited
to his Other Investments Account when paid or be used to repay an Exempt Loan;
provided, however, that when cash dividends are used to repay an Exempt Loan,
Company Stock shall be released from the Unallocated Company Stock Suspense
Account and allocated to the Participant's Company Stock Account pursuant to
Section 4.3(f) and, provided further, that Company Stock allocated to the
Participant's Company Stock Account shall have a fair market value not less than
the amount of cash dividends which would have been allocated to such
Participant's Other Investments Account for the year.
Company Stock acquired by the Plan with the proceeds of an Exempt Loan
shall only be allocated to each Participant's Company Stock Account upon release
from the Unallocated Company Stock Suspense Account as provided in Section 4.3
(f) herein. Company Stock acquired with the proceeds of an Exempt Loan shall be
an asset of the Trust Fund and maintained in the Unallocated Company Stock
Suspense Account.
(d) As of each Anniversary Date or other valuation date, before the
current valuation period allocation of Employer contributions and Forfeitures,
any earnings or losses (net appreciation or net depreciation) of the Trust Fund
shall be allocated in the same proportion that each Participant's and Former
Participant's nonsegregated accounts (other than each Participant's Company
Stock Account) bear to the total of all Participants, and Former Participants'
nonsegregated accounts (other than Participants' Company Stock Accounts) as of
such date.
Earnings or losses do not include the interest paid under any
installment contract for the purchase of Company Stock by the Trust Fund or on
any loan used by the Trust Fund to purchase Company Stock, nor does it include
income received by the Trust Fund with respect to Company Stock acquired with
the proceeds of an Exempt Loan; all income received by the Trust Fund from
Company Stock acquired with the proceeds of an Exempt Loan may, at the
discretion of the Administrator, be used to repay such loan.
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Participants' transfers from other qualified plans deposited in the
general Trust Fund shall share in any earnings and losses (net appreciation or
net depreciation) of the Trust Fund in the same manner provided above. Each
segregated account maintained on behalf of a Participant shall be credited or
charged with its separate earnings and losses.
(e) Participants' accounts shall be debited for any insurance or
annuity premiums paid, if any, and credited with any dividends received on
insurance contracts.
(f) All Company Stock acquired by the Plan with the proceeds of an
Exempt Loan must be added to and maintained in the Unallocated Company Stock
Suspense Account. Such Company Stock shall be released and withdrawn from that
account as if all Company Stock in that account were encumbered. For each Plan
Year during the duration of the loan, the number of shares of Company Stock
released shall equal the number of encumbered shares held immediately before
release for the current Plan Year multiplied by a fraction, the numerator of
which is the amount of principal and interest paid for the Plan Year and the
denominator of which is the sum of the numerator plus the principal and interest
to be paid for all future Plan Years. As of each Anniversary Date, the Plan must
consistently allocate to each Participant's Account, in the same manner as
Employer discretionary contributions pursuant to Section 4.1(a) are allocated,
non-monetary units (shares and fractional shares of Company Stock) representing
each Participant's interest in Company Stock withdrawn from the Unallocated
Company Stock Suspense Account. However, Company Stock released from the
Unallocated Company Stock Suspense Account with cash dividends pursuant to
Section 4.3(c) shall be allocated to each Participant's Company Stock Account in
the same proportion that each such Participant's number of shares of Company
Stock sharing in such cash dividends bears to the total number of shares of all
Participants' Company Stock sharing in such cash dividends. Income earned with
respect to Company Stock in the Unallocated Company Stock Suspense Account shall
be used, at the discretion of the Administrator, to repay the Exempt Loan used
to purchase such Company Stock. Company Stock released from the Unallocated
Company Stock Suspense Account with such income, and any income which is not so
used, and any income which is not so used, must be allocated as income of the
Plan.
(9) Notwithstanding the foregoing, any assets held in a suspense
account (including, without limitation, Company Stock and cash) which are
released from the collateral requirements of an Exempt Loan by reason of the
payment of principal or interest on one or more of such Exempt Loans, which
payment is attributable to the sale of any asset held by the Plan, shall, upon
release, be immediately credited as earnings to the Accounts of Participants who
were Employees on the first day of the applicable Plan Year in proportion to the
respective opening account balances of such accounts as of the first day of the
applicable Plan Year. In addition, if any Company Stock or other asset held in a
suspense account to secure one or more of such Exempt Loans is sold in
connection with a change in control (as defined in Section 7.4(e) of the Plan)
of the Employer, then the proceeds from such sale will be used and distributed
as follows:
(1) if the sales proceeds consist solely of cash, the cash proceeds
shall first be used to repay any existing Exempt Loan(s) secured by such Company
Stock or other assets, and
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<PAGE> 31
thereafter any remaining cash proceeds shall, as of the effective date of the
change in control, be credited as earnings to the Accounts of Participants who
were Employees on the first day of the applicable Plan Year in proportion to the
respective opening account balances of such accounts as of the first day of the
Plan Year containing the effective date of such change in control;
(2) if the sales proceeds consist solely of stock of the company
acquiring control or of an affiliate of such company ("Acquiror Stock"), then
the Acquiror Stock shall be sold by the ESOP in an amount sufficient to generate
sufficient cash to repay any existing Exempt Loan(s) secured by such Company
Stock or other assets, and thereafter any remaining shares of Acquiror Stock
shall, as of the effective date of the change in control, be credited as
earnings to the Accounts of Participants who were Employees on the first day of
the applicable Plan Year in proportion to the respective opening account
balances of such accounts as of the first day of the Plan Year containing the
effective date of such change in control;
(3) if the sales proceeds consist of a combination of cash and Acquiror
Stock, then the cash proceeds shall first be used to repay any existing Exempt
Loan(s) secured by such Company Stock or other assets and then the Acquiror
Stock shall be sold by the ESOP in an amount sufficient to generate sufficient
cash to repay any remaining balance of such Exempt Loan(s), and thereafter any
remaining cash proceeds and/or shares of Acquiror Stock shall, as of the
effective date of the change in control, be credited as earnings to the Accounts
of Participants who were Employees on the first day of the applicable Plan Year
in proportion to the respective opening account balances of such accounts as of
the first day of the Plan Year containing the effective date of such change in
control; and
(4) if the sales proceeds consist of consideration other than cash or
Acquiror Stock, or any combination of other consideration, cash and Acquiror
Stock, then (i) the other consideration shall first be sold to the extent
practicable to repay any existing Exempt Loan(s) secured by such Company Stock
or other assets, (ii) the cash proceeds shall be used second to repay any
remaining balance of such Exempt Loan(s), and (iii) lastly, the Acquiror Stock
shall be sold by the ESOP in an amount sufficient to generate sufficient cash to
repay any remaining balance of such Exempt Loan(s), and thereafter any remaining
other consideration, cash proceeds and/or shares of Acquiror Stock shall, as of
the effective date of the change in control, be credited as earnings to the
Accounts of Participants who were Employees on the first day of the applicable
Plan Year in proportion to the respective opening account balances of such
accounts as of the first day of the Plan Year containing the effective date of
such change in control.
(h) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to reinstate
previously forfeited account balances of Former Participants, if any, in
accordance with Section 7.4(g)(2). The remaining Forfeitures, if any, shall be
allocated among the Participants' Accounts of Participants otherwise eligible to
share in the allocation of discretionary contributions in the same proportion
that each such Participant's Compensation for the year bears to the total
Compensation of all such Participants for the year.
Provided, however, that in the event the allocation of Forfeitures
provided herein shall
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<PAGE> 32
cause the "annual addition" (as defined in Section 4.4) to any Participant's
Account to exceed the amount allowable by the Code, the excess shall be
reallocated in accordance with Section 4.5.
(i) For any Top Heavy Plan Year, Non-Key Employees not otherwise
eligible to share in the allocation of contributions and Forfeitures as provided
above shall receive the minimum allocation provided for in Section 4.3(j) if
eligible pursuant to the provisions of Section 4.3(l).
(j) Participants who are not actively employed on the last day of the
Plan Year due to Retirement (Normal or Late), Total and Permanent Disability or
death shall share in the allocation of contributions and Forfeitures for that
Plan Year only if otherwise eligible in accordance with this Section.
(k) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the
Employer's contributions and Forfeitures allocated to the Participant's Account
of each Non-Key Employee shall be equal to at least three percent (3%) of such
Non-Key Employee's 11415 Compensation" (reduced by contributions and
forfeitures, if any, allocated to each Non-Key Employee in any defined
contribution plan included with this plan in a Required Aggregation Group).
However, if (1) the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Account of each Key Employee for such Top Heavy
Plan Year is less than three percent (3%) of each Key Employee's "415
Compensation" and (2) this Plan is not required to be included in an Aggregation
Group to enable a defined benefit plan to meet the requirements of Code Section
401 (a) (4) or 410, the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Account of each Non-Key Employee shall be equal
to the largest percentage allocated to the Participant's Account of any Key
Employee.
However, no such minimum allocation shall be required in this Plan for
any Non-Key Employee who participates in another defined contribution plan
subject to Code Section 412 providing such benefits included with this Plan in a
Required Aggregation Group.
(1) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Account of any Key Employee shall be
equal to the ratio of the sum of the Employer's contributions and Forfeitures
allocated on behalf of such Key Employee divided by the "415 Compensation" for
such Key Employee.
(m) For any Top Heavy Plan Year, the minimum allocations set forth
above shall be allocated to the Participant's Account of all Non-Key Employees
who are Participants and who are employed by the Employer on the last day of the
Plan Year, including Non-Key Employees who have (1) failed to complete a Year of
Service; and (2) declined to make mandatory contributions (if required) to the
Plan.
(n) For the purposes of this Section, "415 Compensation" shall be
limited to $200,000. Such amount shall be adjusted at the same time and in the
same manner as permitted under Code Section 415(d), except that the dollar
increase in effect on January 1 of any calendar year shall be
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<PAGE> 33
effective for the Plan Year beginning with or within such calendar year and the
first adjustment to the $200,000 limitation shall be effective on January 1,
1990. For any short Plan Year the "415 Compensation" limit shall be an amount
equal to the "415 Compensation" limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the number of full
months in the short Plan Year by twelve (12). However, for Plan Years beginning
prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan
Years and shall not be adjusted.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OKRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
(o) If a Former Participant is reemployed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits attributable to pre-break
service; and
(2) one account representing his status in the Plan attributable to
post-break service.
(p) Notwithstanding anything to the contrary, for Plan Years
beginning after December 31, 1989, if this is a Plan that would otherwise fail
to meet the requirements of Code Sections 401 (a) (26) , 410 (b) (1) or 410 (b)
(2) (A) (i) and the Regulations thereunder because Employer contributions would
not be allocated to a sufficient number or percentage of Participants for a Plan
Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the Employer's
contribution and Forfeitures for the Plan Year shall be expanded to include the
minimum number of Participants who would not otherwise be eligible as are
necessary to satisfy the applicable test specified above.
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<PAGE> 34
The specific Participants who shall become eligible under the terms of this
paragraph shall be those who are actively employed on the last day of the Plan
Year and, when compared to similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable test is
still not satisfied, then the group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year shall be further
expanded to include the minimum number of Participants who are not actively
employed on the last day of the Plan Year as are necessary to satisfy the
applicable test. The specific Participants who shall become eligible to share
shall be those Participants, when compared to similarly situated Participants,
who have completed the greatest number of Hours of Service in the Plan Year
before terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have previously been
allocated to Participants may not be reallocated to satisfy these requirements.
In such event, the Employer shall make an additional contribution equal to the
amount such affected Participants would have received had they been included in
the allocations, even if it exceeds the amount which would be deductible under
Code Section 404. Any adjustment to the allocations pursuant to this paragraph
shall be considered a retroactive amendment adopted by the last day of the Plan
Year.
(4) Notwithstanding the foregoing, for any Top Heavy Plan Year
beginning after December 31, 1992, if the plan would fail to satisfy Code
Section 410(b) if the coverage tests were applied by treating those Participants
whose only allocation would otherwise be provided under the top heavy formula as
if they were not currently benefiting under the Plan, then, for purposes of this
Section 4.3(o), such Participants shall be treated as not benefiting and shall
therefore be eligible to be included in the expanded class of Participants who
will share in the allocation provided under the Plan's non top heavy formula.
(q) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two or more cash or deferred arrangements of
the Employer or an Affiliated Employer, all such cash or deferred arrangements
shall be treated as one cash or deferred arrangement for the purpose of
determining the actual deferral ratio with respect to such Highly Compensated
Participant. However, for Plan Years beginning after December 31, 1988, no such
aggregation of cash or deferred arrangements is required.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual additions"
credited to a Participant's accounts for any "limitation year" shall equal the
lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation in
effect under Code Section 415 (b) (1) (A) ) or (2) twenty-five percent (25%) of
the Participant's "415 Compensation" for such "limitation year." For any short
"limitation year," the dollar limitation in (1) above shall be reduced by a
fraction, the numerator of which is the number of full months in the short
"limitation yearn and the denominator of which is twelve (12).
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(b) For "limitation years" beginning prior to July 13, 1989, the dollar
amount provided for in paragraph (a)(1) above shall be increased by the lesser
of the dollar amount determined under paragraph (a) (1) above or the amount of
Company Stock contributed, or purchased with cash contributed. The dollar amount
shall be increased provided no more than one-third of the Employer's
contributions for the year are allocated to Highly Compensated Participants. In
applying this limitation, the family group of a Highly Compensated Participant
who is subject to the Family Member aggregation rules of Code Section 414 (q)
(6) shall be determined pursuant to Regulations.
(c) For purposes of applying the limitations of Code Section 415,
"annual additions" means the sum credited to a Participant's accounts for any
"limitation year" of (1) Employer contributions, (2) Employee contributions, (3)
forfeitures, (4) amounts allocated, after March 31, 1984, to an individual
medical account as defined in Code Section 415(l)(2) which is part of a pension
or annuity plan maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in taxable years ending
after such date, which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e))
maintained by the Employer. For these purposes, it annual additions" of a
defined contribution plan shall not include the allocation of the excess amounts
remaining in the Unallocated Company Stock Suspense Account subsequent to a sale
of stock from such fund in accordance with a transaction described in Section
4.3(g) of the Plan. The "415 Compensation" percentage limitation referred to in
paragraph (a)(2) above shall not apply to: (1) any contribution for medical
benefits (within the meaning of Code Section 419A(0(2)) after separation from
service which is otherwise treated as an "annual addition", or (2) any amount
otherwise treated as an "annual additional under Code Section 415(t)(1).
(d) For purposes of applying the limitations of Code Section 415, the
following are not "annual additions": (1) the transfer of funds from one
qualified plan to another and (2) provided no more than one-third of the
Employer contributions for the year are allocated to Highly Compensated
Participants, Forfeitures of Company Stock purchased with the proceeds of an
Exempt Loan and Employer contributions applied to the payment of interest on an
Exempt Loan. In addition, the following are not Employee contributions for the
purposes of Section 4.4(c)(2): (1) rollover contributions (as defined in Code
Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of
loans made to a Participant from the Plan; (3) repayments of distributions
received by an Employee pursuant to Code Section 411 (a) (7) (B) (cash-outs);
(4) repayments of distributions received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a
simplified employee pension excludable from gross income under Code Section
408(k)(6).
(e) For purposes of applying the limitations of Code Section 415, the
"limitation year" shall be the Plan Year.
(f) The dollar limitation under Code Section 415(b)(1)(A) stated in
paragraph (a)(1) above shall be adjusted annually as provided in Code Section
415 (d) pursuant to the Regulations.
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<PAGE> 36
The adjusted limitation is effective as of January lst of each calendar year and
is applicable to "limitation years" ending with or within that calendar year.
(g) For the purpose of this Section, all qualified defined benefit
plans (whether terminated or not) ever maintained by the Employer shall be
treated as one defined benefit plan, and all qualified defined contribution
plans (whether terminated or not) ever maintained by the Employer shall be
treated as one defined contribution plan.
(h) For the purpose of this Section, if the Employer is a member of a
controlled group of corporations, trades or businesses under common control (as
defined by Code Section 1563(a) or Code Section 414 (b) and (c) as modified by
Code Section 415 (h) ) , is a member of an affiliated service group (as defined
by Code Section 414(m)), or is a member of a group of entities required to be
aggregated pursuant to Regulations under Code Section 414(o), all Employees of
such Employers shall be considered to be employed by a single Employer.
(i) For the purpose of this Section, if this Plan is a Code Section 413
(c) plan, all Employers of a Participant who maintain this Plan will be
considered to be a single Employer.
(j) (1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different Anniversary
Dates, the maximum "annual additions" under this Plan shall equal the maximum
"annual additions for the "limitation year" minus any "annual additions"
previously credited to such Participant's accounts during the "limitation year."
(2) If a Participant participates in both a defined contribution plan
subject to Code Section 412 and a defined contribution plan not subject to Code
Section 412 maintained by the Employer which have the same Anniversary Date,
"annual additions" will be credited to the Participant's accounts under the
defined contribution plan subject to Code Section 412 prior to crediting "annual
additions" to the Participant's accounts under the defined contribution plan not
subject to Code Section 412.
(3) If a Participant participates in more than one defined contribution
plan not subject to Code Section 412 maintained by the Employer which have the
same Anniversary Date, the limitation on the maximum "annual additions" shall be
applied to this Plan after application to the other such defined contribution
plans. The "annual additions" to this Plan shall be the last to be reduced.
(k) If an Employee is (or has been) a Participant in one or more
defined benefit plans and one or more defined contribution plans maintained by
the Employer, the sum of the defined benefit plan fraction and the defined
contribution plan fraction for any "limitation year" may not exceed 1.0.
(1) The defined benefit plan fraction for any "limitation year" is a
fraction, the numerator of which is the sum of the Participant's projected
annual benefits under all the defined
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<PAGE> 37
benefit plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the "limitation year" under Code Sections 415(b) and (d) or 140
percent of the highest average compensation, including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of
the first day of the first "limitation year" beginning after December 31, 1986,
in one or more defined benefit plans maintained by the Employer which were in
existence on may 6, 1986, the denominator of this fraction will not be less than
125 percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last "limitation year" beginning
before January 1, 1987, disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the requirements of
Code Section 415 for all "limitation years" beginning before January 1, 1987.
(m) The defined contribution plan fraction for any "limitation year" is
a fraction, the numerator of which is the sum of the annual additions to the
Participant's Account under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all prior "limitation
years" (including the annual additions attributable to the Participant's
nondeductible Employee contributions to all defined benefit plans, whether or
not terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in Code Section 419(e),
and individual medical accounts, as defined in Code Section 415(l) (2),
maintained by the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior limitation years" of
service with the Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any "limitation
year" is the lesser of 125 percent of the dollar limitation determined under
Code Sections 415 (b) and (d) in effect under Code Section 415 (c) (1) (A) or 35
percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the
first "limitation year" beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in existence on
may 6, 1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (1)
the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last "limitation year" beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the Plan made
after May 5, 1986, but using the Code Section 415 limitation applicable to the
first "limitation year" beginning on or after January 1, 1987. The annual
addition for any "limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual additions.
(n) Notwithstanding the foregoing, for any "limitation year,, in which
the Plan is a Top Heavy Plan, 100 percent shall be substituted for 125 percent
in Sections 4.4(l) and 4.4(m) unless
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<PAGE> 38
the extra minimum allocation is being provided pursuant to Section 4.3. However,
for any "limitation year" in which the Plan is a Super Top Heavy Plan, 100
percent shall be substituted for 125 percent in any event.
(o) If the sum of the defined benefit plan fraction and the defined
contribution plan fraction shall exceed 1.0 in any "limitation year" for any
Participant in this Plan, the Administrator shall limit, to the extent
necessary, the "annual additions" to such Participant's accounts for such
"limitation year." If, after limiting the "annual additions" to such
Participant's accounts for the "limitation year, " the sum of the defined
benefit plan fraction and the defined contribution plan fraction still exceed
1.0, the Administrator shall then adjust the numerator of the defined benefit
plan fraction so that the sum of both fractions shall not exceed 1.0 in any
"limitation year" for such Participant.
(p) Notwithstanding anything contained in this Section to the contrary,
the limitations, adjustments and other requirements prescribed in this Section
shall at all times comply with the provisions of Code Section 415 and the
Regulations thereunder, the terms of which are specifically incorporated herein
by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a reasonable
error in estimating a Participant's Compensation, a reasonable error in
determining the amount of elective deferrals (within the meaning of Code Section
402 (g) (3) ) that may be made with respect to any Participant under the limits
of Section 4.4 or other facts and circumstances to which Regulation 1.415-6(b)
(6) shall be applicable, the "annual additions" under this Plan would cause the
maximum "annual additions" to be exceeded for any Participant, the Administrator
shall (1) distribute any elective deferrals (within the meaning of Code Section
402 (g) (3) ) or return any voluntary Employee contributions credited for the
"limitation year" to the extent that the return would reduce the "excess amount"
in the Participant's accounts (2) hold any "excess amount" remaining after the
return of any elective deferrals or voluntary Employee contributions in a
"Section 415 suspense account" (3) allocate and reallocate the "Section 415
suspense account" in the next "limitation year" (and succeeding "limitation
years" if necessary) to all Participants in the Plan before any Employer or
Employee contributions which would constitute "annual additions" are made to the
Plan for such limitation year" (4) reduce Employer contributions to the Plan for
such "limitation year" by the amount of the "Section 415 suspense account"
allocated and reallocated during such "limitation year."
(b) For purposes of this Article, "excess amount" for any Participant
for a "limitation year" shall mean the excess, if any, of (1) the "annual
additions" which would be credited to his account under the terms of the Plan
without regard to the limitations of Code Section 415 over (2) the maximum
"annual additions" determined pursuant to Section 4.4.
(c) For purposes of this Section, "Section 415 suspense account" shall
mean an unallocated account equal to the sum of "excess amounts" for all
Participants in the Plan during
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the "limitation year." The "Section 415 suspense account" shall not share in any
earnings or losses of the Trust Fund.
(d) The Plan may not distribute "excess amounts", other than voluntary
Employee contributions, to Participants or Former Participants.
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be transferred
from other qualified plans by Employees, provided that the trust from which such
funds are transferred permits the transfer to be made and the transfer will not
jeopardize the tax exempt status of the Plan or Trust or create adverse tax
consequences for the Employer. The amounts transferred shall be set up in a
separate account herein referred to as a "Participant's Rollover Account". Such
account shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or
distributed to the Participant, in whole or in part, except as provided in
paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation
1.411(d)-4), amounts attributable to elective contributions (as defined in
Regulation 1. 401 (k) -1 (g) (3) ) , including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations provided
for in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other date when the Participant
or his Beneficiary shall be entitled to receive benefits, the fair market value
of the Participant's Rollover Account shall be used to provide additional
benefits to the Participant or his Beneficiary. Any distributions of amounts
held in a Participant's Rollover Account shall be made in a manner which is
consistent with and satisfies the provisions of Section 7.5, including, but not
limited to, all notice and consent requirements of Code Section 411(a)(11) and
the Regulations thereunder. Furthermore, such amounts shall be considered as
part of a Participant's benefit in determining whether an involuntary cash-out
of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank or savings
and loan association, money market certificate, or other short term debt
security acceptable to the Trustee until such time as the allocations pursuant
to this Plan have been made, at which time they may remain segregated or be
invested as part of the general Trust Fund, to be determined by the
Administrator.
(f) For purposes of this Section, the term "qualified plan" shall mean
any tax qualified plan under Code Section 401(a). The term "amounts transferred
from other qualified plans" shall mean: (i) amounts transferred to this Plan
directly from another qualified plan; (ii) distributions
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from another qualified plan which are eligible rollover distributions and which
are either transferred by the Employee to this Plan within sixty (60) days
following his receipt thereof or are transferred pursuant to a direct rollover;
(iii) amounts transferred to this Plan from a conduit individual retirement
account provided that the conduit individual retirement account has no assets
other than assets which (A) were previously distributed to the Employee by
another qualified plan as a lump-sum distribution (B) were eligible for tax-free
rollover to a qualified plan and (C) were deposited in such conduit individual
retirement account within sixty (60) days of receipt thereof and other than
earnings on said assets; and (iv) amounts distributed to the Employee from a
conduit individual retirement account meeting the requirements of clause (iii)
above, and transferred by the Employee to this Plan within sixty (60) days of
his receipt thereof from such conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts to be
transferred to this Plan meet the requirements of this Section and may also
require the Employee to provide an opinion of counsel satisfactory to the
Employer that the amounts to be transferred meet the requirements of this
Section.
(h) This Plan shall not accept any direct or indirect transfers (as
that term is defined and interpreted under Code Section 401(a)(11) and the
Regulations thereunder) from a defined benefit plan, money purchase plan
(including a target benefit plan), stock bonus or profit sharing plan which
would otherwise have provided for a life annuity form of payment to the
Participant.
(i) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction having the
effect of such a transfer) shall only be permitted if it will not result in the
elimination or reduction of any "Section 411 (d) (6) protected benefit" as
described in Section 9.1.
4.7 DIRECTED INVESTMENT ACCOUNT
(a) Each "Qualified Participant" may elect within ninety (90) days
after the close of each Plan Year during the "Qualified Election Period" to
direct the Trustee in writing as to the investment of 25 percent of the total
number of shares of Company Stock acquired by or contributed to the Plan that
have ever been allocated to such "Qualified Participant's" Company Stock Account
(reduced by the number of shares of Company Stock previously invested pursuant
to a prior election). In the case of the election year in which the Participant
can make his last election, the preceding sentence shall be applied by
substituting "50 percent" for "25 percent". If the "Qualified Participant"
elects to direct the Trustee as to the investment of his Company Stock Account,
such direction shall be effective no later than 180 days after the close of the
Plan Year to which such direction applies.
Notwithstanding the above, if the fair market value (determined
pursuant to Section 6.1 at the Plan valuation date immediately preceding the
first day on which a Qualified Participant" is eligible to make an election) of
Company Stock acquired by or contributed to the Plan and
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allocated to a "Qualified Participant's" Company Stock Account is $500 or less,
then such Company Stock shall not be subject to this paragraph. For purposes of
determining whether the fair market value exceeds $500, Company Stock held in
accounts of all employee stock ownership plans (as defined in Code Section
4975(e)(7)) and tax credit employee stock ownership plans (as defined in Code
Section 409(a)) maintained by the Employer or any Affiliated Employer shall be
considered as held by the Plan.
(b) For the purposes of this Section the following definitions shall
apply:
(1) "Qualified Participant" means any Participant or Former
Participant who has completed ten (10) Plan Years of Service as a Participant
and has attained age 55.
(2) "Qualified Election Period" means the six (6) Plan Year
period beginning with the later of (i) the first Plan Year in which the
Participant first became a "Qualified Participant", or (ii) the first Plan year
beginning after December 31, 1986.
(c) A separate Directed Investment Account shall be established
for each Participant who has directed an investment. Transfers between the
Participant's regular account and his Directed Investment Account shall be
charged and credited as the case may be to each account. The Directed Investment
Account shall not share in Trust Fund earnings, but it shall be charged or
credited as appropriate with the net earnings, gains, losses and expenses as
well as any appreciation or depreciation in market value during each Plan Year
attributable to such account.
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) The Plan is designed to invest primarily in Company Stock.
(b) With due regard to subparagraph (a) above, the Administrator
may also direct the Trustee to invest funds under the Plan in other property
described in the Trust or in life insurance policies to the extent permitted by
subparagraph (c) below, or the Trustee may hold such funds in cash or cash
equivalents.
(c) With due regard to subparagraph (a) above, the Administrator
may also direct the Trustee to invest funds under the Plan in insurance policies
on the life of any "keyman" Employee. The proceeds of a "keyman" insurance
policy may not be used for the repayment of any indebtedness owed by the Plan
which is secured by Company Stock. In the event any "keyman" insurance is
purchased by the Trustee, the premiums paid thereon during any Plan Year, net of
any policy dividends and increases in cash surrender values, shall be treated as
the cost of Plan investment and any death benefit or cash surrender value
received shall be treated as proceeds from an investment of the Plan.
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(d) The Plan may not obligate itself to acquire company Stock from
a particular holder thereof at an indefinite time determined upon the happening
of an event such as the death of the holder.
