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, 1997
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 April 30,
1997 was $26.00 per share.
Number of shares of Common Stock outstanding as of April 30, 1997 was
4,049,142.
<PAGE>
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
--------------------------------- -----
Consolidated Statements of Financial Condition as
of March 31, 1997 and June 30, 1996 3
Consolidated Statements of Operations (Unaudited)
for the Three and Nine Months ended March 31, 1997
and 1996 4
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months ended March 31, 1997 and 1996 5-6
Consolidated Statements of Shareholders' Equity
as of March 31, 1997 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 16
2<PAGE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar Amounts in Thousands, except share data)
March 31, June 30,
ASSETS 1997 1996
--------- ---------
Cash and noninterest-earning deposits $9,057 $10,905
Federal funds sold 118,643 66,557
Interest-earning deposits in other banks 329 173
Investment securities available for sale
(cost of $7,223 at March 31 and $6,804
at June 30) 12,165 10,493
Investment securities held to maturity (fair
value of $151,481 at March 31 and
$194,061 at June 30) 151,550 194,393
Loans, net of allowance of $14,263 at
March 31 and $13,990 at June 30 670,247 625,452
Foreclosed real estate, net of allowance
of $0 at March 31 and $19 at June 30 169 240
Office properties and equipment, net 2,142 2,005
Intangible assets and deferred charges 604 276
Prepaid expenses and other assets 7,691 8,748
-------- --------
Total Assets $972,597 $919,242
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $867,315 $807,087
Advances from Federal Home Loan Bank 15,685 20,693
Escrow for taxes and insurance 8,456 10,828
Other liabilities 5,687 4,651
Other debt 2,744 6,218
-------- --------
Total Liabilities 899,887 849,477
SHAREHOLDERS' EQUITY -------- --------
Preferred Stock ($1.00 par value; 5,000,000
shares authorized; 0 shares issued) - -
Common Stock ($1.00 par value; 10,000,000
shares authorized; March-4,310,679*
shares issued, June - 3,448,736 shares
issued) 4,311 3,449
Additional Paid in Capital 8,080 9,138
Treasury Stock at cost (250,316* shares in
March and 266,366* shares in June) (3,457) (3,028)
Employee Stock Ownership Plan debt (109) (104)
Unrealized gains on securities available for
sale 3,138 2,342
Retained earnings 60,747 57,968
-------- --------
Total Shareholders' Equity 72,710 69,765
-------- --------
Total Liabilities and Shareholders' Equity $972,597 $919,242
======== ========
* Reflect the effect of the 5 for 4 stock split on October 14,
1996.
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,
1997 1996 1997 1996
Interest Income: ------ ------ ------- ------
Loans $12,819 $11,900 $37,776 $34,358
Mortgage-backed securities 1,348 1,644 4,352 5,139
Investments 1,253 1,583 3,985 5,513
Federal funds sold 1,837 1,405 4,588 4,642
------ ------ ------ ------
Total interest income 17,257 16,532 50,701 49,652
------ ------ ------ ------
Interest Expense:
Savings deposits 9,950 9,483 28,966 28,751
Borrowings 292 398 919 1,188
------ ------ ------ ------
Total interest expense 10,242 9,881 29,885 29,939
------ ------ ------ ------
Net interest income 7,015 6,651 20,816 19,713
Provision for loan losses 71 168 320 502
------ ------ ------ ------
Net interest income after
provision for losses 6,944 6,483 20,496 19,211
------ ------ ------ ------
Noninterest Income:
Service charges on deposit
accounts 311 270 922 816
Other fees and service charges 149 136 485 402
Gain on sale of assets -- 969 -- 969
Miscellaneous 54 150 209 381
------ ------ ------ ------
Total other income 514 1,525 1,616 2,568
------ ------ ------ ------
Noninterest Expenses:
Compensation and benefits 1,853 1,751 5,384 5,238
Office occupancy 531 514 1,601 1,523
Marketing 68 51 223 192
FDIC insurance 133 458 595 1,357
FDIC special assessment -- -- 5,035 --
Office supplies, telephone,
and postage 249 235 669 633
Miscellaneous 603 573 1,709 1,764
------ ------ ------ ------
Total other expense 3,437 3,582 15,216 10,707
------ ------ ------ ------
Income before income taxes 4,021 4,426 6,896 11,072
Income tax expense 1,467 1,443 2,531 3,764
------ ------ ------ ------
Net income $2,554 $2,983 $4,365 $7,308
====== ====== ====== ======
Net income per share $0.61 $0.71 $1.04 $1.74
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 14, 1996.
