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, 1997
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-155659
(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 9, 1998
was $32.00 per share.
Number of shares of Common Stock outstanding as of February 9, 1998 was
5,128,437.
PARKVALE FINANCIAL CORPORATION<PAGE>
INDEX
Part I. Financial Information Page
- --------------------------------- ----
Consolidated Statements of Financial Condition
as of December 31, 1997 and June 30, 1997 3
Consolidated Statements of Operations for the
Three and Six Months ended December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Six Months ended December 31, 1997 and 1996 5-6
Consolidated Statement of Shareholders' Equity
as of December 31, 1997 6
Notes to Unaudited Interim Consolidated
Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 -13
Part II - Other Information 14
Signatures 14
2 <PAGE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
December 31, June 30,
ASSETS 1997 1997
----------- --------
(Unaudited)
Cash and noninterest-earning deposits $ 8,410 $ 12,104
Federal funds sold 85,287 107,832
Interest-earning deposits in other banks 325 219
Investment securities available for sale (cost of
$7,223 at December 31 and June 30) 15,230 13,546
Investment securities held to maturity (fair value
of $148,780 at December 31 and $136,834 at June 30) 147,864 136,034
Loans, net of allowance of $14,412 at December 31
and $14,266 at June 30 751,679 710,868
Foreclosed real estate, net of allowance of $0 at
December 31 and June 30 - 165
Office properties and equipment, net 2,180 2,125
Intangible assets and deferred charges 451 553
Prepaid expenses and other assets 7,717 7,793
---------- --------
Total Assets $1,019,143 $991,239
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $905,384 $881,244
Advances from Federal Home Loan Bank 15,677 15,682
Escrow for taxes and insurance 8,292 10,104
Other liabilities 4,888 4,512
Other debt 4,240 4,514
-------- --------
Total Liabilities 938,481 916,056
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- 5,388,084* shares issued, 5,388 4,311
June - 4,310,679 shares issued)
Additional Paid in Capital 6,901 8,034
Treasury Stock at cost (279,617* shares in December
and 319,421* shares in June) (3,274) (3,676)
Employee Stock Ownership Plan debt (367) (330)
Unrealized gains on securities available for sale 5,084 4,015
Retained earnings 66,930 62,829
---------- --------
Total Shareholders' Equity 80,662 75,183
---------- --------
Total Liabilities and Shareholders' Equity $1,019,143 $991,239
========== ========
* Reflect the effect of the 5 for 4 stock split on October 14, 1997.
3 <PAGE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
------ ------ ------- -------
Interest income: (Unaudited) (Unaudited)
Loans $14,503 $12,437 $28,711 $24,957
Mortgage-backed securities 989 1,451 2,053 3,004
Investments 1,354 1,308 2,696 2,732
Federal funds sold 1,560 1,582 3,159 2,751
------- ------- ------- -------
Total interest income 18,406 16,778 36,619 33,444
Interest expense: ------- ------- ------- -------
Savings deposits 10,704 9,602 21,265 19,016
Borrowings 288 304 564 627
------- ------ ------ -------
Total interest expense 10,992 9,906 21,829 19,643
------- ------ ------ -------
Net interest income 7,414 6,872 14,790 13,801
Provision for loan losses 64 114 157 249
Net interest income after ------- ------ ------ -------
provision for losses 7,350 6,758 14,633 13,552
Noninterest Income: ------- ------ ------- ------
Service charges on deposit accounts 356 320 710 611
Other fees and service charges 149 187 315 336
Miscellaneous 129 76 190 155
------- ------ ------ ------
Total other income 634 583 1,215 1,102
Noninterest Expenses: ------- ------ ------ ------
Compensation and benefits 1,879 1,775 3,777 3,531
Office occupancy 556 558 1,095 1,070
Marketing 104 75 239 155
FDIC insurance 139 - 275 462
FDIC special assessment - - - 5,035
Office supplies, phone, postage 233 219 452 420
Miscellaneous 737 587 1,399 1,106
----- ----- ----- ------
Total other expenses 3,648 3,214 7,237 11,779
----- ----- ----- ------
Income before income taxes 4,336 4,127 8,611 2,875
Income tax expense 1,604 1,528 3,183 1,064
----- ----- ------ ------
Net income $2,732 $2,599 $5,428 $1,811
====== ====== ====== ======
Basic earnings per share $0.53 $0.51 $1.06 $0.35
Diluted earnings per share $0.52 $0.50 $1.03 $0.35
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, 1997.
