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, 1998
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
-------------------- -------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway, Monroeville, Pennsylvania 15146
----------------------------------------------------------
(Address of principal executive offices; zip code)
Registrant's telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The closing sales price of the Registrant's Common Stock on May 7, 1998 was
$32.00 per share.
Number of shares of Common Stock outstanding as of May 7, 1998 was
5,150,180.<PAGE>
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
--------------------------------- -----
Consolidated Statements of Financial Condition as
of March 31, 1998 and June 30, 1997 3
Consolidated Statements of Operations for the
Three and Nine Months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
Nine Months ended March 31, 1998 and 1997 5-6
Consolidated Statements of Shareholders' Equity
as of March 31, 1998 6
Notes to Unaudited Interim Consolidated Financial
Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Part II - Other Information 15
Signatures 15
2<PAGE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
March 31, June 30,
ASSETS 1998 1997
--------- --------
(Unaudited)
Cash and noninterest-earning deposits $11,372 $ 12,104
Federal funds sold 135,613 107,832
Interest-earning deposits in other banks 340 219
Investment securities available for sale
(cost of $7,181 at March 31 and $7,223 at
June 30) 14,299 13,546
Investment securities held to maturity (fair value
of $94,381 at March 31 and $136,834 at June 30) 93,522 136,034
Loans, net of allowance of $14,325 at March 31
and $14,266 at June 30 787,606 710,868
Foreclosed real estate, net of allowance
of $15 at March 31 and $0 at June 30 504 165
Office properties and equipment, net 2,359 2,125
Intangible assets and deferred charges 400 553
Prepaid expenses and other assets 9,493 7,793
---------- --------
Total assets $1,055,508 $991,239
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $921,328 $881,244
Advances from Federal Home Loan Bank 30,674 15,682
Escrow for taxes and insurance 8,163 10,104
Other liabilities 8,380 4,512
Other debt 4,461 4,514
-------- --------
Total liabilities 973,006 916,056
-------- --------
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; March - 5,388,084* shares
issued, June - 4,310,679 shares issued) 5,388 4,311
Additional paid-in capital 6,727 8,034
Treasury stock at cost (238,304* shares in March
and 319,421* shares in June) (2,857) (3,676)
Employee stock ownership plan debt (244) (330)
Unrealized gains on securities available for sale 4,520 4,015
Retained earnings 68,968 62,829
------- -------
Total shareholders' equity 82,502 75,183
------- -------
Total liabilities and shareholders' equity $1,055,508 $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 share data)
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
----- ----- ----- -----
Interest Income: (Unaudited) (Unaudited)
Loans $14,734 $12,819 $43,445 $37,776
Mortgage-backed securities 923 1,348 2,976 4,352
Investments 1,073 1,253 3,769 3,985
Federal funds sold 1,809 1,837 4,968 4,588
------- ------- ------- -------
Total interest income 18,539 17,257 55,158 50,701
------- ------- ------- -------
Interest Expense:
Savings deposits 10,685 9,950 31,950 28,966
Borrowings 394 292 958 919
------- ------- ------- -------
Total interest expense 11,079 10,242 32,908 29,885
------- ------- ------- -------
Net interest income 7,460 7,015 22,250 20,816
Provision for loan losses 51 71 208 320
Net interest income after ------- ------- ------ -------
provision for losses 7,409 6,944 22,042 20,496
Noninterest Income: ------- ------- ------ ------
Service charges on deposit
accounts 339 311 1,049 922
Other fees and service charges 198 149 513 485
Gain on sale of assets 2,001 -- 2,001 --
Miscellaneous 109 54 299 209
----- ---- ----- -----
Total other income 2,647 514 3,862 1,616
----- ---- ----- -----
Noninterest Expenses:
Compensation and benefits 1,969 1,853 5,746 5,384
Office occupancy 538 531 1,633 1,601
Marketing 75 68 314 223
FDIC insurance 140 133 415 595
FDIC special assessment -- -- -- 5,035
Office supplies, telephone
and postage 249 249 701 669
Miscellaneous 2,692 603 4,091 1,709
------ ------ ------ ------
Total other expense 5,663 3,437 12,900 15,216
------ ------ ------- ------
Income before income taxes 4,393 4,021 13,004 6,896
Income tax expense 1,582 1,467 4,765 2,531
------ ------ ------- ------
Net income $2,811 $2,554 $8,239 $4,365
====== ====== ======= ======
Basic earnings per share $0.55 $0.51 $1.61 $0.86
Diluted earnings per share $0.53 $0.48 $1.56 $0.83
Dividends per share $0.15 $0.104 $0.41 $0.312
All share amounts reflect the effect of a 5-for-4 stock split on Oct. 14,
1997.