(e) The Plan may not obligate itself to acquire company Stock
under a put option binding upon the Plan. However, at the time a put option is
exercised, the Plan may be given an option to assume the rights and obligations
of the Employer under a put option binding upon the Employer.
(f) All purchases of Company Stock shall be made at a price which,
in the judgment of the Administrator, does not exceed the fair market value
thereof. All sales of Company Stock shall be made at a price which, in the
judgment of the Administrator, is not less than the fair market value thereof.
The valuation rules set forth in Article VI shall be applicable.
5.2 APPLICATION OF CASH
Employer contributions in cash and other cash received by the Trust
Fund shall first be applied to pay any Current Obligations of the Trust Fund.
5.3 TRANSACTIONS INVOLVING COMPANY STOCK
(a) No portion of the Trust Fund attributable to (or allocable in
lieu of) Company Stock acquired by the Plan in a sale to which Code Section 1042
or, for estates of decedents who died prior to December 20, 1989, Code Section
2057 applies may accrue or be allocated directly or indirectly under any plan
maintained by the Employer meeting the requirements of Code Section 401(a):
(1) during the "Nonallocation Period", for the benefit of (i)
any taxpayer who makes an election under Code Section 1042 (a) with respect to
Company Stock or any decedent if the executor of the estate of the decedent
makes a qualified sale to which Code Section 2057 applies, (ii) any individual
who is related to the taxpayer or the decedent (within the meaning of Code
Section 267(b)), or
(2) for the benefit of any other person who owns (after
application of Code Section 318(a) applied without regard to the employee trust
exception in Code Section 318 (a) (2) (B) (i) ) more than 25 percent of (i) any
class of outstanding stock of the Employer or Affiliated Employer which issued
such Company Stock, or (ii) the total value of any class of outstanding stock of
the Employer or Affiliated Employer.
(b) Except, however, subparagraph (a) (1) (ii) above shall not
apply to lineal descendants of the taxpayer, provided that the aggregate amount
allocated to the benefit of all such lineal descendants during the
"Nonallocation Period" does not exceed more than five (5) percent of the Company
Stock (or amounts allocated in lieu thereof) held by the Plan which are
attributable to a sale to the Plan by any person related to such descendants
(within the meaning of
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Code Section 267 (c) (4)) in a transaction to which Code Section 1042 or Code
Section 2057 is applied.
(c) A person shall be treated as failing to meet the stock
ownership limitation under paragraph (a) (2) above if such person fails such
limitation:
(1) at any time during the one (1) year period ending on the
date of sale of Company Stock to the Plan, or
(2) on the date as of which Company Stock is allocated to
Participants in the Plan.
(d) For purposes of this Section, "Nonallocation Period" means the
period beginning on the date of the sale of the Company Stock and ending on the
later of:
(1) the date which is ten (10) years after the date of sale,
or
(2) the date of the Plan allocation attributable to the final
payment of the Exempt Loan incurred in connection with such sale.
5.4 LOANS TO THE TRUST
(a) The Plan may borrow money for any lawful purpose, provided the
proceeds of an Exempt Loan are used within a reasonable time after receipt only
for any or all of the following purposes:
(1) To acquire company Stock.
(2) To repay such loan.
(3) To repay a prior Exempt Loan.
(b) All loans to the Trust which are made or guaranteed by a
disqualified person must satisfy all requirements applicable to Exempt Loans
including but not limited to the following:
(1) The loan must be at a reasonable rate of interest;
(2) Any collateral pledged to the creditor by the Plan shall consist
only of the Company Stock purchased with the borrowed funds;
(3) Under the terms of the loan, any pledge of Company Stock shall
provide for the release of shares so pledged on a pro-rata basis pursuant to
Section 4.3(f);
(4) Under the terms of the loan, the creditor shall have no recourse
against the Plan except with respect to such collateral, earnings attributable
to such collateral, Employer contributions (other than contributions of Company
Stock) that are made to meet Current Obligations and earnings attributable to
such contributions;
(5) The loan must be for a specific term and may not be payable at the
demand of any person, except in the case of default;
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(6) In the event of default upon an Exempt Loan, the value of the Trust
Fund transferred in satisfaction of the Exempt Loan shall not exceed the amount
of default. If the lender is a disqualified person, an Exempt Loan shall provide
for a transfer of Trust Funds upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Exempt Loan;
(7) Exempt Loan payments during a Plan Year must not exceed an amount
equal to: (A) the sum, over all Plan Years, of all contributions and cash
dividends paid by the Employer to the Plan with respect to such Exempt Loan and
earnings on such Employer contributions and cash dividends, less (B) the sum of
the Exempt Loan payments in all preceding Plan Years. A separate accounting
shall be maintained for such Employer contributions, cash dividends and earnings
until the Exempt Loan is repaid.
(c) For purposes of this Section, the term "disqualified person" means
a person who is a Fiduciary, a person providing services to the Plan, an
Employer any of whose Employees are covered by the Plan, an employee
organization any of whose members are covered by the Plan, an owner, direct or
indirect, of 50% or more of the total combined voting power of all classes of
voting stock or of the total value of all classes of the stock, or an officer,
director, 10% or more shareholder, or a highly compensated Employee.
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary
Date, and at such other date or dates deemed necessary by the Administrator,
herein called "valuation date," to determine the net worth of the assets
comprising the Trust Fund as it exists on the "valuation date." In determining
such net worth, the Trustee shall value the assets comprising the Trust Fund at
their fair market value as of the "valuation date" and shall deduct all expenses
for which the Trustee has not yet obtained reimbursement from the Employer or
the Trust Fund.
6.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all relevant factors
for determining the fair market value of securities. In the case of a
transaction between a Plan and a disqualified person, value must be determined
as of the date of the transaction. For all other Plan purposes, value must be
determined as of the most recent "valuation date" under the Plan. An independent
appraisal will not in itself be a good faith determination of value in the case
of a transaction between the Plan and a disqualified person. However, in other
cases, a determination of fair market value based on at least an annual
appraisal independently arrived at by a person who customarily makes such
appraisals and who is independent of any party to the transaction will be deemed
to be a good faith determination of value. Company Stock not readily tradeable
on an established securities market shall be valued by an independent appraiser
meeting requirements
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similar to the requirements of the Regulations prescribed under Code Section
170(a)(1).
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date. However, a
Participant may postpone the termination of his employment with the Employer to
a later date, in which event the participation of such Participant in the Plan,
including the right to receive allocations pursuant to Section 4.3, shall
continue until his Late Retirement Date. Upon a Participant's Retirement Date,
or as soon thereafter as is practicable, the Trustee shall distribute all
amounts credited to such Participant's Account in accordance with Sections 7.5
and 7.6.
7.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such Participant's
Account shall become fully Vested. If elected, distribution of the Participant's
Account shall commence not later than one (1) year after the close of the Plan
Year in which such Participant's death occurs. The Administrator shall direct
the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to
distribute the value of the deceased Participant's accounts to the Participant's
Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6,
to distribute any remaining Vested amounts credited to the accounts of a
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive payment of the value of the
account of a deceased Participant or Former Participant as the Administrator may
deem desirable. The Administrator's determination of death and of the right of
any person to receive payment shall be conclusive.
(d) The Beneficiary of the death benefit payable pursuant to this
Section shall be the Participant's spouse. Except, however, the Participant may
designate a Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a court order to such
effect (and there is no "qualified domestic relations order" as defined in Code
Section 414(p) which provides otherwise), or
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(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made on a form
satisfactory to the Administrator. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary by filing written notice
of such revocation or change with the Administrator. However, the Participant Is
spouse must again consent in writing to any change in Beneficiary unless the
original consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of Beneficiary exists
at the time of the Participant's death, the death benefit shall be payable to
his estate.
(e) Any consent by the Participant's spouse to waive any rights to the
death benefit must be in writing, must acknowledge the effect of such waiver,
and be witnessed by a Plan representative or a notary public. Further, the
spouse's consent must be irrevocable and must acknowledge the specific nonspouse
Beneficiary.
7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to
his Retirement Date or other termination of his employment, all amounts credited
to such Participant's Account shall become fully Vested. In the event of a
Participant's Total and Permanent Disability, the Trustee, in accordance with
the provisions of Sections 7.5 and 7.6, shall distribute to such Participant all
amounts credited to such Participant's Account as though he had retired. If such
Participant elects, distribution shall commence not later than one (1) year
after the close of the Plan Year in which Total and Permanent Disability occurs.
7.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or subsequent to
the termination of a Participant's employment f or any reason other than death,
Total and Permanent Disability or retirement, the Administrator may direct the
Trustee to segregate the amount of the Vested portion of such Terminated
Participant's Account and invest the aggregate amount thereof in a separate,
federally insured savings account, certificate of deposit, common or collective
trust fund of a bank or a deferred annuity. In the event the Vested portion of a
Participant's Account is not segregated, the amount shall remain in a separate
account for the Terminated Participant and share in allocations pursuant to
Section 4.3 until such time as a distribution is made to the Terminated
Participant.
If a portion of a Participant's Account is forfeited, Company Stock
allocated to the Participant's Company Stock Account must be forfeited only
after the Participant's Other Investments Account has been depleted. If interest
in more than one class of Company Stock has been allocated to a Participant's
Account, the Participant must be treated as forfeiting the same proportion of
each such class.
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In the event that the amount of the Vested portion of the Terminated
Participant's Account equals or exceeds the fair market value of any insurance
Contracts, the Trustee, when so directed by the Administrator and agreed to by
the Terminated Participant, shall assign, transfer, and set over to such
Terminated Participant all Contracts on his life in such form or with such
endorsements so that the settlement options and forms of payment are consistent
with the provisions of Section 7.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair market value of
the Contracts, if any, the Terminated Participant may pay over to the Trustee
the sum needed to make the distribution equal to the value of the Contracts
being assigned or transferred, or the Trustee, pursuant to the Participant's
election, may borrow the cash value of the Contracts from the insurer so that
the value of the Contracts is equal to the Vested portion of the Terminated
Participant's Account and then assign the Contracts to the Terminated
Participant.
Distribution of the funds due to a Terminated Participant shall be made
on the occurrence of an event which would result in the distribution had the
Terminated Participant remained in the employ of the Employer (upon the
Participant's death, Total and Permanent Disability or Normal Retirement).
However, at the election of the Participant, the Administrator shall direct the
Trustee to cause the entire Vested portion of the Terminated Participant's
Account to be payable to such Terminated Participant. Distribution to a
Participant shall not include any Company Stock acquired with the proceeds of an
Exempt Loan until the close of the Plan Year in which such loan is repaid in
full. Any distribution under this paragraph shall be made in a manner which is
consistent with and satisfies the provisions of Sections 7.5 and 7.6, including,
but not limited to, all notice and consent requirements of Code Section
411(a)(11) and the Regulations thereunder.
If the value of a Terminated Participant's Vested benefit derived from
Employer and Employee contributions does not exceed $3,500 and has never
exceeded $3,500 at the time of any prior distribution, the Administrator shall
direct the Trustee to cause the entire Vested benefit to be paid to such
Participant in a single lump sum.
For purposes of this Section 7.4, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant shall be deemed
to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall be a
percentage of the total amount credited to his Participant's Account determined
on the basis of the Participant's number of Years of Service according to the
following schedule:
Vesting Schedule
Years of Service Percentage
Less than 5 0 %
5 100 %
(c) Notwithstanding the vesting schedule provided for in paragraph (b)
above, for any
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Top Heavy Plan Year, the Vested portion of the Participant's Account of any
Participant who has an Hour of Service after the Plan becomes top heavy shall be
a percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of Years of Service
according to the following schedule:
Vesting Schedule
Years of Service Percentage
Less than 3 0 %
3 100 %
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan,
the Administrator shall revert to the vesting schedule in effect before this
Plan became a Top Heavy Plan. Any such reversion shall be treated as a Plan
amendment pursuant to the terms of the Plan.
(d) Notwithstanding the vesting schedule above, the Vested percentage
of a Participant's Account shall not be less than the Vested percentage attained
as of the later of the effective date or adoption date of this amendment and
restatement.
(e) Notwithstanding the vesting schedule above, each Participant's
Account in the Plan shall become 100% vested upon the effective date of a Change
in Control as defined below, of the Employer. For purposes of this paragraph, a
"Change in Control of the Corporation" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended, or any successor thereto, whether or not the Employer is
registered under the Exchange Act.
(f) The computation of a Participant's nonforfeitable percentage of his
interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Plan. For this purpose, the Plan shall be treated as
having been amended if the Plan provides for an automatic change in vesting due
to a change in top heavy status. In the event that the Plan is amended to change
or modify any vesting schedule, a Participant with at least three (3) Years of
Service as of the expiration date of the election period may elect to have his
nonforfeitable percentage computed under the Plan without regard to such
amendment. If a Participant fails to make such election, then such Participant
shall be subject to the new vesting schedule. The Participant's election period
shall commence on the adoption date of the amendment and shall end 60 days after
the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g)(1) If any Former Participant shall be reemployed by the Employer
before a 1-Year
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Break in Service occurs, he shall continue to participate in the Plan in the
same manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer
before five (5) consecutive 1-Year Breaks in Service, and such Former
Participant had received, or was deemed to have received, a distribution of his
entire Vested interest prior to his reemployment, his forfeited account shall be
reinstated only if he repays the full amount distributed to him before the
earlier of five (5) years after the first date on which the Participant is
subsequently reemployed by the Employer or the close of the first period of five
(5) consecutive 1-Year Breaks in Service commencing after the distribution, or
in the event of a deemed distribution, upon the reemployment of such Former
Participant. In the event the Former Participant does repay the full amount
distributed to him, or in the event of a deemed distribution, the undistributed
portion of the Participant's Account must be restored in full, unadjusted by any
gains or losses occurring subsequent to the Anniversary Date or other valuation
date coinciding with or preceding his termination. The source for such
reinstatement shall first be any Forfeitures occurring during the year. If such
source is insufficient, then the Employer shall contribute an amount which is
sufficient to restore any such forfeited Accounts provided, however, that if a
discretionary contribution is made for such year, such contribution shall first
be applied to restore any such Accounts and the remainder shall be allocated in
accordance with Section 4.3.
(3) If any Former Participant is reemployed after a 1-Year Break
in Service has occurred, Years of Service shall include Years of Service prior
to his 1-Year Break in Service subject to the following rules:
(i) If a Former Participant has a 1-Year Break in Service,
his pre-break and post-break service shall be used for computing Years of
Service for eligibility and for vesting purposes only after he has been employed
for one (1) Year of Service following the date of his reemployment with the
Employer;
(ii) Any Former Participant who under the Plan does not have
a nonforfeitable right to any interest in the Plan resulting from Employer
contributions shall lose credits otherwise allowable under (i) above if his
consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five (5)
or (B) the aggregate number of his pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in Service, a
Former Participant's Vested Account balance attributable to pre-break service
shall not be increased as a result of post-break service;
(iv) If a Former Participant who has not had his Years of
Service before a 1-Year Break in Service disregarded pursuant to (ii) above
completes one (1) Year of Service for eligibility purposes following his
reemployment with the Employer, he shall participate in the Plan retroactively
from his date of reemployment;
(v) If a Former Participant who has not had his Years of
Service before a 1-
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Year Break in Service disregarded pursuant to (ii) above completes a Year of
Service (a 1-Year Break in Service previously occurred, but employment had not
terminated), he shall participate in the Plan retroactively from the first day
of the Plan Year during which he completes one (1) Year of Service.
7.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the Participant (or
if no election has been made prior to the Participant's death, by his
Beneficiary), shall direct the Trustee to distribute to a Participant or his
Beneficiary any amount to which he is entitled under the Plan in one or more of
the following methods:
(1) One lump-sum payment;
(2) Payments over a period certain in monthly, quarterly, semiannual,
or annual installments. The period over which such payment is to be made shall
not extend beyond the earlier of the Participant's life expectancy (or the life
expectancy of the Participant and his designated Beneficiary) or the limited
distribution period provided for in Section 7.5(b).
(b) Unless the Participant elects in writing a longer distribution
period, distributions to a Participant or his Beneficiary attributable to
Company Stock shall be in substantially equal monthly, quarterly, semiannual, or
annual installments over a period not longer than five (5) years. In the case of
a Participant with an account balance attributable to Company Stock in excess of
$500,000, the five (5) year period shall be extended one (1) additional year
(but not more than five (5) additional years) for each $100,000 or fraction
thereof by which such balance exceeds $500,000. The dollar limits shall be
adjusted at the same time and in the same manner as provided in Code Section
415(d).
(c) Any distribution to a Participant who has a benefit which exceeds,
or has ever exceeded, $3,500 at the time of any prior distribution shall require
such Participant's consent if such distribution commences prior to the later of
his Normal Retirement Age or age 62. With regard to this required consent:
(1) The Participant must be informed of his right to defer receipt of
the distribution. If a Participant fails to consent, it shall be deemed an
election to defer the commencement of payment of any benefit. However, any
election to defer the receipt of benefits shall not apply with respect to
distributions which are required under Section 7.5(f).
(2) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the first day on
which all events have occurred which entitle the Participant to such benefit.
(3) Written consent of the Participant to the distribution must not be
made before the Participant receives the notice and must not be made more than
90 days before the first day on which all events have occurred which entitle the
Participant to such benefit.
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(4) No consent shall be valid if a significant detriment is imposed
under the Plan on any Participant who does not consent to the distribution.
If a distribution is one to which Code Sections 401(a)(11) and 417 do
not apply, such distribution may commence less than 30 days after the notice
required under Regulation 1. 411 (a) 11 (c) is given, provided that: (1) the
Administrator clearly informs the Participant that the Participant has a right
to a period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and (2) the Participant, after receiving the
notice, affirmatively elects a distribution.
(d) Notwithstanding anything herein to the contrary, the Administrator,
in his sole discretion, may direct that cash dividends on shares of Company
Stock allocable to Participants' or Former Participants' Company Stock Accounts
be distributed to such Participants or Former Participants within 90 days after
the close of the Plan Year in which the dividends are paid.
(e) Any part of a Participant's benefit which is retained in the Plan
after the Anniversary Date on which his participation ends will continue to be
treated as a Company Stock Account or as an Other Investments Account (subject
to Section 7.4 (a)) as provided in Article IV. However, neither account will be
credited with any further Employer contributions or Forfeitures.
(f) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits shall be made in accordance with the
following requirements and shall otherwise comply with Code Section 401 (a) (9)
and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the
provisions of which are incorporated herein by reference:
Effective for years after 1996, a Participant's benefits shall be
distributed or must begin to be distributed to him not later than April lst of
the calendar year following the later of (i) the calendar year in which the
Participant attains age 70-1/2 or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii) shall not apply in
the case of a Participant who is a "five (5) percent owner" at any time during
the five (5) Plan Year period ending in the calendar year in which he attains
age 70-1/2 or, in the case of a Participant who becomes a "five (5) percent
owner" during any subsequent Plan Year, clause (ii) shall no longer apply and
the required beginning date shall be the April lst of the calendar year
following the calendar year in which such subsequent Plan year ends. Such
distributions shall be equal to or greater than any required distribution.
(1) A Participant's benefits shall be distributed to him not later than
April lst of the calendar year following the later of (i) the calendar year in
which the Participant attains age 70-1/2 or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii) shall not apply in
the case of a Participant who is a "five (5) percent owner" at any time during
the five (5) Plan Year period ending in the calendar year in which he attains
age 70-1/2 or, in the case of a Participant who becomes a "five (5) percent
owner" during any subsequent Plan Year, clause (ii) shall no longer apply and
the required beginning date shall be the April lst of the calendar year
following the calendar year in which such subsequent Plan Year ends.
Alternatively, distributions
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to a Participant must begin no later than the applicable April lst as determined
under the preceding sentence and must be made over a period certain measured by
the life expectancy of the Participant (or the life expectancies of the
Participant and his designated Beneficiary) in accordance with Regulations.
Notwithstanding the foregoing, clause (ii) above shall not apply to any
Participant unless the Participant had attained age 70-1/2 before January 1,
1988 and was not a "five (5) percent owner" at any time during the Plan Year
ending with or within the calendar year in which the Participant attained age
66-1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall only be
made in accordance with the incidental death benefit requirements of Code
Section 401 (a) (9) (G) and the Regulations thereunder.
Additionally, for calendar years beginning before 1989, distributions may also
be made under an alternative method which provides that the then present value
of the payments to be made over the period of the Participant's life expectancy
exceeds fifty percent (50%) of the then present value of the total payments to
be made to the Participant and his Beneficiaries.
(g) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in accordance with
the following requirements and shall otherwise comply with Code Section 401 (a)
(9) and the Regulations thereunder. If it is determined pursuant to Regulations
that the distribution of a Participant's interest has begun and the Participant
dies before his entire interest has been distributed to him, the remaining
portion of such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 7.5 as of his date of
death. If a Participant dies before he has begun to receive any distributions of
his interest under the Plan or before distributions are deemed to have begun
pursuant to Regulations, then his death benefit shall be distributed to his
Beneficiaries by December 31st of the calendar year in which the fifth
anniversary of his date of death occurs.
However, the 5-year distribution requirement of the preceding paragraph
shall not apply to any portion of the deceased Participant's interest which is
payable to or for the benefit of a designated Beneficiary. In such event, such
portion may, at the election of the Participant (or the Participant's designated
Beneficiary), be distributed over a period not extending beyond the life
expectancy of such designated Beneficiary provided such distribution begins not
later than December 31st of the calendar year immediately following the calendar
year in which the Participant died. However, in the event the Participant's
spouse (determined as of the date of the Participant's death) is his
Beneficiary, the requirement that distributions commence within one year of a
Participant's death shall not apply. In lieu thereof, distributions must
commence on or before the later of: (1) December 31st of the calendar year
immediately following the calendar year in which the Participant died; or (2)
December 31st of the calendar year in which the Participant would have attained
age 70-1/2. If the surviving spouse dies before distributions to such spouse
begin, then the 5-year distribution requirement of this Section shall apply as
if the spouse was the Participant.
(h) For purposes of Section 7.5(g), the election by a designated
Beneficiary to be
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excepted from the 5-year distribution requirement must be made no later than
December 31st of the calendar year following the calendar year of the
Participant's death. Except, however, with respect to a designated Beneficiary
who is the Participant's surviving spouse, the election must be made by the
earlier of: (1) December 31st of the calendar year immediately following the
calendar year in which the Participant died or, if later, the calendar year in
which the Participant would have attained age 70-1/2; or (2) December 31st of
the calendar year which contains the fifth anniversary of the date of the
Participant's death. An election by a designated Beneficiary must be in writing
and shall be irrevocable as of the last day of the election period stated
herein. In the absence of an election by the Participant or a designated
Beneficiary, the 5-year distribution requirement shall apply.
(i) For purposes of this Section, the life expectancy of a Participant
and a Participant's spouse may, at the election of the Participant or the
Participant's spouse, be redetermined in accordance with Regulations. The
election, once made, shall be irrevocable. If no election is made by the time
distributions must commence, then the life expectancy of the Participant and the
Participant's spouse shall not be subject to recalculation. Life expectancy and
joint and last survivor expectancy shall be computed using the return multiples
in Tables V and VI of Regulation 1. 72-9.
(j) Except as limited by Sections 7.5 and 7.6, whenever the Trustee is
to make a distribution or to commence a series of payments on or as of an
Anniversary Date, the distribution or series of payments may be made or begun on
such date or as soon thereafter as is practicable. However, unless a Former
Participant elects in writing to defer the receipt of benefits (such election
may not result in a death benefit that is more than incidental) , the payment of
benefits shall begin not later than the 60th day after the close of the Plan
Year in which the latest of the following events occurs:
(1) the date on which the Participant attains the earlier of age 65
or the Normal Retirement Age specified herein;
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(3) the date the Participant terminates his service with the
Employer.
(k) If a distribution is made at a time when a Participant is not fully
Vested in his Participant's Account (employment has not terminated) and the
Participant may increase the Vested percentage in such account:
(1) a separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution; and
(2) at any relevant time, the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined by the formula: X
equals P(AB plus (R x D)) - (R x
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D) For purposes of applying the formula: P is the Vested percentage at the
relevant time, AB is the account balance at the relevant time, D is the amount
of distribution, and R is the ratio of the account balance at the relevant time
to the account balance after distribution.
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED
(a) Distribution of a Participant's benefit may be made in cash or
Company Stock or both, provided, however, that if a Participant or Beneficiary
so demands, such benefit (other than Company Stock reinvested pursuant to
Section 4.7(a)) shall be distributed only in the form of Company Stock. Prior to
making a distribution of benefits, the Administrator shall advise the
Participant or his Beneficiary, in writing, of the right to demand that benefits
be distributed solely in Company Stock.
(b) If a Participant or Beneficiary demands that benefits be
distributed solely in Company Stock, distribution of a Participant's benefit
will be made entirely in whole shares or other units of Company Stock. Any
balance in a Participant's Other Investments Account will be applied to acquire
for distribution the maximum number of whole shares or other units of Company
Stock at the then fair market value. Any fractional unit value unexpended will
be distributed in cash. If Company Stock is not available for purchase by the
Trustee, then the Trustee shall hold such balance until Company Stock is
acquired and then make such distribution, subject to Sections 7.5(j) and 7.5(f).
(c) The Trustee will make distribution from the Trust only on
instructions from the Administrator.
(d) Notwithstanding anything contained herein to the contrary, if the
Employer's charter or by-laws restrict ownership of substantially all shares of
Company Stock to Employees and the Trust Fund, as described in Code Section
409(h)(2), the Administrator shall distribute a Participant's Account entirely
in cash without granting the Participant the right to demand distribution in
shares of Company Stock.
(e) Notwithstanding anything contained herein to the contrary, the
above-referenced right to receive distributions in the form of shares of Company
Stock shall be automatically terminated in the event of the sale or other
disposition by the Trustees of all shares of company Stock held by the Trust.
Furthermore, if the Employer's articles of incorporation or bylaws restrict
ownership of substantially all shares of Company Stock to Employees and the
Trust Fund, as described in Code Section 409(h) (2), the Administrator shall
distribute a Participant's Account entirely in cash without granting the
Participant the right to demand distribution in shares of Company Stock.
(f) Except as otherwise provided herein, Company Stock distributed by
the Trustee may be restricted as to sale or transfer by the by-laws or articles
of incorporation of the Employer, provided restrictions are applicable to all
Company Stock of the same class. If a Participant is required to offer the sale
of his Company Stock to the Employer before offering to sell his
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Company Stock to a third party, in no event may the Employer pay a price less
than that offered to the distributes by another potential buyer making a bona
fide offer and in no event shall the Trustee pay a price less than the fair
market value of the Company Stock.
(g) If Company Stock acquired with the proceeds of an Exempt Loan
(described in Section 5.4 hereof) is available for distribution and consists of
more than one class, a Participant or his Beneficiary must receive substantially
the same proportion of each such class.
7.7 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary.
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall be restored.
7.9 RIGHT OF FIRST REFUSALS
(a) If any Participant, his Beneficiary or any other person to whom
shares of Company Stock are distributed from the Plan (the "Selling
Participant") shall, at any time, desire to sell some or all of such shares (the
"Offered Shares") to a third party (the "Third Party"), the Selling Participant
shall give written notice of such desire to the Employer and the Administrator,
which notice shall contain the number of shares offered for sale, the proposed
terms of the sale and the names and addresses of both the Selling Participant
and Third Party. Both the Trust Fund and the Employer shall each have the right
of first refusal for a period of fourteen (14) days from the date the Selling
Participant gives such written notice to the Employer and the Administrator
(such fourteen (14) day period to run concurrently against the Trust Fund and
the Employer) to acquire the Offered Shares. As between the Trust Fund and the
Employer, the Trust Fund shall have priority to acquire the shares pursuant to
the right of first refusal. The selling price and terms shall be the same as
offered by the Third Party.