4 <PAGE>
Parkvale Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended December 31, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
1997 1996
----- -----
Cash flows from operating activities: (Unaudited)
Interest received $ 36,292 $ 34,027
Loan fees received 163 151
Other fees and commissions received 1,113 1,041
Interest paid (21,903) (19,749)
Cash paid to suppliers, FDIC and others (6,940) (11,451)
Income taxes paid (3,046) (1,659)
-------- -------
Net cash provided by operating activities 5,679 2,360
Cash flows from investing activities:
Proceeds from maturities of investments 28,167 41,478
Purchase of investment securities held to maturity (39,877) (4,956)
Purchase of deposits in other banks (105) (185)
Purchase of loans (65,859) (9,465)
Proceeds from sales of loans 1,881 1,631
Principal collected on loans 99,936 70,525
Loans made to customers, net of loans in process (76,781) (57,569)
Proceeds received from acquisition of
First Home Savings - 11,084
Other (213) (322)
-------- --------
Net cash (used in) provided by
investing activities (52,851) 52,221
Cash flows from financing activities:
Net increase (decrease) in checking and savings
accounts 1,801 (4,515)
Net increase in certificates of deposit 22,338 27,492
Proceeds from FHLB advances 5,000 -
Repayment of FHLB advances (5,006) (5,005)
Net decrease in other borrowings (274) (2,726)
Decrease in borrowers' advances for tax & insurance (1,811) (2,264)
Cash dividends paid (1,190) (953)
Allocation of treasury stock to retirement plans 75 49
Acquisition of treasury stock - (320)
------- -------
Net cash provided by financing activities 20,933 11,758
Net (decrease) increase in cash and cash equivalents (26,239) 66,339
Cash and equivalents at beginning of period 119,936 77,462
-------- --------
Cash and equivalents at end of period $ 93,697 $143,801
5 <PAGE>
Reconciliation of net income to net cash provided
by operating activities: 1997 1996
------- -------
Net income $5,428 $1,811
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 262 244
Accretion and amortization of loan fees and
discounts (264) 1
Loan fees collected and deferred 163 151
Provision for loan losses 157 249
(Increase) decrease in accrued interest receivable (276) 443
Decrease in other assets 10 26
Decrease in accrued interest payable (74) (106)
Increase (decrease) in other liabilities 273 (459)
------ ------
Total adjustments 251 549
------ ------
Net cash provided by operating activities $5,679 $2,360
====== =======
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 $0 and $3,000 in the six months ended December 31, 1997 and
1996, respectively.
<TABLE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands, except per share data)
(Unaudited)
<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, 1997 $4,311 $8,034 ($3,676) ($330) $4,015 $62,829 $75,183
Net income, six months
ended December 31, 1997 5,428 5,428
Dividends on common stock at
$.26 per share (1,327) (1,327)
Principal payments on employee
stock ownership plan debt 41 41
Additional borrowings on employee
stock ownership plan debt (78) (78)
Transfer to reflect
5 for 4 split 1,077 (1,077)
Unrealized security gains 1,069 1,069
Exercise of stock options (56) 402 346
6 <PAGE>
Balance,December31,1997 $5,388 $6,901 ($3,274) ($367) $5,084 $66,930 $80,662
</TABLE>
7 <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,
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 six months ended December 31, 1997 are not
necessarily indicative of the results which may be expected for fiscal 1998.
The Annual Report on Form 10-K for the year ended June 30, 1997 contains
additional information and should be read in conjunction with this report.
2. Stock Split
- ---------------
On September 16, 1997, the Board of Directors declared a 5-for-4 stock split of
Parkvale's common stock. The additional shares were paid on October 14, 1997 to
stockholders of record at the close of business on September 30, 1997. This
increased the outstanding shares by 1,077,405. No fractional shares were
issued. All share amounts in this report have been restated to reflect this
stock split.
