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, 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 February 4, 1999
was $20.38 per share.
Number of shares of Common Stock outstanding as of February 4, 1999 was
6,315,569.
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
Consolidated Statements of Financial Condition
as of December 31, 1998 and June 30, 1998 3
Consolidated Statements of Operations for the Three
and Six Months ended December 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
Six Months ended December 31, 1998 and 1997 5-6
Consolidated Statement of Shareholders' Equity
as of December 31, 1998 6
Notes to Unaudited Interim Consolidated Financial
Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II - Other Information 14
Signatures 15PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
December 31, June 30,
ASSETS 1998 1998
------- -------
Cash and noninterest-earning deposits $11,517 $9,628
Federal funds sold 53,700 124,900
Interest-earning deposits in other banks 330 475
Investment securities available for sale
(cost of $8,067 at December 31 and
$8,060 at June 30) 16,086 14,793
Investment securities held to maturity
(fair value of $113,923 at December 31
and $100,047 at June 30) 113,471 99,199
Loans, net of allowance of $13,193 at
December 31 and $13,223 at June 30 952,651 832,758
Foreclosed real estate, net of allowance of
$40 at December 31 and $15 at June 30 2,196 2,362
Office properties and equipment, net 2,586 2,377
Intangible assets and deferred charges 366 389
Prepaid expenses and other assets 8,234 8,492
------ ------
Total Assets $1,161,137 $1,095,373
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $998,420 $949,452
Advances from FHLB and other debt 63,496 45,091
Escrow for taxes and insurance 7,868 9,610
Other liabilities 5,523 7,160
----- -----
Total Liabilities 1,075,307 1,011,313
---------- ---------
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- 6,734,894* shares
issued, June-5,388,084 shares issued) 6,735 5,388
Additional Paid in Capital 5,256 6,652
Treasury Stock at cost (412,050* shares in December
and 269,308* shares in June) (6,399) (3,051)
Employee Stock Ownership Plan debt - (276)
Accumulated other comprehensive income 5,092 4,276
Retained earnings 75,146 71,071
------ -------
Total Shareholders' Equity 85,830 84,060
------ ------
Total Liabilities&Shareholders' Equity $1,161,137 $1,095,373
========== =========
* Reflect the effect of the 5-4 stock split on October 14, 1998.
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,
1998 1997 1998 1997
Interest income:
Loans $16,787 $14,503 $32,858 $28,711
Mortgage-backed securities 641 989 1,352 2,053
Investments 992 1,354 1,814 2,696
Federal funds sold 1,369 1,560 3,213 3,159
------- ------- ------ -----
Total interest income 19,789 18,406 39,237 36,619
------- ------- ------ -----
Interest expense:
Savings deposits 11,302 10,704 22,430 21,265
Borrowings 884 288 1,604 564
------- ------- ------ -----
Total interest expense 12,186 10,992 24,034 21,829
Net interest income 7,603 7,414 15,203 14,790
Provision for loan losses 52 64 115 157
Net interest income after ------ ------- ------ ------
provision for losses 7,551 7,350 15,088 14,633
Noninterest Income:
Service charges on deposit accts 420 356 826 710
Other fees and service charges 206 149 434 315
Gain on sale of assets 300 - 610 -
Miscellaneous 111 129 193 190
----- --- ----- -----
Total other income 1,037 634 2,063 1,215
Noninterest Expenses:
Compensation and benefits 2,041 1,879 4,184 3,777
Office occupancy 616 556 1,143 1,095
Marketing 105 104 199 239
FDIC insurance 138 139 278 275
Office supplies,phone & postage 289 233 529 452
Miscellaneous 677 737 1,332 1,399
--- ---- ------ -----
Total other expenses 3,866 3,648 7,665 7,237
----- ----- ------ -----
Income before income taxes 4,722 4,336 9,486 8,611
Income tax expense 1,747 1,604 3,510 3,183
----- ----- ----- -----
Net income $ 2,975 $2,732 $5,976 $5,428
======== ====== ====== =====
Basic earnings per share $0.47 $0.43 $0.94 $0.85
Diluted earnings per share $0.46 $0.41 $0.91 $0.82
Dividends per share $0.15 $0.104 $0.30 $0.208
All share amounts reflect the effect of the 5-4 stock split on October 14,1998
Parkvale Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended December 31, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
