SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 February 11,
1997 was $25.00 per share.
Number of shares of Common Stock outstanding as of February 11, 1997 was
4,049,712.
<PAGE>
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
--------------------------------- -----
Consolidated Statements of Financial Condition as
of December 31, 1996 and June 30, 1996 3
Consolidated Statements of Operations (Unaudited)
for the Three and Six Months ended December 31, 1996
and 1995 4
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months ended December 31, 1996 and 1995 5-6
Consolidated Statements of Shareholders' Equity
as of December 31, 1996 6
Notes to Unaudited Interim Consolidated Financial
Statements 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
Part II - Other Information 15
Signatures 15
2<PAGE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar Amounts in Thousands, except share data)
December 31, June 30,
ASSETS 1996 1996
---------- --------
Cash and noninterest-earning deposits $6,116 $10,905
Federal funds sold 137,685 66,557
Interest-earning deposits in other banks 358 173
Investment securities available for sale
(cost of $6,804 at December 31 and June 30) 11,728 10,493
Investment securities held to maturity (fair
value of $158,623 at December 31 and
$194,061 at June 30) 157,806 194,393
Loans, net of allowance of $14,216 at
December 31 and $13,990 at June 30 620,174 625,452
Foreclosed real estate, net of allowance
of $0 at December 31 and $19 at June 30 60 240
Office properties and equipment, net 2,166 2,005
Intangible assets and deferred charges 655 276
Prepaid expenses and other assets 8,554 8,748
-------- --------
Total Assets $945,302 $919,242
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $841,610 $807,087
Advances from Federal Home Loan Bank 15,688 20,693
Escrow for taxes and insurance 8,564 10,828
Other liabilities 4,884 4,651
Other debt 3,491 6,218
-------- --------
Total Liabilities 874,237 849,477
-------- --------
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; December-4,310,679*
shares issued, June-3,448,736 4,311 3,449
Additional Paid in Capital 8,190 9,138
Treasury Stock at cost (264,662* shares in
December and 266,366* shares in June) (3,213) (3,028)
Employee Stock Ownership Plan debt (71) (104)
Unrealized gains on securities available for
sale 3,127 2,342
Retained earnings 58,721 57,968
-------- --------
Total Shareholders' Equity 71,065 69,765
-------- --------
Total Liabilities and Shareholders' Equity $945,302 $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 Six months ended
December 31, December 31,
1996 1995 1996 1995
Interest Income: ------ ------ ------ ------
Loans $12,437 $11,368 $24,957 $22,458
Mortgage-backed securities 1,451 1,743 3,004 3,495
Investments 1,308 1,986 2,732 3,930
Federal funds sold 1,582 1,462 2,751 3,237
------- ------- ------- -------
Total interest income 16,778 16,559 33,444 33,120
------- ------- ------- -------
Interest Expense:
Savings deposits 9,602 9,588 19,016 19,268
Borrowings 304 397 627 790
------- ------- ------- -------
Total interest expense 9,906 9,985 19,643 20,058
------- ------- ------- -------
Net interest income 6,872 6,574 13,801 13,062
Provision for loan losses 114 149 249 334
------- ------- ------- -------
Net interest income after
provision for losses 6,758 6,425 13,552 12,728
------- ------- ------- -------
Noninterest Income:
Service charges on deposit
accounts 320 284 611 546
Other fees and service charges 187 134 336 266
Gain on sale of assets -- -- -- --
Miscellaneous 76 115 155 231
------- ------- ------- -------
Total other income 583 533 1,102 1,043
------- ------- ------- -------
Noninterest Expenses:
Compensation and benefits 1,775 1,754 3,531 3,487
Office occupancy 558 511 1,070 1,009
Marketing 75 81 155 141
FDIC insurance -- 441 462 899
FDIC special assessment -- -- 5,035 --
Office supplies, telephone,
and postage 219 208 420 398
Miscellaneous 587 609 1,106 1,191
------- ------- ------- -------
Total other expense 3,214 3,604 11,779 7,125
------- ------- ------- -------
Income before income taxes 4,127 3,354 2,875 6,646
Income tax expense 1,528 1,172 1,064 2,321
------- ------- ------- -------
Net income $2,599 $2,182 $1,811 $4,325
======= ======= ======= =======
Net income per share $0.62 $0.52 $0.43 $1.03
Dividends per share $0.13 $0.104 $0.26 $0.208