4<PAGE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended March 31, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
1998 1997
------ ------
Cash flows from operating activities: (Unaudited)
Interest received $55,431 $51,699
Loan fees received 231 208
Other fees and commissions received 1,698 1,495
Interest paid (32,877) (29,957)
Cash paid to suppliers and others (12,675) (14,867)
Income taxes paid (3,480) (1,832)
-------- --------
Net cash provided by operating activities 8,328 6,746
Cash flows from investing activities:
Proceeds from sale of investments 2,043 --
Proceeds from maturities of investments 87,595 52,723
Purchase of investment securities available
for sale -- (419)
Purchase of investment securities held to
maturity (41,804) (9,956)
Purchase of deposits in other banks (120) (155)
Purchase of loans (118,646) (62,297)
Proceeds from sales of loans 2,095 1,737
Principal collected on loans 166,753 100,983
Loans made to customers, net of loans in
process (130,534) (85,550)
Proceeds received from acquisition -- 11,084
Other (476) (382)
-------- -------
Net cash provided by (used in) investing
activities (33,094) 7,768
Cash flows from financing activities:
Net increase in checking and savings accounts 9,386 2,511
Net increase in certificates of deposit 30,698 46,171
Proceeds from FHLB advances 20,000 --
Repayment of FHLB advances (5,009) (5,008)
Net (decrease) increase in other borrowings (53) (3,474)
Decrease in borrowers' advances for tax &
insurance (1,940) (2,372)
Cash dividends paid (1,855) (1,480)
Allocation of treasury stock to retirement plans 588 423
Acquisition of treasury stock -- (1,047)
------- -------
Net cash provided by financing activities 51,815 35,724
------- -------
Net increase (decrease) in cash and cash
equivalents 27,049 50,238
------- -------
Cash and equivalents at beginning of period 119,936 77,462
------- -------
Cash and equivalents at end of period $146,985 $127,700
======== ========
5<PAGE>
Reconciliation of net income to net cash
provided by operating activities: 1998 1997
------ ------
Net income $8,239 $4,365
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 395 379
Accretion and amortization of loan fees
and discounts (462) (49)
Loan fees collected and deferred 231 208
Provision for loan losses 207 320
Gain on sale of assets (2,001) --
Decrease in accrued interest receivable 351 829
Decrease (increase) in other assets (2,068) 277
Decrease in accrued interest payable 32 (72)
Increase in other liabilities 3,404 489
------- ------
Total adjustments 89 2,381
------- ------
Net cash provided by operating activities $8,328 $6,746
======= ======
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 $519,000 and $138,000 in the
nine months ended March 31, 1998 and 1997, respectively.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands, except share data)
<TABLE> (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, nine months ended
March 31, 1998 8,239 8,239
Dividends on common stock at
$.41 per share (2,100) (2,100)
Principal payments on employee
stock ownership plan debt 241 241
Additional ESOP borrowings (155) (155)
Transfer to reflect 5-for-4 split 1,077 (1,077) 0
Treasury stock contributed to benefit plans 37 27 64
Unrealized security gains 505 505
Exercise of stock options (267) 792 525
------- --------- --------- ------ ------ ------- -------
Balance, March 31, 1998 $5,388 $6,727 ($2,857) ($244) $4,520 $68,968 $82,502
======= ======== ======== ======= ====== ======== =======
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,
1998 and 1997 are unaudited, but in the opinion of management reflect all
adjustments (including 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, 1998 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 nine months ended March 31:
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
----- ----- ----- -----
Numerator for basic and diluted earnings per share:
Net income (in 000's) $2,811 $2,554 $8,239 $4,365
Denominator:
Denominator for basic earnings
per share --weighted average
shares 5,129,761 5,065,368 5,110,172 5,057,776
Effect of dilutive securities:
Employee stock options 183,284 177,910 179,022 182,536
--------- --------- -------- ---------
Denominator for dilutive earnings per share
--adjusted weighted average
shares and assumed