(b) If the Trust Fund and the Employer do not exercise their right of
first refusal within
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the required fourteen (14) day period provided above, the Selling Participant
shall have the right, at any time following the expiration of such fourteen (14)
day period, to dispose of the Offered Shares to the Third Party; provided,
however, that (i) no disposition shall be made to the Third Party on terms more
favorable to the Third Party than those set forth in the written notice
delivered by the Selling Participant above, and (ii) if such disposition shall
not be made to a third party on the terms offered to the Employer and the Trust
Fund, the offered Shares shall again be subject to the right of first refusal
set forth above.
(c) The closing pursuant to the exercise of the right of first refusal
under Section 7.9(a) above shall take place at such place agreed upon between
the Administrator and the Selling Participant, but not later than ten (10) days
after the Employer or the Trust Fund shall have notified the Selling Participant
of the exercise of the right of first refusal. At such closing, the Selling
Participant shall deliver certificates representing the Offered Shares duly
endorsed in blank for transfer, or with stock powers attached duly executed in
blank with all required transfer tax stamps attached or provided for, and the
Employer or the Trust Fund shall deliver the purchase price, or an appropriate
portion thereof, to the Selling Participant.
(d) Except as provided in this paragraph (d), no Company Stock acquired
with the proceeds of an Exempt Loan complying with the requirements of Section
5.4 hereof shall be subject to a right of first refusal. Company Stock acquired
with the proceeds of an Exempt Loan, which is distributed to a Participant or
Beneficiary, shall be subject to the right of first refusal provided for in
paragraph (a) of this Section only so long as the Company Stock is not publicly
traded. The term "publicly traded" refers to a securities exchange registered
under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or that
is quoted on a system sponsored by a national securities association registered
under Section 15A(b) of the Securities Exchange Act (15 U.S.C. 780). In
addition, in the case of Company Stock which was acquired with the proceeds of a
loan described in Section 5.4, the selling price and other terms under the right
must not be less favorable to the seller than the greater of the value of the
security determined under Section 6.2, or the purchase price and other terms
offered by a buyer (other than the Employer or the Trust Fund), making a good
faith offer to purchase the security. The right of first refusal must lapse no
later than fourteen (14) days after the security holder gives notice to the
holder of the right that an offer by a third party to purchase the security has
been made. The right of first refusal shall comply with the provisions of
paragraphs (a), (b) and (c) of this Section, except to the extent those
provisions may conflict with the provisions of this paragraph.
7.10 STOCK CERTIFICATE LEGEND
Certificates for shares distributed pursuant to the Plan shall contain the
following legend:
"The shares represented by this certificate are transferable only upon
compliance with the terms of PARKVALE FINANCIAL CORPORATION EMPLOYEE STOCK
OWNERSHIP PLAN effective as of January 1, 1994, which grants to Parkvale
Financial Corporation a right of first refusal, a copy of said Plan being on
file in the office of the Company."
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7.11 PUT OPTION
(a) If Company Stock which was not acquired with the proceeds of an
Exempt Loan is distributed to a Participant and such Company Stock is not
readily tradeable on an established securities market, a Participant has a right
to require the Employer to repurchase the Company Stock distributed to such
Participant under a fair valuation formula. Such Stock shall be subject to the
provisions of Section 7.11(c).
(b) Company Stock which is acquired with the proceeds of an Exempt Loan
and which is not publicly traded when distributed, or if it is subject to a
trading limitation when distributed, must be subject to a put option. For
purposes of this paragraph, a "trading limitation" on a Company Stock is a
restriction under any Federal or State securities law or any regulation
thereunder, or an agreement (not prohibited by Section 7.12) affecting the
Company Stock which would make the Company Stock not as freely tradeable as
stock not subject to such restriction.
(c) The put option must be exercisable only by a Participant, by the
Participant's donees, or by a person (including an estate or its distributes) to
whom the Company Stock passes by reason of a Participant's death. (Under this
paragraph Participant or Former Participant means a Participant or Former
Participant and the beneficiaries of the Participant or Former Participant under
the Plan.) The put option must permit a Participant to put the Company Stock to
the Employer. Under no circumstances may the put option bind the Plan. However,
it shall grant the Plan an option to assume the rights and obligations of the
Employer at the time that the put option is exercised. If it is known at the
time a loan is made that Federal or State law will be violated by the Employer's
honoring such put option, the put option must permit the Company Stock to be
put, in a manner consistent with such law, to a third party (e.g., an affiliate
of the Employer or a shareholder other than the Plan) that has substantial net
worth at the time the loan is made and whose net worth is reasonably expected to
remain substantial.
The put option shall commence as of the day following the date the
Company Stock is distributed to the Former Participant and end 60 days
thereafter and if not exercised within such 60-day period, an additional 60-day
option shall commence on the first day of the fifth month of the Plan Year next
following the date the stock was distributed to the Former Participant (or such
other 60-day period as provided in regulations promulgated by the Secretary of
the Treasury). However, in the case of Company Stock that is publicly traded
without restrictions when distributed but ceases to be so traded within either
of the 60-day periods described herein after distribution, the Employer must
notify each holder of such Company Stock in writing on or before the tenth day
after the date the Company Stock ceases to be so traded that for the remainder
of the applicable 60-day period the Company Stock is subject to the put option.
The number of days between the tenth day and the date on which notice is
actually given, if later than the tenth day, must be added to the duration of
the put option. The notice must inform distributees of the term of the put
options that they are to hold. The terms must satisfy the requirements of this
paragraph.
The put option is exercised by the holder notifying the Employer in
writing that the put option is being exercised; the notice shall state the name
and address of the holder and the number
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of shares to be sold. The period during which a put option is exercisable does
not include any time when a distributes is unable to exercise it because the
party bound by the put option is prohibited from honoring it by applicable
Federal or State law. The price at which a put option must be exercisable is the
value of the Company Stock determined in accordance with Section 6.2. Payment
under the put option involving a "total Distribution" shall be paid in
substantially equal monthly, quarterly, semiannual or annual installments over a
period certain beginning not later than thirty (30) days after the exercise of
the put option and not extending beyond (5) years. The deferral of payment is
reasonable if adequate security and a reasonable interest rate on the unpaid
amounts are provided. The amount to be paid under the put option involving
installment distributions must be paid not later than thirty (30) days after the
exercise of the put option. Payment under a put option must not be restricted by
the provisions of a loan or any other arrangement, including the terms of the
Employer's articles of incorporation, unless so required by applicable state
law.
For purposes of this Section, "Total Distribution" means a distribution
to a Participant or his Beneficiary within one taxable year of the entire Vested
Participant's Account.
(d) An arrangement involving the Plan that creates a put option must
not provide for the issuance of put options other than as provided under this
Section. The Plan (and the Trust Fund) must not otherwise obligate itself to
acquire Company Stock from a particular holder thereof at an indefinite time
determined upon the happening of an event such as the death of the holder.
7.12 NONTERMINABLE PROTECTIONS AND RIGHTS
No Company Stock, except as provided in Section 4.3 (o) and Section
7.11 (b), acquired with the proceeds of a loan described in Section 5.4 hereof
may be subject to a put, call, or other option, or buy-sell or similar
arrangement when held by and when distributed from the Trust Fund, whether or
not the Plan is then an ESOP. The protections and rights granted in this Section
are nonterminable, and such protections and rights shall continue to exist under
the terms of this Plan so long as any Company Stock acquired with the proceeds
of a loan described in Section 5.4 hereof is held by the Trust Fund or by any
Participant or other person for whose benefit such protections and rights have
been created, and neither the repayment of such loan nor the failure of the Plan
to be an ESOP, nor an amendment of the Plan shall cause a termination of said
protections and rights.
7.13 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall direct
the Trustee to distribute to any Participant in any one Plan Year up to the
lesser of 100% of his Vested Participant's Account valued as of the last
Anniversary Date or other valuation date or the amount necessary to satisfy the
immediate and heavy financial need of the Participant. Any distribution made
pursuant to this Section shall be deemed to be made as of the first day of the
Plan Year or, if later, the valuation date immediately preceding the date of
distribution, and the Participant's
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Account shall be reduced accordingly. Withdrawal under this Section shall be
authorized if the distribution is on account of:
(1) Expenses for medical care described in Code Section 213(d)
previously incurred by the Participant, his spouse, or any of his dependents (as
defined in Code Section 152) or necessary for these persons to obtain medical
care;
(2) The costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage payments);
(3) Payment of tuition and related educational fees for the
next twelve (12) months of post-secondary education for the Participant, his
spouse, children, or dependents; or
(4) Payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) Any distribution made pursuant to this Section shall be made
in a manner which is consistent with and satisfies the provisions of Sections
7.5 and 7.6, including, but not limited to, all notice and consent requirements
of Code Section 411(a)(11) and the Regulations thereunder.
7.14 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order". Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order", even if the affected Participant has not
separated from service and has not reached the "earliest retirement age" under
the Plan. For the purposes of this Section, "alternate payee," "qualified
domestic relations order" and "earliest retirement age" shall have the meaning
set forth under Code Section 414(p).
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined by the
Employer, to invest, manage, and control the Plan assets subject, however, to
the direction of an Investment Manager if the Trustee should appoint such
manager as to all or a portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits required
under the Plan to be paid to Participants, or, in the event of their death, to
their Beneficiaries;
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(c) To maintain records of receipts and disbursements and furnish to
the Employer and/or Administrator for each Plan Year a written annual report per
Section 8.7; and
(d) If there shall be more than one Trustee, they shall act by a
majority of their number, but may authorize one or more of them to sign papers
on their behalf.
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep the
Trust Fund invested without distinction between principal and income and in such
securities or property, real or personal, wherever situated, as the Trustee
shall deem advisable, including, but not limited to, stocks, common or
preferred, bonds and other evidences of indebtedness or ownership, and real
estate or any interest therein. The Trustee shall at all times in making
investments of the Trust Fund consider, among other factors, the short and
long-term financial needs of the Plan on the basis of information furnished by
the Employer. In making such investments, the Trustee shall not be restricted to
securities or other property of the character expressly authorized by the
applicable law for trust investments; however, the Trustee shall give due regard
to any limitations imposed by the Code or the Act so that at all times the Plan
may qualify as an Employee Stock Ownership Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the
terms of its usual and customary bank agency agreement, under which the duties
of such bank or trust company shall be of a custodial, clerical and
record-keeping nature.
(c) In the event the Trustee invests any part of the Trust Fund,
pursuant to the directions of the Administrator, in any shares of stock issued
by the Employer, and the Administrator thereafter directs the Trustee to dispose
of such investment, or any part thereof, under circumstances which, in the
opinion of counsel for the Trustee, require registration of the securities under
the Securities Act of 1933 and/or qualification of the securities under the Blue
Sky laws of any state or states, then the Employer at its own expense, will take
or cause to be taken any and all such action as may be necessary or appropriate
to effect such registration and/or qualification.
(d) The Trustee, at the direction of the Administrator, shall ratably
apply for, own, and pay premiums on Contracts on the lives of the Participants.
If a life insurance policy is to be purchased for a Participant, the aggregate
premium for ordinary life insurance for each Participant must be less than 50%
of the aggregate of the contributions and Forfeitures to the credit of the
Participant at any particular time. If term insurance is purchased with such
contributions, the aggregate premium must be less than 25% of the aggregate
contributions and Forfeitures allocated to a Participant's Account. If both term
insurance and ordinary life insurance are purchased with such contributions, the
amount expended for term insurance plus one-half of the premium for ordinary
life insurance may not in the aggregate exceed 25% of the aggregate
contributions and Forfeitures allocated to a Participant's Account. The Trustee
must convert the entire value of the life insurance contracts at or before
retirement into cash or provide for a periodic income so that
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no portion of such value may be used to continue life insurance protection
beyond retirement, or distribute the Contracts to the Participant. In the event
of any conflict between the terms of this Plan and the terms of any insurance
Contract purchased hereunder, the Plan provisions shall control.
8.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common
law, statutory authority, including the Act, and other provisions of the Plan,
shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other property and
to retain the same. In conjunction with the purchase of securities, margin
accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the Trustee, by
private contract or at public auction. No person dealing with the Trustee shall
be bound to see to the application of the purchase money or to inquire into the
validity, expediency, or propriety of any such sale or other disposition, with
or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription rights or
other options, and to make any payments incidental thereto; to oppose, or to
consent to, or otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate discretionary powers,
and to pay any assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more of the Trustee's nominees, and
to hold any investments in bearer form, but the books and records of the Trustee
shall at all times show that all such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such
amount, and upon such terms and conditions, as the Trustee shall deem advisable;
and for any sum so borrowed, to issue a promissory note as Trustee, and to
secure the repayment thereof by pledging all, or any part, of the Trust Fund;
and no person lending money to the Trustee shall be bound to see to the
application of the money lent or to inquire into the validity, expediency, or
propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash balances as
the Trustee may, from time to time, deem to be in the best interests of the
Plan, without liability for interest thereon;
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(g) To accept and retain for such time as the Trustee may deem
advisable any securities or other property received or acquired as Trustee
hereunder, whether or not such securities or other property would normally be
purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration any claims, debts,
or damages due or owing to or from the Plan, to commence or defend suits or
legal or administrative proceedings, and to represent the Plan in all suits and
legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be agent or
counsel for the Employer;
(k) To apply for and procure from responsible insurance companies, to
be selected by the Administrator, as an investment of the Trust Fund such
annuity, or other Contracts (on the life of any Participant) as the
Administrator shall deem proper; to exercise, at any time or from time to time,
whatever rights and privileges may be granted under such annuity, or other
Contracts; to collect, receive, and settle for the proceeds of all such annuity
or other Contracts as and when entitled to do so under the provisions thereof;
(1) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To invest in shares of investment companies registered under the
Investment Company Act of 1940;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To vote Company Stock as provided in Section 8.4;
(q) To consent to or otherwise participate in reorganizations,
recapitalization, consolidations, mergers and similar transactions with respect
to Company Stock or any other securities and to pay any assessments or charges
in connection therewith;
(r) To deposit such Company Stock (but only if such deposit does not
violate the provisions of Section 8.4 hereof) or other securities in any voting
trust, or with any protective or like committee, or with a trustee or with
depositories designated thereby;
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(s) To sell or exercise any options, subscription rights and conversion
privileges and to make any payments incidental thereto;
(t) To exercise any of the powers of an owner, with respect to such
Company Stock and other securities or other property comprising the Trust Fund.
The Administrator, with the Trustee's approval, may authorize the Trustee to act
on any administrative matter or class of matters with respect to which direction
or instruction to the Trustee by the Administrator is called for hereunder
without specific direction or other instruction from the Administrator;
(u) To sell, purchase and acquire put or call options if the options
are traded on and purchased through a national securities exchange registered
under the Securities Exchange Act of 1934, as amended, or, if the options are
not traded on a national securities exchange, are guaranteed by a member firm of
the New York Stock Exchange;
(v) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem necessary to
carry out the purposes of the Plan.
(w) Directed Investment Account. The powers granted to the Trustee
shall be exercised in the sole fiduciary discretion of the Trustee. However,
pursuant to Section 4.7, each Participant is authorized and empowered, in his
sole and absolute discretion, to give directions to the Trustee pursuant to the
procedure established by the Administrator and in such form as the Trustee may
require concerning the investment of the Participant's Directed Investment
Account. The Trustee shall comply as promptly as practicable with directions
given by the Participant hereunder. The Trustee may refuse to comply with any
direction from the Participant in the event the Trustee, in its sole and
absolute discretion, deems such directions improper by virtue of applicable law.
The Trustee shall not be responsible or liable for any loss or expense which may
result from the Trustee's refusal or failure. to comply with any directions from
the Participant. Any costs and expenses related to compliance with the
Participant's directions shall be borne by the Participant's Directed Investment
Account.
8.4 VOTING COMPANY STOCK
If the Employer has a registration-type class of securities, each
Participant or Beneficiary shall be entitled to direct the Trustee as to the
manner in which the Company Stock which is entitled to vote and which is
allocated to the Company Stock Account of such Participant or Beneficiary is to
be voted. If the Employer does not have a registration-type class of securities,
each Participant or Beneficiary in the Plan shall be entitled to direct the
Trustee as to the manner in which voting rights on shares of Company Stock which
are allocated to the Company Stock Account of such Participant or Beneficiary
are to be exercised with respect to any corporate matter which involves the
voting of such shares with respect to the approval or disapproval of any
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such similar transaction as prescribed in Regulations. For purposes
of this Section, the term "registration-type class of securities" means:
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(A) a class of securities required to be registered under Section 12 of the
Securities Exchange Act of 1934; and (B) a class Of Securities which would be
required to be so registered except for the exemption from registration provided
in subsection (g)(2)(H) of such Section 12.
The Trustee shall vote all shares of Company Stock held by it as part
of the Plan assets in the Unallocated Company Stock Suspense Account in the same
proportion for and against proposals to stockholders of the Employer as
Participants and Beneficiaries actually vote shares of Company Stock which have
been allocated to their individual company Stock Accounts; provided, however,
that notwithstanding the foregoing, if the Trustee determines that compliance
with the Act, compliance with the fiduciary duties of the Trustee, or compliance
with the Employer ESOP Voting Policy requires the shares held in the Unallocated
Company Stock Suspense Account to be voted in a different manner, then the
Trustee shall vote the shares held in the Unallocated Company Stock suspense
Account in a manner that complies with the Act, the Trustee's fiduciary duties,
and the Employer ESOP Voting Policy. In the event that not all shares of Company
stock which have been allocated to the individual Company Stock Accounts of
Participants and Beneficiaries are voted by the Participants or Beneficiaries
for or against particular proposals to stockholders of the Employer, the shares
allocated to individual company Stock Accounts which either abstained on the
proposal to stockholders or were not actually voted on such proposal shall be
disregarded in determining the percentage of Company Stock voted for and against
the proposal to stockholders by Participants and Beneficiaries. The Trustee
shall not vote those shares of Company Stock which have been allocated to the
individual Company Stock Accounts of participants and Beneficiaries for which no
instructions have been received, unless the Trustee determines that compliance
with the Act, compliance with the fiduciary duties of the Trustee, or compliance
with the Employer ESOP Voting Policy requires the Trustee to vote such shares.
Notwithstanding the foregoing, if any agreement entered into by the
Trust provides for voting of any shares Of Company Stock pledged as security for
any obligation of the Plan, then such shares of Company Stock shall be voted in
accordance with such agreement.
If the Employer does not have a registration-type class of securities
and the bylaws of the Employer require the Plan to vote an issue in a manner
that reflects a one-man, one-vote philosophy, each Participant or Beneficiary
shall be entitled to cast one vote on an issue and the Trustee shall vote the
shares held by the Plan in proportion to the results of the votes cast on the
issue by the Participants and Beneficiaries.
In the event a tender offer is made for shares of Company Stock,
(a) The Trustee shall distribute in a timely manner to each Participant
or Beneficiary such information as is distributed to holders of said stock in
connection with the tender or exchange offer.
(b) All such stock held by the Trustee in Participant Accounts shall be
tendered or not tendered by the Trustee in accordance with directions it
receives from Participants or Beneficiaries, provided, however, that
notwithstanding the foregoing, if the Trustee determines that compliance with
the Act or compliance with the fiduciary duties of the Trustee requires the
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stock allocated to Participant's Accounts be tendered or not tendered in a
different manner, then the Trustee shall tender or not tender such stock in a
manner that complies with the Act and the Trustee's fiduciary duties. Each
Participant or Beneficiary shall be entitled to direct the Trustee with respect
to the tender of such stock allocated to his Account. The instructions received
by the Trustee from Participants or Beneficiaries shall be held by the Trustee
in confidence and shall not be divulged or released to any person other than on
a need to know basis.
(c) The Trustee shall not tender any such stock allocated to
Participant Accounts with respect to which directions by Participants or
Beneficiaries are not received, unless the Trustee determines that compliance
with the Act or compliance with the fiduciary duties of the Trustee requires the
Trustee to tender such shares.
(d) The Trustee shall tender shares of Company Stock held in the
Unallocated Company Stock Suspense Account in the same proportion in which
Participants and Beneficiaries actually tender the shares of Company Stock which
have been allocated to their individual Company Stock Accounts; provided,
however, that notwithstanding the foregoing, if the Trustee determines that
compliance with the Act or compliance with the fiduciary duties of the Trustee
requires the shares held in the Unallocated Company Stock Suspense Account to be
tendered or not tendered in a different manner, then the Trustee shall tender or
not tender the shares held in the Unallocated Company Stock Suspense Account in
a manner that complies with the Act and the Trustee's fiduciary duties.
8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
(a) The Trustee shall make distributions from the Trust Fund at such
times and in such numbers of shares or other units of Company Stock and amounts
of cash to or for the benefit of the person entitled thereto under the Plan as
the Administrator directs in writing. Any undistributed part of a Participant's
interest in his accounts shall be retained in the Trust Fund until the
Administrator directs its distribution. , Where distribution is directed in
Company Stock, the Trustee shall cause an appropriate certificate to be issued
to the person entitled thereto and mailed to the address furnished it by the
Administrator. Any portion of a Participant's Account to be distributed in cash
shall be paid by the Trustee mailing its check to the same person at the same
address. If a dispute arises as to who is entitled to or should receive any
benefit or payment, the Trustee may withhold or cause to be withheld such
payment until the dispute has been resolved.
(b) As directed by the Administrator, the Trustee shall make payments
out of the Trust Fund. Such directions or instructions need not specify the
purpose of the payments so directed and the Trustee shall not be responsible in
any way respecting the purpose or propriety of such payments except as mandated
by the Act.
(c) In the event that any distribution or payment directed by the
Administrator shall be mailed by the Trustee to the person specified in such
direction at the latest address of such person filed with the Administrator, and
shall be returned to the Trustee because such person cannot be located at such
address, the Trustee shall promptly notify the Administrator of such return.
Upon
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the expiration of sixty (60) days after such notification, such direction shall
become void and unless and until a further direction by the Administrator is
received by the Trustee with respect to such distribution or payment, the
Trustee shall thereafter continue to administer the Trust as if such direction
had not been made by the Administrator. The Trustee shall not be obligated to
search for or ascertain the whereabouts of any such person.
8.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall from
time to time be agreed upon in writing by the Employer and the Trustee. An
individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from the Plan. In addition, the Trustee
shall be reimbursed for any reasonable expenses, including reasonable counsel
fees incurred by it as Trustee. Such compensation and expenses shall be paid
from the Trust Fund unless paid or advanced by the Employer. All taxes of any
kind and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust Fund or the income thereof, shall
be paid from the Trust Fund.
8.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary
Date or receipt of the Employer's contribution for each Plan Year, the Trustee
shall furnish to the Employer and Administrator a written statement of account
with respect to the Plan Year for which such contribution was made setting
forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or
other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator deems
appropriate. The Employer, forthwith upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing and advise the Trustee
and/or Administrator of its approval or disapproval thereof. Failure by the
Employer to disapprove any such statement of account within thirty (30) days
after its receipt thereof shall be deemed an approval thereof. The approval by
the Employer of any statement of account shall be binding as to all matters
embraced therein as between the Employer and the Trustee to the same extent as
if the account of the Trustee had been settled by judgment or decree in an
action for a judicial settlement of its account in a court of competent
jurisdiction in which the Trustee, the Employer and all persons having or
claiming an interest in the Plan were parties; provided, however, that nothing
herein contained shall deprive the Trustee of its right to have its accounts
judicially settled if the Trustee so desires.
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8.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act and
the regulations thereunder for any Plan Year, the Administrator shall direct the
Trustee to engage on behalf of all Participants an independent qualified public
accountant for that purpose. Such accountant shall, after an audit of the books
and records of the Plan in accordance with generally accepted auditing
standards, within a reasonable period after the close of the Plan Year, furnish
to the Administrator and the Trustee a report of his audit setting forth his
opinion as to whether any statements, schedules or lists that are required by
Act Section 103 or the Secretary of Labor to be filed with the Plan's annual
report, are presented fairly in conformity with generally accepted accounting
principles applied consistently. All auditing and accounting fees shall be an
expense of and may, at the election of the Administrator, be paid from the Trust
Fund.
(b) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank, insurance
company, or similar institution, regulated and supervised and subject to
periodic examination by a state or federal agency, it shall transmit and certify
the accuracy of that information to the Administrator as provided in Act Section
103 (b) within one hundred twenty (120) days after the end of the Plan Year or
by such other date as may be prescribed under regulations of the Secretary of
Labor.
8.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer,
at least thirty (30) days before its effective date, a written notice of his
resignation.
(b) The Employer may remove the Trustee by mailing by registered or
certified mail, addressed to such Trustee at his last known address, at least
thirty (30) days before its effective date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee,
a successor may be appointed by the Employer; and such successor, upon accepting
such appointment in writing and delivering same to the Employer, shall, without
further act, become vested with all the estate, rights, powers, discretions, and
duties of his predecessor with like respect as if he were originally named as a
Trustee herein. Until such a successor is appointed, the remaining Trustee or
Trustees shall have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the
death, resignation, incapacity, or removal of a Trustee. In the event a
successor is so designated by the Employer and accepts such designation, the
successor shall, without further act, become vested with all the estate, rights,
powers, discretions, and duties of his predecessor with the like effect as if he
were originally named as Trustee herein immediately upon the death, resignation,
incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the
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Employer and Administrator a written statement of account with respect to the
portion of the Plan Year during which he served as Trustee. This statement shall
be either (i) included as part of the annual statement of account for the Plan
Year required under Section 8.7 or (ii) set forth in a special statement. Any
such special statement of account should be rendered to the Employer no later
than the due date of the annual statement of account for the Plan Year. The
procedures set forth in Section 8.7 for the approval by the Employer of annual
statements of account shall apply to any special statement of account rendered
hereunder and approval by the Employer of any such special statement in the
manner provided in Section 8.7 shall have the same effect upon the statement as
the Employer I s approval of an annual statement of account. No successor to the
Trustee shall have any duty or responsibility to investigate the acts or
transactions of any predecessor who has rendered all statements of account
required by Section 8.7 and this subparagraph.
8.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee
at the direction of the Administrator shall transfer the Vested interest, if
any, of such Participant in his account to another trust forming part of a
pension, profit sharing or stock bonus plan maintained by such Participant's new
employer and represented by said employer in writing as meeting the requirements
of Code Section 401(a), provided that the trust to which such transfers are made
permits the transfer to be made.
8.11 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributes may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributes in a direct rollover.
(b) For purposes of this Section the following definitions shall apply:
(1) An eligible rollover distribution is any distribution of all or
any portion of the balance to the credit of the distributes, except that an
eligible rollover distribution does not include: any distribution that is one of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributes or the joint
lives (or joint life expectancies) of the distributes and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code Section 401
(a) (9) ; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities) .
(2) An eligible retirement plan is an individual retirement
account described in Code Section 408 (a), an individual retirement annuity
described in Code Section 408(b), an
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annuity plan described in Code Section 403(a), or a qualified trust described in
Code Section 401 (a), that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) A distributes includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(4) A direct rollover is a payment by the Plan to the eligible
retirement plan specified by the distributes.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT
(a) The Employer shall have the right at any time to amend the Plan,
subject to the limitations of this Section. Any such amendment shall be adopted
by formal action of the Employer's board of directors and executed by an officer
authorized to act on behalf of the Employer. However, any amendment which
affects the rights, duties or responsibilities of the Trustee and Administrator
may only be made with the Trustee's and Administrator's written consent. Any
such amendment shall become effective as provided therein upon its execution.
The Trustee shall not be required to execute any such amendment unless the Trust
provisions contained herein are a part of the Plan and the amendment affects the
duties of the Trustee hereunder.
Notwithstanding anything contained in this Plan to the contrary, the
provisions of the Plan governing the amount and timing of the Employer's
contributions to the Plan and the allocation of such contributions to
Participants shall not be amended more than once every six months, other than to
comport with changes in the code, ERISA, or the rules promulgated under such
statutes.
(b) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is required to pay
taxes and administration expenses) to be used for or diverted to any purpose
other than for the exclusive benefit of the Participants or their Beneficiaries
or estates; or causes any reduction in the amount credited to the account of any
Participant; or causes or permits any portion of the Trust Fund to revert to or
become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or
transaction having the effect of a Plan amendment (such as a merger, plan
transfer or similar transaction) shall be effective to the extent it eliminates
or reduces any "Section 411(d) (6) protected benefit" or adds or modifies
conditions relating to "Section 411(d)(6) protected benefits" the result of
which is a
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further restriction on such benefit unless such protected benefits are preserved
with respect to benefits accrued as of the later of the adoption date or
effective date of the amendment. "Section 411(d) (6) protected benefits' are
benefits described in Code Section 411(d)(6)(A), early retirement benefits
and retirement-type subsidies, and optional forms of benefit.