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 Six Months Ended December 31, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(Dollar Amounts in Thousands)
1996 1995
Cash flows from operating activities: -------- --------
Interest received $34,027 $32,773
Loan fees received 151 144
Other fees and commissions received 1,041 981
Interest paid (19,749) (20,139)
Cash paid to suppliers, FDIC and others (11,451) (5,890)
Income taxes paid (1,659) (2,264)
------- -------
Net cash provided by operating activities 2,360 5,605
Cash flows from investing activities:
Proceeds from maturities of investments 26,500 55,700
Purchase of investment securities available
for sale -- (69)
Purchase of investment securities (4,956) (57,573)
Purchase of deposits in other banks (185) (183)
Purchase of mortgage-backed securities -- (13,100)
Purchase of loans (9,465) (46,010)
Proceeds from sales of loans 1,631 1,382
Principal collected on mortgage-backed
securities 14,978 11,692
Principal collected on loans 70,525 68,550
Loans made to customers, net of loans in
process (57,569) (69,775)
Proceeds received from acquisition of
First Home Savings 11,084 --
Other (322) (88)
------- -------
Net cash provided by (used in) investing
activities 52,221 (49,474)
Cash flows from financing activities:
Net decrease in checking and savings accounts (4,515) (3,240)
Net increase in certificates of deposit 27,492 9,654
Proceeds from FHLB advances -- 96
Repayment of FHLB advances (5,005) (5)
Net (decrease) increase in other borrowings (2,726) 1,205
Decrease in borrowers' advances for tax &
insurance (2,264) (3,041)
Cash dividends paid (953) (756)
Allocation of treasury stock to retirement plans 49 11
Acquisition of treasury stock (320) --
------- -------
Net cash provided by financing activities 11,758 3,924
------- -------
Net increase (decrease) in cash and cash
equivalents 66,339 (39,945)
Cash and equivalents at beginning of period 77,462 126,584
-------- -------
Cash and equivalents at end of period $143,801 $86,639
======== =======
5<PAGE>
Reconciliation of net income to net cash Six months ended
provided by operating activities: December 31,
1996 1995
----- -----
Net income 1,811 $4,325
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 244 272
Accretion and amortization of loan fees
and discounts 1 (247)
Loan fees collected and deferred 151 144
Provision for loan losses 249 334
Decrease (increase) in accrued interest
receivable 443 (255)
Decrease in other assets 26 354
Decrease in accrued interest payable (106) (80)
(Decrease) increase in other liabilities (459) 758
------- -------
Total adjustments 549 1,280
------- -------
Net cash provided by operating activities $2,360 $5,605
======= =======
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 $3,000 and $1.1
million in the six months ended December 31, 1996 and 1995,
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, six months
ended December 31, 1996 1,811 1,811
Dividends on common stock at
$.26 per share (1,058) (1,058)
Principal payments on employee
stock ownership plan debt 33 33
Transfer to reflect 5 for 4 split 862 (862) 0
Treasury stock purchased (320) (320)
Unrealized security gains 785 785
Exercise of stock options (86) 135 49
--------- ---------- ---------- ---------- ---------- ---------- -----------
Balance, December 31, 1996 $4,311 $8,190 ($3,213) ($71) $3,127 $58,721 $71,065
======== ======== ======== ======= ======= ======= =======
</TABLE>
6<PAGE>
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------
1. STATEMENTS OF OPERATIONS
The statements of operations for the three and six months ended
December 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 six
months ended December 31, 1996 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 six months ended December 31, 1996, earnings per share were $0.62
and $0.43 based upon 4,219,382 and 4,213,091 average shares outstanding,
respectively assuming all 370,564 option shares outstanding were
exercised. For the three and six months ended December 31, 1995, the
restated earnings per share was $0.52 and $1.03 per share based upon
4,208,911 and 4,202,210 average shares outstanding, respectively
assuming all 321,046 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 six months
ended December 31, 1996 and 1995 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."
