SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
------------------- ---------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway, Monroeville, Pennsylvania 15146
----------------------------------------------------------
(Address of principal executive offices; zip code)
Registrant's telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
--------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
The closing sales price of the Registrant's Common Stock on May 1, 1996
was $28.00 per share.
Number of shares of Common Stock outstanding as of May 1, 1996 was
3,232,643.
<PAGE>
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
--------------------------------- ------
Consolidated Statements of Financial Condition as
of March 31, 1996 and June 30, 1995 3
Consolidated Statements of Operations (Unaudited)
for the Three and Nine Months ended March 31, 1996
and 1995 4
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months ended March 31, 1996 and 1995 5-6
Consolidated Statements of Stockholders' Equity as
of March 31, 1996 6
Notes to Unaudited Interim Consolidated Financial
Statements 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Part II - Other Information 16
Signatures 17
2<PAGE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar Amounts in Thousands, except share data)
March 31, June 30,
ASSETS 1996 1995
--------- ---------
Cash and noninterest-bearing deposits $10,066 $10,003
Federal funds sold 87,775 116,581
Interest-bearing deposits in other banks 234 194
Investment securities available for sale
(cost of $6,823 at March 31 and $5,890
at June 30) 10,463 8,738
Investment securities (fair value of $91,136
at March 31 and $123,348 at June 30) 92,126 123,817
Mortgage-backed securities (fair value
of $109,598 at March 31 and $101,122 at
June 30) 108,536 100,881
Loans, net 593,985 524,545
Real estate owned, net 239 96
Office properties and equipment, net 2,091 2,261
Intangible assets and deferred charges 316 434
Prepaid expenses and other assets 8,185 8,872
-------- --------
Total Assets $914,016 $896,422
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Savings deposits $805,825 $794,445
Advances from Federal Home Loan Bank 20,696 20,607
Escrow for taxes and insurance 8,764 12,132
Other liabilities 5,694 4,177
Other debt 5,175 3,997
-------- --------
Total Liabilities $846,154 $835,358
======== ========
STOCKHOLDERS' EQUITY
Preferred Stock ($1.00 par value; 5,000,000
shares authorized; 0 shares issued) - -
Common Stock ($1.00 par value; 10,000,000
shares authorized; March-3,448,736*
shares issued, June-2,757,563 shares issued) 3,449 2,758
Additional Paid in Capital 8,992 10,056
Treasury Stock at cost (216,093* shares in
March and 244,525* shares in June) (2,894) (3,434)
Employee Stock Ownership Plan debt (75) (154)
Unrealized gains on securities available for
sale 2,311 1,808
Retained earnings 56,079 50,030
-------- --------
Total Stockholders' Equity 67,862 61,064
-------- --------
Total Liabilities and Stockholders' Equity $914,016 $896,422
======== ========
* Reflect the effect of the 5 for 4 stock split on October 16,
1995.
3<PAGE>
PARKVALE FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar Amounts in Thousands, except per share data)
Three months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
Interest income: ------ ------ ------ ------
Loans $11,900 $10,612 $34,358 $30,800
Mortgage-backed securities 1,644 1,697 5,139 5,224
Investments 1,583 2,205 5,513 6,525
Federal funds sold 1,405 814 4,642 2,437
------- ------- ------- -------
Total interest income 16,532 15,328 49,652 44,986
------- ------- ------- -------
Interest expense:
Savings deposits 9,483 8,402 28,751 24,591
Borrowings 398 384 1,188 1,172
------- ------- ------- -------
Total interest expense 9,881 8,786 29,939 25,763
------- ------- ------- -------
Net interest income 6,651 6,542 19,713 19,223
Provision for loan losses 168 273 502 865
------- ------- ------- -------
Net interest income after
provision for losses 6,483 6,269 19,211 18,358
------- ------- ------- -------
Other income:
Service charges and fees 406 411 1,218 1,208
Gain on sale of assets 969 - 969 -
Miscellaneous 150 85 381 262
------- ------- ------- -------
Total other income 1,525 496 2,568 1,470
------- ------- ------- -------
Other expenses:
Compensation and benefits 1,751 1,744 5,238 4,935
Office occupancy 514 520 1,523 1,493
Marketing 51 79 192 274
FDIC and other insurance 491 466 1,457 1,418
Office supplies, telephone,
and postage 235 231 633 631
Miscellaneous 540 516 1,664 1,585
------ ------- ------- -------
Total other expense 3,582 3,556 10,707 10,336
------ ------- ------- -------
Income before income taxes 4,426 3,209 11,072 9,492
Income tax expense 1,443 1,163 3,764 3,498
------- ------- ------- -------
Net income $2,983 $2,046 $7,308 $5,994
======= ======= ======= =======
Net income per share $0.88 $0.60 $2.17 $1.73
Dividends per share $0.13 $0.104 $0.39 $0.312
All share amounts reflect the effect of the 5 for 4 stock split on
October 16, 1995.