4<PAGE>
Parkvale Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended March 31, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(Dollar Amounts in Thousands)
1997 1996
Cash flows from operating activities: ------- -------
Interest received $51,699 $49,884
Loan fees received 208 202
Other fees and commissions received 1,495 1,506
Interest paid (29,957) (29,983)
Cash paid to suppliers and others (14,867) (10,096)
Income taxes paid (1,832) (2,563)
------- -------
Net cash provided by operating activities 6,746 8,950
Cash flows from investing activities:
Proceeds from maturities of investments 30,500 114,700
Purchase of investment securities available
for sale (419) (933)
Purchase of investment securities (9,956) (82,725)
Purchase of deposits in other banks (155) (40)
Purchase of mortgage-backed securities -- (25,211)
Purchase of loans (62,297) (83,066)
Proceeds from sales of loans 1,737 1,934
Principal collected on mortgage-backed
securities 22,223 17,556
Principal collected on loans 100,983 110,574
Loans made to customers, net of loans in
process (85,550) (98,640)
Proceeds received from acquisition of
First Home Savings 11,084 --
Other (382) (114)
------- -------
Net cash provided by (used in) investing
activities 7,768 (45,965)
Cash flows from financing activities:
Net increase in checking and savings accounts 2,511 247
Net increase in certificates of deposit 46,171 11,133
Proceeds from FHLB advances -- 96
Repayment of FHLB advances (5,008) (7)
Net (decrease) increase in other borrowings (3,474) 1,178
Decrease in borrowers' advances for tax &
insurance (2,372) (3,368)
Cash dividends paid (1,480) (1,173)
Allocation of treasury stock to retirement plans 423 166
Acquisition of treasury stock (1,047) --
------- -------
Net cash provided by financing activities 35,724 8,272
------- -------
Net increase (decrease) in cash and cash
equivalents 50,238 (28,743)
Cash and equivalents at beginning of period 77,462 126,584
-------- --------
Cash and equivalents at end of period $127,700 $97,841
======== ========
5<PAGE>
Reconciliation of net income to net cash Nine months ended
provided by operating activities: March 31,
1997 1996
----- -----
Net income $4,365 $7,308
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 379 403
Accretion and amortization of loan fees
and discounts (49) (403)
Loan fees collected and deferred 208 202
Provision for loan losses 320 502
Gain on sale of assets -- (969)
Decrease in accrued interest receivable 829 403
Decrease (increase) in other assets 277 (132)
Decrease in accrued interest payable (72) (44)
Increase in other liabilities 489 1,680
------ ------
Total adjustments 2,381 1,642
------ ------
Net cash provided by operating activities $6,746 $8,950
====== ======
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 $138,000 and $1.2
million in the nine months ended March 31, 1997 and 1996, respectively.