Under the FASB's "financial components" approach, both the transferor
and transferee would recognize the asset and liabilities (or components
thereof) that it controls in a physical sense and "derecognize" the
assets and liabilities that were surrendered or extinguished in the<PAGE>
transfer. Prior rules emphasize the economic risks or rewards of
ownership of the assets. This Statement is effective for transactions
occurring after December 31, 1996. Parkvale does not anticipate any
impact on results of operations and financial condition from the
adoption of this Statement.
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 six months ended December 31, 1996 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
December 31, 1996.
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 begins January 1, 1997 when the
FICO premium to SAIF-insured institutions will be 6.48 basis points
annually. FICO bonds were originally issued to finance part of the
savings and loan crisis of the 1980s. Total premiums will then be 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
beginning January 1, 1997 will only be for the FICO premium of 6.48
basis points. Parkvale's insurance cost will be reduced by 16.5 basis
points or $1.3 million annually. Net earnings are expected to increase
$0.05 per share per quarter for the remaining quarters in the 1997
fiscal year.
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:
December 31, June 30,
1996 1996
---------- ---------
(Dollar Amounts in Thousands)
First mortgage loans:
Residential:
1-4 Family $508,354 $517,082
Multi-family 18,822 17,375
Commercial 18,164 19,516
Other 2,403 2,387
-------- --------
547,743 556,360
Consumer loans 83,045 76,224
Commercial business loans 7,098 8,925
Loans on savings accounts 3,310 3,285
-------- --------
641,196 644,794
Less: Loans in process 5,842 4,386
Allowance for loan losses 14,216 13,990
Unamortized discount and deferred loan fees 964 966
-------- --------
Loans, net $620,174 $625,452
======== ========
Nonaccrual loans $2,811 $1,008
as a percent of gross loans 0.44% 0.16%
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due or when the loan becomes more than 90 days past due.
The amount of additional interest income that had not been recognized in
interest income was $243 at December 31, 1996 and $137 at June 30, 1996.
The following summary sets forth the activity in the allowance for loan
losses for the six months ended December 31:
1996 1995
------ ------
Beginning balance $13,990 $13,136
Provision for losses - mortgage loans 16 221
Provision for losses - consumer loans 233 113
Provision for losses - commercial loans -- --
Loans recovered 89 120
Loans charged off (112) (58)
------- -------
Ending balance $14,216 $13,532
======= =======
Non-accrual, substandard and doubtful commercial and other real estate
loans are evaluated for impairment under the provisions of FAS 114 and
118. At December 31, 1996, management has determined that $1,172 of
loans were considered to be impaired in conformity with these
Statements. The average recorded investment in impaired loans during
the December 1996 quarter was $1,146. The total allowance for loan
losses related to these loans was $167.