3. Earnings Per Share
- ----------------------
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of employee stock options. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements. The following table sets forth the computation of basic and
diluted earnings per share for the three and six months ended December 31:
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
Numerator for basic and diluted ------- ------- ------- -------
earnings per share:
Net income $2,732,649 $2,599,502 $5,428,218 $1,811,033
Denominator:
Denominator for basic earnings
per share--weighted average
shares 5,106,373 5,052,728 5,100,378 5,053,981
Effect of dilutive securities:
Employee stock options 186,603 190,425 176,891 184,849
-------- ------- ------- -------
Denominator for dilutive earnings
per share--adjusted weighted
average shares and assumed
stock option exercise 5,292,976 5,243,153 5,277,269 5,238,830
========= ========= ========= =========
8 <PAGE>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
------ ------ ------ -----
Basic Earnings Per Share $0.53 $0.51 $1.06 $0.35
Diluted Earnings Per Share $0.52 $0.50 $1.03 $0.35
Options to purchase 15,255 shares of common stock at $29.00 per share and
103,750 shares of common stock at $20.40 per share were outstanding during
the three and six months ended December 31, 1997 and 1996, respectively, but
were not included in the computation of diluted earnings per share because
the options' exercise price was greater than the average market price of the
common shares and therefore, the effect would be antidilutive.
4. Loans
- ---------
Loans are summarized as follows: December 31, June 30,
1997 1997
----------- ----------
First mortgage loans: (Dollar amounts in thousands)
Residential:
1-4 Family $613,817 $586,735
Multifamily 14,936 16,825
Commercial 21,525 17,724
Other 10,770 9,329
-------- --------
661,048 630,613
Consumer loans 99,198 90,305
Commercial business loans 10,332 8,332
Loans on savings accounts 2,953 3,076
-------- --------
773,531 732,326
Less: Loans in process 6,860 6,393
Allowance for loan losses 14,412 14,266
Unamortized discount and deferred loan fees 580 799
-------- ---------
Loans, net $751,679 $710,868
======== ========
The following summarizes the activity in the allowance for loan losses for the
six months ended December 31:
1997 1996
-------- -------
Beginning balance $14,266 $13,990
Provision for losses - mortgage loans 48 16
Provision for losses - consumer loans 109 233
Loans recovered 43 89
Loans charged off (54) (112)
------- --------
Ending balance $14,412 $14,216
======== ========
Nonaccrual loans $3,623 $2,811
as a percent of total assets 0.36% 0.30%
Loans are placed on nonaccrual 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
nonaccrual loans. The amount of interest income of nonaccrual loans that had
not been recognized in interest income was $357 at December 31, 1997 and $285
at June 30, 1997.
9<PAGE>
Nonaccrual, substandard and doubtful commercial and other real estate loans are
considered impaired. At December 31, 1997, the Bank had $1,154 of impaired
loans and recorded $173 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 December 1997 quarter was $1,162.