1998 1997
Cash flows from operating activities:
Interest received $39,220 $36,292
Loan fees received 192 163
Other fees and commissions received 1,365 1,113
Interest paid (24,010) (21,903)
Cash paid to suppliers, FDIC and others (10,126) (6,940)
Income taxes paid (3,024) (3,046)
-------- --------
Net cash provided by operating activities 3,617 5,679
Cash flows from investing activities:
Proceeds from sales of AFS investments 633 -
Proceeds from maturities of investments 49,244 28,167
Purchase of investments held to maturity (63,230) (39,877)
Purchase of deposits in other banks 145 (105)
Purchase of loans (154,277) (65,859)
Proceeds from sales of loans 1,186 1,881
Principal collected on loans 159,375 99,936
Loans made to customers, net of loans
in process (126,133) (76,781)
Other (383 (213)
------- -------
Net cash used in investing activities (133,440) (52,851)
Cash flows from financing activities:
Net increase in checking & savings accounts 14,777 1,801
Net increase in certificates of deposit 34,191 22,338
Proceeds from FHLB advances 20,000 5,000
Repayment of FHLB advances (6) (5,006)
Net decrease in other borrowings (1,589) (274)
Decrease in borrowers' advances for taxes
and insurance (1,742) (1,811)
Cash dividends paid (1,727) (1,190)
Allocation of treasury stock
to retirement plans 133 75
Acquisition of treasury stock (3,525) -
------- ------
Net cash provided by financing activities 60,512 20,933
Net decrease in cash and cash equivalents (69,311) (26,239)
Cash and equivalents at beginning of period 134,528 119,936
-------- -------
Cash and equivalents at end of period $ 65,217 $ 93,697
Reconciliation of net income to net cash provided
by operating activities: 1998 1997
----- ----
Net income $5,976 $5,428
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 196 262
Accretion & amortization of loan fees & discounts (503) (264)
Loan fees collected and deferred 192 163
Provision for loan losses 115 157
Gain on sale of investment securities (610) -
(Increase) decrease in accrued interest receivable 130 (276)
Decrease in other assets (95) 10
Decrease in accrued interest payable 25 (74)
Increase (decrease) in other liabilities (1,809) 273
Total adjustments (2,359) 251
------ -----
Net cash provided by operating activities $3,617 $5,679
====== ======
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 $631 and $0 in the six months ended
December 31, 1998 and 1997, respectively.
<TABLE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands, except per share data)
<CAPTION>
Employee Accumulated
Stock Other Total
Common Paid-in Treasury Ownership Comprehensive Retained Shareholders'
Stock Capital Stock Plan Debt Income Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $5,388 $6,652 ($3,051) ($276) $4,276 $71,071 $84,060
Net income, six months
ended December 31, 1998 5,976 5,976
Dividends on common stock at $0.30 per share (1,901) (1,901)
Principal payments on employee
stock ownership plan debt 276 276
Transfer for 5-4 split 1,347 (1,347) -
Treasury stock purchased (3,525) (3,525)
Other comprehensive income, net of tax
Unrealized gains on securities of $1,203
net of reclassification adjustment for
gains included in net income of $387 816 816
Exercise of stock options (49) 177 128
------ ------- ------ ------ ------ ------- -------
Balance December 31, 1998 $6,735 $5,256 ($6,399) - $5,092 $73,146 $85,830
====== ====== ======= ====== ===== ======= =======
</TABLE>
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share data)
1. Statements of Operations
The statements of operations for the three and six months ended December 31,
1998 and 1997 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, 1998 are not
necessarily indicative of the results which may be expected for fiscal 1999.
The Annual Report on Form 10-K for the year ended June 30, 1998 contains
additional information and should be read in conjunction with this report.
2. Stock Split
On September 17, 1998, the Board of Directors declared a 5-for-4 stock split of
Parkvale's common stock. The additional shares were paid on October 14, 1998
to stockholders of record at the close of business on September 30, 1998. This
increased the outstanding shares by 1,346,810. 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 ("FAS 128").