4<PAGE>
Parkvale Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended March 31, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(Dollar Amounts in Thousands)
1996 1995
Cash flows from operating activities: -------- --------
Interest received $49,884 $45,093
Loan fees received 202 256
Other fees and commissions received 1,506 1,335
Interest paid (29,983) (25,805)
Cash paid to suppliers and others (10,096) (10,703)
Income taxes paid (2,563) (2,029)
-------- --------
Net cash provided by operating activities 8,950 8,147
Cash flows from investing activities:
Proceeds from sales of investment
securities available for sale -- 36
Proceeds from maturities of investments 114,700 64,010
Purchase of investment securities available
for sale (609) (330)
Purchase of investment securities (83,049) (53,585)
(Purchase) maturity of deposits in other banks (40) 1,314
Purchase of mortgage-backed securities (25,211) --
Purchase of loans (83,066) (17,855)
Proceeds from sales of loans 1,934 1,827
Principal collected on mortgage-backed
securities 17,556 11,552
Principal collected on loans 110,574 75,025
Loans made to customers, net of loans in
process (98,640) (82,634)
Other (114) (197)
-------- --------
Net cash (used in) investing activities (45,965) (837)
Cash flows from financing activities:
Net increase (decrease) in checking
and savings accounts 247 (42,143)
Net increase in certificates of deposit 11,133 29,899
Proceeds from FHLB advances 96 --
Repayment of FHLB advances (7) (94)
Net increase in other borrowings 1,178 185
Decrease in borrowers' advances for tax &
insurance (3,368) (1,614)
Cash dividends paid (1,173) (982)
Net proceeds from sale of common stock 11 39
Treasury stock activity 155 (1,908)
-------- --------
Net cash provided by (used in) financing
activities 8,272 (16,618)
-------- --------
Net (decrease) in cash and cash equivalents (28,743) (9,308)
Cash and equivalents at beginning of period 126,584 91,558
-------- --------
Cash and equivalents at end of period $97,841 $82,250
======== ========
5<PAGE>
Reconciliation of net income to net cash Nine months ended
provided by operating activities: March 31,
1996 1995
------- ------
Net income $7,308 $5,994
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 403 426
Accretion and amortization of loan fees
and discounts (403) (193)
Loan fees collected and deferred 202 256
Provision for loan losses 502 865
Gain on sale of assets (969) --
Decrease in accrued interest receivable 403 67
Increase in other assets (132) (427)
Decrease in accrued interest payable (44) (42)
Increase in other liabilities 1,680 1,201
------- -------
Total adjustments 1,642 2,153
------- -------
Net cash provided by operating activities $8,950 $8,147
======= =======
For purposes of reporting cash flows, cash and cash equivalents include
cash and noninterest-earning deposits, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Loans transferred to foreclosed assets aggregated $1.2 million and
$134,000 in the nine months ended March 31, 1996 and 1995, respectively.