In addition, no such amendment shall have the effect of terminating the
protections and rights set forth in Section 7.12, unless such termination shall
then be permitted under the applicable provisions of the Code and Regulations;
such a termination is currently expressly prohibited by Regulation 54.4975-11
(a)(3) ii).
9.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan
by delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination, all amounts credited to the
affected Participants' Accounts shall become 100% Vested as provided in Section
7.4 and shall not thereafter be subject to forfeiture, and all unallocated
amounts shall be allocated to the accounts of all Participants in accordance
with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct
the distribution of the assets of the Trust Fund to Participants in a manner
which is consistent with and satisfies the provisions of Sections 7.5 and 7.6.
Except as permitted by Regulations, the termination of the Plan shall not result
in the reduction of "Section 411(d)(6) protected benefits" in accordance with
Section 9.1(c).
9.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 9.1(c).
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the
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right to be retained in the service of the Employer or to interfere with the
right of the Employer to discharge any Participant or Employee at any time
regardless of the effect which such discharge shall have upon him as a
Participant of this Plan.
10.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be
payable out of the Trust Fund to any person (including a Participant or his
Beneficiary) shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or against
such person, and the same shall not be recognized by the Trustee, except to such
extent as may be required by law.
(b) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414 (p) , and those other domestic relations
orders permitted to be so treated by the Administrator under the provisions of
the Retirement Equity Act of 1984. The Administrator shall establish a written
procedure to determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the extent
provided under a "qualified domestic relations order," a former spouse of a
Participant shall be treated as the spouse or surviving spouse for all purposes
under the Plan.
10.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the
Act and the laws of the Commonwealth of Pennsylvania, other than its laws
respecting choice of law, to the extent not preempted by the Act.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
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10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by
law, it shall be impossible by operation of the Plan or of the Trust, by
termination of either, by power of revocation or amendment, by the happening of
any contingency, by collateral arrangement or by any other means, for any part
of the corpus or income of any trust fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Participants, Retired Participants, or their
Beneficiaries.
(b) In the event the Employer shall make an excessive contribution
under a mistake of fact pursuant to Act Section 403 (c) (2) (A), the Employer
may demand repayment of such excessive contribution at any time within one (1)
year following the time of payment and the Trustees shall return such amount to
the Employer within the one (1) year period. Earnings of the Plan attributable
to the excess contributions may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted
by the Act and regulations thereunder, shall be bonded in an amount not less
than 10% of the amount of the funds such Fiduciary handles; provided, however,
that the minimum bond shall be $1,000 and the maximum bond, $500,000. The
amount of funds handled shall be determined at the beginning of each Plan Year
by the amount of funds handled by such person, group, or class to be covered and
their predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary,
the cost of such bonds shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund or by the Employer.
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of any person which may delay payment or render a Contract null
and void or unenforceable in whole or in part.
10.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no
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duty to see to the application of any funds paid to the Trustee, nor be required
to question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
10.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer,
either of whom may require such Participant, legal representative, Beneficiary,
guardian or committee, as a condition precedent to such payment, to execute a
receipt and release thereof in such form as shall be determined by the Trustee
or Employer.
10.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
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10.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
10.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, contributions to
this Plan are conditioned upon the initial qualification of the Plan under Code
Section 401. If the Plan receives an adverse determination with respect to its
initial qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the application for
the determination is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan was adopted, or such
later date as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except Sections
3.6, 3.7, and 4.1(c), any contribution by the Employer to the Trust Fund is
conditioned upon the deductibility of the contribution by the Employer under the
Code and, to the extent any such deduction is disallowed, the Employer may,
within one (1) year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee shall return such
contribution within one (1) year following the disallowance. Earnings of the
Plan attributable to the excess contribution may not be returned to the
Employer, but any losses attributable thereto must reduce the amount so
returned.
10.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
10.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Employer may request an interpretative letter from the Securities
and Exchange Commission stating that the transfers of Company Stock contemplated
hereunder do not involve transactions requiring a registration of such Company
Stock under the Securities Act of 1933. In the event that a favorable
interpretative letter is not obtained, the Employer reserves the right to amend
the Plan and Trust retroactively to their Effective Dates in order to obtain a
favorable interpretative letter or to terminate the Plan.
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS
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Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any other corporation or entity, whether an affiliate
or subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating Employers, as
well as all increments thereof. However, the assets of the Plan shall, on an
ongoing basis, be available to pay benefits to all Participants and
Beneficiaries under the Plan without regard to the Employer or Participating
Employer who contributed such assets.
(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer or a
Participating Employer, shall not affect such Participant's rights under the
Plan, and all amounts credited to such Participant's Account as well as his
accumulated service time with the transferor or predecessor, and his length of
participation in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of employment shall
inure only to the benefit of the Participants of the Employer or Participating
Employer by which the forfeiting Participant was employed, except if the
Forfeiture is for an Employee whose Employer is an Affiliated Employer, then
said Forfeiture shall be allocated to the Participants employed by the Employer
or Participating Employers who are Affiliated Employers. Should an Employee of
one ("First") Employer be transferred to an associated ("Second") Employer which
is an Affiliated Employer, such transfer shall not cause his account balance
(generated while an Employee of "First" Employer) in any manner, or by any
amount to be forfeited. Such Employee's Participant Account balance for all
purposes of the Plan, including length of service, shall be considered as though
he had always been employed by the "Second" Employer and as such had received
contributions, forfeitures, earnings or losses, and appreciation or depreciation
in value of assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be paid by the Employer or
borne by the Trust Fund shall be paid by each Participating Employer in the same
proportion that the total amount standing to the credit of all Participants
employed by such Employer bears to the total standing to the credit of all
Participants.
11.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this Plan;
provided, however,
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that with respect to all of its relations with the Trustee and Administrator for
the purpose of this Plan, each Participating Employer shall be deemed to have
designated irrevocably the Employer as its agent. Unless the context of the Plan
clearly indicates the contrary, the word "Employer" shall be deemed to include
each Participating Employer as related to its adoption of the Plan.
11.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated only among those Participants of the Employer or Participating
Employer making the contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall be allocated among
all Participants of all Participating Employers who are Affiliated Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
11.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be
a Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
11.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that no
such transfer shall be made if the result is the elimination or
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reduction of any "Section 411 (d) (6) protected benefits" in accordance with
Section 9. 1 (c) . If no successor is designated, the Trustee shall retain such
assets for the Employees of said Participating Employer pursuant to the
provisions of Article VII hereof. In no such event shall any part of the corpus
or income of the Trust as it relates to such Participating Employer be used for
or diverted to purposes other than for the exclusive benefit of the Employees of
such Participating Employer.
11.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
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IN WITNESS WHEREOF, this Plan has been executed the day and year first above
written.
Signed, sealed and delivered
in the presence of:
Parkvale Financial Corporation
/s/ STEVEN A. FRIEDMAN By /s/ ROBERT J. MCCARTHY, JR.
- ------------------------------- --------------------------------
Robert J. McCarthy, Jr.
President and C.E.O.
/s/ BRUCE C. GILLEYLEN
- -------------------------------
WITNESSES AS TO EMPLOYER
ATTEST /s/ ERNA A. GOLOTA
----------------------------
Erna A. Golota, Secretary
/s/ STEVEN A. FRIEDMAN /s/ ROBERT D. PFISCHNER (Seal)
- ------------------------------- ----------------------------------
TRUSTEE - Robert D. Pfischner
/s/ BRUCE C. GILLEYLEN
- -------------------------------
WITNESSES AS TO TRUSTEE
/s/ STEVEN A. FRIEDMAN /s/ GEORGE W. NEWLAND (Seal)
- ------------------------------- ----------------------------------
TRUSTEE - George W. Newland
/s/ BRUCE C. GILLEYLEN
- -------------------------------
WITNESSES AS TO TRUSTEE
/s/ STEVEN A. FRIEDMAN /s/ PAUL A. MOONEY (Seal)
- ------------------------------- ---------------------------------
TRUSTEE - Paul A. Mooney
/s/ BRUCE C. GILLEYLEN
- -------------------------------
WITNESSES AS TO TRUSTEE
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Exhibit 10(h)
Parkvale Savings Bank
Executive Deferred Compensation Plan
Amended and Restated- January 15, 1998 (effective January 1, 1998)
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Article 1. Definitions and Usage 3
Section 1.1. Administrator 3
Section 1.2. Board 3
Section 1.3. Change of Control 3
Section 1.4. Code 3
Section 1.5. Compensation 3
Section 1.6. Effective Date 4
Section 1.7. Employee 4
Section 1.8. Employer 4
Section 1.9. Entry Date 4
Section 1.10. Insolvent 4
Section 1.11. Participant 4
Section 1.12. Payment Date 4
Section 1.13. Plan 4
Section 1.14. Plan Year 4
Section 1.15. Retirement Plan 4
Section 1.16. Select Group of Management 4
Section 1.17. Total and Permanent Disability 4
Section 1.18. Use 4
Article 2. Eligibility 5
Section 2.1. Eligibility 5
Section 2.2. Effective Date of Participation 5
Article 3. Benefit Account 5
Section 3.1. Establishment of Participant's Account 5
Section 3.2. Employee Deferral Contributions 5
Section 3.3. Employer Discretionary Contributions 5
Section 3.4. Hardship Withdrawals of Elective Deferral and Employer
Contributions 5
Section 3.5. Valuation of Account 6
Article 4. Payment of Benefits 6
</TABLE>
1
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<TABLE>
<CAPTION>
<S> <C>
Section 4.1. Amount of Benefits Payable 6
Section 4.2. Form of Benefit Payments - General Rule 6
Section 4.3. Time of Benefit Payments - General Rule 6
Section 4.4. Election Procedure - General Rule 6
Section 4.5. Change of Control 7
Article 5. Death and Disability Benefits 7
Section 5.1. Death or Disability Prior to Benefit Payment 7
Section 5.2. Designation of Beneficiary 7
Article 6. Administration 7
Section 6.1. Duties of Administrator 7
Section 6.2. Finality of Decisions 8
Section 6.3. Indemnification of Administrator 8
Article 7. Amendment and Termination of the Plan 8
Section 7.1. Amendment and Termination 8
Section 7.2. Contractual Obligations 8
Section 7.3. Existing Rights 8
Article 8. Claims Procedure 8
Section 8.1. Claims Procedure 8
Article 9. Miscellaneous 9
Section 9.1. No Employment Rights 9
Section 9.2. Assignment 9
Section 9.3. Law Applicable 9
Section 9.4. Receipt and Release 9
Section 9.5. No Funding 10
Signature Page 10
</TABLE>
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ARTICLE I
DEFINITIONS AND USAGE
Section 1.1. Administrator. The committee appointed to administer the Plan by
the Board.
Section 1.2. Board. The Board of Directors of the Employer.
Section 1.3. Change of Control. Any change of control of the Employer as the
result (a) of merger, acquisition , or bankruptcy by any individual, entity or
group of persons, within the meaning of sections 13(d)(3) or 14(d) of the
Securities Exchange Act of 1934, or any other comparable successor provisions,
of beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of 50 percent or more of either the outstanding shares of
common stock or the combined voting power of the Employer's then outstanding
voting securities entitled to vote generally, or (b) the approval by the
stockholders of the Employer of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of the Employer
immediately prior to such reorganization, merger or consolidation do not
immediately thereafter own more than 50 percent of the combined voting power of
the reorganized, merged, or consolidated Employer's then outstanding securities
that are entitled to vote generally in the election of directors or (c) the sale
of substantially all of the Employer's assets.
Section 1.4. Code. The Internal Revenue Code of 1986, as amended, or as it may
be amended from time to time.
Section 1.5. Compensation. The term Compensation means all of each Participant's
Compensation as defined in section 415(c)(3) of the Code and Treasury
Regulations Sections 1.415-2(d)(2) and (3).
Notwithstanding the above, Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction agreement and which
is not includible in the gross income of the Employee under sections 125,
402(e)(3), 402(h) or 403(b) of the Code.
Notwithstanding the above, for purposes of other than allocations pursuant to
provision(s) providing for permitted disparity and/or Top-Heavy allocations,
Compensation shall be determined by excluding the following:
* Fringe benefits (cash and non-cash)
* Reimbursements, or other expense allowances
* Moving expenses
Compensation shall include only that Compensation which is actually paid to the
Participant during the determination period. Except as provided elsewhere in
this Plan, the determination period shall be the Plan Year.
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Section 1.6. Effective Date. July 1, 1994.
Section 1.7. Employee. The term Employee as defined in the Retirement Plan.
Section 1.8. Employer. The term Employer as defined in the Retirement Plan.
Section 1.9. Entry Date. The term Entry Date means either the Effective Date or
the August 1, October 1 or January 1 thereafter.
Section 1.10. Insolvent. The Employer shall be considered "Insolvent" for
purposes of this Plan if (i) the Employer is unable to pay its debts as they
become due, or (ii) the Employer is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code
Section 1.11. Participant. An Employee that satisfies the requirements provided
in Section 2. 1 of this Plan.
Section 1.12. Payment Date. The date on which the benefits accrued under this
Plan are payable to a particular Participant.
Section 1.13. Plan. The Parkvale Executive Deferred Compensation Plan.
Section 1.14. Plan Year. Plan year means the Plan's accounting year of twelve
(12) months commencing January 1st of each year and ending the following
December 31st.
Section 1.15. Retirement Plan. The Parkvale 401(k) Plan, which is a qualified
retirement plan under sections 401(a) and 401(k) of the Code, maintained by the
Employer.
Section 1.16. Select Group of Management. Senior Vice Presidents and above who
the Administrator determines to be part of the select group of management or
highly compensated Employees of the Employer, as determined under Department of
Labor rules and regulations.
Section 1.17. Total and Permanent Disability. Inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that may be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months. The
permanence and degree of such impairment shall be supported by medical evidence.
Disability will be determined to exist if the Participant is receiving
disability benefits under the Social Security Act or Railroad Retirement Act.
Section 1.18. Usage. Except where otherwise indicated by the context, any
masculine terminology used herein shall also include the feminine and vice
versa, and the definition of any term herein in the singular shall also include
the plural, and vice versa.
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ARTICLE 2
ELIGIBILITY
Section 2.1. Eligibility. An employee will be eligible to participate in this
Plan in accordance with Article 3, if the employee is part of the Select Group
of Management.
Section 2.2. Effective Date of Participation. Employees are eligible to enter
the Plan on the next Entry Date following the date on which the employees have
met the eligibility requirements set forth in Section 2.1 of this Plan.
ARTICLE 3
BENEFIT ACCOUNT
Section 3.1. Establishment of Participant's Account. The Administrator shall
establish and maintain a Participant account as a bookkeeping entry in the name
of each Participant to which the Administrator shall credit all amounts
allocated to each such Participant as set forth herein.
Section 3.2. Employee Deferral Contributions. Each Plan Year, each Participant
may authorize the Employer to reduce his Compensation by any specific amount or
percentage as specified in the Participant Agreement in effect for that year (in
lieu of receiving cash compensation), and to have such amount credited to the
Participant's account as an Employee Deferral Contribution. Each Participant has
the option of changing or ceasing his Employee Deferral Contribution, effective
the first day of the next Plan Year. An election to defer a percentage or dollar
amount of Compensation for any Plan Year shall apply for subsequent Plan Years
unless changed or revoked. Written notification must be given by the Participant
30 days prior to the next Plan Year affected by the modification.
Section 3.3 Employer Discretionary Contributions. Each Plan Year, the Employer,
at its discretion as determined by the Board of Directors, may also credit to
the account of all Participants an additional amount. The additional amount so
contributed shall be allocated to each Participant's account in the same
proportion that each such Participant's Compensation for such plan year bears to
the total Compensation paid to all Participants for such year. The employer
shall also match 50% of the Employee Deferral Contribution on the first 6% of
salary deferred, less amounts deferred and matched under the Retirement Plan.
Section 3.4. Hardship Withdrawals of Elective Deferral and Employer
Contributions. A distribution in an amount equal to a Participant's account
balance may be made to a Participant in the event of hardship. A hardship is an
unanticipated emergency that is caused by an event beyond the control of the
Participant or beneficiary, and that would result in severe financial hardship
to that individual if early withdrawal were not permitted. The hardship
withdrawal is limited to the amount necessary to meet the emergency. For this
purpose, a withdrawal will be considered to be required due to a hardship only
if, under uniform rules and policies, the Administrator determines that the
purpose of the withdrawal is to meet an immediate and heavy financial need
resulting from the following.
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(a) Medical expenses, which are not covered by insurance, described in Code
section 213(d) incurred by the Participant, his spouse, or any dependents (as
defined in Code section 152);
(b) The need to prevent eviction of the Participant from his principal
residence or foreclosure on the mortgage of the Participant's principal
residence; or
(c) Any other circumstances that are determined by the Administrator, in
its sole discretion, to constitute an event of hardship which is not covered by
insurance and which cannot reasonably be resolved by the liquidation of the
Participant's assets.
The decision of the Administrator as to whether a hardship withdrawal shall be
permitted is final and conclusive.
Section 3.5. Valuation of Account. The value of each Participant's account as
from time to time determined (but determined at least once annually) shall be
the fair market value, based on an accrual basis of accounting, of the balance
of the Participant's account as determined under Article 3 of this Plan. The
return on investment of each account balance in the plan will be based upon
historical rates of return for the Retirement Plan for that Plan Year.
ARTICLE 4
PAYMENT OF BENEFITS
Section 4.1. Amount of Benefits Payable. The value of each Participant's
account, as determined under Article 3 of this Plan on the Payment Date, shall
determine and constitute the basis for the value of the benefits payable to each
Participant under this Plan.
Section 4.2. Form of Benefit Payments-General Rule. The benefits payable under
this Plan shall, at the election of the Participant, be payable in one of the
following forms:
(a) Single lump sum payment; or
(b) Annual installments not to exceed a term of ten years. The amount of
each annual installment payment shall be equal to the balance of the
Participant's account immediately prior to the installment payment divided by
the number of installments remaining to be paid.
Section 4.3. Time of Benefit Payments-General Rule. Each Participant shall be
entitled to make an irrevocable election to receive the benefits payable in the
form of a single lump sum payment or in annual installment payments on either
(1) the first day of the month following the Participant's 55th birthday, or (2)
the first day that the Participant receives a distribution of benefits under the
Retirement Plan on account of such Participant's retirement, disability, or
termination (as determined under the Retirement Plan).
Section 4.4. Election Procedure-General Rule. For purposes of making the
election provided in Section 4.3, each Employee shall be provided with an
election form prepared by the Administrator at the time such Employee meets the
eligibility requirements for this Plan. This election form
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<PAGE> 7
must be properly executed by the Employee on or before the thirtieth (30th) day
from the day such form is provided to the Employee. If an election form is not
properly completed as provided herein, the Participant will be deemed to have
elected to receive his benefit payments beginning on the first day that the
Participant receives a distribution of benefits under the Retirement Plan on
account of such Participant's retirement, disability, or termination in the form
of a lump sum payment.
Section 4.5. Change of Control. A Participant shall become fully vested in his
account balance immediately prior to a Change of Control of the Employer. As
soon as administratively feasible following a Change of Control of the Employer,
each Participant shall be paid the entire balance of his account in a single
lump sum payment.
ARTICLE 5
DEATH AND DISABILITY BENEFITS
Section 5.1. Death or Disability Prior to Benefit Payment. Notwithstanding any
other provision of this Plan, if a Participant should die or experience a Total
and Permanent Disability before receiving an amount representing the entire
balance in his account under this Plan, then the benefits otherwise payable with
respect to such Participant shall immediately become vested and shall be paid to
the Participant or the Participant's beneficiary or beneficiaries. In the case
of a Total and Permanent Disability, the distribution of benefits will made in
one of the forms provided for under Section 4.2 of the Plan and in accordance
with the Participant Agreement in effect for that year. Distribution of benefits
shall begin during the three (3) month period beginning with the first day of
the month following the Participant's Total and Permanent Disability, in the
case of installment payments, or be paid in full during the same three (3) month
period, in the case of a lump sum. In the event of the Participant's death, the
distribution of benefits will be made to beneficiaries in one of the forms
provided for under Section 4.2 of the Plan. Any single lump sum payment made
under this provision shall be paid during the three (3) month period beginning
with the first day of the month following the Participant's death. In the case
of installment payments, such payments must commence within the same three (3)
month period.
Section 5.2. Designation of Beneficiary. A Participant may, by written
instrument delivered to the Administrator during his lifetime, designate primary
and contingent beneficiaries to receive any benefit payments which may be
payable hereunder following Participant's death, and may designate the
proportions in which such beneficiaries are to receive such payments. The
Participant may change such designations from time to time and the last written
designation filed with the Administrator prior to the Participant's death will
control. If a Participant fails to specifically designate a beneficiary or, if
no designated beneficiary survives the Participant, payment shall be made to the
beneficiary as determined under the Retirement Plan.
ARTICLE 6
ADMINISTRATION
Section 6.1. Duties of Administrator. The Administrator shall oversee the Plan
in accordance
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with its terms and purposes. The Administrator shall have complete control and
authority to determine the amount and manner of payment of the benefits due to
or on behalf of each Participant from the Plan and shall cause the benefits to
be paid by the Employer accordingly.
Section 6.2. Finality of Decisions. The decisions made by and the actions taken
by the Administrator in the administration of the Plan shall be final and
conclusive on all persons.
Section 6.3. Indemnification of Administrator. The Administrator shall not be
subject to individual liability with respect to this Plan. The Employer agrees
to indemnify and to defend to the fullest extent permitted by law any officer(s)
or Employee(s) who serve as Administrator (including any such individual who
formerly served as Administrator) against all liabilities, damages, costs, and
expenses (including attorneys' fees and amounts paid in the settlement of any
claims approved by the Employer) occasioned by any act or omission to act in
connection with the Plan, if such act or omission is in good faith.
ARTICLE 7
AMENDMENT AND TERMINATION OF THE PLAN
Section 7.1. Amendment and Termination. While the Employer intends to maintain
the Plan for as long as necessary, the Board reserves the right to amend and/or
terminate the Plan at any time for whatever reasons as it may deem appropriate.
Section 7.2. Contractual Obligations. Notwithstanding Section 7. 1, the Employer
hereby makes a contractual commitment to pay the benefits accrued under the Plan
to the extent it is financially capable of meeting such obligations.
Section 7.3. Existing Rights. No amendment or termination of the Plan shall
adversely affect the rights of any Participant with respect to amounts that have
been credited to his or her Participant account prior to the date of such
amendment or termination.
ARTICLE 8
CLAIMS PROCEDURE
Section 8.1. Claims Procedure.
(a) A claim for benefits under the Plan shall be filed on an application form
supplied by the Administrator. Written notice of the disposition of the claim
shall be furnished to the claimant within 90 days after an application form is
received by the Administrator, unless special circumstances (as determined by
the Administrator) require an extension for processing the claim. If such an
extension is required, the Administrator shall render a decision as soon as
possible subsequent to the 90-day period, but such decision shall not be
rendered later than 180 days after the application form is received by the
Administrator. Written notice of such extension shall be furnished to the
claimant prior to the commencement of the extension indicating the special
circumstances requiring such extension and the date by which the Administrator
expects to render
8
<PAGE> 9
the decision on the claim. In the event the claim is denied, the Administrator
shall set forth in writing the reasons for the denial and shall cite pertinent
provisions of the Plan upon which the decision is based. In addition, the
Administrator shall provide a description of any additional material or
information necessary for the claimant to perfect the claim, an explanation of
why such information is necessary, and appropriate information as to the steps
to be taken if the Participant or beneficiary wishes to submit such claim for
review as provided in (b) below.
(b) A Participant or beneficiary whose claim described in (a) above has been
denied in whole or in part shall be entitled to the following rights if
exercised within 60 days after written denial of a claim is received:
(1) to request a review of the claim upon written application to the
Administrator;
(2) to review documents associated with the claim; and
(3) to submit issues and comments in writing to the Administrator.
(c) If a Participant or a beneficiary requests a review of the claim under (b)
above, the Administrator shall conduct a full review (including a formal hearing
if desired) of such request, and a decision on such request shall be made within
60 days after the Administrator has received the written request for review from
the Participant or the beneficiary. Special circumstances (such as a need for
full hearing on request) can allow the Administrator to extend the decision on
such request, but the decision shall be rendered no later than 120 days after
receipt of the request for review. Written notice of such an extension shall be
furnished to the Participant or the beneficiary prior to the commencement of the
extension. The decision of the Administrator on review shall be set forth in
writing and shall include specific reasons for the decision as well as specific
references to the pertinent provisions of the Plan on which the decision is
based.
ARTICLE 9
MISCELLANEOUS
Section 9.1. No Employment Rights. Nothing contained in this Plan shall be
construed as a contract of employment between the Employer and an Employee, or
as a right of any Employee to be continued in the employment of the Employer, or
as a limitation of the right of the Employer to discharge any of its Employees,
with or without cause.
Section 9.2. Assignment. The benefits payable to Participants under this Plan
may not be assigned or alienated by the Participants. The same shall not be
subject to attachment or garnishment or other legal process by any creditor of
such Participant or beneficiary.
Section 9.3. Law Applicable. This Plan shall be governed by the laws of the
State of Pennsylvania, other than its laws respecting choice of law, to the
extent not preempted by the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
Section 9.4. Receipt and Release. Any payment to any Participant or beneficiary
in accordance with the provisions of the Plan shall, to the extent thereof, be
in full satisfaction of all claims
9
<PAGE> 10
against the Employer, the Administrator, and the Plan.
Section 9.5. No Funding. The Plan constitutes a mere promise by the Employer to
make payments in accordance with the terms of the Plan and Participants and
beneficiaries shall have the status of general unsecured creditors of the
Employer. Nothing in the Plan will be construed to give any Employee, or any
other person, rights to any specific assets of the Employer or of any other
person. In all events, it is the intent of the Employer that the Plan be treated
as unfunded for tax purposes and for purposes of Title I of ERISA.
IN WITNESS WHEREOF, this Plan has been executed this 29 day of June, 1994.