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: December 31,
1996 1995
------ ------
Total assets $945,302 $905,709
Loans, net 620,174 568,992
Interest-earning deposits and federal
funds sold 138,043 77,153
Total investments 169,534 237,669
Savings deposits 841,610 800,858
FHLB Advances 15,688 20,699
Other borrowings 3,491 5,202
Shareholders' Equity 71,065 65,048
Book value per share $17.56 $16.24
Statistical Profile:
Three Months Ended Six Months Ended
December 31, (1) December 31, (1)
1996 1995 1996 1995
----- ----- ----- -----
Average yield earned on all
interest-earning assets 7.37% 7.50% 7.39% 7.51%
Average rate paid on all
interest-bearing liabilities 4.68% 4.85% 4.67% 4.87%
Average interest rate spread 2.70% 2.66% 2.73% 2.64%
Net yield on average
interest-earning assets 3.02% 2.98% 3.05% 2.96%
Other expenses to average assets 1.38% 1.60% 2.54% 1.58%
Other expenses to average assets
without special assessment 1.38% 1.60% 1.46% 1.58%
Taxes to pre-tax income 37.02% 34.94% 37.01% 34.92%
Return on average assets 1.12% 0.97% 0.39% 0.96%
Return on average assets without
special assessment 1.12% 0.97% 1.07% 0.96%
Return on average equity 15.44% 14.00% 5.37% 14.08%
Return on average equity without
special assessment 15.44% 14.00% 14.65% 14.08%
Average equity to average total
assets 7.23% 6.91% 7.28% 6.82%
At December 31,
1996 1995
----- -----
One year gap to total assets 2.25% 5.55%
Intangibles to total equity 0.92% 0.55%
Capital to assets ratio 7.52% 7.18%
Ratio of nonperforming assets to total assets 0.30% 0.26%
Number of full-service offices 29 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 December 31,
1996 and 1995
---------------------------------------------------------------------
For the three months ended December 31, 1996, Parkvale reported net
income of $2.6 million or $0.62 per share up 19% from net income of $2.2
million or $0.52 per share for the comparable period in 1995. The
$417,000 increase in net income for the December 1996 quarter reflects
reduced operating expenses of $390,000 and increased net interest income
of $298,000. Net interest income for the quarter ended December 31,
1996 increased to $6.9 million from $6.6 million for the quarter ended
December 31, 1995.
INTEREST INCOME:
----------------
Parkvale had interest income of $16.8 million during the three months
ended December 31, 1996 versus $16.6 million during the comparable
period in 1995. This increase of $219,000 is the result of a $27.4
million or 3.1% increase in the average balance of interest-earning
assets, offset by a 13 basis point decrease in the average yield from
7.50% in 1995 to 7.37% in 1996. Interest income from loans increased
$1.1 million or 9.4% resulting from an increase in the average
outstanding loan balances of $71.9 million or 13.2%, offset by a 28
basis point decrease in the average yield from 8.32% in 1995 to 8.04% in
1996. Interest income on mortgage-backed securities decreased $292,000
from the 1995 quarter due to a decrease of $17.5 million or 16.8% in the
average balance. Investment securities interest income decreased by
$678,000 from the 1995 quarter due to a decrease of $43.9 million or
33.2% in the average balance, compounded slightly by a 9 basis point
decrease in the average yield from 6.00% in 1995 to 5.91% in 1996.
Interest income earned on federal funds sold increased $120,000 from
the 1995 quarter due to an increase in the average balance of $16.9
million or 16.9%, offset by a 44 basis point decrease in the average
yield from 5.88% in 1995 to 5.44% in 1996. At December 31, 1996, the
weighted average yield on all interest earning assets was 7.38% compared
to 7.50% at December 31, 1995.
INTEREST EXPENSE:
-----------------
Interest expense decreased slightly by $79,000 or 0.8% from the 1995 to
the 1996 quarter. The decrease was due to a 17 basis point decrease in
the average rate paid on deposits and borrowings from 4.85% in 1995 to
4.68% in 1996, offset by an increase in the average deposits and
borrowings of $23.4 million. At December 31, 1996, the average rate
payable on liabilities was 4.67% for deposits, 6.26% for borrowings and
4.71% for combined deposits and borrowings.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $35,000 or 23.5% from
the 1995 to the 1996 quarter. Total reserves were 2.22% and 2.17% of
gross loans at December 31, 1996 and June 30, 1996, respectively.
Non-performing loans and real estate owned were $2.9 million, $1.2
million and $2.4 million at December 31, 1996, June 30, 1996 and
December 31, 1995, representing 0.30%, 0.14% and 0.26% of total assets
at the respective balance sheet dates. Total loan loss reserves at
December 31, 1996 were $14.2 million, which represents 2.22% of the
gross loan portfolio. The increase of $1.6 million in non-performing
assets from June 30, 1996 is due to a reclassification of a $359,000<PAGE>
shopping center from accrual to non-accrual status and a $1.3 million
increase in non-accruing single-family dwellings.