<TABLE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
<CAPTION>
Employee
Stock Unrealized Total
Common Paid-in Treasury Ownership Security Retained Stockholders'
Stock Capital Stock Plan Debt Gains Earnings Equity
--------- --------- --------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $2,758 $10,056 ($3,434) ($154) $1,808 $50,030 $61,064
Net income, nine months ended
March 31, 1996 7,308 7,308
Dividends on common stock at
$.39 per share (1,259) (1,259)
Principal payments on employee
stock ownership plan debt 177 177
Transfer to reflect 5 for 4 split 690 (690) 0
Treasury stock contributed to
benefit plans 116 116
Additional borrowings by ESOP (98) (98)
Unrealized security gains 503 503
Exercise of stock options 1 (374) 424 51
------ ------ -------- ----- ------ ------- -------
Balance, March 31, 1996 $3,449 $8,992 ($2,894) ($75) $2,311 $56,079 $67,862
====== ====== ======== ===== ====== ======= =======
</TABLE> 6<PAGE>
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------
1. STATEMENTS OF OPERATIONS
The statements of operations for the three and nine months ended March
31, 1996 and 1995 are unaudited, but in the opinion of management,
reflect all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation of the results of operations for those
periods. The results of operations for the three and nine months ended
March 31, 1996 are not necessarily indicative of the results which may
be expected for fiscal 1996. The Annual Report on Form 10-K for the
year ended June 30, 1995 contains additional information and should be
read in conjunction with this report.
2. STOCK SPLIT
On September 21, 1995 the Board of Directors declared a 5-for-4 stock
split of Parkvale's common stock. The additional shares were paid on
October 16, 1995 to stockholders of record at the close of business on
October 2, 1995. This increased the outstanding shares by 640,706. No
fractional shares were issued. All share amounts in this report have
been restated to reflect this stock split.
3. EARNINGS PER SHARE
Primary earnings per share are based upon the weighted average number
of issued and outstanding common shares including shares subject to
stock options, which are deemed common stock equivalents. For the three
and nine months ended March 31, 1996, earnings per share were $0.88 and
$2.17 per share based upon 3,360,989 and 3,361,508 average shares
outstanding, respectively assuming all 240,194 option shares outstanding
were exercised. For the three and nine months ended March 31, 1995, the
restated earnings per share were $0.60 and $1.73 per share based upon
3,409,046 and 3,463,853 average shares outstanding, respectively
assuming all 249,025 option shares then outstanding were exercised.
4. CHANGE IN METHOD OF ACCOUNTING
In June 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114, ("FAS 114"),
"Accounting by Creditors for Impairment of a Loan," which was amended by
FAS 118 in October 1994. The Statements require all creditors to
account for impaired loans, other than homogeneous loans such as
residential or consumer loans, except those loans that are accounted for
at fair value or at the lower of cost or fair value, at the present
value of the expected future cash flows discounted at the loan's
effective interest rate. In accordance with the Statements, the Bank
has adopted FAS 114 and 118 as of July 1, 1995. (See Note 5.)
In May 1995, the FASB issued FAS 122, "Accounting for Mortgage
Servicing Rights." This Statement amends certain provisions of
Statement 65, "Accounting for Certain Mortgage Banking Activities," to
allow enterprises engaging in mortgage banking activities to recognize
as separate assets rights to service mortgage loans for loans originated
by the enterprise. The Bank has elected to adopt FAS 122 as of July 1,
1995. There was no impact on the results of operations for the nine
months ended March 31, 1996.
In October 1995, the FASB issued FAS 123, "Accounting for Stock-Based
Compensation." 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
7<PAGE>
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, "Accounting for Stock Issued to
Employees." If an entity elects to continue to use the accounting in
Opinion 25, pro forma disclosures of net income and earnings per share
must be made as if the fair value method of accounting, as defined by
FAS 123 had been applied. FAS 123 is effective for financial statements
with fiscal years beginning after December 15, 1995. At this time,
management expects to continue its accounting in accordance with APB
Opinion 25.