Signed and delivered in the presence of:
Parkvale Savings Bank
By /S/ TIMOTHY G. RUBRITZ
-------------------------
/S/ STEVEN A. FRIEDMAN
- -------------------------
Witness as to Employer
Attest /S/ ERNA A. GOLOTA
---------------------
10
<PAGE> 1
Exhibit 13
PARKVALE FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BALANCE SHEET DATA AT JUNE 30: 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $1,095,373 $991,239 $919,242 $896,422 $873,786
Loans 832,758 710,868 625,452 524,545 494,994
Investment securities 113,992 149,580 204,886 233,436 272,866
Savings deposits 949,452 881,244 807,087 794,445 778,555
FHLB advances and other debt 45,091 20,196 26,911 24,604 24,397
Shareholders' equity 84,060 75,183 69,765 61,064 55,565
Book value per share 16.25 14.83 13.80 12.20 10.60
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA FOR THE YEAR ENDED JUNE 30: 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 74,020 $ 68,380 $ 66,117 $ 61,026 $ 59,404
Total interest expense 44,190 40,352 39,631 35,431 35,399
- --------------------------------------------------------------------------------------------------
Net interest income 29,830 28,028 26,486 25,595 24,005
Provision for loan losses 255 399 686 1,094 1,829
- --------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 29,575 27,629 25,800 24,501 22,176
Other income 4,709 2,174 3,058 2,024 2,320
Other expense 16,781 18,808 14,240 13,821 12,991
- --------------------------------------------------------------------------------------------------
Income before taxes 17,503 10,995 14,618 12,704 11,505
Income tax expense 6,385 4,021 5,000 4,633 4,277
- --------------------------------------------------------------------------------------------------
Net income $ 11,118 $ 6,974 $ 9,618 $ 8,071 $ 7,228
- --------------------------------------------------------------------------------------------------
Net income per diluted share $2.10 $1.33 $1.84 $1.51 $1.33
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OTHER SELECTED DATA (STATISTICAL PROFILE):
YEAR ENDED JUNE 30, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average yield earned on all
interest-earning assets 7.37% 7.38% 7.45% 7.17% 6.89%
Average rate paid on interest-bearing
liabilities 4.72 4.67 4.79 4.46 4.34
Average interest rate spread 2.65 2.71 2.66 2.71 2.55
Net yield on average interest-earning
assets 2.97 3.03 2.98 3.01 2.78
Other expenses to average assets 1.63 1.98 1.57 1.59 1.47
Other expenses to average assets* 1.42 1.45 1.57 1.59 1.47
Efficiency ratio 48.59 62.27 48.20 50.04 49.35
Efficiency ratio* 45.17 45.60 49.83 50.04 49.35
Return on average assets 1.08 0.73 1.06 0.93 0.82
Return on average assets* 1.08 1.07 0.98 0.93 0.82
Dividend payout ratio 26.67 31.36 18.19 17.74 16.07
Return on average equity 14.59 10.15 15.13 13.89 13.69
Return on average equity* 14.59 14.70 13.99 13.89 13.69
Average equity to average total assets 7.38 7.23 7.01 6.87 5.98
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One year gap to total assets 0.07% -4.44% 0.24% 6.03% 1.65%
Intangibles to total equity 0.46 0.74 0.40 0.71 1.07
Shareholders' equity to assets ratio 7.67 7.58 7.59 6.81 6.36
Ratio of classified assets to total
assets 0.46 0.30 0.22 0.35 0.33
Nonperforming assets $ 4,728 $ 2,654 $ 1,248 $ 2,127 $ 1,163
Allowance for loan losses as a % of gross
loans 1.55% 1.95% 2.17% 2.41% 2.33%
Number of full-service offices 29 29 28 28 27
</TABLE>
* Excludes the effect of litigation expense and gain on sale of assets in fiscal
1998, the one-time FDIC special assessment in fiscal 1997 and the gain on sale
of assets in fiscal 1996.
4
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion is to summarize the financial condition and
results of operations of Parkvale Financial Corporation ("Parkvale") and provide
other information which is not readily apparent from the consolidated financial
statements included in this annual report. Reference should be made to those
statements, the notes thereto and the selected financial data presented
elsewhere in this report for a complete understanding of the following
discussion and analysis.
FINANCIAL CONDITION
Parkvale's average interest-earning assets climbed to $1 billion for the year
ended June 30, 1998, up $78 million over fiscal year 1997. This milestone was
achieved through an increased loan portfolio funded primarily by elevated
deposit levels and investment maturities. Average loan and average deposit
balances rose $108 million and $65 million, respectively in fiscal year 1998.
Parkvale functions as a financial intermediary, and as such, its financial
condition should be examined in terms of its ability to manage its interest rate
risk, and diversify its credit risk.
ASSET AND LIABILITY MANAGEMENT
Parkvale's asset and liability management ("ALM") is driven by our ability to
manage interest rate risk ("IRR"). IRR is the exposure of current and future
earnings and capital to fluctuating interest rates. This exposure occurs because
the present value of future cash flows, and in many cases the cash flows
themselves, change when interest rates change. One of Parkvale's ALM goals is to
minimize this exposure.
IRR is measured and analyzed using static interest rate sensitivity gap
indicators, net interest income simulation and net present value sensitivity
measures. These combined methods enable Parkvale's management to regularly
monitor both the direction and magnitude of potential changes in the
relationship between interest-earning assets and interest-bearing liabilities.
Interest rate sensitivity gap analysis provides one indicator of potential
interest rate risk by comparing interest-earning assets and interest-bearing
liabilities maturing or repricing at similar intervals. The gap ratio is defined
as rate-sensitive assets minus rate-sensitive liabilities for a given time
period divided by total assets. Parkvale continually monitors gap ratios, and
within the IRR framework and in conjunction with the net interest income
simulations, implements actions to reduce exposure to fluctuating interest
rates. Such actions have included maintaining high liquidity, deploying excess
liquidity, increasing the repricing frequency of the loan portfolio and
lengthening the overall maturities of interest-bearing liabilities. Management
believes these ongoing actions minimize Parkvale's vulnerability to fluctuations
in interest rates. The one-year gap ratio has shifted from -4.44% as of June 30,
1997 to 0.07% as of June 30, 1998, and the five-year gap ratio has shifted from
- -0.43% as of June 30, 1997 to 0.86% as of June 30, 1998.
Gap indicators of IRR are not necessarily consistent with IRR simulation
estimates. Parkvale utilizes net interest income simulation estimates under
various assumed interest rate environments to more fully capture the details of
IRR. Assumptions included in the simulation process include measurement over a
probable range of potential interest rate changes, prepayment speeds on
amortizing financial instruments, other imbedded options, loan and deposit
volumes and rates, nonmaturity deposit assumptions and management's capital
requirements. The estimated impact on projected net interest income in fiscal
1999 assuming an immediate shift in current interest rates would result in the
following percentage changes over fiscal 1998 net interest income: +100 bp,
+8.7%; +200 bp, +6.6%; -100 bp, +6.3%; -200 bp, -1.4%. This compares to
projected net interest income for fiscal 1998 made at June 30, 1997 over fiscal
1997 actual net interest income of: +100 bp, +5.7%; +200 bp, +2.3%; -100 bp,
+5.2%; -200 bp, -0.8%. The fluctuation in projected net interest income between
fiscal 1998 and 1997 is reflective of the change in asset mix during fiscal 1998
as discussed in the Financial Condition section.
5
<PAGE> 3
Asset Management. A primary goal of Parkvale's asset management is to
maintain a high level of liquid assets. Parkvale defines the following as liquid
assets: cash, federal funds sold, certain corporate debt maturing in less than
one year, U.S. Government and agency obligations maturing in less than one year
and short-term bank deposit accounts. The average daily liquidity was 18.8% for
the quarter ended June 30, 1998. During fiscal 1998, Parkvale's investment
strategy was to deploy excess liquidity by purchasing single-family Adjustable
Rate Mortgage ("ARM") loans to enhance yields and reduce the risk associated
with rate volatility. Such investments reduce the inherent risk of the
volatility of overnight interest rates. If interest rates were to fall
substantially, net interest income may decrease if the yield on liquid assets,
such as Federal funds sold, were to fall faster than liabilities would reprice.
Parkvale's lending strategy has been designed to shorten the average maturity of
its assets and increase the rate sensitivity of its loan portfolio. In fiscal
1998, 1997 and 1996, 84.9%, 88.0% and 77.4%, respectively, of mortgage loans
originated or purchased were adjustable-rate loans. Parkvale has continually
emphasized the origination and purchase of ARM loans. ARMs totaled $487.4
million or 66.5% of total mortgage loans at June 30, 1998 versus $402.3 million
or 63.8% of total mortgage loans at June 30, 1997. To supplement local mortgage
originations, Parkvale purchased loans aggregating $183.0 million, $104.4
million and $104.9 million in fiscal 1998, 1997 and 1996, respectively, from
mortgage bankers and other financial institutions. The loan packages purchased
were predominately 3/1 and 5/1 ARMs. Of the 1998 purchases, $180 million or
98.4% were ARMs. The practice of purchasing loans in the secondary market is
expected to continue in fiscal 1999 when liquidity exceeds targeted levels. At
June 30, 1998, Parkvale had commitments to originate mortgage loans totaling
$8.7 million, commercial loans of $1.5 million and to purchase adjustable
residential loans totaling $21.9 million. Construction loans in process at June
30, 1998 were $7.7 million. Such commitments were funded from current liquidity.
Parkvale continues to increase its consumer loan portfolio through new
originations. Home equity lines of credit are granted at up to 120% of
collateral value at competitive rates. In general, these loans have shorter
maturities and greater interest rate sensitivity and margins than residential
real estate loans. At June 30, 1998 and 1997, consumer loans were $106.3 and
$90.3 million which represented a 17.6% and an 18.5% increase over the balances
at June 30, 1997 and 1996, respectively. The fiscal 1998 consumer portfolio
growth is primarily related to consumer demand for fixed rate shorter term
second mortgage loans with average maturities of five years.
Parkvale follows policies designed to reduce credit risk concentrations within
its asset portfolio. One such vehicle has been mortgage-backed securities which
consist of pools of individual residential mortgage notes. The majority of the
mortgage-backed securities held by Parkvale are guaranteed as to the timely
repayment of principal and interest by a government-sponsored enterprise, the
Federal Home Loan Mortgage Corporation ("FHLMC"). At June 30, 1998, Parkvale had
$43.4 million or 4.0% of total assets invested in mortgage-backed securities.
See Note B of Notes to Consolidated Financial Statements.
Investments in other securities, such as U.S. Government and agency obligations
and corporate debt, are purchased to enhance Parkvale's overall net interest
margin. Parkvale's investment policy focuses on long-term trends, rather than
short-term swings in the financial markets. Accordingly, all debt securities are
classified as held to maturity, and are not available for sale nor held for
trading.
6
<PAGE> 4
Interest-Sensitivity Analysis. The following table reflects the maturity and
repricing characteristics of Parkvale's assets and liabilities at June 30, 1998:
<TABLE>
<CAPTION>
<3 MONTHS 4-12 MONTHS 1-5 YEARS 5+ YEARS TOTAL
--------- ----------- --------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-sensitive assets:
ARM and other variable rate loans.... $ 89,633 $ 89,693 $338,424 $ 25,776 $ 543,526
Other fixed rate loans, net (1)...... 7,610 22,603 109,347 163,086 302,646
Variable rate mortgage-backed
securities........................ 13,668 2,003 -- -- 15,671
Fixed rate mortgage-backed securities
(1)............................... 987 2,414 18,361 5,239 27,001
Investments and Federal funds sold... 145,375 5,725 21,860 8,195 181,155
Equities, primarily FHLB and FHLMC... -- -- 7,228 7,564 14,792
-------- -------- -------- -------- ----------
Total interest-sensitive assets........ $257,273 $122,438 $495,220 $209,860 $1,084,791
======== ======== ======== ======== ==========
Ratio of interest-sensitive assets to
total assets......................... 23.5% 11.2% 45.2% 19.2% 99.0%
==== ==== ==== ==== ====
Interest-sensitive liabilities:
Passbook deposits and club accounts
(2)............................... $ 6,729 $ 23,704 $ 80,751 $ 35,909 $ 147,093
Checking accounts (3)................ 17,891 17,891 35,782 17,889 89,453
Money market deposit accounts........ -- 21,448 21,447 -- 42,895
Certificates of deposit.............. 91,898 195,124 318,665 59,488 665,175
FHLB advances and other borrowings... 4,223 -- 30,000 10,868 45,091
-------- -------- -------- -------- ----------
Total interest-sensitive liabilities... $120,741 $258,167 $486,645 $124,154 $ 989,707
======== ======== ======== ======== ==========
Ratio of interest-sensitive liabilities
to total liabilities and equity...... 11.0% 23.6% 44.4% 11.3% 90.4%
===== ==== ==== ==== ====
Ratio of interest-sensitive assets to
interest-sensitive liabilities....... 213.1% 47.4% 101.8% 169.0% 109.6%
===== ==== ===== ===== =====
Periodic Gap to total assets........... 12.46% (12.39%) 0.78% 7.82% 8.68%
===== ====== ==== ==== ====
Cumulative Gap to total assets......... 12.46% 0.07% 0.86% 8.68%
===== ==== ==== ====
</TABLE>
(1) Includes total repayments and prepayments at an assumed rate of 12% per
annum for fixed-rate mortgage loans and mortgage-backed securities, with the
amounts for other loans based on the estimated remaining loan maturity by
loan type.
(2) Assumes passbook deposits are withdrawn at the rate of 20.7% per annum.
(3) Assumes checking accounts are withdrawn at 40% in the first year and 10% per
annum thereafter.
Liability Management. Parkvale's favorable liquidity allows investment
decisions to be made with the funding source as a secondary issue. Deposits are
priced according to management's asset/liability objectives, alternate funding
sources and competition. A concentrated effort is made to extend the maturities
of deposits by offering highly competitive rates for longer term certificates.
Certificates of deposit maturing after one year as a percent of total deposits
are 39.8% at June 30, 1998 and 32.9% at June 30, 1997.
Parkvale's primary sources of funds are deposits received through its branch
network, loan and mortgage-backed security repayments and advances from the
Federal Home Loan Bank of Pittsburgh ("FHLB"). FHLB advances can be used on a
short-term basis for liquidity purposes or on a long-term basis to support
expanded lending and investment activities.
CONCENTRATION OF CREDIT RISK
Financial institutions, such as Parkvale, generate income primarily through
lending and investing activities. The risk of loss from lending and investing
activities includes the possibility that losses may occur from the failure of
another party to perform according to the terms of the loan or investment
agreement. This possibility of loss is known as credit risk.
Credit risk is increased by lending and investing activities that concentrate a
financial institution's earning assets in a way that exposes the institution to
a material loss from any single occurrence or group of related occurrences.
Diversifying loans and investments to prevent concentrations of risks is one
manner a financial institution can reduce potential losses due to credit risk.
Examples of asset concentrations would include, but not be limited to,
7
<PAGE> 5
geographic concentrations, loans or investments of a single type, multiple loans
to a single borrower, loans made to a single type of industry and loans of an
imprudent size relative to the total capitalization of the institution. For
loans purchased and originated, Parkvale has taken steps to reduce exposure to
credit risk by emphasizing low-risk, single-family mortgage loans, which
comprise 80% of the gross loan portfolio as of June 30, 1998.
RESULTS OF OPERATIONS
Net income for the year ended June 30, 1998 was $11.1 million or $2.10 per
diluted share representing a 9.6% increase in net income from normal operations
of $10.1 million or $1.94 per diluted share for the year ended June 30, 1997.
The fiscal 1997 net income from normal operations of $10.1 million excludes the
adverse effect of the one-time Savings Association Insurance Fund ("SAIF")
assessment of $5 million.
The key component of the favorable operating results is the $1.8 million or 6.4%
increase in net interest income over fiscal year 1997. Net interest income is
the difference between interest earned on loans and investments and interest
paid for deposits and borrowings. A positive interest rate spread is achieved
with interest-earning assets in excess of interest-bearing liabilities which
results in increased net interest income.
INTEREST INCOME
Interest income from loans increased by $7.5 million or 14.5% in fiscal 1998.
Average loans outstanding increased $108.3 million or 16.88%, primarily due to
loan package purchases amounting to $183.0 million during fiscal 1998. Interest
income increased despite a decrease in the average loan yield which was 8.01% in
fiscal 1997 and fell to 7.85% in fiscal 1998. This is reflective of lower
interest rates sustained throughout the majority of fiscal 1998 and the large
quantity of ARM loans within the portfolio. Interest income on loans increased
by $4.8 million or 10.3% from fiscal 1996 to 1997. The average yield on loans
decreased from 8.23% in fiscal 1996 to 8.01% in fiscal 1997, and the average
outstanding loan balance increased $75.4 million or 13.3% between fiscal 1996
and 1997.
Interest income on mortgage-backed securities decreased by $1.8 million or 31.7%
in fiscal 1998. The average yield on mortgage-backed securities increased 16
basis points from 6.72% in fiscal 1997 to 6.88% in fiscal 1998; however, the
average balance decreased $27.5 million from fiscal 1997 to 1998. The decline in
the average balance outstanding is due to deploying mortgage-backed security
maturities into higher yielding loans. Similarly, interest income on
mortgage-backed securities decreased $1.2 million or 18.0% in fiscal 1997 from
fiscal 1996 attributable to a $19.8 million decrease in the average outstanding
balance which was offset slightly by an 11 basis point increase in the average
yield from 6.61% in fiscal 1996 to 6.72% in fiscal 1997.
Interest income on investments decreased $608,000 or 11.5% in fiscal 1998. This
is the result of a $9 million decrease in the average balance. The average yield
on investments decreased to 5.94% in fiscal 1998 from 6.00% in fiscal 1997 due
to the overall flat interest rate environment. Interest income on investments
decreased by $1.8 million or 25.5% from fiscal 1996 to 1997. This is a result of
a $30.6 million decrease in the average balance.
Interest income from federal funds sold increased $554,000 from fiscal 1997 to
1998. The increase was attributable to an increase in the average federal funds
sold balance from $113.3 million in fiscal 1997 to $119.9 million in fiscal
1998. In addition, the average yield increased from 5.41% in fiscal 1997 to
5.57% in fiscal 1998. The average balance of federal funds sold increased $13.9
million or 14.0% between fiscal 1996 and 1997, and interest income increased
$495,000 or 8.8% between the two years. The average yield decreased from
8
<PAGE> 6
5.67% in fiscal 1996 to 5.41% in fiscal 1997. These average yields reflect the
changes in the target federal funds interest rate from a high of 6.00% at the
beginning of fiscal 1996 to a low of 5.25% at the end of fiscal 1996 before
increasing to 5.50% by the end of fiscal 1997. The target federal funds interest
rate remained at 5.50% throughout fiscal 1998.
INTEREST EXPENSE
Interest expense on deposits increased $3.5 million or 9.1% between fiscal 1997
and 1998. The average deposit balance increased $65.2 million or 7.7% in fiscal
1998, compounded slightly by an increase in the average cost from 4.64% in
fiscal 1997 to 4.70% in 1998. The fiscal 1998 deposit increases are attributable
to the variety of certificate of deposit promotional specials. These specials
ranged in terms from 15 to 36 months with rates ranging from 6.00% to 6.25%.
Interest expense on deposits increased by $1.1 million or 2.9% between fiscal
1996 and 1997. The average deposit balance also increased by $42.7 million
between the two fiscal years, offset somewhat by a decrease in the average cost
from 4.75% in fiscal 1996 to 4.64% in fiscal 1997. The 1997 balance increase was
attributable to the success of a "55 plus" checking program and attractive rates
offered on certificate of deposit specials.
Interest expense on borrowed money increased by $290,000 or 23.9% in fiscal
1998, due to new borrowings with the Federal Home Loan Bank ("FHLB") totaling
$30 million at a relatively low average rate of 5.78% during fiscal 1998. The
overall average cost of borrowings decreased from 6.20% in fiscal 1997 to 5.54%
in fiscal 1998. This is attributable to the maturity of a high cost FHLB advance
during the first quarter of fiscal 1998 and the new borrowings. In fiscal 1997,
interest expense on borrowed money decreased by $373,000 or 23.5% due to a $6.1
million decrease in the average balance.
Net interest income increased $1.8 million or 6.4% from fiscal 1997 to 1998. The
average interest rate spread decreased to 2.65% in fiscal 1998 from 2.71% in
fiscal 1997, while the average net earning assets increased $5.5 million. In
fiscal 1997, net interest income increased $1.5 million or 5.8%. The average
interest rate spread increased from 2.66% in fiscal 1996 to 2.71% in 1997,
average net earning assets increased $2.3 million between the two years.
At June 30, 1998, the weighted average yield on loans and investments was 7.35%.
The average rate payable on liabilities was 4.65% for deposits, 5.65% for
borrowings and 4.69% for combined deposits and borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an amount added to the allowance against which
loan losses are charged. The adequacy of the allowance for loan losses is
determined by management through evaluation of the loss potential on individual
nonperforming, delinquent and high dollar loans. Such loans are considered
impaired when the market value or discounted cash flows of property
collateralizing delinquent and nonperforming loans is less than the loan's book
value, and reflect management's current estimate of potential losses on such
loans. In addition, general loss provisions are also added to the allowance for
loan losses based on economic trends, perceived risk in the loan portfolio,
previous loss experience and other factors. The adequacy of loss reserves is
based upon a regular monthly review of loan delinquencies and "classified
assets," as well as local and national economic trends. The provision for loan
losses decreased by $144,000 or 36.1% compared to fiscal year 1997. Management
believes the allowance for loan losses is adequate to cover the amount of
possible credit losses inherent in the loan portfolio as of June 30, 1998.
Nonperforming assets, which are defined as nonaccrual loans and real estate
owned, were $4.7 million, $2.7 million and $1.2 million at June 30, 1998, 1997
and 1996, respectively, representing 0.43%, 0.27% and 0.14% of total assets at
the end of each respective year. Of the nonperforming assets at June 30, 1998,
$2.4 million was real estate owned and $2.3 million represented nonaccrual
loans. The increase in nonperforming assets is primarily commercial real estate
related to 200 Meyran Associates, discussed in other expense. During fiscal
1998, the allowance for loan losses reflects a $1.0 million charge to reduce
this foreclosed real estate to estimated fair value.
9
<PAGE> 7
In addition, loans totaling $333,000 were classified as substandard for
regulatory purposes. These loans, while current or less than 90 days past due,
have exhibited characteristics which warrant special monitoring. Examples of
these concerns include irregular payment histories, questionable collateral
values, investment properties having cash flows insufficient to service debt,
and other financial inadequacies of the borrower. These loans are continuously
monitored with efforts being directed towards resolving the underlying concerns
while continuing the performing status of the loans.
Aggregate valuation allowances were 1.55% of gross loans as of June 30, 1998,
compared to 1.95% as of June 30, 1997. The adequacy of these reserves in
relation to current or anticipated trends in the loan portfolio will continue to
be monitored by management.
OTHER INCOME
Other income increased $2.5 million or 117% in fiscal 1998 compared to fiscal
1997. This increase is primarily due to the nonrecurring gain of $2.1 million
which relates to the sale of FHLMC stock. There were no gains or losses on sale
of assets in fiscal 1997. Without the fiscal 1998 nonrecurring gain, other
income would have increased $388,000 or 17.8% between fiscal 1997 and 1998. In
fiscal 1996, a nonrecurring gain of $969,000 was recognized which related to the
sale of real estate.
Service charges on deposit accounts increased by $151,000 or 12.0% in fiscal
1998, mainly due to increased services for all types of deposits and the
increase in average balances over fiscal 1997. Other service charges and fees
increased by $101,000 or 15.9% in fiscal 1998. This increase is due to $135,000
of ATM surcharges Parkvale began assessing to non-Parkvale customers beginning
in January 1998. Service charges on deposit accounts increased by $194,000 or
18.2% and other service charges and fees increased by $90,000 or 16.5% between
fiscal 1997 and 1996.
Miscellaneous income increased $135,000 or 48.4% in fiscal 1998 due to
investment fee income which was $271,000 in fiscal 1998 and $137,000 in fiscal
1997. During fiscal 1997, investment fee income was generated through an
unaffiliated third party marketing firm who offered fixed and variable rate
annuities and mutual funds to Parkvale customers. Parkvale received a fee from
the third party for providing the customer base; however, effective April 1,
1997, Parkvale eliminated the third party and began a new in-house program to
offer nondeposit investment products directly to customers through a division of
Parkvale Savings Bank (the "Bank"), Parkvale Financial Services. Parkvale
expects continued growth in this area.
10
<PAGE> 8
OTHER EXPENSE
Compensation and employee benefits increased by $555,000 or 7.7% during fiscal
1998 and by $345,000 or 5.0% during fiscal 1997 over the respective prior
periods. Compensation expense increased $409,000 or 7.0% in fiscal 1998 and
increased $279,000 or 4.8% in fiscal 1997. These increases represent normal
merit pay increases and increased staffing related to new offices and products.
ESOP contribution expense increased $66,000 in fiscal 1998 and decreased $47,000
in fiscal 1997 for estimated awards to be granted for service rendered in the
respective fiscal years. A portion of the ESOP contribution is based on the
average common stock price for the applicable calendar year. ESOP contribution
expense decreased in fiscal 1997 due to a 26% reduction in the number of shares
awarded to eligible participants in calendar year 1996.
Office occupancy expense increased $28,000 or 1.3% in fiscal 1998 and $126,000
or 6.2% in fiscal 1997 over the respective prior periods. The increase in fiscal
1997 was due to the opening of a new branch during November 1996.
Marketing expenses increased by $62,000 or 16.3% in fiscal 1998 and by $39,000
or 11.4% in fiscal 1997. The fiscal 1998 increase is due to the various savings
deposit and home equity credit promotions. The fiscal 1997 increase is primarily
due to branch promotions relative to new branches.
The Bank is insured by the FDIC through the SAIF. FDIC insurance expense was
$555,000 in fiscal 1998, $734,000 in fiscal 1997 and $1.8 million in fiscal
1996. The Bank paid annual insurance premiums of 23 basis points on insured
deposits throughout fiscal 1996 and the first quarter of fiscal 1997. During
fiscal 1997, the one-time SAIF assessment representing 65.7 basis points on
insured deposits was enacted to reach the required capitalization level for the
SAIF. As of October 1, 1996, this legislation had a favorable effect on other
expense by reducing deposit insurance premiums. Annual insurance premiums for
the last half of fiscal 1997 were 6.48 basis points of insured deposits. The
effect of these rate changes was a 59.6% decrease in FDIC insurance expense in
fiscal 1997 compared to fiscal 1996. During fiscal 1998, the FDIC insurance
premium averaged 6.29 basis points. For fiscal 1999, the FDIC insurance premium
was reduced to 6.22 basis points as of July 1, 1998.
Miscellaneous expenses increased by $2.5 million or 105.6% due to a nonrecurring
charge for the settlement of litigation between 200 Meyran Associates (a limited
partnership) and the Bank. In June 1993, lawsuits were instituted in the Court
of Common Pleas of Allegheny County, Pennsylvania, against the Bank by the
owners of an office building which was sold in 1984. On March 26, 1998, Parkvale
agreed in principle to settle the dispute and end the litigation with the
limited partnership. The settlement involved $1.9 million in cash payments and
related legal expenses of $250,000. Prior to this settlement, Parkvale purchased
the first mortgage loan on this building from another bank. As of June 30, 1998,
Parkvale took possession of the property, which is classified as Foreclosed Real
Estate. Without the litigation costs during fiscal 1998, miscellaneous expenses
would have increased by $345,000 or 14.6% for the year ended June 30, 1998. The
miscellaneous expense increases are the result of continual growth. The main
components impacted are data processing expense increased by $153,000 or 17.9%,
legal expense increased by $120,000 or 58.3% without the legal expense
associated with the litigation and loan expense increased by $34,000 or 14.8%.
11
<PAGE> 9
INCOME TAXES
Federal and state income tax expense increased by $2.4 million or 58.8% due to
the lower pretax income reported in fiscal 1997. As discussed in Note H, the
effective tax rate for fiscal 1998, 1997 and 1996 varied from the normal
statutory federal tax provisions primarily due to tax-exempt interest and the
Pennsylvania Mutual Thrift Institutions Tax.
IMPACT OF YEAR 2000
The year 2000 ("Y2K") issue primarily results from computer programs recognizing
a two-digit date field rather than four digits to define the year. Computer
software or hardware that is date sensitive may recognize "00" as the year 1900
instead of the year 2000 which may cause system failure, miscalculations and
other temporary disruptions of operations.
The data processing committee has been assigned the task of managing Y2K
compliance. This committee is chaired by the Vice President of Data Processing,
who reports directly to the President and Chief Executive Officer. The
committee's main focus is to resolve the problems associated with the Y2K issue
in five phases: awareness, assessment, renovation, testing and implementation.
The plan developed by the data processing committee is based upon recommended
guidelines provided by the Bank's primary regulator. The assessment stage
entailed assessing the magnitude of the issues and identification of hardware,
software, networks, automated teller machines, processing platforms, and
customer, vendor interdependencies and budget allocations associated with Y2K.
During the renovation and testing phases, the Bank's primary data processing
provider, DataOne Financial Systems, announced plans in July 1998 to discontinue
business in mid 1999. Such service provider had represented to Parkvale that all
appropriate programming changes would be completed and testing would be
performed before the end of 1998. However, given the pending change of
providers, the Bank is not participating in tests with the current primary
service provider. As a result, the Bank has implemented its contingency plan and
is currently evaluating data processing alternatives including proposals from
major service bureau providers. Three providers are under active consideration
and the Bank is in the due diligence phase of evaluating the proposals and
intends to make a decision during the December 1998 quarter. The new processing
arrangements are expected to provide the Bank with additional systems
capabilities to increase efficiencies as a full-service bank and will modernize
certain systems with state of the art technology. The Bank will ensure
compliance with Y2K before signing a contract. The Bank expects to capitalize
the majority of the system related costs related to the change in service
providers. These costs are not expected to exceed $600,000 which are to be
amortized over a useful life of five to ten years. The increase in the annual
overall expense for data services is not expected to exceed $200,000, which
should permit the servicing of growth anticipated with deposit customers.