<TABLE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
<CAPTION> Employee
Stock Unrealized Total
Common Paid-in Treasury Ownership Security Retained Shareholders'
Stock Capital Stock Plan Debt Gains Earnings Equity
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 $3,449 $9,138 ($3,028) ($104) $2,342 $57,968 $69,765
Net income, nine months ended
March 31, 1997 4,365 4,365
Dividends on common stock at
$.39 per share (1,586) (1,586)
Principal payments on employee
stock ownership plan debt 115 115
Additional ESOP borrowings (120) (120)
Transfer to reflect 5 for 4 split 862 (862) 0
Treasury stock purchased (1,048) (1,048)
Treasury stock contributed to benefit plans 165 179 344
Unrealized security gains 796 796
Exercise of stock options (361) 440 79
------ ------ ------ ------ ------ ------ ------
Balance, March 31, 1997 $4,311 $8,080 ($3,457) ($109) $3,138 $60,747 $72,710
====== ====== ====== ====== ====== ====== ======
</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, 1997 and 1996 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, 1997 are not necessarily indicative of the results which may
be expected for fiscal 1997. The Annual Report on Form 10-K for the
year ended June 30, 1996 contains additional information and should be
read in conjunction with this report.
2. STOCK SPLIT
On September 17, 1996 the Board of Directors declared a 5-for-4 stock
split of Parkvale's common stock. The additional shares were paid on
October 14, 1996 to stockholders of record at the close of business on
September 30, 1996. This increased the outstanding shares by 808,129.
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, 1997, earnings per share were $0.61 and
$1.04 based upon 4,208,421 and 4,211,534 average shares outstanding,
respectively assuming all 338,963 option shares outstanding were
exercised. For the three and nine months ended March 31, 1996, the
restated earnings per share were $0.71 and $1.74 per share based upon
4,201,236 and 4,201,885 average shares outstanding, respectively
assuming all 300,243 option shares then outstanding were exercised.
4. CHANGE IN METHOD OF ACCOUNTING
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
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. Management has evaluated the adoption of FAS
123 for fiscal 1997 and determined that Parkvale will continue its
accounting in accordance with APB Opinion 25. If Parkvale were to
present pro forma disclosures as if FAS 123 were adopted, there would be
minimal impact to the results of operations for the three and nine
months ended March 31, 1997 and 1996 for those awards granted on or
after July 1, 1995.
In June 1996, the FASB issued FAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." FAS
125 provides new accounting and reporting standards for sales,
securitizations and servicing of receivables and other financial assets,
for certain secured borrowing and collateral transactions, and for
extinguishments of liabilities. FAS 125 as amended by FASB Statement<PAGE>
No. 127, "Deferral of Effective Date of Certain Provisions of FAS 125"
is generally to be applied to transactions occurring after December 31,
1996, with certain provisions having been delayed until 1998. FAS 125
has not materially impacted the company's financial position or results
of operations as a result of adoption.
7<PAGE>
5. FDIC SPECIAL ASSESSMENT
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was
enacted to recapitalize the Savings Association Insurance Fund (SAIF).
As part of the legislation, a one-time assessment of $0.657 per $100 of
insured deposits ($5,035,012 before tax) was mandated to restore SAIF to
its required statutory level of $1.25 per $100 of insured deposits. The
one-time assessment, expensed in the September 1996 quarter, is tax
deductible and was paid on November 27, 1996. As such, Parkvale
reported a net loss for the quarter ended September 30, 1996 and lower
net earnings for the nine months ended March 31, 1997 as a direct result
of this $5.0 million ($3.2 million, net of tax) assessment. Earnings
(loss) per share impact of this one-time assessment is ($0.75). This
assessment has no impact on the earnings for the quarter ended March 31,
1997.
Despite the magnitude of the assessment, management believes the
legislation will have positive ramifications for Parkvale as it will
significantly reduce deposit insurance premiums and the competitive
disadvantage that SAIF-insured institutions have suffered relative to
Bank Insurance Fund (BIF)-insured institutions. Sharing in the
Financing Corporation (FICO) obligation began on January 1, 1997 as the
FICO premium to SAIF-insured institutions was assessed at 6.48 basis
points annually. FICO bonds were originally issued to finance part of
the savings and loan crisis of the 1980s. Consequently, total premiums
is the sum of the FICO premium and any regular insurance assessment,
currently nothing for the lowest risk category institutions. Since
Parkvale is considered to be in the lowest risk category, the total
premium effective January 1, 1997 is only for the FICO premium of 6.48
basis points. Parkvale's insurance cost was reduced by 16.5 basis
points or $1.3 million annually. Net earnings, as a result, increased
$0.05 per share for the quarter and is expected to do the same for the
June 1997 quarter.