stock option exercise 5,313,045 5,243,278 5,289,194 5,240,312
========= ========= ========= =========
Basic Earnings Per Share $0.55 $0.51 $1.61 $0.86
===== ===== ===== =====
Diluted Earnings Per Share $0.53 $0.48 $1.56 $0.83
===== ===== ===== =====
7<PAGE>
4. Loans:
(Dollar amounts in thousands)
Loans are summarized as follows: March 31, June 30,
1998 1997
First mortgage loans: --------- ----------
Residential:
1-4 Family $640,426 $586,735
Multifamily 14,731 16,825
Commercial 25,673 17,724
Other 11,664 9,329
-------- --------
692,494 630,613
Consumer loans 103,008 90,305
Commercial business loans 10,352 8,332
Loans on savings accounts 2,750 3,076
-------- --------
808,604 732,326
Less: Loans in process 6,414 6,393
Allowance for loan losses 14,325 14,266
Unamortized discount and deferred loan fees 259 799
-------- --------
Loans, net $787,606 $710,868
======== ========
The following summary sets forth the activity in the allowance for loan
losses for the nine months ended March 31: 1998 1997
----- -----
Beginning balance $14,266 $13,990
Provision for losses - mortgage loans 78 13
Provision for losses - consumer loans 130 307
Loans recovered 69 115
Loans charged off (218) (162)
------- -------
Ending balance $14,325 $14,263
======= =======
Nonaccrual loans $4,963 $2,192
as a percent of gross loans 0.61% 0.32%
Loans are placed on nonaccrual status when in the judgment 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. Interest on nonaccrual loans not
recognized in interest income was $309 for the nine months ended March 31,
1998 and $285 for the year ended June 30, 1997.
Nonaccrual, substandard and doubtful commercial and other real estate loans
are considered impaired. At March 31, 1998, the Bank had $3,411 of
impaired loans and recorded $524 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 1998 quarter was $1,934. The
impaired loans at March 31, 1998 includes $2,200 for the first mortgage
loan purchased during the quarter secured by an office building in
Pittsburgh that was the former headquarters of Parkvale. See Part II -
Item 1. Legal Proceedings for additional information.
8<PAGE>
PARKVALE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except share data)
Balance Sheet Data: March 31,
1998 1997
------ ------
Total assets $1,055,508 $972,597
Loans, net 787,606 670,247
Interest-earning deposits and federal
funds sold 135,953 118,972
Total investments 107,821 163,715
Savings deposits 921,328 867,315
FHLB Advances 30,674 15,685
Other borrowings 4,461 2,744
Shareholders' equity 82,502 72,710
Book value per share $16.02 $14.33
Statistical Profile: Three Months Ended Nine Months Ended
March 31, (1) March 31, (1)
1998 1997 1998 1997
---- ---- ---- ----
Average yield earned on all
interest-earning assets 7.28% 7.33% 7.40% 7.37%
Average rate paid on all
interest-bearing liabilities 4.68% 4.65% 4.74% 4.66%
Average interest rate spread 2.60% 2.68% 2.66% 2.71%
Net yield on average
interest-earning assets 2.93% 2.98% 2.99% 3.03%
Other expenses to average assets 2.17% 1.42% 1.69% 2.16%
Other expenses to average assets without
unusual items 1.44% 1.42% 1.44% 1.44%
Taxes to pre-tax income 36.01% 36.48% 36.64% 36.70%
Return on average assets 1.08% 1.06% 1.08% 0.62%
Return on average assets without
special assessment 1.08% 1.06% 1.08% 1.07%
Return on average equity 14.54% 14.76% 14.63% 8.55%
Return on average equity without
special assessment 14.54% 14.76% 14.63% 14.69%
Average equity to average total
assets 7.42% 7.16% 7.36% 7.24%
At March 31,
1998 1997
----- -----
One year gap to total assets -0.98% 0.19%
Intangibles to total equity 0.48% 0.83%
Capital to assets ratio 7.82% 7.48%
Ratio of nonperforming assets to total assets 0.52% 0.24%
Number of full-service offices 29 29
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
9<PAGE>
Results of Operations - Comparison of Three Months Ended March 31, 1998 and
1997
---------------------------------------------------------------------------
For the three months ended March 31, 1998, Parkvale reported net income of
$2.8 million or $0.53 per diluted share up 10.1% from net income of $2.6
million or $0.48 per diluted share for the quarter ended March 31, 1997.
The $257,000 increase in net income for the March 1998 quarter reflects an
increase in net interest income of $445,000 less applicable income taxes.