An ongoing assessment of business risk includes an assessment of other third
party vendors' readiness for Y2K processing. Management has identified all third
party vendors and communicated with vendors regarding the status of their Y2K
compliance. Management is coordinating with third party vendors to perform
testing where appropriate. If outside vendors are not Y2K compliant, alternative
vendors will be contracted. Additionally, this assessment includes review of the
Federal Reserve Fedline System. This system's hardware and software are
scheduled for testing during October 1998. Upon conversion to a new primary
service provider, the Bank will evaluate the necessity for Y2K testing with
integrated systems.
The Bank is monitoring loan and deposit customers for Y2K compliance. Commercial
loan customers that are not Y2K compliant may become a repayment risk. The
lending department has distributed information regarding Y2K compliance to
commercial loan borrowers. The Bank's initial assessment of commercial loan
customers indicates an immaterial impact on Parkvale's statement of operations.
Continued evaluation of this risk will be performed by the Bank's management.
Parkvale's plans to complete Y2K compliance are based upon management's best
estimates. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from these plans due to unforeseen
circumstances.
12
<PAGE> 10
CAPITAL RESOURCES
Shareholders' equity increased $8.9 million or 11.8% during the year ended June
30, 1998 compared to June 30, 1997. Earnings retention is the main source of
Parkvale's equity growth. Net income was $11.1 million while dividends declared
were $2.9 million resulting in 25.9% of net income paid to shareholders (equal
to $.56 per share) for fiscal year ended June 30, 1998. Parkvale's fifth
consecutive 5-for-4 stock split was paid in October 1997. During fiscal 1998,
the cash dividends increased 34.6%. The book value of Parkvale's common stock
increased 9.6% to $16.25 at June 30, 1998 from $14.83 at June 30, 1997 as a
result of these increases in shareholders' equity.
The Bank is a wholly owned subsidiary of Parkvale. The Bank's primary regulators
are the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania
Department of Banking. The Office of Thrift Supervision retains jurisdiction
over Parkvale Financial Corporation due to its status as a unitary savings and
loan holding company. Parkvale continues to maintain a "well capitalized"
status, sustaining a 7.6% capital level as of June 30, 1998. Strong
capitalization allows Parkvale to continue building shareholder value through
traditionally conservative operations and potentially profitable growth
opportunities. Management is not aware of any trends, events, uncertainties or
recommendations by any regulatory authority except as noted above, concerning
Y2K, that will have, or that are reasonably likely to have, material effects on
Parkvale's liquidity, capital resources or operations.
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 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 Annual Report 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.
13
<PAGE> 11
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
LOGO
- --------------------------------------------------------------------------------
The Board of Directors
Parkvale Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Parkvale Financial Corporation ("Parkvale") as of June 30, 1998 and 1997, and
the related consolidated statements of operations, cash flows and shareholders'
equity for each of the three years in the period ended June 30, 1998. These
financial statements are the responsibility of Parkvale's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial condition of Parkvale
Financial Corporation at June 30, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998 in conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania /S/ ERNST & YOUNG LLP
July 23, 1998
14
<PAGE> 12
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
----------------------
ASSETS 1998 1997
<S> <C> <C>
- ------------------------------------------------------------------------------------
Cash and noninterest-earning deposits $ 9,628 $ 12,104
Federal funds sold 124,900 107,832
Interest-earning deposits in other banks 475 219
Investment securities available for sale (cost of $8,060 in
1998 and $7,223 in 1997) (Note B) 14,793 13,546
Investment securities held to maturity (fair value of
$100,047 in 1998 and $136,834 in 1997) (Note B) 99,199 136,034
Loans, net of allowance of $13,223 in 1998 and $14,266 in
1997 (Note C) 832,758 710,868
Foreclosed real estate, net of allowance of $15 in 1998 and
$0 in 1997 (Note D) 2,362 165
Office properties and equipment, net (Note D) 2,377 2,125
Intangible assets and deferred charges 389 553
Prepaid expenses and other assets (Note L) 8,492 7,793
- ------------------------------------------------------------------------------------
Total assets $1,095,373 $991,239
- ------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
- ------------------------------------------------------------------------------------
Savings deposits (Note E) $ 949,452 $881,244
Advances from Federal Home Loan Bank and other debt (Note F) 45,091 20,196
Advance payments from borrowers for taxes and insurance 9,610 10,104
Other liabilities (Note L) 7,160 4,512
- ------------------------------------------------------------------------------------
Total liabilities 1,011,313 916,056
- ------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTES G AND I)
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;
1998--5,388,084 shares issued, 1997--4,310,679 shares
issued) 5,388 4,311
Additional paid-in capital 6,652 8,034
Treasury stock at cost--215,447 shares in 1998 and 319,421
shares in 1997 (3,051) (3,676)
Employee stock ownership plan debt (276) (330)
Unrealized gains on securities available for sale 4,276 4,015
Retained earnings 71,071 62,829
- ------------------------------------------------------------------------------------
Total shareholders' equity 84,060 75,183
- ------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,095,373 $991,239
- ------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE> 13
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans $58,844 $51,388 $46,585
Mortgage-backed securities 3,795 5,557 6,775
Investments 4,702 5,310 7,127
Federal funds sold 6,679 6,125 5,630
- -------------------------------------------------------------------------------------------
Total interest income 74,020 68,380 66,117
- -------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposits (Note E) 42,686 39,138 38,044
Borrowings 1,504 1,214 1,587
- -------------------------------------------------------------------------------------------
Total interest expense 44,190 40,352 39,631
- -------------------------------------------------------------------------------------------
Net interest income 29,830 28,028 26,486
Provision for loan losses (Note C) 255 399 686
- -------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 29,575 27,629 25,800
- -------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 1,409 1,258 1,064
Other service charges and fees 738 637 547
Gain on sale of assets (Note J) 2,148 -- 969
Miscellaneous 414 279 478
- -------------------------------------------------------------------------------------------
Total other income 4,709 2,174 3,058
- -------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Compensation and employee benefits 7,798 7,243 6,899
Office occupancy 2,177 2,148 2,022
Marketing 442 380 341
FDIC insurance 555 734 1,816
FDIC special assessment -- 5,035 --
Office supplies, telephone, and postage 952 906 841
Miscellaneous 4,857 2,362 2,321
- -------------------------------------------------------------------------------------------
Total other expenses 16,781 18,808 14,240
- -------------------------------------------------------------------------------------------
Income before income taxes 17,503 10,995 14,618
Income tax expense (Note H) 6,385 4,021 5,000
- -------------------------------------------------------------------------------------------
NET INCOME $11,118 $ 6,974 $ 9,618
- -------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
Basic $ 2.17 $ 1.38 $ 1.92
Diluted $ 2.10 $ 1.33 $ 1.84
- -------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE> 14
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Interest received $ 73,776 $ 68,745 $ 65,694
Loan fees received 294 328 364
Other fees and commissions received 2,366 2,012 1,965
Interest paid (44,079) (40,391) (39,640)
Cash paid to suppliers and employees (13,819) (18,911) (13,562)
Income taxes paid (6,912) (4,218) (4,784)
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,626 7,565 10,037
Cash flows from investing activities:
Proceeds from sales of investment securities available for
sale 2,193 -- 48
Proceeds from maturities of investments 71,967 73,399 151,871
Purchase of investment securities available for sale (882) (419) (968)
Purchase of investment securities held to maturity (61,506) (15,102) (121,338)
Maturity of deposits in other banks (256) (46) 21
Purchase of loans (182,973) (104,428) (104,940)
Proceeds from sales of loans 2,653 1,758 2,479
Principal collected on loans and mortgage-backed
securities 275,844 144,239 149,608
Loans made to customers, net of loans in process (193,192) (127,403) (148,057)
Proceeds from branch deposit acquisition -- 11,084 --
Capital expenditures (576) (448) (114)
- ------------------------------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (86,728) (17,366) (71,390)
Cash flows from financing activities:
Net increase in checking and savings accounts 10,264 2,115 3,407
Net increase in certificates of deposit 57,944 60,496 9,236
Proceeds from FHLB advances 30,000 -- 96
Repayment of FHLB advances (5,011) (5,011) (10)
Net (decrease) in other borrowings (94) (1,704) 2,220
Net (decrease) in borrowers advances for tax and insurance (494) (724) (1,304)
Dividends paid (2,636) (2,007) (1,592)
Allocation of treasury stock to retirement plans 395 450 178
Payment for treasury stock (674) (1,340) --
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 89,694 52,275 12,231
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 14,592 42,474 (49,122)
Cash and cash equivalents at beginning of year 119,936 77,462 126,584
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 134,528 $ 119,936 $ 77,462
- ------------------------------------------------------------------------------------------------
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 11,118 $ 6,974 $ 9,618
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 491 513 528
Accretion and amortization of fees and discounts (593) (174) (442)
Loan fees collected and deferred 294 328 364
Provision for loan losses 255 399 686
Gain on sale of assets (2,148) -- (969)
Decrease (increase) in accrued interest receivable (222) 199 (369)
Decrease (increase) in other assets (571) 301 (90)
Increase (decrease) in accrued interest payable 111 (39) (9)
Decrease (increase) in deferred income tax asset 67 (197) 276
Increase (decrease) in other liabilities 2,824 (739) 444
- ------------------------------------------------------------------------------------------------
Total adjustments 508 591 419
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 11,626 $ 7,565 $ 10,037
- ------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE> 15
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN TREASURY ESOP GAINS ON RETAINED SHAREHOLDERS'
STOCK CAPITAL STOCK DEBT SECURITIES EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $2,758 $10,056 $(3,434) $(154) $1,808 $50,030 $61,064
- ------------------------------------------------------------------------------------------------------------------
1996 net income 9,618 9,618
Principal payments on ESOP debt 185 185
Transfer to reflect 5-for-4
split 690 (690) 0
Treasury stock contributed to
benefit plan 66 66
Additional borrowings by ESOP (135) (135)
Change in unrealized gains, net
of income taxes of $307 534 534
Exercise of stock options 1 (228) 340 113
Cash dividends declared on
common stock at $.333 per
share (1,680) (1,680)
- ------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 3,449 9,138 (3,028) (104) 2,342 57,968 69,765
- ------------------------------------------------------------------------------------------------------------------
1997 net income 6,974 6,974
Principal payments on ESOP debt 224 224
Transfer to reflect 5-for-4
split 862 (862) 0
Treasury stock purchased (1,340) (1,340)
Treasury stock contributed to
benefit plan 165 179 344
Additional borrowings by ESOP (450) (450)
Change in unrealized gains, net
of income taxes of $962 1,673 1,673
Exercise of stock options (407) 513 106
Cash dividends declared on
common stock at $.416 per
share (2,113) (2,113)
- ------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 4,311 8,034 (3,676) (330) 4,015 62,829 75,183
- ------------------------------------------------------------------------------------------------------------------
1998 NET INCOME 11,118 11,118
PRINCIPAL PAYMENTS ON ESOP DEBT 276 276
TRANSFER TO REFLECT 5-FOR-4
SPLIT 1,077 (1,077) 0
TREASURY STOCK PURCHASED (674) (674)
TREASURY STOCK CONTRIBUTED TO
BENEFIT PLAN 37 27 64
ADDITIONAL BORROWINGS BY ESOP (222) (222)
CHANGE IN UNREALIZED GAINS, NET
OF INCOME TAXES OF $150 261 261
EXERCISE OF STOCK OPTIONS (342) 1,272 930
CASH DIVIDENDS DECLARED ON
COMMON STOCK AT $.56 PER SHARE (2,876) (2,876)
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $5,388 $ 6,652 $(3,051) $(276) $4,276 $71,071 $84,060
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE> 16
PARKVALE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Parkvale Financial Corporation ("Parkvale" or "PFC"), its wholly owned
subsidiary, Parkvale Savings Bank (the "Bank") and its wholly owned
subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation. In July 1998, the Bank adopted the use of the name Parkvale Bank
for advertising and signage purposes.
Business
The primary business of Parkvale consists of attracting deposits from the
general public in the communities that it serves and investing such deposits,
together with other funds, in residential real estate loans, consumer loans,
commercial loans and investment securities. Parkvale focuses on providing a wide
range of consumer and commercial services to individuals, partnerships and
corporations in the greater Pittsburgh metropolitan area, which comprises its
primary market area. Parkvale is also subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by certain
regulatory authorities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expense during the reported period. Actual
results could differ from those estimates.
Cash and Noninterest-Earning Deposits
The Bank is required to maintain cash and reserve balances with the Federal
Reserve Bank. The reserve calculation is 0% of the first $4.7 million, 3% of the
next $43.1 million of checking deposits and 10% of total checking deposits over
$47.8 million. These required reserves, net of allowable credits, amounted to
$1.7 million at June 30, 1998.
Investment Securities Available for Sale
Investment securities available for sale consist solely of equity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of shareholders'
equity until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method. Declines in
the fair value of individual available-for-sale securities below their cost that
are other than temporary will result in write-downs of the individual securities
to their fair value. Any related write-downs will be included in earnings as
realized losses. The FHLB of Pittsburgh stock is a restricted equity security
that does not have a readily determinable fair value. The FHLB requires member
institutions to maintain a minimum level of stock ownership based on a
percentage of residential mortgages, subject to periodic redemption at par if
the stock owned is over the minimum requirement. As such, FHLB stock is recorded
at cost with no unrealized gains or losses as an investment available for sale.
No securities have been classified as trading.
Investment Securities Held to Maturity
Securities for which the Bank has the positive intent and ability to hold to
maturity are reported at cost adjusted for premiums and discounts that are
recognized in interest income using the interest method over the period to
maturity. Declines in the fair value of individual held-to-maturity securities
below their amortized cost that are other than temporary will result in
write-downs of the individual securities to their fair value. Any related
write-downs will be included in earnings as realized losses.
19
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Loans
Loans are reported at their outstanding principal adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans. Loan origination
and commitment fees and certain direct origination costs have been deferred and
recognized as an adjustment of the yield of the related loan, adjusted for
anticipated loan prepayments. Discounts and premiums on purchased residential
real estate loans are amortized to income using the interest method over the
remaining period to contractual maturity, adjusted for anticipated prepayments.
Loans are placed on nonaccrual status when in the judgment of management, the
probability of collection of principal and interest is deemed to be insufficient
to warrant further accrual. All loans which are 90 or more days delinquent are
treated as nonaccrual loans. Parkvale provides an allowance for the loss of
accrued but uncollected interest at the time the interest accrual is
discontinued. Interest ultimately collected is credited to income in the period
of recovery.
Nonaccrual, substandard and doubtful commercial and other real estate loans are
considered impaired. Impaired loans are generally evaluated based on the present
value of the expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or at the fair value of the
collateral if the loan is collateral dependent. Impaired loans have been
included in management's assessment of the adequacy of general provision. This
additional general provision is made for the estimated losses on loans based on
loss experience and prevailing market conditions. While management believes that
the allowance is adequate to absorb estimated potential credit losses, future
adjustments may be necessary in circumstances that differ substantially from the
assumptions used in evaluating the adequacy of the allowance for loan losses.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and recorded at the lower of the carrying amount or fair value of the
property less cost to sell. After foreclosure, valuations are periodically
performed by management and a valuation allowance is established for any
declines in the fair value less cost to sell below the property's carrying
amount. Revenues, expenses and changes in the valuation allowance are included
in the statement of operations. Gains and losses upon disposition are reflected
in earnings as realized. Loans transferred to foreclosed real estate during
fiscal 1998, 1997 and 1996 were $3.2 million, $311,000 and $1.2 million,
respectively. The foreclosures in 1998 were mainly due to a deed in lieu of the
foreclosure on office buildings previously owned by 200 Meyran Associates. The
1996 foreclosures included a $902,000 residential apartment complex.
Office Property and Equipment
Office property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the useful lives of
the various classes of assets. Amortization of leasehold improvements is
computed using the straight-line method over the useful lives of the leasehold
improvements.
20
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Earnings per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("FAS") No. 128, Earnings per Share. Statement 128 replaced
the previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of employee stock options.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the Statement 128
requirements. The following table sets forth the computation of basic and
diluted earnings per share for the three years ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income (in 000's) $11,118 $6,974 $9,618
Denominator:
Weighted average shares for basic earnings per
share 5,121,604 5,059,260 5,022,113
Effect of dilutive employee stock options 172,360 178,885 204,412
--------- --------- ---------
Weighted average shares for dilutive earnings per
share 5,293,964 5,238,145 5,226,525
========= ========= =========
Net income per share:
Basic $2.17 $1.38 $1.92
Diluted $2.10 $1.33 $1.84
</TABLE>
On September 16, 1997, the Board of Directors declared a 5-for-4 stock split on
Parkvale's common stock. The additional shares were paid on October 14, 1997 to
stockholders of record at the close of business on September 30, 1997. This
increased the outstanding shares by 1,077,405. No fractional shares were issued.
All share amounts in this report have been restated to reflect the effect of
this stock split and similar splits in 1996, 1995, 1994 and 1993.
Stock Options
In October 1995, the FASB issued FAS 123, Accounting for Stock-Based
Compensation, which was effective for fiscal years beginning after December 15,
1995. FAS 123 defines a fair value-based method of accounting for stock-based
employee compensation plans. Under the fair value-based method, compensation
cost is measured at the grant date based upon the value of the award and is
recognized over the service period. The standard encourages all entities to
adopt this method of accounting for all employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs for
its plans as prescribed in APB Opinion No. 25 ("APB 25"), Accounting for Stock
Issued to Employees. As Parkvale elected to continue using the accounting in APB
25, pro forma disclosures of net income and earnings per share made for options
granted as if the fair value method of accounting, as defined by FAS 123 had
been applied. See Note I.
Treasury Stock
The purchase of PFC common stock is recorded at cost. At the date of subsequent
reissue, the treasury stock account is reduced by the cost of such stock on the
average cost basis, with any excess proceeds being credited to Additional
Paid-in Capital. A stock repurchase program which commenced in July 1997,
permitting up to 5% of outstanding stock to be repurchased through June 1998,
has been completed. As of June 30, 1998, PFC repurchased 21,275 shares of the
235,125 eligible shares available at the inception of the 1997/1998 program.
These shares were repurchased at an average cost of $31.66 per share and they
represent 0.4% of the outstanding stock at the inception of the program. A stock
repurchase program which commenced in July 1998 permits the acquisition of up to
258,000 shares or 5% of outstanding stock through June 30, 1999.
21
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Statement of Cash Flows
For the purposes of reporting cash flows, cash and cash equivalents include cash
and noninterest-earning deposits and federal funds sold. Additionally,
allocation of treasury stock to retirement plans includes exercise of stock
options and allocation to the employee stock ownership plan.
Effect of New Accounting Standards
The FASB has issued FAS 130, Reporting Comprehensive Income, which establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The standard
is effective for fiscal years beginning after December 15, 1997, and will be
adopted by Parkvale for the year ended June 30, 1999. The impact of adoption is
not expected to materially affect Parkvale's financial position or results of
operations.
The FASB has issued FAS 131, Disclosures About Segments of an Enterprise and
Related Information, which establishes standards for reporting information about
operating segments in annual financial reports. FAS 131 supersedes FAS 14,
Financial Reporting for Segments of a Business Enterprise. This standard is
effective for fiscal years beginning after December 15, 1997, and will be
adopted by Parkvale for the year ended June 30, 1999. The impact of adoption is
not expected to materially affect Parkvale's financial position or results of
operations.
The FASB has issued FAS 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. The standard is effective for fiscal years
beginning after June 15, 1999, and will be adopted by Parkvale for the year
ended June 30, 2000. The impact of adoption is not expected to materially affect
Parkvale's financial position or results of operations.
22
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE B--INVESTMENT SECURITIES
The amortized cost, gross unrecorded gains and losses and fair values for
investment securities classified as available for sale or held to maturity at
June 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------- -----------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---- ----- ------ ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
FHLMC common stock
(123,496 shares in 1998;
169,696 shares in
1997)......................... $ 121 $5,691 $ -- $ 5,812 $ 166 $5,773 $ -- $ 5,939
FHLB of Pittsburgh stock........ 7,228 -- -- 7,228 6,346 -- -- 6,346
Equity securities--other........ 711 1,042 -- 1,753 711 550 -- 1,261
-------- ------ ---- -------- -------- ------ ---- --------
Total equity
investments
available for
sale..................... $ 8,060 $6,733 $ -- $ 14,793 $ 7,223 $6,323 $ -- $ 13,546
-------- ------ ---- -------- -------- ------ ---- --------
Held to maturity:
U.S. Government and agency
obligations due:
Within 1 year................... $ 7,994 $ 28 $ -- $ 8,022 $ 9,971 $ 11 $ -- $ 9,982
Within 5 years.................. 24,000 -- 92 23,908 41,979 45 309 41,715
-------- ------ ---- -------- -------- ------ ---- --------
Total U.S. Government and
agency obligations....... 31,994 28 92 31,930 51,950 56 309 51,697
Municipal obligations:
Within 1 year................... 575 1 -- 576 -- -- -- --
Within 5 years.................. 6,055 66 -- 6,121 -- -- -- --
-------- ------ ---- -------- -------- ------ ---- --------
Total municipal
obligations.............. 6,630 67 -- 6,697 -- -- -- --
Corporate debt:
Within 1 year................... 17,148 16 2 17,162 7,017 14 -- 7,031
Within 5 years.................. -- -- -- -- 10,126 47 4 10,169
-------- ------ ---- -------- -------- ------ ---- --------
Total corporate debt....... 17,148 16 2 17,162 17,143 61 4 17,200
-------- ------ ---- -------- -------- ------ ---- --------
Total U.S. Government and agency
obligations, municipal obligations
and corporate debt................ 55,772 111 94 55,789 69,093 117 313 68,897
-------- ------ ---- -------- -------- ------ ---- --------
Mortgage-backed securities at June 30:
FHLMC............................... 26,476 666 5 27,137 45,644 914 68 46,490
FNMA................................ 3,639 62 -- 3,701 6,284 127 1 6,410
GNMA................................ 704 41 -- 745 1,187 54 -- 1,241
Collateralized mortgage obligations
("CMOs").......................... 11,305 125 58 11,372 12,336 89 119 12,306
Other participation certificates.... 1,303 -- -- 1,303 1,490 -- -- 1,490
-------- ------ ---- -------- -------- ------ ---- --------
Total mortgage-backed
securities............... 43,427 894 63 44,258 66,941 1,184 188 67,937
-------- ------ ---- -------- -------- ------ ---- --------
Total investments classified as held
to maturity....................... $ 99,199 $1,005 $157 $100,047 $136,034 $1,301 $501 $136,834
-------- ------ ---- -------- -------- ------ ---- --------
Total investment
portfolio................ $107,259 $7,738 $157 $114,840 $143,257 $7,624 $501 $150,380
======== ====== ==== ======== ======== ====== ==== ========
</TABLE>
Mortgage-backed securities are not due at a single maturity date; periodic
payments are received on the securities based on the payment patterns of the
underlying collateral. Approximately $16,994 of the total mortgage-backed
portfolio consists of balloon securities which have stated maturities within
three years. The CMOs at June 30, 1998 consist of $11,226 of adjustable rate
securities and $79 of fixed rate instruments with weighted average lives of less
than one year. The CMOs are not deemed to be "high risk" securities as defined
by the Federal Financial Institutions Examination Council.
- --------------------------------------------------------------------------------
23
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE C--LOANS
Loans at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
1-4 Family................................ $683,504 $586,735 $517,082 $423,439 $403,492
Multifamily............................... 13,024 16,825 17,375 22,894 22,735
Commercial................................... 24,869 17,724 19,516 18,435 18,113
Other........................................ 12,085 9,329 2,387 3,196 1,931
-------- -------- -------- -------- --------
733,482 630,613 556,360 467,964 446,271
Consumer loans................................. 106,266 90,305 76,224 69,197 61,805
Commercial business loans...................... 11,592 8,332 8,925 4,542 6,135
Loans on savings accounts...................... 2,665 3,076 3,285 3,253 3,206
-------- -------- -------- -------- --------
Gross loans.................................. 854,005 732,326 644,794 544,956 517,417
Less:
Loans in process............................. 7,652 6,393 4,386 4,816 7,506
Allowance for loan losses.................... 13,223 14,266 13,990 13,136 12,056
Unamortized discount and deferred loan
fees...................................... 372 799 966 2,459 2,861
-------- -------- -------- -------- --------
$832,758 $710,868 $625,452 $524,545 $494,994
======== ======== ======== ======== ========
</TABLE>
The following summary sets forth the activity in the allowance for loan losses
for the years ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning balance.................................. $14,266 $13,990 $13,136 $12,056 $10,283
Provision for losses--mortgage loans............... 150 29 440 972 1,668
Provision for losses--consumer loans............... 105 370 246 122 111
Provision for losses--commercial business loans.... -- -- -- -- 50
Loans recovered.................................... 108 116 329 95 157
Loans charged off.................................. (1,406) (239) (161) (109) (213)
------- ------- ------- ------- -------
Ending balance..................................... $13,223 $14,266 $13,990 $13,136 $12,056
======= ======= ======= ======= =======
</TABLE>
Loans charged off and recovered are as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans recovered:
Commercial.................................. $ -- $ -- $ -- $ -- $ --
Consumer.................................... 55 56 70 47 9
Mortgage.................................... 53 60 259 48 148
------- ------- ------- ------- -------
Total recoveries.............................. 108 116 329 95 157
------- ------- ------- ------- -------
Loans charged off:
Consumer.................................... (391) (227) (125) (39) (45)
Mortgage.................................... (1,015) (12) (36) (70) (168)
------- ------- ------- ------- -------
Total charge-offs............................. (1,406) (239) (161) (109) (213)
------- ------- ------- ------- -------
Net recoveries (charge-offs).................. $(1,298) $ (123) $ 168 $ (14) $ (56)
======= ======= ======= ======= =======
</TABLE>
The allowance for loan losses at June 30 consisted of:
<TABLE>
<S> <C> <C> <C> <C> <C>
Mortgage loans.............................. $11,660 $12,645 $12,579 $11,915 $10,923
Consumer loans.............................. 1,347 1,405 1,194 1,004 916
Commercial business loans................... 216 216 217 217 217
Ratio of net charge-offs to average loans.......... 0.17% 0.02% 0.00% 0.00% 0.01%
</TABLE>
24
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
At June 30, 1998, Parkvale was committed under various agreements to originate
fixed and adjustable rate mortgage loans aggregating $3,555 and $4,163,
respectively, at rates ranging from 6.86% to 7.46% for fixed rate and 5.44% to
7.00% for adjustable rate loans, and had $59,554 of unused consumer lines of
credit and $4,908 in unused commercial lines of credit. The Bank is committed to
purchase $21,862 of adjustable loans at 6.74%. In addition, Parkvale was
committed to originate mortgage loans aggregating $550 at rates ranging from
6.50% to 6.75% under bond programs secured by the City of Pittsburgh. Parkvale
was also committed to originate commercial loans totaling $1,500 at June 30,
1998. Available but unused consumer and commercial credit card lines amounted to
$9,520 and $193, respectively, at June 30, 1998.
At June 30, Parkvale serviced loans for the benefit of others as follows:
1998--$5,817, 1997--$8,006 and 1996--$13,001.
At June 30, 1998, Parkvale's loan portfolio consisted primarily of residential
real estate loans collateralized by single and multifamily residences,
nonresidential real estate loans secured by industrial and retail properties and
consumer loans including lines of credit.