Beginning January 1, 2000 the deposit insurance premium will be
further reduced so that there is full pro-rata FICO sharing with other
institutions. This amount has not been determined at this point in time.
8<PAGE>
6. LOANS:
Loans are summarized as follows:
March 31, June 30,
1997 1996
------- -------
(Dollar Amounts in Thousands)
First mortgage loans:
Residential:
1-4 Family $551,543 $517,082
Multi-family 16,483 17,375
Commercial 18,052 19,516
Other 8,871 2,387
-------- --------
594,949 556,360
Consumer loans 85,754 76,224
Commercial business loans 7,742 8,925
Loans on savings accounts 3,225 3,285
-------- --------
691,670 644,794
Less: Loans in process 6,439 4,386
Allowance for loan losses 14,263 13,990
Unamortized discount and deferred loan fees 721 966
-------- --------
Loans, net $670,247 $625,452
======== ========
The following summary sets forth the activity in the allowance for loan
losses for the nine months ended March 31:
1997 1996
----- -----
Beginning balance $13,990 $13,136
Provision for losses - mortgage loans 13 337
Provision for losses - consumer loans 307 165
Provision for losses - commercial loans -- --
Loans recovered 115 303
Loans charged off (162) (88)
------- -------
Ending balance $14,263 $13,853
======= =======
Nonaccrual loans $2,192 $1,008
as a percent of gross loans 0.32% 0.16%
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. The amount of
interest income of non-accrual loans that had not been recognized in
interest income was $282 at March 31, 1997 and $137 at June 30, 1996.
Non-accrual, substandard and doubtful commercial and other real estate
loans are considered impaired. At March 31, 1997, the Bank had $920 of
impaired loans and recorded $109 of reserves related to these loans.
Additionally, the loans have been included in management's assessment of
the adequacy of general valuation allowances. The average recorded
investment in impaired loans during the March 1997 quarter was $1,069.
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,
1997 1996
---- ----
Total assets $972,597 $914,016
Loans, net 670,247 593,985
Interest-earning deposits and federal
funds sold 118,972 88,009
Total investments 163,715 211,125
Savings deposits 867,315 805,825
FHLB Advances 15,685 20,696
Other borrowings 2,744 5,175
Shareholders' Equity 72,710 67,862
Book value per share $17.91 $16.79
Statistical Profile:
Three Months Ended Nine Months Ended
March 31, (1) March 31, (1)
1997 1996 1997 1996
---- ---- ---- ----
Average yield earned on all
interest-earning assets 7.33% 7.45% 7.37% 7.49%
Average rate paid on all
interest-bearing liabilities 4.65% 4.78% 4.66% 4.84%
Average interest rate spread 2.68% 2.67% 2.71% 2.65%
Net yield on average
interest-earning assets 2.98% 3.00% 3.03% 2.97%
Other expenses to average assets 1.42% 1.58% 2.16% 1.58%
Other expenses to average assets (2) 1.42% 1.58% 1.44% 1.58%
Taxes to pre-tax income 36.48% 32.60% 36.70% 34.00%
Return on average assets 1.06% 1.32% 0.62% 1.08%
Return on average assets (3) 1.06% 0.99% 1.07% 0.97%
Return on average equity 14.76% 18.51% 8.55% 15.60%
Return on average equity (3) 14.76% 13.99% 14.69% 14.05%
Average equity to average total
assets 7.16% 7.11% 7.24% 6.92%
At March 31,
1997 1996
---- ----
One year gap to total assets 0.19% 0.62%
Intangibles to total equity 0.83% 0.47%
Capital to assets ratio 7.48% 7.42%
Ratio of nonperforming assets to total assets 0.24% 0.18%
Number of full-service offices 29 28
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
(2) Excludes the effect of the one-time FDIC special assessment to
recapitalize the SAIF.