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,
1997 1996
------- -------
Total assets $1,019,143 $945,302
Loans, net 751,679 620,174
Interest-earning deposits and federal funds sold 85,612 138,043
Total investments 163,094 169,534
Savings deposits 905,384 841,610
FHLB Advances 15,677 15,688
Shareholders' Equity 80,662 71,065
Book value per share $15.79 $14.05
Statistical Profile: Three Months Ended Six Months Ended
December 31, (1) December 31, (1)
1997 1996 1997 1996
------- ------- ------ ------
Average yield earned on all
interest-earning assets 7.42% 7.37% 7.47% 7.39%
Average rate paid on all
interest-bearing liabilities 4.76% 4.68% 4.77% 4.67%
Average interest rate spread 2.66% 2.70% 2.70% 2.73%
Net yield on average
interest-earning assets 2.99% 3.02% 3.02% 3.05%
Other expenses to average assets 1.44% 1.38% 1.44% 2.54%
Other expenses to average assets without
special assessment 1.44% 1.38% 1.44% 1.46%
Taxes to pre-tax income 36.99% 37.02% 36.96% 37.01%
Return on average assets 1.08% 1.12% 1.08% 0.39%
Return on average assets without
special assessment 1.08% 1.12% 1.08% 1.07%
Return on average equity 14.56% 15.44% 14.68% 5.37%
Return on average equity without
special assessment 14.56% 15.44% 14.68% 14.65%
Average equity to average total assets 7.39% 7.23% 7.34% 7.28%
At December 31,
1997 1996
------- ------
One year gap to total assets -1.27% 2.25%
Intangibles to total equity 0.56% 0.92%
Capital to assets ratio 7.91% 7.52%
Ratio of nonperforming assets to total assets 0.36% 0.30%
Number of full-service offices 29 29
10 <PAGE>
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
Results of Operations-Comparison of Three Months Ended December 31, 1997 and
1996
For the three months ended December 31, 1997, Parkvale reported net income of
$2.7 million or $0.52 per diluted share up 5.1% from net income of $2.6 million
or $0.50 per diluted share for the comparable period in 1996. The $133,000
increase in net income for the December 1997 quarter primarily reflects
increased net interest income of $542,000 and increased operating expenses of
$434,000. Net interest income for the quarter ended December 31, 1997
increased to $7.4 million from $6.9 million for the quarter ended December 31,
1996. Deposit insurance expense for the quarter ended December 31, 1997 was
$139,000 versus zero in the December 1996 quarter.
Interest Income:
- ----------------
Parkvale had interest income of $18.4 million for the three months ended
December 31, 1997 versus $16.7 million during the comparable period in 1996.
This increase of $1.6 million is the result of an $81.8 million or 9.0%
increase in the average balance of interest-earning assets, coupled with a 5
basis point increase in the average yield from 7.37% in 1996 to 7.42% in 1997.
Interest income from loans increased $2.1 million or 16.6% resulting from an
increase in the average outstanding loan balances of $115.2 million or 18.6%,
offset by a 13 basis point decrease in the average yield from 8.04% in 1996
to 7.91% in 1997. Interest income on mortgage-backed securities decreased
$462,000 from the 1996 quarter due to a decrease of $29.7 million or 34.2% in
the average balance. Investment securities interest income increased by
$46,000 from the 1996 quarter due to a slight increase of $2.1 million or
2.31% in the average balance, along with a 7 basis point increase in the
average yield from 5.91% in 1996 to 5.98% in 1997. Interest income earned on
federal funds sold decreased $22,000 from the 1996 quarter due
to a decrease in the average balance of $5.8 million or 5%, offset by a 20
basis point increase in the average yield from 5.44% in 1996 to 5.64% in 1997.
At December 31, 1997, the weighted average yield on all interest earning assets
was 7.51% compared to 7.38% at December 31, 1996.
Interest Expense:
- -----------------
Interest expense increased by $1.1 million or 11% from the 1996 to the 1997
quarter. The increase was due to an 8 basis point increase in the average rate
paid on deposits and borrowings from 4.68% in 1996 to 4.76% in 1997, along with
an increase in the average deposits and borrowings of $76.5 million. At
December 31, 1997, the average rate payable on liabilities was 4.79% for
deposits, 5.13% for borrowings and 4.79% for combined deposits and borrowings.
Provision for Loan Losses:
- --------------------------
Parkvale's provision for loan losses decreased by $50,000 or 43.9% from the
1996 to the 1997 quarter. Total reserves were 1.86% and 1.95% of gross loans
at December 31, 1997 and June 30, 1997, respectively.
Nonperforming loans and real estate owned were $3.6 million, $2.7 million and
$2.9 million at December 31, 1997, June 30, 1997 and December 31, 1996,
representing 0.36%, 0.27% and 0.30% of total assets at the respective balance
sheet dates. Total loan loss reserves at December 31, 1997 were $14.4 million.
11<PAGE>
Other Income:
- -------------
Total other income increased slightly by $51,000 in 1997 primarily from
a $53,000 increase in miscellaneous fees and service charges including mortgage
servicing, MAC and mutual fund fees.