11<PAGE>
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 slightly by $50,000 in 1996 primarily from
a $51,000 increase in loan prepayment charges.
OTHER EXPENSE:
--------------
Total other expenses decreased by $390,000 or 10.8% from 1995 as FDIC
insurance for the December 1996 quarter was zero compared to $441,000 in
the December 1995 quarter. This is due to a change in the rate schedule
of deposit premiums for the December 1996 quarter from the
recapitalization of SAIF as provided for under the Deposit Insurance
Funds Act of 1996. Because Parkvale is considered to be a Sasser bank,
sharing in the FICO obligation does not begin until January 1, 1997.
Thus, the FDIC refunded the deposit premium for the December 1996
quarter. Effective January 1, 1997, the normal FDIC quarterly expense
is expected to lower to approximately $134,000 from $460,000 in the
immediate quarters prior to the assessment. The savings of
approximately $326,000 per quarter for the remaining quarters in fiscal
1997 is expected to increase net earnings by $0.05 per share per
quarter.
Results of Operation - Comparison of Six Months Ended December 31, 1996
and 1995
------------------------------------------------------------------------
For the six months ended December 31, 1996, Parkvale had net income of
$1.8 million versus $4.3 million for the comparable period in 1995.
This $2.5 million decrease in net income is directly attributable to the
one-time assessment of $5.0 million ($3.2 million, net of tax) and
increased net interest income of $739,000. Without such special
assessment, net income for the six months ended December 31, 1996 would
have been $5.0 million or $1.18 per share, up 15.1% from net income for
the comparable period in 1995. Net interest income for the six months
ended December 31, 1996 increased from $13.1 million in 1995 to $13.8
million in 1996.
INTEREST INCOME:
----------------
Parkvale had interest income of $33.4 million during the six months
ended December 31, 1996 versus $33.1 million during the comparable
period in 1995. This slight increase of $324,000 is attributable to an
increase in the average interest-earning asset portfolio of $22.9
million, offset by a 12 basis point decrease in the average yield from
7.51% in 1995 to 7.39% in 1996. Interest income from loans increased
$2.5 million or 11.1% due to an increase in the average loan balance of
$80.9 million or 15.0%, offset by a 28 basis point decrease in the
average yield from 8.32% in 1995 to 8.04% in 1996. Interest income on
mortgage-backed securities declined by $491,000 or 14.1% from the first
six months of the previous fiscal year. This was due to a decrease in
the average portfolio of $13.5 million or 13.1%, compounded by a slight<PAGE>
decrease in the average yield from 6.74% to 6.66%. Income from
investments decreased by $1.2 million or 30.5% from 1995 due to a
significant decrease in the average investment balance of $36.5 million
or 28.3%, compounded by an 18 basis point decrease in the average yield
from 6.10% in 1995 to 5.92% in 1996. Interest income earned on federal
funds sold decreased $486,000 or 15.0% from the prior six months ended
December 1995. This was due to a 49 basis point decrease in the average
yield from 5.90% in 1995 to 5.41% in 1996 and an $8.0 million decrease
in the average balance.
12<PAGE>
INTEREST EXPENSE:
-----------------
Interest expense decreased slightly by $415,000 or 2.1% from the 1995
six month period to the 1996 six month period. The decrease was due to
a 20 basis point decrease in the average rate paid on deposits and
borrowings from 4.87% in 1995 to 4.67% in 1996, offset by an increase in
the average deposits and borrowings of $17.8 million.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $85,000 or 25.5% from
the 1995 to the 1996 period. Loan loss reserves were 1.50%, 1.52% and
1.49% of total assets at December 31, 1996, June 30, 1996 and December
31, 1995, respectively.
OTHER INCOME:
-------------
Other income increased slightly by $59,000 or 5.7% due to a $65,000
increase from fees on deposit accounts and a $73,000 increase in
prepayment penalties on commercial mortgage loans, offset by a $76,000
decrease in tax deferred annuity program income.