(3) Excludes the effect of the one-time FDIC special assessment in
fiscal 1997 and the gain on sale of asset in fiscal 1996.
10<PAGE>
Results of Operations - Comparison of Three Months Ended March 31, 1997
and 1996
-----------------------------------------------------------------------
For the three months ended March 31, 1997, Parkvale reported net income
of $2.6 million or $0.61 per share compared to net income of $3.0
million or $0.71 per share for the quarter ended March 31, 1996. This
decrease is attributable to a recognition of a $969,000 ($736,000 net of
taxes) previously deferred gain related to the sale of real estate in
the March 1996 quarter. Without this gain, normal operations for the
quarter would have resulted in a 13.7% increase in net income from $2.2
million or $0.53 per share for the quarter ended March 31, 1996 to $2.6
million or $0.61 per share for the quarter ended March 31, 1997. The
$307,000 increase in net income from normal operations for the March
1997 quarter reflects an increase in net interest income of $364,000 and
reduced loan loss provisions and operating expenses.
INTEREST INCOME:
----------------
Parkvale had interest income of $17.3 million during the three months
ended March 31, 1997 versus $16.5 million during the comparable period
in 1996. This increase of $725,000 is the result of a $54.2 million or
6.1% increase in the average balance of interest-earning assets, offset
by a 12 basis point decrease in the average yield from 7.45% in 1996 to
7.33% in 1997. Interest income from loans increased $919,000 or 7.7%
resulting from an increase in the average outstanding loan balances of
$64.9 million or 11.3%, offset by a 27 basis point decrease in the
average yield from 8.29% in 1996 to 8.02% in 1997. Interest income on
mortgage-backed securities decreased $296,000 or 18.0% from the 1996
quarter due to a decrease of $20.3 million or 20.3% in the average
balance, offset by a 20 basis point increase in the average yield from
6.58% in 1996 to 6.78% in 1997. Investment securities interest income
decreased by $330,000 or 20.9% from the 1996 quarter due to a decrease
of $25.9 million or 23.7% in the average balance, offset by a 22 basis
point increase in the average yield from 5.78% in 1996 to 6.00% in 1997.
Interest income earned on federal funds sold increased $432,000 from the
1996 quarter due to an increase in the average balance of $35.5 million
or 34.2%, offset by a 14 basis point decrease in the average yield from
5.41% in 1996 to 5.27% in 1997. At March 31, 1997, the weighted average
yield on all interest earning assets was 7.46% compared to 7.43% at
March 31, 1996.
INTEREST EXPENSE:
-----------------
Interest expense increased by $361,000 or 3.7% from the 1996 to the 1997
quarter. The increase was due to an increase in the average deposits
and borrowings of $54.5 million or 6.6%, offset by a 13 basis point
decrease in the average rate paid on deposits and borrowings from 4.78%
in 1996 to 4.65% in 1997. At March 31, 1997, the average rate payable
on liabilities was 4.67% for deposits, 6.39% for borrowings and 4.70%
for combined deposits and borrowings.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $97,000 or 57.7% from
the 1996 to the 1997 quarter. Total reserves were 2.06% and 2.17% of
gross loans at March 31, 1997 and June 30, 1996, respectively.
Non-performing loans and real estate owned were $2.4 million, $1.2
million and $1.6 million at March 31, 1997, June 30, 1996 and March 31,<PAGE>
1996, representing 0.24%, 0.14% and 0.18% of total assets at the
respective balance sheet dates. Total loan loss reserves at March 31,
1997 were $14.3 million,
11<PAGE>
which represents 2.06% of the gross loan portfolio. The increase of
$1.1 million in non-performing assets from June 30, 1996 is due an
increase in non-accruing single-family dwellings.