Net interest income for the quarter ended March 31, 1998 increased to $7.5
million from $7.0 million for the quarter ended March 31, 1997. The
current quarterly results include a $2.0 million gain on sale of assets,
offset by a $2.0 million charge to settle a contractual dispute from the
1984 sale of a former headquarters building. See Part II - Item 1. Legal
Proceedings. The gain recognized on asset sales resulted from the sale of
43,000 shares of Freddie Mac common stock.
INTEREST INCOME:
----------------
Parkvale had interest income of $18.5 million during the three months ended
March 31, 1998 versus $17.3 million during the comparable period in 1997.
This increase of $445,000 is the result of a $76.4 million or 8.1% increase
in the average balance of interest-earning assets, offset by a 5 basis
point decrease in the average yield from 7.33% in 1997 to 7.28% in 1998.
Interest income from loans increased $1.9 million or 14.9% resulting from
an increase in the average outstanding loan balances of $113.4 million or
17.7%, offset by a 19 basis point decrease in the average yield from 8.02%
in 1997 to 7.83% in 1998. The average loan increase includes the purchase
from other institutions of $47.5 million 3/1 ARM loans during the quarter.
Interest income on mortgage-backed securities decreased $425,000 or 31.5%
from the 1997 quarter due to a decrease of $25.6 million or 32.2% in the
average balance, offset by a 7 basis point increase in the average yield
from 6.78% in 1997 to 6.85% in 1998. Investment securities interest income
decreased by $180,000 or 14.4% from the 1997 quarter due to a decrease of
$3.7 million or 4.4% in the average balance and a 63 basis point decrease
in the average yield from 6.00% in 1997 to 5.37% in 1998. Interest income
earned on federal funds sold decreased $28,000 from the 1997 quarter due to
a decrease in the average balance of $7.7 million or 5.5%, offset by a 22
basis point increase in the average yield from 5.27% in 1997 to 5.49% in
1998. At March 31, 1998, the weighted average yield on all interest
earning assets was 7.43% compared to 7.46% at March 31, 1997.
INTEREST EXPENSE:
-----------------
Interest expense increased by $837,000 or 8.2% from the 1997 to the 1998
quarter. The increase was due to an increase in the average deposits and
borrowings of $66.6 million or 7.6% and a 3 basis point increase in the
average rate paid on deposits and borrowings from 4.65% in 1997 to 4.68% in
1998. At March 31, 1998, the average rate payable on liabilities was 4.67%
for deposits, 5.62% for borrowings and 4.70% for combined deposits and
borrowings.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $20,000 or 28.2% from the
1997 to the 1998 quarter. Total reserves were 1.77% and 1.95% of gross
loans at March 31, 1998 and June 30, 1997, respectively.
Non-performing loans and foreclosed real estate were $5.5 million, $2.7
10<PAGE>
million and $2.4 million at March 31, 1998, June 30, 1997 and March 31,
1997, representing 0.52%, 0.27% and 0.24% of total assets at the respective
balance sheet dates. Total loan loss reserves at March 31, 1998 were $14.3
million, which represents 1.77% of the gross loan portfolio. The increase
of $2.8 million in non-performing assets from June 30, 1997 includes a
$2.2 million commercial mortgage on Parkvale's former headquarters building.
See Part II - Item 1. Legal Proceedings. Other increases in nonperforming
assets include a $400,000 increase in non-accruing single-family dwellings
and foreclosed real estate of $300,000, which consisted of single family
homes.
NONINTEREST INCOME:
-------------------
Total other income increased by $2.1 million in 1998 primarily due to a
$2.0 million gain on sale of assets from the sale of 43,000 shares of
Freddie Mac common stock from investment securities available for sale
portfolio. Freddie Mac common reached an all time high during the quarter.
The Bank retains an additional 126,700 Freddie Mac shares in its portfolio
at March 31, 1998.
Additionally, miscellaneous income increased by $55,000 in 1998 due to a
$55,000 increase in fee income from tax deferred annuity and mutual fund
products. A $49,000 increase in other fees and service charges in fiscal
1998 was primarily related to ATM surcharges of $33,000.
NONINTEREST EXPENSE:
--------------------
Total other expenses increased by $2.2 million from 1997 due to a $2.0
million charge to settle a contractual dispute as discussed in Part II,
Item 1. Excluding the unusual charge, other expenses increased $226,000 or
6.6% due to compensation and miscellaneous expenses.