8<PAGE>
5. LOANS:
Loans are summarized as follows:
March 31, June 30,
1996 1995
--------- ---------
(Dollar Amounts in Thousands)
First mortgage loans:
Residential:
1-4 Family $486,496 $423,439
Multi-family 18,081 22,894
Commercial 19,427 18,435
Other 2,396 3,196
-------- --------
526,400 467,964
Consumer loans 72,792 69,197
Commercial business loans 9,199 4,542
Loans on savings accounts 3,297 3,253
-------- --------
611,688 544,956
Less:
Loans in process 2,778 4,816
Allowance for loan losses 13,853 13,136
Unamortized discount and deferred loan fees 1,072 2,459
-------- --------
Loans, net $593,985 $524,545
======== ========
Nonaccrual loans $1,390 $2,031
as a percent of total assets 0.15% 0.23%
The amount of additional interest income that had not been recognized in
interest income was $123 at March 31, 1996 and $127 at June 30, 1995.
The following summary sets forth the activity in the allowance for loan
losses for the nine months ended March 31:
1996 1995
------- -------
Beginning balance $13,136 $12,056
Provision for losses - mortgage loans 337 792
Provision for losses - consumer loans 165 73
Provision for losses - commercial loans -- --
Loans recovered 303 73
Loans charged off (88) (94)
------- -------
Ending balance $13,853 $12,900
======= =======
Management considers non-accrual, substandard and doubtful commercial
and other real estate loans to be potentially impaired under the
provisions of FAS 114 and 118. The collateral evaluation values of real
estate are deemed to represent the most reliable indication of fair
market value. Less than 8% of the gross loan portfolio is invested in
multi-family and commercial real estate loans and commercial business
loans. Multi-family and commercial loans include $1.3 million
classified as substandard and $1.3 million categorized as special
mention. Of the above impaired loans, only $647,000 are non-accrual
loans as such loans are more than 90 days delinquent.
9<PAGE>
PARKVALE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar Amounts in Thousands, except per share data)
Balance Sheet Data: March 31,
1996 1995
------ ------
Total assets $914,016 $865,898
Loans receivable 593,985 517,927
Interest-bearing deposits and federal funds
sold 88,009 74,202
Investment and mortgage-backed securities 211,125 253,452
Savings deposits 805,825 766,310
FHLB Advances 20,696 20,610
Other borrowings 5,175 3,878
Stockholders' Equity 67,862 60,172
Book value per share $20.99 $18.46
Statistical Profile:
Three Months Ended Nine Months Ended
March 31, (1) March 31, (1)
1996 1995 1996 1995
------- ------- ------- -------
Average yield earned on all
interest-earning assets 7.45% 7.32% 7.49% 7.10%
Average rate paid on all
interest-bearing liabilities 4.78% 4.49% 4.84% 4.36%
Average interest rate spread 2.67% 2.83% 2.65% 2.74%
Net yield on average
interest-earning assets 3.00% 3.13% 2.97% 3.03%
Other expenses to average assets 1.58% 1.66% 1.58% 1.60%
Taxes to pre-tax income 32.60% 36.24% 34.00% 36.85%
Return on average assets 1.32% 0.95% 1.08% 0.93%
Return on average assets without
gain on sale of asset 0.99% 0.95% 0.97% 0.93%
Return on average equity 18.51% 13.71% 15.60% 13.55%
Return on average equity without
gain on sale of asset 13.99% 13.71% 14.05% 13.55%
Average equity to average total
assets 7.11% 6.96% 6.92% 6.84%
At March 31,
1996 1995
------ ------
One year gap to total assets 0.62% 6.35%
Intangibles to total equity 0.47% 0.79%
Capital to assets ratio 7.42% 6.95%
Ratio of nonperforming assets to total
assets 0.18% 0.18%
Number of full-service offices 28 28
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
10<PAGE>
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996
AND 1995
-----------------------------------------------------------------------
For the three months ended March 31, 1996, Parkvale had net income of
$3.0 million versus $2.0 million for the comparable period in 1995.