OTHER INCOME:
-------------
Total other income decreased by $1.0 million in 1997 primarily from the
recognition in the March 1996 quarter of a $969,000 previously deferred
gain related to a first mortgage loan payoff facilitating the sale of a
foreclosed real estate. 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, miscellaneous income decreased by $96,000 in 1997 due to a
$47,000 decrease in fee income from tax deferred annuity and mutual fund
products and a $50,000 decrease in rental income from a foreclosed real
estate in fiscal 1996.
OTHER EXPENSE:
--------------
Total other expenses decreased by $145,000 or 4.1% from 1996 due to a
decrease in the FDIC insurance for the March 1997 quarter, offset by an
increase in compensation and employee benefit expenses and miscellaneous
expenses. The FDIC insurance for the March 1997 quarter was $133,000
compared to $458,000 for the same quarter in 1996. This is due to a
change in the rate schedule of deposit premiums effective January 1,
1997 from the recapitalization of SAIF as provided for under the Deposit
Insurance Funds Act of 1996 as discussed above under "Notes to Unaudited
Interim Consolidated Financial Statements," Note 5. As part of this
legislation, the Bank's FDIC insurance expense effective January 1, 1997
was lowered to 6.48 basis points of insured deposits from 23 basis
points in the quarters prior to the recapitalization of the SAIF. This
translates to a savings of approximately $325,000 per quarter or an
increase in net earnings by $0.05 per share per quarter.
Compensation and employee benefit expenses increased $102,000 or 5.8%
from 1996 due to normal merit increases and the opening of a new branch
in November 1996. Miscellaneous expenses increased $30,000 or 5.2% from
1996 due to $12,000 of additional goodwill amortization from the
acquisition of $11.5 million of deposits from another financial
institution in December 1996 and a $20,000 increase in check printing
charges from recent deposit product promotions.
Results of Operation - Comparison of Nine Months Ended March 31, 1997
and 1996
----------------------------------------------------------------------
For the nine months ended March 31, 1997, Parkvale had net income of
$4.4 million or $1.04 per share compared to $7.3 million or $1.74 per
share for the nine months ended March 31, 1996. The earnings disparity
between the years is primarily attributable to the one-time FDIC special
assessment of $5.0 million ($3.2 million, net of tax) that was expensed
in the September 1996 quarter as discussed further above under "Notes
to Unaudited Interim Consolidated Financial Statements," Note 5. <PAGE>
Compounding the earnings disparity between 1997 and 1996 is the
recognition of the previously deferred gain on sale of real estate of
$969,000 (736,000 net of taxes) in the March 1996 quarter. Without
these two significant transactions, net income from normal operations
would have increased 14.7% for the nine months ended March 31, 1997 from
$6.6 million or $1.56 per share in the nine months ended March 31, 1996
to $7.5 million or $1.79 per share for the comparable period in 1997.
The $965,000 increase in net income from normal operations reflects an
increase of $1.1 million in net interest income and
12<PAGE>
lower operating expenses. Net interest income for the nine months ended
March 31, 1997 increased from $19.7 in 1996 to $20.8 million in 1997.
INTEREST INCOME:
----------------
Parkvale had interest income of $50.7 million during the nine months
ended March 31, 1997 and $49.7 million during the comparable period in
1996. This $1.0 million or 2.1% increase is attributable to an increase
in the average interest-earning asset portfolio of $33.3 million or
3.8%, offset by a 12 basis point decrease in the average yield from
7.49% in 1996 to 7.37% in 1997. Interest income from loans increased
$3.4 million or 10.0% due to an increase in the average loan balance of
$75.6 million or 13.7%, offset by a 28 basis point decrease in the
average yield from 8.31% in 1996 to 8.03% in 1997. Interest income on
mortgage-backed securities declined by $787,000 or 15.3% from the
comparable nine months of the previous fiscal year. This was due to a
decrease in the average portfolio of $15.8 million or 15.4%. Income
from investments decreased by $1.5 million or 27.7% from 1996 due to a
$33.0 million or 26.9% decrease in the average balance, magnified by a 6
basis point decrease in the average yield from 6.01% in 1996 to 5.95% in
1997. Federal funds sold income decreased slightly by $54,000 or 1.2%
from the prior nine months ended March 1996. Although the average
federal funds sold balance increased by $6.5 million or 6.1%, this was
not enough to offset the 40 basis point decrease in the average yield
from 5.75% in 1996 to 5.35% in 1997.