Compensation and employee benefit expenses increased $116,000 or 6.3% from
1997 due to normal merit increases and increased staffing levels to handle
additional volume due to growth. Miscellaneous expenses increased $89,000
or 14.8% from 1997 primarily due to higher consumer loan processing fees
aggregating $45,000 and higher legal fees.
Results of Operation - Comparison of Nine Months Ended March 31, 1998 and
1997
--------------------------------------------------------------------------
Net income for the nine months ended March 31, 1998 was $8.2 million or
$1.56 per diluted share compared to $4.4 million or $0.83 per diluted share
for the nine months ended March 31, 1997. The lower 1997 earnings include
the one-time Savings Association Insurance Fund (SAIF) assessment of $5.0
million ($3.2 million net of tax) enacted on September 30, 1996. Absent
this one-time special assessment, net income from normal operations would
have been $7.5 million or $1.44 per diluted share for the nine months ended
March 31, 1997. The $705,000 (or 9.4%) increase in net income from normal
operations reflects an increase of $1.4 million in net interest income and
lower provisions for credit losses. Net interest income for the nine
months ended March 31, 1998 increased to $22.2 million from $20.8 million
for the nine months ended March 31, 1997.
INTEREST INCOME:
----------------
Parkvale had interest income of $55.2 million during the nine months ended
March 31, 1998 and $50.7 million during the comparable period in 1997.
This $4.5 million or 8.8% increase is attributable to an increase in the
average interest-earning asset portfolio of $76.0 million or 8.3% and a 3
11<PAGE>
basis point increase in the average yield from 7.37% in 1997 to 7.40% in
1998. Interest income from loans increased $5.7 million or 15.0% due to an
increase in the average loan balance of $105.9 million or 16.9%, offset by
a 13 basis point decrease in the average yield from 8.03% in 1997 to 7.90%
in 1998. Interest income on mortgage-backed securities declined by $1.4
million or 31.6% from the comparable nine months of the previous fiscal
year. This was due to a decrease in the average portfolio of $29.0 million
or 33.4%. Income from investments decreased by $216,000 or 5.4% from 1997
due to a $5.5 million or 6.2% decrease in the average balance, offset by a
4 basis point increase in the average yield from 5.95% in 1997 to 5.99% in
1998. Federal funds sold income increased by $380,000 or 8.3% from the
prior nine months ended March 1997. The average federal funds sold balance
increased by $4.6 million or 4.0% along with a 22 basis point increase in
the average yield from 5.35% in 1997 to 5.57% in 1998.
INTEREST EXPENSE:
-----------------
Interest expense increased by $3.0 million from the 1997 nine month period
to the 1998 nine month period. The increase was due to an 8 basis point
increase in the average rate paid on deposits and borrowings from 4.66% in
1997 to 4.74% in 1998 along with a $70.9 million or 8.3% increase in the
average deposits and borrowings.
PROVISION FOR LOAN LOSSES:
--------------------------
Parkvale's provision for loan losses decreased by $112,000 or 35.0% from
the 1997 to the 1998 period. Loan loss reserves were 1.36%, 1.44% and
1.47% of total assets at March 31, 1998, June 30, 1997 and March 31, 1997,
respectively.
NONINTEREST INCOME:
-------------------
Other income increased $2.2 million primarily due the gain on sale of
assets of $2.0 million in March 1998.
Service charges on deposit accounts increased $127,000 or 13.8% from 1997
due to increased checking deposit balances in 1998, which generated higher
fee income from NSF charges. Miscellaneous income increased by $90,000 or
43.1% due to a $87,000 increase in fee income from tax deferred annuity and
mutual fund products.
NONINTEREST EXPENSE:
--------------------
Other expenses decreased by $2.3 million for the nine month period ending
March 31, 1998 compared to the same period in 1997. Such results included
the unusual items of the one-time FDIC special assessment of $5.0 million
expensed in the September 1996 quarter and a $2.0 million charge recorded
in March 1998 to settle a contract dispute. Without the unusual items,
other expenses would have increased by $719,000 or 7.1% for the nine month
period ended March 31, 1998. This increase is due to increased
compensation and miscellaneous expenses.
Compensation and employee benefit expenses increased by $362,000 or 6.7%
for the nine months ended March 31, 1998. This is due to normal merit
increases and increased staffing levels to support volume increases.