Other Expense:
- --------------
Total other expenses increased by $434,000 or 13.5% from December 1996 to
December 1997. This increase is due in part to 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 did not begin
until January 1, 1997. Thus, the FDIC refunded the deposit premium for the
December 1996 quarter. FDIC insurance was $139,000 for the December 1997
quarter as compared to zero for the December 1996 quarter. Additionally, legal
expenses increased $129,000 from December 1996 to December 1997 primarily as
a result of defending the lawsuit described in Item 1. Legal Proceedings.
Results of Operations-Comparison of Six Months Ended December 31, 1997 and 1996
For the six months ended December 31, 1997, Parkvale had net income of $5.4
million or $1.03 per diluted share versus $1.8 million or $0.35 per diluted
share for the comparable period in 1996. The $3.6 million increase 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 $989,000.
Without such special assessment, net income for the six months ended December
31, 1996 would have been $4.9 million or $0.95 per diluted share.
Interest Income:
- ----------------
Parkvale had interest income of $36.6 million during the six months ended
December 31, 1997 versus $33.4 million during the comparable period in 1996.
This increase of $3.2 million is attributable to an increase in the average
interest-earning asset portfolio of $75.8 million, coupled with an 8 basis
point increase in the average yield from 7.39% in 1996 to 7.47% in 1997.
Interest income from loans increased $3.8 million or 15.0% due to an increase
in the average loan balance of $102.2 million or 16.5%, offset by a 10 basis
point decrease in the average yield from 8.04% in 1996 to 7.94% in 1997.
Interest income on mortgage-backed securities declined by $951,000 or 31.7%
from the first six months of the previous fiscal year. This was due to a
decrease in the average portfolio of $30.6 million or 33.9%, offset by a 23
basis point increase in the average yield from 6.66% to 6.89%. Income from
investments decreased by $36,000 or 1.31% from 1996 due to a decrease in the
average investment balance of $6.5 million or 7%, offset somewhat by a 36
basis point increase in the average yield from 5.92% in 1996 to 6.28%
in 1997. Interest income earned on federal funds sold increased $408,000 or
14.8% from the prior six months ended December 1996. This was due to a 21 basis
point increase in the average yield from 5.41% in 1996 to 5.62% in 1997 and a
$10.7 million increase in the average balance.
Interest Expense:
- -----------------
Interest expense increased by $2.2 million or 11.1% from the 1996 six month
period to the 1997 six month period. The increase was due to a 10 basis point
increase in the average rate paid on deposits and borrowings from 4.67% in
1996 to 4.77% in 1997, along with an increase in the average deposits and
borrowings of $73.1 million.
Provision for Loan Losses:
- --------------------------
Parkvale's provision for loan losses decreased by $92,000 or 37.0% from the
1997 to the 1996 quarter. Loan loss reserves were 1.41%, 1.44% and 1.50% of
total assets at December 31, 1997, June 30, 1997 and December 31, 1996,
respectively.
12<PAGE>
Other Income:
- -------------
Other income increased by $113,000 or 10.26% in 1997 primarily from a $99,000
increase in fees on deposit accounts.
Other Expense:
- --------------
Other expenses decreased by $4.5 million as a direct result of the one-time
assessment of $5.0 million expensed in the September 1996 quarter. Without this
one-time assessment, other expenses would have increased by $493,000 for the
six month period ended December 31, 1997 as the increases in compensation and
legal expenses were offset only slightly by the decrease realized in FDIC
insurance for the six month period ended December 31, 1997.
Liquidity and Capital Resources:
- --------------------------------
Federal funds sold decreased $22.6 million or 21% from June 30, 1997 to
December 31, 1997 as a result of increased loan balances of $40.8 million
mitigated somewhat by increased deposit balances of $24.1 million. Investment
securities held to maturity increased $11.8 million from June 30, 1997 to
December 31, 1997. Escrow for taxes and insurance decreased by $1.8 million
or 17.9% as a result of the remittance of property taxes to the various
taxing districts during the first quarter.