This increase reflects the recognition of a $969,000 ($736,000 net of
taxes) previously deferred gain related to a loan payoff facilitating
the sale of real estate, as discussed further below under "Other
Income." Without such gain recognition, net income from core earnings
for the quarter would have been $2.2 million or $0.67 per share. The
increase in net income from core earnings was due to a $109,000 increase
in net interest income and a $105,000 decrease in loan loss provisions.
INTEREST INCOME:
----------------
Parkvale had interest income of $16.5 million during the three months
ended March 31, 1996 versus $15.3 million during the comparable period
in 1995. This $1.2 million or 7.9% increase is the result of a $50.2
million or 6.0% increase in the average balance of interest-earning
assets, compounded by a 13 basis point increase in the average yield
from 7.32% in 1995 to 7.45% in 1996. Interest income from loans
increased $1.3 million or 12.1% as a result of a $60.7 million or 11.8%
increase in the average outstanding loan balances. Interest income on
mortgage-backed securities decreased slightly by $53,000 from the 1995
quarter due to a decrease of $4.3 million in the average balance, offset
by a slight increase in the average yield from 6.52% in 1995 to 6.58% in
1996. Investment securities interest income decreased by $622,000 or
28.2% from the 1995 quarter. Although the average yield on investments
increased by 39 basis points from 5.39% to 5.78%, this was not
sufficient to offset an average investment balance decrease of $54.3
million or 33.2%. Interest income earned on Federal funds sold
increased $591,000 from the 1995 quarter due to an increase in the
average balance of $48.1 million, offset by a 43 basis point decrease in
the average yield from 5.84% to 5.41%. At March 31, 1996, the weighted
average yield on all interest earning assets was 7.43%.
INTEREST EXPENSE:
-----------------
Interest expense increased $1.1 million or 12.5% from the 1995 to the
1996 quarter. The increase was due to a $43.9 million or 5.6% increase
in the average deposits and borrowings, compounded by an increase in the
average rate paid on deposits and borrowings from 4.49% in 1995 to 4.78%
in 1996. At March 31, 1996, the average rate payable on liabilities was
4.67% for deposits, 6.21% for borrowings and 4.71% for combined deposits
and borrowings.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $105,000 or 38.5% from
the 1995 to the 1996 quarter. The aggregate general valuation
allowances were 2.30% of net loans at March 31, 1996, versus 2.47% and
2.44% at June 30, 1995 and March 31, 1995.
Non-performing loans and real estate owned were $1.6 million, $2.1
million and $1.6 million at March 31, 1996, June 30, 1995 and March 31,
1995, representing 0.18%, 0.24% and 0.18% of total assets at the
respective balance sheet dates. Total loan loss reserves at March 31,
11<PAGE>
1996 were $13.8 million, which represents 2.32% of the net loan
portfolio. The decrease of $498,000 in non-performing assets from June
30, 1995 is primarily due to a sale of property related to a previously
reported non-accruing multi-family loan of $873,000, offset by an
increase to non-accruing single-family dwellings of $329,000 and an
increase in real estate owned of $143,000.
Loans are placed on non-accrual status when in the judgement of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. All loans which are 90 or more
days delinquent are treated as non-accrual loans.
OTHER INCOME:
-------------
Total other income increased by $1.0 million in 1996. This is primarily
due from the recognition of a $969,000 previously deferred gain related
to a first mortgage loan payoff facilitating the sale of a multi-family
apartment complex located in a Pittsburgh suburb. The loan was
classified as special mention for regulatory purposes due to the loan-
to-value ratio being higher than the Bank's normal underwriting
standards for multi-family loans. The gain resulting from the fiscal
1994 sale of the related property had been deferred and accreted into
income over the term of the loan in accordance with FAS 66.