INTEREST EXPENSE:
-----------------
Interest expense decreased slightly by $54,000 from the 1996 nine month
period to the 1997 nine month period. The decrease was due to an 18
basis point decrease in the average rate paid on deposits and borrowings
from 4.84% in 1996 to 4.66% in 1997, offset by a $30.0 million or 3.6%
increase in the average deposits and borrowings.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $182,000 or 36.3% from
the 1996 to the 1997 period. Loan loss reserves were 1.47%, 1.52% and
1.52% of total assets at March 31, 1997, June 30, 1996 and March 31,
1996, respectively.
OTHER INCOME:
-------------
Other income decreased $952,000 in 1997 due primarily from the
recognition of a $969,000 previously deferred gain related to a loan
payoff facilitating the sale of real estate in the March 1996 quarter.
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.
Service charges on deposit accounts increased $106,000 or 13.0% from
1996 due to increased deposit balances in 1997. This is offset by a
decrease in miscellaneous income of $172,000 due to a $123,000 decrease
in fee income from tax deferred annuity and mutual fund products and a
13<PAGE>
$50,000 decrease in rental income from a foreclosed real estate in
fiscal 1996.
OTHER EXPENSES:
---------------
Other expenses increased by $4.5 million for the nine month period
ending March 31, 1997 compared to the same period in 1996 as a direct
result of the one-time assessment of $5.0 million expensed in the
September 1996 quarter discussed above under "Notes to Unaudited Interim
Consolidated Financial Statements," Note 5. Without this one-time
assessment, other expenses would have decreased by $526,000 or 4.9% for
the nine month period ended March 31, 1997. This decrease is due to
lower FDIC insurance premiums offset slightly by increased compensation
and employee benefit expenses.
As part of the legislation to recapitalize the SAIF, significant changes
were made to the rate schedule of deposit premiums for the December 1996
quarter and all quarters subsequent to January 1, 1997. Parkvale did
not begin sharing in the FICO obligation until January 1, 1997. Thus,
the FDIC refunded the deposit premium for the December 1996 quarter and
Parkvale recorded zero FDIC insurance expense for that quarter.
Effective January 1, 1997, the FDIC insurance was reduced to 6.48 basis
points of insured deposits versus 23 basis points in the quarters prior
to the recapitalization of the SAIF. The combination of reduced
insurance in the March 1997 quarter along with zero insurance expense
for the December 1996 quarter result in a $762,000 decrease in FDIC
insurance expense for the nine months ended March 31, 1997.
Compensation and employee benefit expenses increased by $146,000 or 2.8%
for the nine months ended March 31, 1997. This is due to normal merit
increases and the opening of a new branch in November 1996.
INCOME TAXES:
-------------
The provision for income taxes consists of the following for the nine
months ended March 31, 1997: Current provision - Federal $2,157,000;
State $434,000 and Deferred Federal Tax Benefit $60,000 with the total
aggregating $2,531,000. The effective tax rate for the nine months
ended March 31, 1997 was 36.7%.