Shareholders' equity was $80.7 million or 7.9% of total assets at December 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
December 31, 1997, Parkvale was in compliance with all applicable regulatory
requirements, with Tier I and Tier II ratios of 7.27% and 14.28%, respectively.
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- -------- --------
Equity Capital (1) $79,615 $79,615 $79,615
Less non-allowable intangible assets (451) (451) (451)
Less unrealized securities gains (4,522) (4,522) (4,522)
Plus general valuation allowances (2) -- -- 7,250
Total regulatory capital 74,642 74,642 81,892
Minimum required capital 41,073 23,202 45,872
------- ------- -------
Excess regulatory capital $33,569 $51,440 $36,020
Adjusted total assets $1,026,811 $580,034 $573,401
Regulatory capital as a percentage 7.27% 12.87% 14.28%
Minimum capital required as a percentage 4.00% 4.00% 8.00%
------ ------ ------
Excess regulatory capital as a percentage 3.27% 8.87% 6.28%
====== ====== ======
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, 1997.
(2) Limited to 1.25% of risk adjusted total assets.
13<PAGE>
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 Year 2000:
- --------------------
An ongoing assessment of business risk includes an assessment of third party
vendors' readiness for processing in the year 2000. Management has identified
all third party vendors and has requested certification as to their compliance
with processing in the year 2000.
Management is coordinating with the Bank's primary data processing provider, as
well as third party vendors, to perform testing of all significant applications.
The primary service provider has represented to Parkvale that all appropriate
programming changes will be completed, and testing will be performed and
certified, before the end of 1998. The costs associated with these upgrades
will be absorbed completely by the service provider. Management has developed a
contingency plan which will be implemented should its primary third party
vendors fail to be Year 2000 compliant. However, based on representations from
third party vendors, management believes those vendors will be compliant by the
end of 1998. Management has also reviewed all existing hardware and software
that is maintained by Parkvale. Hardware and software that is not Year 2000
compliant will be replaced or upgraded during 1998. Because all major data
processing is outsourced, management believes the cost of becoming Year 2000
compliant will not be material to financial condition or the results of
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
Neither PFC nor any of its subsidiaries is involved in any pending legal
proceedings other than routine insignificant litigation occurring in the
ordinary course of business, except as follows. In June 1993, lawsuits were
instituted in the Court of Common Pleas of Allegheny County, Pennsylvania,
against Parkvale Savings Association, by the current owners of the former
Parkvale headquarters building which was sold in 1984. The plaintiffs are a
limited partnership, known as 200 Meyran Associates, and the two general
partners thereof, who allege that Parkvale misrepresented the environmental
condition of the building at the time of sale, which conduct, they contend,
also constituted a breach of the Agreement of Sale. Plaintiffs paid $6 million
for this building and are seeking either rescission of the Agreement of Sale or
alternatively, specific performance thereof and compensatory and punitive
damages. During discovery, which is now closed, the plaintiffs claimed remedial
damages in the area of $2 million. This suit is pending a trial date. Parkvale
has filed for summary judgment on the basis that it has a defense to the
plaintiffs' claims and intends to vigorously pursue its defense. Management
believes the end result of this lawsuit would not be material to shareholders'
equity, financial position or liquidity but may have an adverse effect on
operating results.
14 <PAGE>
Item 2. Changes in Securities
Refer to above Part I, "Notes to Unaudited Interim Consolidated Financial
Statements," under Note 2, "Stock Split".
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, 1998 By: /s/ Robert J. McCarthy, Jr.
---------------- --------------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: February 12, 1998 By: /s/ Timothy G. Rubritz
----------------- ---------------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
14<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRATED 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 8,410
<INT-BEARING-DEPOSITS> 325
<FED-FUNDS-SOLD> 85,287
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,230
<INVESTMENTS-CARRYING> 147,864
<INVESTMENTS-MARKET> 148,780
<LOANS> 766,091
<ALLOWANCE> 14,412
<TOTAL-ASSETS> 1,019,143
<DEPOSITS> 905,384
<SHORT-TERM> 4,240
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<COMMON> 5,388
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