Additionally, there was an increase of $54,000 in income from the tax
deferred annuity and mutual fund products and a $50,000 increase in
rental income from real estate owned, offset by a $40,000 gain recorded
in 1995 from a previously, partially-owned subsidiary.
OTHER EXPENSE:
--------------
Total other expense increased slightly by $26,000 or 0.7%. The largest
component of other expense, compensation and employee benefits,
increased slightly by $7,000. Annualized operating expenses as a
percentage of average assets were 1.58% for the quarter ended March 31,
1996 versus 1.66% during the comparable 1995 quarter.
INCOME TAXES:
-------------
The provision for income taxes consists of the following for the three
months ended March 31, 1996: Current provision - Federal $1,131,000;
State $264,000 and Deferred Federal $48,000 with the total aggregating
$1,443,000. The effective tax rate for the three months ended March 31,
1996 was 32.6% versus 36.2% for the comparable quarter in 1995.
RESULTS OF OPERATION - COMPARISON OF NINE MONTHS ENDED MARCH 31, 1996
AND 1995
----------------------------------------------------------------------
For the nine months ended March 31, 1996, Parkvale had net income of
$7.3 million versus $6.0 million for the comparable period in 1995.
This $1.3 million increase in net income is primarily reflective of the
recognition of the $969,000 gain ($736,000 net of taxes) related to the
payoff of a first mortgage loan facilitating the sale of real estate as
discussed further below under "Other Income." Absent this gain
recognition, the net income for the nine month period ended March 31,
1996 would have been $6.6 million or $1.96 per share. The $578,000
12<PAGE>
increase in net income from core earnings for the March 1996 nine months
includes an increase in net interest income of $490,000 and a reduced
provision for loan losses of $363,000, which more than offset an
increase in operating expenses of $371,000. Net interest income for the
nine months ended March 31, 1996 increased to $19.7 million from $19.2
million for the nine months ended March 31, 1995. The average interest
rate spread decreased slightly from 2.74% in 1995 to 2.65% in 1996.
INTEREST INCOME:
----------------
Parkvale had interest income of $49.7 million during the nine months
ended March 31, 1996 and $45.0 million during the comparable period in
1995. This 4.7 million or 10.4% increase is attributable to an increase
in the average interest-earning asset portfolio of $39.2 million,
magnified by a 39 basis point increase in the average yield from 7.10%
in 1995 to 7.49% in 1996. Interest income from loans increased $3.6
million or 11.6%. The average yield increased by 22 basis points from
8.09% in 1995 to 8.31% in 1996 and the average loan balance increased
$43.9 million. Interest income on mortgage-backed securities declined
slightly by $85,000 or 1.6% from the comparable nine months of the
previous fiscal year. This was due to a decrease in the average
portfolio of $5.0 million, offset by an increase in the average yield
from 6.48% to 6.69%. Income from investments decreased by $1.0 million
or 15.5% from 1995. Although the average yield increased 79 basis
points from 5.22% to 6.01%, the average balance decreased significantly
by $44.3 million or 26.6%. Federal funds sold income increased $2.2
million or 90.5% from the prior nine months ended March 1995. This was
due to a $44.6 million increase in the average balance and a 61 basis
point increase in the average yield from 5.14% in 1995 to 5.75% in 1996.
INTEREST EXPENSE:
-----------------
Interest expense increased $4.2 million or 16.2% from the 1995 nine
month period to the 1996 nine month period. The increase was due to a
$37.2 million increase in the average deposits and borrowings,
compounded by a 48 basis point increase in the average rate paid on
deposits and borrowings from 4.36% in 1995 to 4.84% in 1996.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $363,000 or 42.0% from
the 1995 to the 1996 period. The aggregate general valuation allowances
were 2.30%, 2.47% and 2.44% of net loans at March 31, 1996, June 30,
1995 and March 31, 1995, respectively.