Miscellaneous expenses increased $382,000 or 22.3% which included increased
legal expense of $155,000 and data processing related increases of
$146,000. The data processing increases reflect the higher costs
12<PAGE>
associated with service bureau, ATM and loan servicing expenses.
INCOME TAXES:
-------------
The provision for income taxes consists of the following for the nine
months ended March 31, 1998: Current provision - Federal $3,947,000; State
$792,000 and Deferred Federal $26,000 with the total aggregating
$4,765,000. The effective tax rate for the nine months ended March 31,
1998 was 36.6%.
LIQUIDITY AND CAPITAL RESOURCES:
---------------------------------
The loan portfolio increased $76.7 million and federal funds sold increased
$27.8 million from June 30, 1997 to March 31, 1998 resulting from the
combination of funds available from $42.5 million investment securities
maturing and an increase in deposit balances of $40.1 million.
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.
Stockholders' equity was $82.5 million or 7.82% of total assets at March
31, 1998. 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, 1998, Parkvale was in compliance with all
applicable regulatory requirements, with Tier I and Tier II ratios of 7.19%
and 14.43%, respectively.
The following table sets forth certain information concerning the Bank's
regulatory capital at March 31, 1998.
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- -------
Equity Capital (1) $80,762 $80,762 $80,762
Less non-allowable intangible assets (400) (400) (400)
Less unrealized securities gains (3,858) (3,858) (3,858)
Plus general valuation allowances (2) -- -- 7,343
------- ------- -------
Total regulatory capital 76,504 76,504 83,847
Minimum required capital 42,549 23,499 46,479
------- ------- -------
Excess regulatory capital $33,955 $53,005 $37,368
Adjusted total assets $1,063,723 $587,466 $580,983
Regulatory capital as a percentage 7.19% 13.02% 14.43%
Minimum capital required as a % 4.00% 4.00% 8.00%
------ ------ ------
Excess regulatory capital as a % 3.19% 9.02% 6.43%
====== ====== ======
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
13<PAGE>
ended March 31, 1998.
(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 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 in a timely manner. 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 with costs not
expected to exceed $100,000. 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.
14<PAGE>
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, by the current owners of the former Parkvale headquarters
building which was sold in 1984. On March 26, 1998, Parkvale agreed in
principle to settle the contractual dispute and end the litigation with the
limited partnership, 200 Meyran Associates, and the general and limited
partners thereof. The settlement involves $1.9 million in cash payments,
which has been reflected as a charge in the March 1998 quarterly results of
operations. The settlement and release agreements are in the drafting
stage with final settlement of all matters expected before the end of June
1998. In addition, as part of the settlement process, Parkvale paid $2.2
million to purchase the first mortgage loan on this building from another
financial institution during the March 1998 quarter and expects to take
possession of the property and dispose of the asset in due course. At
March 31, 1998, the loan is treated as a non-accrual loan and classified as
a sub-standard asset.
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 12, 1998 By: Robert J. McCarthy, Jr.
-----------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: May 12, 1998 By: Timothy G. Rubritz
------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
15<PAGE>
</TABLE>
<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-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,372
<INT-BEARING-DEPOSITS> 340
<FED-FUNDS-SOLD> 135,613
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,299
<INVESTMENTS-CARRYING> 93,522
<INVESTMENTS-MARKET> 94,381
<LOANS> 801,931
<ALLOWANCE> 14,325
<TOTAL-ASSETS> 1,055,508
<DEPOSITS> 921,328
<SHORT-TERM> 4,461
<LIABILITIES-OTHER> 16,543
<LONG-TERM> 30,674
0
0
<COMMON> 5,388
<OTHER-SE> 77,114
<TOTAL-LIABILITIES-AND-EQUITY> 1,055,508
<INTEREST-LOAN> 43,445
<INTEREST-INVEST> 11,713
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 55,158
<INTEREST-DEPOSIT> 31,950
<INTEREST-EXPENSE> 32,908
<INTEREST-INCOME-NET> 22,250
<LOAN-LOSSES> 208
<SECURITIES-GAINS> 2,001
<EXPENSE-OTHER> 12,900
<INCOME-PRETAX> 13,004
<INCOME-PRE-EXTRAORDINARY> 13,004
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,239
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 2.99
<LOANS-NON> 4,963
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,266
<CHARGE-OFFS> 218
<RECOVERIES> 69
<ALLOWANCE-CLOSE> 14,325
<ALLOWANCE-DOMESTIC> 14,325
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,826
</TABLE>