Parkvale has geographically diversified its mortgage loan portfolio, having
loans outstanding in 47 states and the District of Columbia. Parkvale's highest
concentrations are in the following states/area along with their respective
share of the outstanding mortgage loan balance: Pennsylvania--38.7%; greater
Washington, D.C. area--9.5%; and Ohio--9.0%. The ability of debtors to honor
these contracts depends largely on economic conditions affecting the Pittsburgh,
greater Washington D.C. and Columbus metropolitan areas, with repayment risk
dependent on the cash flow of the individual debtors. Substantially all mortgage
loans are secured by real property with a loan amount of generally no more than
80% of the appraised value at the time of origination. Loans in excess of 80% of
appraised value require private mortgage insurance.
At June 30, the amount of interest income of nonaccrual loans that had not been
recognized in interest income was $181 for 1998 and $285 for 1997. The Bank had
$836 and $859 of impaired loans as of June 30, 1998 and 1997, respectively, and
recorded $125 and $104 of reserves related to these loans as of June 30, 1998
and 1997, respectively. Additionally, the loans have been included in
management's assessment of the adequacy of general valuation allowances. The
average recorded investment in impaired loans was $1,787 during fiscal 1998 and
$975 during fiscal 1997.
- --------------------------------------------------------------------------------
NOTE D--OFFICE PROPERTIES AND EQUIPMENT AND FORECLOSED REAL ESTATE
Office properties and equipment at June 30 are summarized by major
classification as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Land................................................... $ 318 $ 318 $ 318
Office buildings and leasehold improvements............ 3,969 3,779 3,489
Furniture, fixtures and equipment...................... 3,649 3,294 3,145
------ ------ ------
7,936 7,391 6,952
Less accumulated depreciation and amortization......... 5,559 5,266 4,947
------ ------ ------
Office properties and equipment, net................... $2,377 $2,125 $2,005
====== ====== ======
Depreciation expense................................... $ 326 $ 328 $ 370
====== ====== ======
</TABLE>
A summary of foreclosed real estate at June 30 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Real estate acquired through foreclosure............... $2,377 $ 165 $ 259
Allowance for losses................................... (15) 0 (19)
------ ------ ------
$2,362 $ 165 $ 240
====== ====== ======
</TABLE>
The balance of foreclosed real estate consists primarily of commercial property.
25
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
Changes in the allowance for losses on foreclosed real estate for the years
ended June 30 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Beginning balance...................................... $ 0 $ 19 $ $0
Provision for losses................................... 15 0 19
Less charges to allowance.............................. 0 (19) 0
------ ------ ------
$ 15 $ 0 $ 19
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
NOTE E--SAVINGS DEPOSITS
The following schedule sets forth interest expense for the years ended June 30
by type of savings deposit:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Checking and money market accounts.................. $ 2,197 $ 2,152 $ 2,154
Passbook accounts................................... 3,432 3,574 3,630
Certificates........................................ 37,057 33,412 32,260
------- ------- -------
$42,686 $39,138 $38,044
======= ======= =======
</TABLE>
A summary of savings deposits at June 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
AMOUNT % AMOUNT %
------ - ------ -
<S> <C> <C> <C> <C>
Savings:
Checking accounts.............................. $ 75,165 7.9 $ 64,394 7.3
Checking accounts--noninterest-bearing......... 19,728 2.1 17,307 1.9
Money market accounts.......................... 42,895 4.5 44,804 5.1
Passbook accounts.............................. 138,110 14.5 139,089 15.8
-------- ----- -------- -----
275,898 29.0 265,594 30.1
Certificates of deposit.......................... 665,175 70.1 608,031 69.0
-------- ----- -------- -----
941,073 99.1 873,625 99.1
Accrued interest................................. 8,379 0.9 7,619 0.9
-------- ----- -------- -----
$949,452 100.0 $881,244 100.0
======== ===== ======== =====
</TABLE>
The aggregate amount of time deposits over $100 was $51,339 and $41,354 at June
30, 1998 and 1997, respectively.
At June 30, the scheduled maturities of certificate accounts were as follows:
<TABLE>
<CAPTION>
MATURITY PERIOD 1998 1997
- --------------- ---- ----
<S> <C> <C>
1-12 months................................................ $287,022 $317,345
13-24 months............................................... 165,149 99,943
25-36 months............................................... 107,636 69,026
37-48 months............................................... 36,353 37,855
49-60 months............................................... 9,527 26,848
Thereafter................................................. 59,488 57,014
-------- --------
$665,175 $608,031
======== ========
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE F--ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER DEBT
The advances from the FHLB at June 30 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
INTEREST INTEREST
BALANCE RATE % BALANCE RATE %
------- ------ ------- ------
<S> <C> <C> <C> <C>
Due within one year......................................... $ -- $ 5,000 7.98%
Due within five years....................................... 20,000 5.82-6.82 10,000 6.24-6.82
Due within ten years........................................ 20,000 5.48-5.76 --
Due within twenty years..................................... 671 3.00-6.27 682 3.00-6.27
------- -------
$40,671 $15,682
======= =======
Weighted average interest rate at end of period............. 5.93% 6.88%
========= =========
</TABLE>
The FHLB advances are secured by Parkvale's FHLB stock and mortgage-backed
securities and are subject to substantial prepayment penalties. Parkvale has a
$50 million line of credit with the FHLB. To date, Parkvale has not borrowed on
this line of credit and has no current plans to do so.
Other debt consists of recourse loans and commercial investment agreements with
certain commercial checking account customers. These daily borrowings had
balances of $4,420 and $4,514 at June 30, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
NOTE G--REGULATORY CAPITAL
Parkvale is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on
Parkvale's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Parkvale must meet specific
capital guidelines that involve quantitative measures of Parkvale's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. Parkvale's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Parkvale to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets and of Tier I capital to average assets.
Management believes, as of June 30, 1998, that Parkvale meets all capital
adequacy requirements to which it is subject.
As of June 30, 1998, the most recent notification from the Federal Deposit
Insurance Corporation categorized Parkvale Savings Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the institution's category.
Parkvale's actual regulatory capital amounts and ratios compared to minimum
levels are as follows:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
---------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 1998:
TOTAL CAPITAL TO RISK WEIGHTED ASSETS.......... $86,018 14.23% $48,371 8.00% $60,463 10.00%
TIER I CAPITAL TO RISK WEIGHTED ASSETS......... 78,394 12.97% 24,185 4.00% 36,278 6.00%
TIER I CAPITAL TO AVERAGE ASSETS............... 78,394 7.59% 41,294 4.00% 51,617 5.00%
As of June 30, 1997:
Total Capital to Risk Weighted Assets.......... $76,751 14.65% $41,904 8.00% $52,380 10.00%
Tier I Capital to Risk Weighted Assets......... 70,112 13.20% 21,243 4.00% 31,865 6.00%
Tier I Capital to Average Assets............... 70,112 7.38% 38,001 4.00% 47,501 5.00%
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE H--INCOME TAXES
Income tax expense (credits) for the years ended June 30 are comprised of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal:
Current............................................ $5,269 $3,835 $3,923
Deferred........................................... 67 (506) 276
State................................................ 1,049 692 801
------ ------ ------
$6,385 $4,021 $5,000
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Parkvale's deferred tax assets and liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Book bad debt reserves.................................... $4,384 $4,735
Deferred loan fees........................................ 298 365
Purchase accounting adjustments........................... 88 97
Fixed assets.............................................. 70 50
Deferred compensation..................................... 169 188
------ ------
Total deferred tax assets.............................. 5,009 5,435
------ ------
Deferred tax liabilities:
Tax bad debt reserves..................................... 1,055 1,407
Unrealized gains on securities available for sale......... 2,458 2,308
Other, net................................................ 251 258
------ ------
Total deferred tax liabilities......................... 3,764 3,973
------ ------
Net deferred tax assets................................ $1,245 $1,462
====== ======
</TABLE>
No valuation allowance was required at June 30, 1998 or 1997.
Parkvale's effective tax rate differs from the expected federal income tax rate
for the years ended June 30 as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Expected federal statutory income tax
provision/rate............................ $5,951 34.0% $3,738 34.0% $4,970 34.0%
Tax-exempt interest......................... (67) -0.4% (118) -1.1% (197) -1.3%
State income taxes, net of federal
benefit................................... 692 4.0% 457 4.2% 529 3.6%
Other....................................... (191) -1.1% (56) -0.5% (302) -2.1%
------ ----- ------ ----- ------ -----
Effective total income tax provision........ $6,385 36.5% $4,021 36.6% $5,000 34.2%
====== ===== ====== ===== ====== =====
</TABLE>
Prior to 1996, savings institutions that met certain definitional tests and
operating requirements prescribed by the Internal Revenue Code of 1986, as
amended, were allowed a special bad debt deduction and other special tax
provisions. The special bad debt deduction was based on either specified
experience formulas or a specified percentage of taxable income before such
deduction. For tax years from 1987 to 1995, the percentage of taxable income bad
debt deduction was 8% of adjusted taxable income. The Small Business Job
Protection Act of 1996 passed in August 1996 eliminated the special bad debt
deduction granted solely to thrifts. This results in the payment of taxes of
$690 annually over a six year period from 1997 to 2002, which are disclosed as
"tax bad debt reserves" as a deferred tax liability.
The Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax which is
calculated at 11.5% of earnings based on generally accepted accounting
principles with certain adjustments.
- --------------------------------------------------------------------------------
28
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE I--EMPLOYEE COMPENSATION PLANS
Retirement Plan
Parkvale provides eligible employees participation in a 401(k) defined
contribution plan. Benefit expense was $181, $177 and $172 in fiscal years 1998,
1997 and 1996, respectively, which represented a 50% company match on deferred
compensation and a profit sharing contribution equal to 2% of eligible
compensation.
Employee Stock Ownership Plan
Parkvale also provides an Employee Stock Ownership Plan ("ESOP") to all
employees who have met minimum service and age requirements. Parkvale recognized
expense of $373 in fiscal 1998, $287 in fiscal 1997 and $336 in fiscal 1996 for
ESOP contributions, which were used to make debt service payments and for the
purchase of additional shares of Parkvale's Common Stock in open-market
transactions. At June 30, 1998, the ESOP owned 431,597 shares of Parkvale Common
Stock.
Stock Option Plans
Parkvale has Stock Option Plans for the benefit of directors, officers and other
selected key employees of Parkvale who are deemed to be responsible for the
future growth of Parkvale. All of the original shares under the 1987 Plan have
been awarded. In October 1993, the 1993 Directors' Stock Option Plan was
adopted. An aggregate of 152,588 shares of authorized but unissued Common Stock
of Parkvale was reserved for future issuance. As of June 30, 1998, 76,280 option
shares have been granted under this plan. Additionally, the 1993 Key Employee
Stock Compensation Program was adopted in October 1993. An aggregate of 369,262
shares of authorized but unissued Common Stock of Parkvale were reserved for
future issuance. As of June 30, 1998, 170,883 option shares have been granted
under this plan. The 1993 Director's Stock Option Plan shares were exercisable
on the date of the grant. The 1993 Key Employee Stock Compensation Program
option shares are 50% exercisable upon six months of continuous service after
the grant date and the remaining 50% is exercisable after a year of continuous
service from the grant date. At June 30, 1998, all option shares are
exercisable. The following table presents option share data related to the Stock
Option Plans for the years indicated, adjusted for the 1997 and prior stock
splits:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EXERCISE PRICE PER SHARE $2.622 $3.563 $12.452 $12.902 $12.063 $17.04 $19.90 $20.40 $29.00 Total
------ ------ ------- ------- ------- ------ ------ ------ ------ -----
Share balances
at June 30,
1995.......................... 131,224 144,959 15,258 97,656 15,258 404,355
Granted....................... 15,258 15,258
Exercised..................... (42,041) (6,958) (48,999)
------- ------- ------ ------ ------ ------ ------ ------- ------ -------
June 30,
1996.......................... 89,183 138,001 15,258 97,656 15,258 15,258 370,614
Granted....................... 15,258 103,750 119,008
Exercised..................... (49,878) (14,999) (8,544) (73,421)
------- ------- ------ ------ ------ ------ ------ ------- ------ -------
June 30,
1997.......................... 39,305 123,002 15,258 89,112 15,258 15,258 15,258 103,750 416,201
Granted....................... 15,255 15,255
Exercised..................... (39,305) (78,758) (4,882) (11,338) (134,283)
Forfeitures................... (3,438) (3,438)
------- ------- ------ ------ ------ ------ ------ ------- ------ -------
June 30,
1998.......................... -- 44,244 15,258 84,230 15,258 15,258 15,258 88,974 15,255 293,735
</TABLE>
Pro forma information regarding net income and earnings per share as required by
FAS 123 has been determined as if PFC had accounted for its stock options using
that method. The fair value for these options was estimated at the date of the
grant using a Black-Scholes option pricing model with the following respective
assumptions: for the 1993 Director's Stock Option Plan, the risk-free interest
rate is 5.99%, dividend yield is 1.8%, volatility
29
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
factor of the expected market price of PFC's common stock of 0.133 and an
expected life of the options of nine years.
In management's opinion, existing stock option valuation models do not provide a
reliable single measure of the fair value of employee stock options that have
vesting provisions and are not transferable. In addition, option valuation
models require input of highly subjective assumptions including the expected
stock price volatility. Because PFC's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Parkvale's pro forma
information follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income before stock options........................... $11,118 $6,974 $9,618
Compensation expense from stock options:
Fiscal year ended June 30, 1996 grant................... -- -- 51
Fiscal year ended June 30, 1997 grant................... -- 241 --
Fiscal year ended June 30, 1998 grant................... 83 -- --
------- ------ ------
Pro forma net income...................................... $11,035 $6,733 $9,567
======= ====== ======
Pro forma earnings per share:
Basic................................................... $ 2.15 $ 1.33 $ 1.90
Diluted................................................. $ 2.08 $ 1.29 $ 1.83
</TABLE>
- --------------------------------------------------------------------------------
NOTE J--GAIN ON SALE OF ASSETS
The $2,148 gain recognized in fiscal 1998 was related to the sale of 46,200
shares of Federal Home Loan Mortgage Corporation stock in the March 1998 and
June 1998 quarterly reporting periods. The $969 gain recognized in fiscal 1996
was related to the payoff of a multifamily loan with a previously deferred gain.
- --------------------------------------------------------------------------------
NOTE K--LEASES
Parkvale's rent expense for leased real properties amounted to approximately
$1,079 in 1998, $1,036 in fiscal 1997 and $992 in 1996. At June 30, 1998,
Parkvale was obligated under 20 noncancellable operating leases, which expire
through 2014. The minimum rental commitments for the fiscal years subsequent to
June 30, 1998 are as follows: 1999--$989, 2000--$596, 2001--$498, 2002--$347,
2003--$284 and later years--$1,315.
- --------------------------------------------------------------------------------
NOTE L--SELECTED BALANCE SHEET INFORMATION
Selected balance sheet data at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Prepaid expenses and other
assets:
Accrued interest on loans... $5,316 $5,038
Reserve for uncollected
interest................. (181) (284)
Accrued interest on
investments.............. 1,006 1,138
Other prepaids.............. 1,106 439
Net deferred tax asset...... 1,245 1,462
------ ------
$8,492 $7,793
====== ======
1998 1997
---- ----
Other liabilities:
Accounts payable and accrued
expenses................. $4,877 $1,729
Negative goodwill........... 545 669
Other liabilities........... 1,081 863
Federal and state income
taxes payable............ 657 1,251
------ ------
$7,160 $4,512
====== ======
</TABLE>
30
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE M--QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR
-------------------------------------------------- ENDED
SEP. 97 DEC. 97 MAR. 98 JUNE 98 JUNE 98
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total interest income............................. $18,213 $18,406 $18,539 $18,862 $74,020
Total interest expense............................ 10,837 10,992 11,079 11,282 44,190
------- ------- ------- ------- -------
Net interest income............................... 7,376 7,414 7,460 7,580 29,830
Provision for loan losses......................... 93 64 51 47 255
------- ------- ------- ------- -------
Total interest income after provision for
losses.......................................... 7,283 7,350 7,409 7,533 29,575
Other income...................................... 581 634 2,647 847 4,709
Other expense..................................... 3,589 3,648 5,663 3,881 16,781
------- ------- ------- ------- -------
Income before income taxes........................ 4,275 4,336 4,393 4,499 17,503
Income tax expense................................ 1,579 1,604 1,582 1,620 6,385
------- ------- ------- ------- -------
Net income........................................ $ 2,696 $ 2,732 $ 2,811 $ 2,879 $11,118
======= ======= ======= ======= =======
Net income per share:
Basic........................................... $ 0.53 $ 0.53 $ 0.55 $ 0.56 $ 2.17
Diluted......................................... $ 0.51 $ 0.52 $ 0.53 $ 0.54 $ 2.10
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR
-------------------------------------------------- ENDED
SEP. 96 DEC. 96 MAR. 97 JUNE 97 JUNE 97
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total interest income............................. $16,666 $16,778 $17,257 $17,679 $68,380
Total interest expense............................ 9,737 9,906 10,242 10,467 40,352
------- ------- ------- ------- -------
Net interest income............................... 6,929 6,872 7,015 7,212 28,028
Provision for loan losses......................... 135 114 71 79 399
------- ------- ------- ------- -------
Total interest income after provision for
losses.......................................... 6,794 6,758 6,944 7,133 27,629
Other income...................................... 519 583 514 558 2,174
FDIC special assessment........................... 5,035 -- -- -- 5,035
Total other expense............................... 3,530 3,214 3,437 3,592 13,773
------- ------- ------- ------- -------
Income before income taxes........................ (1,252) 4,127 4,021 4,099 10,995
Income tax expense (benefit)...................... (464) 1,528 1,467 1,490 4,021
------- ------- ------- ------- -------
Net income........................................ $ (788) $ 2,599 $ 2,554 $ 2,609 $ 6,974
======= ======= ======= ======= =======
Net income per share:
Basic........................................... $ (0.16) $ 0.51 $ 0.51 $ 0.52 $ 1.38
Diluted......................................... $ (0.16) $ 0.50 $ 0.48 $ 0.50 $ 1.33*
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Year-to-date amount includes the antidilutive 179,274 incremental shares
calculated in accordance with FAS 128 as of September 30, 1996.
31
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE N--PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The condensed balance sheets and statements of income and cash flows for
Parkvale Financial Corporation as of June 30, 1998 and 1997 and the years then
ended are presented below. PFC's sole subsidiary is Parkvale Savings Bank
("PSB").
PARKVALE FINANCIAL CORPORATION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
BALANCE SHEETS
1998 1997
<S> <C> <C>
Assets:
Investment in PSB............ $82,526 $74,424
Cash......................... 1,002 370
Other equity investments..... 1,542 1,106
Other assets................. 124 --
------- -------
Total assets.............. $85,194 $75,900
======= =======
Liabilities and Shareholders'
Equity:
Accounts payable............. $ 52 $ 43
Deferred taxes............... 306 147
Dividends payable............ 776 527
Shareholders' equity......... 84,060 75,183
------- -------
Total liabilities and
shareholders' equity.... $85,194 $75,900
======= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
1998 1997 1996
<S> <C> <C> <C>
Dividends from PSB...... $ 3,000 $2,500 $2,000
Other income............ 120 95 82
Operating expenses...... (120) (95) (82)
------- ------ ------
Income before equity in
undistributed earnings
of subsidiary......... 3,000 2,500 2,000
Equity in undistributed
income of PSB......... 8,118 4,474 7,618
------- ------ ------
Net income......... $11,118 $6,974 $9,618
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Management fee income received........................ $ 120 $ 95 $ 82
Dividends received.................................... 3,000 2,500 2,000
Taxes received from PSB............................... 453 -- --
Cash paid to suppliers................................ (79) (65) (75)
------- ------- -------
Net cash provided by operating activities.......... 3,494 2,530 2,007
------- ------- -------
Cash flows from investing activities:
Equity investments purchased.......................... -- -- (373)
Cash flows from financing activities:
Payment for treasury stock............................ (674) (1,340) --
Allocation of treasury stock to retirement plans...... 395 450 178
Dividends paid to stockholders........................ (2,636) (2,007) (1,592)
Loan to PFC ESOP...................................... (222) (450) (135)
Principal collected on ESOP loan...................... 275 224 130
------- ------- -------
Net cash used in financing activities.............. (2,862) (3,123) (1,419)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.... 632 (593) 215
Cash and cash equivalents at beginning of year.......... 370 963 748
------- ------- -------
Cash and cash equivalents at end of year................ $ 1,002 $ 370 $ 963
======= ======= =======
Reconciliation of net income to net cash provided by
operating activities:
Net income............................................ $11,118 $ 6,974 $ 9,618
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of PSB..................... (8,118) (4,474) (7,618)
Taxes received from PSB......................... 453 -- --
Increase in accrued expenses.................... 41 30 7
------- ------- -------
Net cash provided by operating activities.......... $ 3,494 $ 2,530 $ 2,007
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
32
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
NOTE O--FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS 107, Disclosure About Fair Value of Financial Instruments, requires the
determination of fair value for certain of the Bank's assets, liabilities and
contingent liabilities. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
CASH AND NONINTEREST BEARING DEPOSITS: The carrying amount of cash which
includes noninterest-bearing demand deposits approximates fair value.
FEDERAL FUNDS SOLD: The carrying amount of overnight federal funds approximates
fair value.
INTEREST-EARNING DEPOSITS IN OTHER BANKS: The carrying amount of other
overnight interest-bearing balances approximates fair value.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES: The fair values of investment
securities are obtained from the Wall Street Journal, the Interactive Data
Corporation pricing service and various investment brokers for securities not
available from public sources.
LOANS RECEIVABLE: Fair values were estimated by discounting contractual cash
flows using interest rates currently being offered for loans with similar credit
quality adjusted for standard prepayment assumptions.
DEPOSIT LIABILITIES: For checking, savings and money market accounts, fair
value is the amount payable on demand at June 30. The fair values of
fixed-maturity certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on time
deposits of similar remaining maturities.
ADVANCES FROM FEDERAL HOME LOAN BANK: Fair value is determined by discounting
the advances using current rates of advances with comparable maturities as of
the reporting date.
COMMERCIAL INVESTMENT AGREEMENTS: The carrying amount of these overnight
borrowings approximates fair value.
OFF-BALANCE-SHEET INSTRUMENTS: Fair value for off-balance-sheet instruments
(primarily loan commitments) are estimated using internal valuation models and
are limited to fees charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties' credit
standing. Unused consumer and commercial lines of credit are assumed equal to
the outstanding commitment amount due to the variable interest rate attached to
these lines of credit.
<TABLE>
<CAPTION>
1998 1997
--------------------------- -------------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE VALUE FAIR VALUE VALUE
FINANCIAL ASSETS: ---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Cash and noninterest-earning deposits... $ 9,628 $ 9,628 $ 12,104 $ 12,104
Federal funds sold...................... 124,900 124,900 107,832 107,832
Interest-earning deposits in other
banks................................ 475 475 219 219
Investment securities................... 70,582 70,565 82,443 82,639
Mortgage-backed securities.............. 44,258 43,427 67,937 66,941
Loans receivable........................ 866,353 832,758 738,663 710,868
---------- ---------- ---------- --------
$1,116,196 $1,081,753 $1,009,198 $980,603
========== ========== ========== ========
FINANCIAL LIABILITIES:
Checking, savings and money market
accounts............................. $ 275,898 $ 275,898 $ 265,594 $265,594
Savings certificates.................... 669,730 665,175 605,186 608,031
Advances from Federal Home Loan Bank.... 40,691 40,671 15,763 15,682
Commercial investment agreements........ 4,420 4,420 4,514 4,514
---------- ---------- ---------- --------
$ 990,739 $ 986,164 $ 891,057 $893,821
========== ========== ========== ========
Off-balance-sheet instruments............. $ (7) -- $ (2) --
</TABLE>
- --------------------------------------------------------------------------------
33
<PAGE> 31
<TABLE>
<S> <C>
CAPITAL STOCK INFORMATION
- ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 10:00 a.m., Thursday,
October 22, 1998, at the Pittsburgh Athletic Association, 4215 Fifth Avenue,
Pittsburgh, Pennsylvania.
- STOCK LISTING & DIVIDENDS
Parkvale's Common Stock is traded in the over-the-counter market and quoted on
the NASDAQ National Market System under the symbol "PVSA." Prices shown below
are based on the prices reported by the NASDAQ system, with appropriate
adjustments for the 5-for-4 stock split in October 1997.
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
FOR THE QUARTER ENDED ---- --- ---------
---------------------
<S> <C> <C> <C>
June 98........................... $33.75 $30.50 $0.15
March 98.......................... 33.25 28.50 0.15
December 97....................... 34.25 26.00 0.13
September 97...................... 33.75 26.75 0.13
June 97........................... $23.20 $20.60 $0.104
March 97.......................... 24.00 19.60 0.104
December 96....................... 21.20 18.08 0.104
September 96...................... 18.88 15.68 0.104
</TABLE>
<TABLE>
<S> <C>
There were 5,164,037 shares of Common Stock outstanding as of August 24, 1998,
the Voting Record Date, which shares were held as of such date by approximately
520 holders of record.
- TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Toll free phone: 1 (800) 368-5948
Fax: (908) 497-2312
- INFORMATION REQUESTS
A copy of the 1998 Annual Report of Parkvale Financial Corporation on Form 10-K
filed with the Securities and Exchange Commission, and a list of exhibits
thereto, will be furnished to shareholders without charge upon their written
request to the Treasurer of the Corporation at its Headquarters Office, 4220
William Penn Highway, Monroeville, PA 15146. The telephone number is (412)
373-7200.
Parkvale's web site is http://www.parkvale.com
</TABLE>
36
<PAGE> 32
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
DIRECTORS WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS
Pursuant to the Bylaws of the Corporation and by resolution of the
Corporation's Board of Directors, the Board of Directors currently consists of
six members. The Board of Directors is divided into three classes, and members
of each class are elected for a term of three years and until their successors
are elected and qualified. One class of directors is to be elected annually.
There are no arrangements or understandings between the Corporation and any
person pursuant to which such person has been nominated as a director. No
director or executive officer is related to any other director or executive
officer of either the Corporation or the Bank.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of all the nominees listed below. If
any person named as nominee should be unable or unwilling to stand for election
at the time of the Annual Meeting, the proxies will nominate and vote for the
replacement nominee or nominees recommended by the Board of Directors. At this
time, the Board of Directors knows of no reason why any of the persons listed
below may not be able to serve as a director if elected. A majority of the
shares of Common Stock entitled to vote, present in person or by proxy at the
meeting, will constitute a quorum. The election of directors requires the
affirmative vote of a majority of the votes cast by all stockholders entitled to
vote thereon, whether in person or by proxy. Votes marked as "withhold
authority" on the election of directors are counted toward a quorum and have the
same legal effect as a vote against the election of the nominees.
NOMINEES FOR TERMS EXPIRING IN 2001
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS SINCE
---- --- -------------------------- -----
<S> <C> <C> <C>
Robert J. McCarthy, Jr. 55 Director; President and Chief Executive Officer 1985(1)
of the Bank since December 1, 1984 and of the
Corporation since organization in August 1987;
previously President and Chief Executive
Officer of Metropolitan Federal Savings Bank,
Bethesda, Maryland
Patrick J. Minnock 41 President of Minnock Construction Company, a
leading builder and developer in the western
Pennsylvania area, since 1988; licensed real
estate broker since 1987
</TABLE>
Patrick J. Minnock was nominated to replace George W. Newland who is
retiring from the Board as of the Annual Meeting date.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE ABOVE NOMINEES
BE ELECTED AS DIRECTORS.
DIRECTORS WITH TERMS EXPIRING IN 1999
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS SINCE
---- --- -------------------------- -----
<S> <C> <C> <C>
Fred P. Burger, Jr. 71 Director; President of Burger Agency, Inc., a 1981(1)
real estate brokerage firm and insurance
agency, since 1948
Warren R. Wenner 77 Director; retired; previously a sales 1968(1)
representative for The Gage Co., a distributor
of industrial tools and equipment, from 1965 to
1985
</TABLE>
5
<PAGE> 33
DIRECTORS WITH TERMS EXPIRING IN 2000
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME AGE DURING THE PAST FIVE YEARS SINCE
---- --- -------------------------- -----
<S> <C> <C> <C>
Robert D. Pfischner 76 Chairman of the Board; President of E.T. 1968(1)
Lippert Saw Co., a manufacturer of saw blades
for industry and fabricator of armor plate,
since 1973
Andrea F. Fitting, Ph.D. 44 Chief Executive Officer of Fitting Kolbrener Sept. 1,
since 1995 and President of Fitting 1998
Communications, Inc. from 1986 to 1995,
marketing communications firms;
</TABLE>
Andrea F. Fitting was appointed by the Board of Directors to complete Paul
A. Mooney's term. Mr. Mooney retired from the Board on August 31, 1998 for
health reasons.