OTHER INCOME:
-------------
Other income increased $1.1 million in 1996 due primarily from the
recognition of a $969,000 previously deferred gain related to a loan
payoff in February 1996 facilitating the sale of real estate. The gain
resulting from the fiscal 1994 sale of the related property had been
deferred and accreted into income over the term of the loan in
accordance with FAS 66.
13<PAGE>
Additionally, there was a $137,000 increase of other income from tax
deferred annuities.
OTHER EXPENSES:
---------------
Other expenses increased by $371,000 or 3.6% for the nine month period
ending March 31, 1996 compared to the same period in 1995. This was
primarily attributable to a $303,000 or 6.1% increase in compensation
and benefit expenses as merit pay and benefit expense increased
proportionately.
INCOME TAXES:
-------------
The provision for income taxes consists of the following for the nine
months ended March 31, 1996: Current provision - Federal $3,047,000;
State $591,000 and Deferred Federal $126,000 with the total aggregating
$3,764,000. The deferred tax asset decreased by $415,000 from June 30,
1995 to March 31, 1996 which reflects $289,000 of tax effected
appreciation in assets classified as available for sale under FAS 115
and a $126,000 reduction as a result of the recognition of the deferred
gain related to a loan payoff facilitating the sale of real estate. The
effective tax rate for the nine months ended March 31, 1996 was 34.0%
and 36.9% for the comparable period in 1995.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
The loan portfolio increased $69.4 million from June 30, 1995 to March
31, 1996 resulting from the combination of the deployment of funds from
federal funds sold and investments and an increase in deposit balances
of $11.4 million. Federal funds sold and investments decreased by $28.8
million and $31.7 million, respectively.
During the quarter ended March 31, 1996, the loan portfolio and federal
funds sold increased $25.0 and $11.0 million, respectively, due to
deployment of funds from investments and an increase in savings deposit
balances. Funds were deployed to loans and federal funds sold from
investments as the balance decreased $33.8 million and from a $5.0
million increase in the deposit balance from December 31, 1995 to March
31, 1996.
Stockholders' equity was $67.9 million or 7.42% of total assets at March
31, 1996. The Bank is required to maintain Tier I (Core) capital equal
to at least 4% of the institution's adjusted total assets, and Tier II
(Supplementary) risk-based capital equal to at least 8% of the risk-
weighted assets. At March 31, 1996, Parkvale was in compliance with all
applicable regulatory requirements, with Tier I and Tier II ratios of
6.99% and 14.62%, respectively.
The following table sets forth certain information concerning the Bank's
regulatory capital at March 31, 1996:
14<PAGE>
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- -------
Equity Capital (1) $67,130 $67,130 $67,130
Less non-allowable intangible assets (316) (316) (316)
Less Unrealized securities gains (2,249) (2,249) (2,249)
Plus general valuation allowances (2) -- -- 6,037
------- ------- -------
Total regulatory capital 64,565 64,565 70,602
Minimum required capital 36,968 19,320 38,639
------- ------- -------
Excess regulatory capital $27,597 $45,245 $31,963
Regulatory capital as a percentage (3) 6.99% 13.37% 14.62%
Minimum capital required as a
percentage 4.00% 4.00% 8.00%
Excess regulatory capital as a ----- ------ -----
percentage 2.99% 9.37% 6.62%
===== ===== =====
(1) Represents equity capital of the consolidated Bank as reported to
the Pennsylvania Department of Banking and FDIC on Form 032 for the
quarter ended March 31, 1996.
(2) Limited to 1.25% of risk adjusted total assets.
(3) Tier I capital is computed as a percentage of adjusted total assets
of $924,200. Tier I and Tier II risk-based capital are computed as a
percentage of adjusted risk-weighted assets of $482,993.
BIF / SAIF PREMIUM DISPARITY
----------------------------
Congress has again failed to pass legislation to resolve the much
discussed and highly controversial Bank Insurance Fund/Savings
Association Insurance Fund (BIF/SAIF) premium disparity. An equitable
solution to this problem was proposed in 1995 and agreed upon by
Congress, the White House and the banking regulators. Parkvale and
other thrift banks throughout the country were to be assessed 85-90
basis points on SAIF-insured deposits in order to recapitalize SAIF.