On September 15, 1996, additional taxes of $396,000 were paid due to the
elimination of the special bad debt deduction under the reserve method
which allowed Parkvale to deduct 8% from taxable income before the
deduction. The $396,000 was accrued as a deferred tax liability for
activity in the first half of the calendar year prior to the enactment
of the Small Business Job Protection Act of 1996 which contained this
provision to eliminate the special bad debt deduction granted solely to
thrifts.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
The loan portfolio increased $44.8 million and federal funds sold
increased $52.1 million from June 30, 1996 to March 31, 1997 resulting
from the combination of funds available from $42.8 million investment
securities maturing and an increase in deposit balances of $60.2
million. Deposits aggregating $11.5 million were acquired from the
Crafton Office of First Home Savings on December 6, 1996 and transferred<PAGE>
to Parkvale's existing branch office located in the Crafton-Ingram
Shopping Center.
14<PAGE>
During the quarter ended March 31, 1996, the loan portfolio increased
$50.1 million due to the combination of the deployment of $19.0 million
of federal funds sold and an increase in savings deposit balances of
$25.7 million. The increase in the deposit balances is due to the
promotion of deposit products during the quarter.
Stockholders' equity was $72.7 million or 7.48% of total assets at March
31, 1997. 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, 1997, Parkvale was in compliance with all
applicable regulatory requirements, with Tier I and Tier II ratios of
6.97% and 14.80%, respectively.
The following table sets forth certain information concerning the Bank's
regulatory capital at March 31, 1997:
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- -------
Equity Capital (1) $71,957 $71,957 $71,957
Less non-allowable intangible assets (604) (604) (604)
Less unrealized securities gains (2,902) (2,902) (2,902)
Plus general valuation allowances (2) -- -- 6,419
------- ------- -------
Total regulatory capital 68,451 68,451 74,870
Minimum required capital 39,285 20,541 40,483
------- ------- -------
Excess regulatory capital $29,166 $47,910 $34,387
Adjusted total assets $982,122 $513,528 $506,043
Regulatory capital as a percentage (3) 6.97% 13.33% 14.80%
Minimum capital required as a
percentage 4.00% 4.00% 8.00%
----- ----- -----
Excess regulatory capital as a
percentage 2.97% 9.33% 6.80%
===== ===== ======
Well capitalized requirement 5.00% 6.00% 10.00%
------------------------- ===== ===== ======
(1) Represents equity capital of the consolidated Bank as reported to
the Pennsylvania Department of Banking and FDIC on Form 032 for the
quarter ended March 31, 1997.
(2) Limited to 1.25% of risk adjusted total assets.
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,<PAGE>
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
15<PAGE>
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
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 1, 1997 By: Robert J. McCarthy, Jr.
-----------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: May 1, 1997 By: Timothy G. Rubritz
----------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
16<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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-30-1997
<CASH> 9,057
<INT-BEARING-DEPOSITS> 329
<FED-FUNDS-SOLD> 118,643
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,165
<INVESTMENTS-CARRYING> 151,550
<INVESTMENTS-MARKET> 151,481
<LOANS> 684,510
<ALLOWANCE> 14,263
<TOTAL-ASSETS> 972,597
<DEPOSITS> 867,315
<SHORT-TERM> 2,744
<LIABILITIES-OTHER> 14,143
<LONG-TERM> 15,685
0
0
<COMMON> 4,311
<OTHER-SE> 68,399
<TOTAL-LIABILITIES-AND-EQUITY> 972,597
<INTEREST-LOAN> 37,776
<INTEREST-INVEST> 12,925
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 50,701
<INTEREST-DEPOSIT> 28,966
<INTEREST-EXPENSE> 29,885
<INTEREST-INCOME-NET> 20,816
<LOAN-LOSSES> 320
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,216
<INCOME-PRETAX> 6,896
<INCOME-PRE-EXTRAORDINARY> 6,896
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,365
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 3.03
<LOANS-NON> 2,192
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,990
<CHARGE-OFFS> 162
<RECOVERIES> 115
<ALLOWANCE-CLOSE> 14,263
<ALLOWANCE-DOMESTIC> 14,263
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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