OTHER EXPENSES:
---------------
Other expenses increased $4.7 million for the six month period ending
December 31, 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" under
Note 5. Without this one-time assessment, other expenses would have
decreased by $381,000 for the six month period ended December 31, 1996
as FDIC insurance expense for the December quarter was zero compared to
$441,000 in the December 1995 quarter. No expense was recorded as
Parkvale received a refund for the December quarter premiums due to a
change in the rate schedule as a result of the recapitalization of SAIF.
INCOME TAXES:
-------------
The provision for income taxes consists of the following for the six
months ended December 31, 1996: Current provision - Federal $933,000;
State $181,000 and Deferred Federal Tax Benefit $50,000 with the total
aggregating $1,064,000. The prepaid and deferred tax asset increased by
$280,000 from June 30, 1996 to December 31, 1996 which is the remaining
portion of an overpayment of estimated federal taxes remitted prior to
the enactment of the Deposit Insurance Funds Act of 1996 signed into law
September 30, 1996. 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. The effective tax rate for the six months
ended December 31, 1996 was 37.0%, which is anticipated to be the
effective tax rate for the 1997 fiscal year.
13<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
Federal funds sold increased $71.1 million from June 30, 1996 to
December 31, 1996 resulting from the combination of funds available from
$36.6 million investment securities maturing and an increase in deposit
balances of $34.5 million. Deposits aggregating $11.5 million were
acquired from the Crafton Office of First Home Savings on December 6,
1996 and transferred to Parkvale's existing branch office located in the
Crafton-Ingram Shopping Center.
Stockholders' equity was $71.1 million or 7.52% of total assets at
December 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 December 31, 1996, Parkvale was in
compliance with all applicable regulatory requirements, with Tier I and
Tier II ratios of 7.00% and 15.04%, respectively.
The following table sets forth certain information concerning the Bank's
regulatory capital at December 31, 1996:
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- --------
Equity Capital (1) $70,440 $70,440 $70,440
Less non-allowable intangible assets (655) (655) (655)
Less unrealized securities gains (2,939) (2,939) (2,939)
Plus general valuation allowances (2) -- -- 6,164
------- ------- -------
Total regulatory capital 66,846 66,846 73,010
Minimum required capital 38,203 19,726 38,840
------- ------- -------
Excess regulatory capital $28,643 $47,120 $34,170
Adjusted total assets $955,074 $493,138 $485,502
Regulatory capital as a percentage (3) 7.00% 13.56% 15.04%
Minimum capital required as a
percentage 4.00% 4.00% 8.00%
Excess regulatory capital as a ------ ------ ------
percentage 3.00% 9.56% 7.04%
====== ====== ======
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 December 31, 1996.
(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.
14<PAGE>
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
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: February 12, 1997 By: Robert J. McCarthy, Jr.
------------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: February 12, 1997 By: Timothy G. Rubritz
------------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
15<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 6,116
<INT-BEARING-DEPOSITS> 358
<FED-FUNDS-SOLD> 137,685
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,728
<INVESTMENTS-CARRYING> 157,806
<INVESTMENTS-MARKET> 158,623
<LOANS> 634,390
<ALLOWANCE> 14,216
<TOTAL-ASSETS> 945,302
<DEPOSITS> 841,610
<SHORT-TERM> 3,491
<LIABILITIES-OTHER> 13,448
<LONG-TERM> 15,688
0
0
<COMMON> 4,311
<OTHER-SE> 66,754
<TOTAL-LIABILITIES-AND-EQUITY> 945,302
<INTEREST-LOAN> 24,957
<INTEREST-INVEST> 8,487
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 33,444
<INTEREST-DEPOSIT> 19,016
<INTEREST-EXPENSE> 19,643
<INTEREST-INCOME-NET> 13,801
<LOAN-LOSSES> 249
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,779
<INCOME-PRETAX> 2,875
<INCOME-PRE-EXTRAORDINARY> 2,875
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,811
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 3.05
<LOANS-NON> 2,811
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,990
<CHARGE-OFFS> 112
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 14,216
<ALLOWANCE-DOMESTIC> 14,216
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