While the one-time assessment to Parkvale would amount to approximately
$6.8 million on a pre-tax basis, it would allow SAIF-insured
institutions like Parkvale to compete on equal footing with BIF insured
institutions by eliminating the current yearly deposit insurance premium
disparity by reducing the premium from 23 basis points to 4 basis points
per $100 of insured deposits. This would reduce Parkvale's annual FDIC
deposit insurance costs by approximately $1.5 million. Parkvale
enthusiastically supported the payment of a one-time assessment as a
means of recapitalizing SAIF and successfully resolving the BIF/SAIF
premium disparity. The Budget Reconciliation Bill that was approved by
Congress in December contained all of these provisions but it was
subsequently vetoed by President Clinton for reasons other than the
FDIC-SAIF capitalization. On April 24, 1996, the BIF/SAIF legislation
was stalled again as the House Rules Committee dropped the legislation
from a 24-hour continuing resolution that was needed to avoid another
partial government shutdown. This happened despite an agreement by the
Administration and the House leadership to move BIF/SAIF on this must-
pass vehicle. The Omnibus Appropriations Bill was passed on April 25
15<PAGE>
without addressing the BIF/SAIF premium disparity or the FICO financing.
Unfortunately for Parkvale shareholders and SAIF insured customers,
Parkvale continues to pay 23 basis points for government mandated
deposit insurance while similarly capitalized BIF insured banks pay
nothing. Parkvale is hopeful that equitable treatment will ultimately
prevail, but cognizant the legislative process is unduly influenced by
continuing partisan disputes.
Management is not aware of any trends, events, uncertainties or current
recommendations by any regulatory authority that will have (if
implemented), or that are reasonably likely to have, material effects on
Parkvale's liquidity, capital resources or operations.
IMPACT OF INFLATION AND CHANGING PRICES:
----------------------------------------
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a
result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction
or in the same magnitude as the prices of goods and services as measured
by the consumer price index.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings None
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security
Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Reports on Form 8-K None
16<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Parkvale Financial Corporation
DATE: May 3, 1996 By: Robert J. McCarthy, Jr.
-------------------------
Robert J. McCarthy, Jr.
President and Chief Executive
Officer
DATE: May 3, 1996 By: Timothy G. Rubritz
-------------------------
Timothy G. Rubritz
Vice President - Treasurer
(Chief Financial Officer)
17<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,066
<INT-BEARING-DEPOSITS> 234
<FED-FUNDS-SOLD> 87,775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,463
<INVESTMENTS-CARRYING> 200,662
<INVESTMENTS-MARKET> 200,734
<LOANS> 607,838
<ALLOWANCE> 13,853
<TOTAL-ASSETS> 914,016
<DEPOSITS> 805,825
<SHORT-TERM> 5,175
<LIABILITIES-OTHER> 14,458
<LONG-TERM> 20,696
0
0
<COMMON> 3,449
<OTHER-SE> 64,413
<TOTAL-LIABILITIES-AND-EQUITY> 914,016
<INTEREST-LOAN> 34,358
<INTEREST-INVEST> 15,294
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 49,652
<INTEREST-DEPOSIT> 28,751
<INTEREST-EXPENSE> 29,939
<INTEREST-INCOME-NET> 19,713
<LOAN-LOSSES> 502
<SECURITIES-GAINS> 969
<EXPENSE-OTHER> 10,707
<INCOME-PRETAX> 11,072
<INCOME-PRE-EXTRAORDINARY> 11,072
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,308
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.17
<YIELD-ACTUAL> 2.97
<LOANS-NON> 1,390
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,136
<CHARGE-OFFS> 88
<RECOVERIES> 303
<ALLOWANCE-CLOSE> 13,853
<ALLOWANCE-DOMESTIC> 502
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