- ---------
(1) Includes terms as a director of the Bank prior to organization of the
Corporation in 1987 and currently serves as a director of the Bank.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Corporation holds regular meetings at least
quarterly. Each member of the Board of Directors of the Corporation also serves
as a director of the Bank. During the year ended June 30, 1998, the Board of
Directors of the Corporation met nine times. No director failed to attend fewer
than 75% of the aggregate number of such meetings and the meetings of the
committees of the Board on which he served. All members of the Board serve on
the Nominating Committee, which met two times during fiscal 1998. The Nominating
Committee will consider nominations made by stockholders if such nominations are
made in accordance with Article IV, Section 3 of the Corporation's Bylaws. The
Board also has other standing committees, each served by the same members of the
Board and in the same capacities as those described below for similar committees
of the Bank's Board. The Executive Committee, which did not meet in fiscal 1998,
has the authority to exercise all of the powers of the Board between Board
meetings. The joint Audit-Finance Committee of the Corporation and the Bank met
four times in fiscal 1998. Directors of the Corporation do not receive any fees
directly from the Corporation for serving as Board and Committee members. The
Board does not have a separate compensation committee as determination of
compensation is a function of the Audit-Finance Committee.
The Board of Directors of the Bank meets regularly each month and may have
additional special meetings. The Board met twelve times during fiscal 1998. The
Bank has standing Executive, Audit-Finance and Site-Building Committees as
described below, in addition to other committees. During fiscal 1998, no
director failed to attend fewer than 75% of the aggregate number of meetings
held during the year by the Board of Directors and by all committees of the
Board on which he served.
The Executive Committee has the authority to exercise all the powers of the
Board of Directors between Board meetings. Membership on the Executive
Committee, which consists of three members of the Board, rotates monthly with
each director, except for Messrs. Pfischner and McCarthy, serving at least one
month each quarter of the year. Mr. Pfischner currently serves as Chairman of
this committee. Mr. McCarthy attends but does not vote at the meetings. The
Executive Committee met one time during fiscal 1998.
The Audit-Finance Committee reviews the Bank's budget, the scope and
results of the audit performed by the Corporation's and the Bank's independent
auditors, the scope and results of the examinations performed by the Office of
Thrift Supervision, the Pennsylvania Department of Banking and the Federal
Deposit Insurance Corporation, the Bank's system of internal control, and
monitors compliance with the Bank's established investment, interest rate risk,
financial futures and options policies. The members of such committee must
consider and act upon (1) all transactions with respect to the investment
portfolio, with the exception of Federal Funds sold, in excess of $25 million,
and (2) all hedging activities over $10 million and up to $25 million. In
addition, the Audit-Finance
6
<PAGE> 34
Committee reviews and makes recommendations to the Board concerning compensation
of officers and employees. The members of the Audit-Finance Committee are
appointed annually and consisted of Messrs. Burger, Mooney, Newland and Wenner
during fiscal 1998. Messrs. Pfischner and McCarthy, as ex-officio members,
attend the meetings but do not vote. Mr. Newland currently serves as Chairman of
this committee. The Audit-Finance Committee met four times during fiscal 1998.
The Site-Building Committee inspects, evaluates and recommends to the Board
proposed sites for branch offices and recommends any major repairs and/or
additions to such proposed sites that may be necessary. The members of the
Site-Building Committee are appointed annually and consisted of Messrs. Burger,
Mooney, Newland and Wenner during fiscal 1998. Messrs. Pfischner and McCarthy,
as ex-officio members, attend the meetings but do not vote. Mr. Wenner currently
serves as Chairman of this committee. The Site-Building Committee met three
times during fiscal 1998.
Certain directors also served as trustee/administrators of the
Corporation's benefit plans during fiscal 1998 as follows: 401(k) Plan, Messrs.
McCarthy, Newland and Pfischner; Employee Stock Ownership Plan, Messrs. Mooney,
Newland and Pfischner; and Stock Option Plans, Messrs. Burger, Mooney, Pfischner
and Wenner. To date, the directors serving as trustees/administrators of such
plans have not received any additional compensation for such services.
COMPENSATION OF DIRECTORS
Board members receive a retainer of $1,200 monthly, based on an annualized
retainer of $14,400, and $450 for each meeting attended. Mr. McCarthy does not
receive the annual retainer and meeting fees. Directors, excluding Messrs.
Pfischner and McCarthy, received $200 for each committee meeting attended during
fiscal 1998, except for the chairmen of the Audit-Finance and Site-Building
committees, who received $225 per meeting attended. In addition to the normal
$225 per meeting fee for fulfilling his duties as Chairman of the Site-Building
Committee, Mr. Wenner also receives a minimum of $50 for inspecting and
evaluating a proposed branch site and any major repairs to a branch office or
site. Mr. Wenner made seven inspections/evaluations during fiscal 1998 and
received a total of $400 for performing such services.
On December 16, 1993, the Bank entered into a consulting agreement with Mr.
Pfischner to serve as a consultant to the President-Chief Executive Officer,
Board of Directors and executive staff of the Bank for a term of one year
commencing on January 1, 1994 and continuing from year to year by written
agreement. The agreement was extended by written agreement each year through
1998 under the same terms and conditions for a term of one year. The agreement
provides for a minimum base annual fee of $20,400 payable monthly, which may be
increased in the future. Either party may terminate the agreement by providing
the other party with at least thirty days written notice before the expiration
date of the agreement. Mr. Pfischner had performed consulting services to the
Bank for many years without a written agreement. For services performed during
fiscal 1998, in addition to the regular Board fees Mr. Pfischner received
$35,400 which included a bonus of $15,000 for outstanding services to the Bank.
Under the 1993 Directors' Stock Option Plan, each person who serves as a
non-employee director immediately following the last adjournment of each Annual
Meeting shall be granted as of such date a compensatory stock option to purchase
shares of the Corporation's Common Stock at a price equal to the fair market
value of a share of the Common Stock on that date. On the 1997 Annual Meeting
date, each non-employee director received an option to purchase 3,051 shares.
The fair market value on the October 23, 1997 Annual Meeting date was $29.00 per
share. The Plan was amended during fiscal 1998. The amendment provides that
commencing as of the 1998 Annual Meeting date, 2,000 shares shall be granted to
each non-employee director following the last adjournment of each Annual
Meeting.
Directors may make an irrevocable election prior to the beginning of each
calendar year to defer all or a portion of the annual retainer and meeting fees
into a cash account and/or a PFC stock account. The cash account earns interest
each year at a rate equal to the rate paid on the Bank's highest rated
certificate of deposit on the first business day of each calendar year. The
stock account is credited with the dividends paid on PFC stock during the year.
Prior to the beginning of the year, each participant may elect to purchase PFC
Common Stock with the cash in either account. A third deemed investment
7
<PAGE> 35
option earns the performance rate of any of the selected mutual funds offered by
CIGNA to participants of the Bank's 401(k) Plan. At the end of each quarter, the
account is credited with gains (or debited for losses) in accordance with the
mutual fund experience reports provided by CIGNA. Participants may receive
payments from their accounts on a designated date after January 1, 1998, on the
attainment of an age after 65 or at termination of Board service in cash, in
either a lump sum or annual installments, or receive the Common Stock.
EXECUTIVE MANAGEMENT
The following table sets forth certain information with respect to
executive officers of the Corporation and the Bank who are not directors of the
Corporation. There are no arrangements or understandings between the Corporation
or the Bank and any person pursuant to which such person has been appointed an
executive officer. No executive officer is related to any other executive
officer or director of the Corporation or the Bank by blood, marriage or
adoption. Officers of the Corporation and the Bank are appointed annually by the
respective Boards of Directors for one-year terms.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS
---- --- -------------------
<S> <C> <C>
Timothy G. Rubritz 44 Vice President-Treasurer of the Corporation since its
organization in August 1987; Senior Vice President-Treasurer
of the Bank since December 1989; Vice President-Treasurer
from January 1986 to December 1989; joined the Bank in June
1985 as audit director; with Coopers & Lybrand from 1976 to
1985, including a general practice manager at such firm from
1982 to 1985.
Bruce C. Gilleylen 52 Vice President of the Corporation since October 1995; Senior
Vice President and Chief Lending Officer of the Bank since
December 1989; Vice President from March 1986 to December
1989; joined the Bank in January 1986; with Equibank from
1982 to 1985, including a Senior Vice President thereof from
1984 to 1985.
Steven A. Friedman 48 Vice President of the Corporation since October 1995; Senior
Vice President of the Bank since December 1990;
Audit-Compliance Officer of the Corporation and the Bank;
Vice President from September 1986 to December 1990; joined
the Bank in July 1986; with the Federal Home Loan Bank of
Pittsburgh for six years serving as Vice
President-Supervision, Assistant Vice President and
Supervisory Analyst.
William J. Burt 53 Senior Vice President since joining the Bank in March 1998;
in charge of Retail Banking; with National City Bank,
formerly Integra Bank, as Area President from April 1995 to
September 1997 and with Integra Financial Corporation as
Senior Vice President, Bank Operations from 1989 to March
1995.
Gail Bieri Anwyll 46 Vice President of the Bank since December 1992 in charge of
Human Resources Department and Marketing, and Assistant
Corporate Secretary since July 1990; Senior Assistant Vice
President from December 1991 to December 1992; Assistant
Vice President from December 1989 to December 1991; joined
the Bank in August 1989 as Director of Human Resources; with
Lyman Savings & Loan Association from 1976 to August 1989,
serving as Executive Vice President from 1987 to August
1989.
</TABLE>
8
<PAGE> 36
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
NAME AGE THE PAST FIVE YEARS
---- --- -------------------
<S> <C> <C>
Nancy E. Kelly 49 Vice President of the Bank since December 1996; in charge of
branch operations since May 1997; Senior Assistant Vice
President from December 1991 to December 1996; Assistant
Vice President from December 1990 to December 1991. Joined
the Bank in December 1989.
Charles M. Murslack 44 Vice President of the Bank since December 1991; Assistant
Vice President from June 1988 to December 1991; responsible
for data processing systems; joined the Bank in January
1988; with Mellon Bank from 1975 to January 1988.
Thomas R. Ondek 39 Vice President of the Bank since December 1989 in charge of
Savings/Checking Department; Assistant Vice President from
December 1986 to December 1989; branch manager from April to
December 1985; joined the Bank in May 1984.
Robert A. Stephens 43 Vice President of the Bank in charge of Mortgage Department
since December 1989; Assistant Vice President from November
1984 to December 1989; joined the Bank in August 1981 as a
loan officer.
</TABLE>
9
<PAGE> 37
EXECUTIVE COMPENSATION
SUMMARY
The following table sets forth a summary of certain information concerning
the compensation awarded or paid for services rendered in all capacities during
the last three fiscal years to the Chief Executive Officer and other executive
officers of the Corporation and the Bank ("Named Executive Officers") whose
total compensation during the last fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY(1) BONUS OPTION AWARDS COMPENSATION(2)(3)
--------------------------- ----------- --------- ----- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Robert J. McCarthy, Jr. 1998 $271,000 $225,000 0 $86,911
President and Chief Executive 1997 262,000 200,000 0 87,787
Officer 1996 256,000 200,000 0 83,491
Bruce C. Gilleylen 1998 125,400 50,000 0 33,930
Vice President of the 1997 122,400 46,000 0 37,747
Corporation, Senior Vice 1996 119,400 44,000 0 36,050
President and Chief Lending
Officer of the Bank
Timothy G. Rubritz 1998 123,000 48,000 0 33,177
Vice President-Treasurer of 1997 120,600 45,000 0 37,507
the Corporation and Senior 1996 118,800 44,000 0 36,026
Vice President-Treasurer of
the Bank
Steven A. Friedman 1998 92,400 42,000 0 24,959
Vice President of the 1997 89,400 38,000 0 27,430
Corporation, Senior Vice 1996 86,400 35,000 0 25,730
President of the Bank and
Audit-Compliance Officer of
the Corporation and the Bank
</TABLE>
- ---------
(1) Salary includes amounts deferred at the election of the executive officer
through the Bank's 401(k) Plan and Executive Deferred Compensation Plan
("EDCP").
(2) Includes the Bank's contributions to the 401(k) Plan and EDCP during fiscal
1998 on behalf of Mr. McCarthy ($20,120), Mr. Gilleylen ($7,793), Mr.
Rubritz ($7,554), and Mr. Friedman ($5,334).
(3) Includes the value of the Common Stock allocated to the ESOP and SEBP Trust
accounts of Messrs. McCarthy ($66,791), Gilleylen ($26,136), Rubritz
($25,623), and the ESOP account of Mr. Friedman ($19,625), based upon the
closing price of $34.25 per share on the allocation date, December 31, 1997.
The column "Other Annual Compensation" has been omitted because there is no
compensation required to be reported in such column. The aggregate amount of
perquisites and other personal benefits provided to each Named Executive Officer
did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
of such officer.
13
<PAGE> 38
PARKVALE FINANCIAL CORPORATION
------------------------------
PROXY STATEMENT
------------------------------
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to holders of common stock, par
value $1.00 per share ("Common Stock"), of Parkvale Financial Corporation (the
"Corporation" or "PFC"), the holding company of Parkvale Savings Bank (the
"Bank"), in connection with the solicitation of proxies on behalf of the Board
of Directors, for use at the Annual Meeting of Stockholders to be held at the
Pittsburgh Athletic Association, 4215 Fifth Avenue, Pittsburgh, Pennsylvania, on
Thursday, October 22, 1998, at 10:00 a.m., Eastern Time, and at any adjournment
thereof for the purposes set forth in the Notice of Annual Meeting. This Proxy
Statement is being first sent to stockholders on or about September 14, 1998.
The proxies solicited hereby, if properly signed and returned to the
Corporation, will be voted in accordance with the instructions contained therein
if they are not revoked prior to their use. IF NO CONTRARY INSTRUCTIONS ARE
GIVEN, EACH PROXY RECEIVED WILL BE VOTED FOR THE SLATE OF DIRECTORS DESCRIBED
HEREIN, FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
CORPORATION'S INDEPENDENT AUDITORS, AGAINST THE TWO STOCKHOLDER PROPOSALS
DESCRIBED IN THIS PROXY STATEMENT, AND UPON THE TRANSACTION OF SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING, IN ACCORDANCE WITH THE BEST
JUDGMENT OF THE PERSONS APPOINTED AS PROXIES.
Any stockholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Corporation
written notice thereof (Erna A. Golota, Secretary, Parkvale Financial
Corporation, 4220 William Penn Highway, Monroeville, Pennsylvania 15146), (ii)
submitting a duly executed proxy bearing a later date, or (iii) appearing at the
Annual Meeting and giving the Secretary notice of his or her intention to vote
in person. Proxies solicited hereby may be exercised only at the Annual Meeting
and any adjournment thereof and will not be used for any other meeting.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP THEREOF
Only stockholders of record at the close of business on August 24, 1998
(the "Voting Record Date") will be entitled to vote at the Annual Meeting. On
the Voting Record Date, there were 5,164,037 shares of common stock, par value
$1.00 per share, of the Corporation issued and outstanding ("Common Stock"), and
the Corporation had no other class of equity securities outstanding. Each share
of Common Stock is entitled to one vote on each proposal at the Annual Meeting,
with no cumulative voting for the election of directors permitted.
The following table sets forth, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) persons or entities
known to the Corporation to be the beneficial owners of 5% or more of the
Corporation's Common Stock, (ii) directors of the Corporation, (iii) nominees
for director who are not currently serving as a director, (iv) executive
officers of the Corporation who are not directors but who are named in the
Summary Compensation Table, and (v) all directors, director nominees and
executive officers as a group. The information shown is based upon filings
pursuant to the
2
<PAGE> 39
Securities Exchange Act of 1934, as amended ("Exchange Act"), and/or information
furnished by the individuals or entities.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED AS PERCENT OF
NAME OF BENEFICIAL OWNER OF AUGUST 24, 1998(1) COMMON STOCK
------------------------ --------------------- ------------
<S> <C> <C>
Parkvale Financial Corporation 427,584 (2) 8.28%
Employee Stock Ownership Plan
4220 William Penn Highway
Monroeville, PA 15146
Beck, Mack & Oliver LLC 377,131 (3) 7.30
330 Madison Avenue
New York, NY 10017
Dimensional Fund Advisors Inc. 309,263 (4) 5.99
1299 Ocean Avenue
Santa Monica, CA 90401
DIRECTORS:
Fred P. Burger, Jr. 111,046 (5)(6) 2.14
Andrea F. Fitting 0 0
Robert J. McCarthy, Jr. 268,901 (5)(7)(8) 5.15
George W. Newland 81,590 (5)(9) 1.58
Robert D. Pfischner 110,323 (5)(10) 2.12
Warren R. Wenner 38,265 (5)(11) 0.74
DIRECTOR NOMINEE:
Patrick J. Minnock 0 0
EXECUTIVE OFFICERS
WHO ARE NOT DIRECTORS:
Bruce C. Gilleylen 74,079 (5)(7)(12) 1.43
Timothy G. Rubritz 79,942 (5)(7)(13) 1.54
Steven A. Friedman 63,489 (5)(7)(14) 1.23
DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS AS A GROUP
(18 persons) 977,858 (5)(7) 18.06
</TABLE>
- ---------
(1) Under applicable regulations, shares are deemed to be beneficially owned by
a person if he or she directly or indirectly has or shares the power to
vote or dispose of the shares, whether or not he or she has any economic
interest in the shares. Unless otherwise indicated, the named beneficial
owner has sole voting and dispositive power with respect to the shares.
(2) Messrs. Pfischner and Newland, directors of the Corporation, are the
trustees of the Employee Stock Ownership Plan ("ESOP"). To date, 418,485
shares of the 427,584 shares have been allocated to the participants of the
ESOP.
(3) Beck, Mack & Oliver LLC is an investment adviser registered under the
Investment Advisers Act of 1940 and the 377,131 shares are owned by
investment advisory clients of the firm. No one of these clients owns more
than 5% of said shares.
(4) Dimensional Fund Advisors Inc. is an investment adviser registered under
the Investment Advisers Act of 1940 and the 309,263 shares are held in
portfolios of certain affiliated entities. Dimensional disclaims beneficial
ownership of all such shares.
(5) Includes shares that may be acquired within 60 days through exercise of
stock options as follows: Mr. Burger, 15,255 shares; Mr. McCarthy, 58,652
shares; Mr. Newland, 15,255 shares; Mr. Pfischner,
3
<PAGE> 40
39,669 shares; Mr. Wenner, 15,255 shares; Mr. Gilleylen, 17,265 shares; Mr.
Rubritz, 20,472 shares; Mr. Friedman, 17,265 shares; and all directors,
director nominees and executive officers as a group, 251,420 shares. Shares
of Common Stock which are subject to stock options are deemed to be
outstanding for the purpose of computing the percentage of outstanding
Common Stock owned by the individual or group but are not deemed
outstanding for the purpose of computing the percentage of Common Stock
owned by any other person or group. Exclusive of shares which may be
acquired upon the exercise of stock options, directors, director nominees
and executive officers of the Corporation as a group beneficially owned
764,222 shares or 14.80% of the issued and outstanding Common Stock.
(6) Includes 25,377 shares held under Mr. Burger's deferred fee agreement with
the Bank.
(7) Includes shares allocated to such person or group under the ESOP as
follows: Mr. McCarthy, 35,627 shares; Mr. Gilleylen, 21,996 shares; Mr.
Rubritz, 21,981 shares; Mr. Friedman, 14,877 shares; and all officers as a
group, 149,995 shares. Also includes shares allocated under the
Supplemental Executive Benefit Plan ("SEBP") as follows: Mr. McCarthy,
7,887 shares; Mr. Gilleylen, 200 shares; Mr. Rubritz, 178 shares; and all
officers as a group, 8,265 shares. (See Audit-Finance Committee Report On
Executive Compensation.) Shares are deemed to be beneficially owned by such
individuals or group as a result of their ability to direct the ESOP and
SEBP trustees' voting of such shares allocated to their respective
accounts.
(8) Includes 104,507 shares held jointly by Mr. McCarthy and his wife, 18,306
shares held by Mr. McCarthy as custodian for his children, and 43,922
shares held under deferred fee and compensation agreements with the Bank.
Mr. McCarthy's address is 4220 William Penn Highway, Monroeville, PA 15146.
(9) Does not include shares held under the ESOP, of which Mr. Newland was a
trustee during the year.
(10) Includes 21,453 shares held jointly by Mr. Pfischner and his wife, 1,220
shares held by his wife and 16,516 shares held under a deferred fee
agreement with the Bank. Does not include shares held under the ESOP, of
which Mr. Pfischner is a trustee.
(11) Includes 15,947 shares held jointly by Mr. Wenner and his wife and 7,063
shares held under a deferred fee agreement with the Bank.
(12) Includes 31,566 shares held jointly by Mr. Gilleylen and his wife.
(13) Includes 26,305 shares held jointly by Mr. Rubritz and his wife and 4,806
shares held by Mr. Rubritz as custodian for his children.
(14) Includes 21,521 shares held jointly by Mr. Friedman and his wife, 316
shares held by his wife and 2,928 shares held by Mr. Friedman as custodian
for his children.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that directors and officers of
the Corporation and the Bank file reports of ownership and changes in ownership
of the Common Stock with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. Directors and officers are required to
furnish the Corporation with copies of all Section 16(a) forms they file. Based
solely upon review of copies of Forms 3, 4 and 5 received by the Corporation's
compliance administrator, the Corporation believes that all filing requirements
applicable to its directors and officers were complied with during fiscal 1998.
4
<PAGE> 41
LONG-TERM INCENTIVE PLANS--AWARDS IN THE LAST FISCAL YEAR
A long-term incentive plan has not been instituted for either the
Corporation or the Bank.
EMPLOYMENT AGREEMENTS
The Bank entered into a five-year employment agreement with Mr. McCarthy in
April 1987 and the Corporation became a party to the agreement upon consummation
of the reorganization of the Bank into the holding company form of organization
in January 1989. The initial term of the agreement was extended automatically
for an additional year on each anniversary date of the agreement. Effective
January 1, 1997, a new five-year employment agreement was entered into by the
parties to reflect the holding company formation, the Bank's charter conversion
to a savings bank and change in regulators, and changes in applicable law and
regulatory policies since 1987. The agreement provides for a minimum annual
salary of $262,000, which may be increased from time to time in such amounts as
may determined by the Boards of Directors of the Corporation and the Bank. In
addition, Mr. McCarthy may receive bonus payments as determined by the Boards of
Directors. Prior to the first anniversary of the effective date and each annual
anniversary thereafter, the Boards of Directors shall consider all relevant
factors, including Mr. McCarthy's performance, and if appropriate approve a
one-year extension of the remaining term of the agreement. The term of Mr.
McCarthy's agreement will be extended each year if the Boards of Directors of
the Bank and the Corporation ("Parkvale") approve the extension, unless Mr.
McCarthy provides at least 30 days written notice not to extend the agreement
beyond its remaining term. The agreement is terminable by Parkvale for cause at
any time.
The agreement with Mr. McCarthy provides for severance payments and other
benefits in the event Parkvale terminates his employment without cause or Mr.
McCarthy resigns for "good reason," as defined in the agreement. Good reason
includes among other things a "change in control" of Parkvale, which is defined
to include any of the following: (1) any change in control required to be
reported pursuant to Item 6(e) of Schedule 14A promulgated under the Exchange
Act; (2) the acquisition of beneficial ownership by any person (as defined in
Sections 13(d) and 14(d) of the Exchange Act) of 10% or more of the combined
voting power of the Corporation's then outstanding securities; or (3) within any
period during the term of the agreement, a change in the majority of the Board
of Directors for any reason without the written consent of Mr. McCarthy. In such
event, Parkvale will give severance payments to Mr. McCarthy equal to 2.99 times
his average annual base salary, bonus and other incentive compensation for the
preceding three years, plus the continuation or payment of certain fringe
benefits other than stock benefit plans. Under Mr. McCarthy's employment
agreement, Mr. McCarthy could receive payments and benefits that constitute a
parachute payment. Parachute payments generally are payments in excess of three
times the base amount, which is defined to mean the recipient's average annual
compensation from the employer includible in the recipient's gross income during
the most recent five taxable years ending before the date on which a change in
control of the employer occurred. Recipients of parachute payments are subject
to a 20% excise tax on the amount by which such payments exceed the base amount,
in addition to regular income taxes, and payments in excess of the base amount
are not deductible by the employer as compensation expense for federal income
tax purposes. In such event, Parkvale has agreed to pay the 20% excess tax that
would otherwise be owed by Mr. McCarthy and such additional amounts as may be
necessary to reimburse Mr. McCarthy for the federal, state and local income
taxes and excise taxes on such amounts.
The agreement also precludes Mr. McCarthy from owning (excluding the
ownership of 1% or less of the stock of a public corporation), managing,
operating and controlling, being employed by or participating in or being in any
way connected with any other business covered by federal deposit insurance which
is located in the Pennsylvania counties of Allegheny, Armstrong, Butler, Beaver,
Washington and Westmoreland. Such restriction shall continue throughout Mr.
McCarthy's employment with Parkvale.
The employment agreement with Mr. McCarthy, to the extent it increases the
cost of any acquisition of control of the Corporation, could be deemed to have
an anti-takeover effect. As a result, the agreement may discourage takeover
attempts which (1) are deemed by certain stockholders to be in
15
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-26173) pertaining to the 1987 Stock Option Plan and the Registration
Statement (Form S-8 No. 33-98812) pertaining to the 1993 Key Employee Stock
Compensation Program and the 1993 Directors Stock Option Plan of Parkvale
Financial Corporation of our report dated July 23, 1998, with respect to the
consolidated financial statements of Parkvale Financial Corporation incorporated
by reference in the Annual Report (Form 10-K) for the year ended June 30, 1998.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 22, 1998
I-1
<PAGE> 1
[ARTICLE] 9
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL INFORMATION INCORPORATED BY REFERENCE TO THE 1998 ANNUAL
REPORT, EXCERPTS OF WHICH ARE FILED HEREWITH AS EXHIBIT 13, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
[CIK] 0000820907
[NAME] PARKVALE FINANCIAL CORP.
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] JUN-30-1998
[CASH] 9,628
[INT-BEARING-DEPOSITS] 475
[FED-FUNDS-SOLD] 124,900
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 14,793
[INVESTMENTS-CARRYING] 99,199
[INVESTMENTS-MARKET] 100,047
[LOANS] 845,981
[ALLOWANCE] 13,223
[TOTAL-ASSETS] 1,095,373
[DEPOSITS] 949,452
[SHORT-TERM] 7,160
[LIABILITIES-OTHER] 14,030
[LONG-TERM] 40,671
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 5,388
[OTHER-SE] 78,672
[TOTAL-LIABILITIES-AND-EQUITY] 1,095,373
[INTEREST-LOAN] 58,844
[INTEREST-INVEST] 15,176
[INTEREST-OTHER] 0
[INTEREST-TOTAL] 74,020
[INTEREST-DEPOSIT] 42,686
[INTEREST-EXPENSE] 44,190
[INTEREST-INCOME-NET] 29,830
[LOAN-LOSSES] 255
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 16,781
[INCOME-PRETAX] 17,503
[INCOME-PRE-EXTRAORDINARY] 17,503
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 11,118
[EPS-PRIMARY] 2.17
[EPS-DILUTED] 2.10
[YIELD-ACTUAL] 2.97
[LOANS-NON] 2,362
[LOANS-PAST] 0
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 14,266
[CHARGE-OFFS] 1,406
[RECOVERIES] 108
[ALLOWANCE-CLOSE] 13,223
[ALLOWANCE-DOMESTIC] 13,223
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