FAS 128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform to FAS 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,
1998 1997 1998 1997
----- ----- ----- -----
Numerator for basic &
diluted earnings per share:
Net income $2,974 $2,733 $5,976 $5,428
Denominator:
Weighted average shares for
basic earnings per share 6,337,069 6,382,966 6,387,774 6,375,473
Effect of dilutive employee
stock options 138,813 233,254 154,309 221,114
Weighted average shares for dilutive
earnings per share 6,475,882 6,616,220 6,542,083 6,596,587
Net income per share:
Basic $0.47 $0.43 $0.94 $0.85
Diluted $0.46 $0.41 $0.91 $0.82
4. Comprehensive Income
As of July 1, 1998, the Corporation adopted FAS 130, Reporting Comprehensive
Income, which establishes standards of reporting and display of comprehensive
income and its components. Sources of comprehensive income not included in
net income are limited to unrealized gains and losses on certain investments
in equity securities. Prior period financial statements have been reclassified
to conform to the requirements of FAS 130. For the six months ended December
31, 1998 and 1997, total comprehensive income amounted to $6,792 and $6,497,
respectively.
5. Loans
Loans are summarized as follows: December 31, June 30,
1998 1998
------ ------
First mortgage loans: (Dollar amounts in thousands)
Residential:
1-4 Family $780,688 $683,504
Multifamily 15,006 13,024
Commercial 31,360 24,869
Other 11,608 12,085
-------- --------
838,662 733,482
Consumer loans 118,181 106,266
Commercial business loans 17,771 11,592
Loans on savings accounts 2,566 2,665
-------- --------
977,180 854,005
Less:Loans in process 11,319 7,652
Allowance for loan losses 13,193 13,223
Unamortized discount & deferred loan fees 17 372
-------- -------
Loans, net $952,651 $832,758
Nonaccrual loans $1,746 $2,366
as a percent of total assets 0.15% 0.22%
The following summarizes the activity in the allowance for loan losses
for the six months ended December 31:
1998 1997
---- ----
Beginning balance $13,223 $14,266
Provision for losses - mortgage loans 90 48
Provision for losses - consumer loans 25 109
Loans recovered 56 43
Loans charged off (201) (54)
------ ------
Ending balance $13,193 $14,412
======= ======
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 $104 at December 31,
1998 and $181 at June 30, 1998.
Nonaccrual, substandard and doubtful commercial and other real estate loans
are normally considered to be impaired loans. However, the Bank had no loans
classified as impaired at December 31, 1998. Impaired assets include $2,196
of foreclosed real estate as of December 31, 1998, which is recorded at the
lower of acquisition costs or fair value.
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,
1998 1997
----- ----
Total assets $ 1,161,137 $1,019,143
Loans, net 952,651 751,679
Interest-earning deposits &
federal funds sold 54,030 85,612
Total investments 129,557 163,094
Savings deposits 998,420 905,384
FHLB advances 60,665 15,677
Shareholders' equity 85,830 80,662
Book value per share $13.57 $12.63
Statistical Profile:
Three Months Ended Six Months Ended
December 31, (1) December 31, (1)
1998 1997 1998 1997
---- ---- ---- ----
Average yield earned on all
interest-earning assets 7.06% 7.42% 7.16% 7.47%
Average rate paid on all interest-
bearing liabilities 4.66% 4.76% 4.69% 4.77%
Average interest rate spread 2.40% 2.66% 2.47% 2.70%
Net yield on average
interest-earning assets 2.71% 2.99% 2.77% 3.02%
Other expenses to average
assets 1.34% 1.44% 1.35% 1.44%
Taxes to pre-tax income 37.00% 36.99% 37.00% 36.96%
Return on average assets 1.03% 1.08% 1.06% 1.08%
Return on average equity 14.79% 14.56% 14.83% 14.68%
Average equity to average
total assets 6.98% 7.39% 7.12% 7.34%
Dividend payout ratio 32.61% 25.37% 32.97% 25.37%
At December 31,
1998 1997
---- ----
One year gap to total assets -2.63% -1.27%
Intangibles to total equity 0.43% 0.56%
Capital to assets ratio 7.39% 7.91%
Ratio of nonperforming assets to total assets 0.34% 0.36%
Number of full-service offices 30 29
(1)The applicable income and expense figures have been annualized in
calculating the percentages.Results of Operations - Comparison of Three
Months Ended December 31, 1998 and 1997
For the three months ended December 31, 1998, Parkvale reported net income
of $3.0 million or $0.46 per diluted share up 8.9% from net income of $2.7
million or $0.41 per diluted share for the comparable period in 1997. The
$243,000 increase in net income for the December 1998 quarter reflects
increased net interest income of $189,000 and increased fee income of
$103,000, which are partially offset by an increase in other expense of
$218,000. In addition, the quarterly results include gains from security
sales of $300,000 ($189,000 net of tax). Net interest income for the quarter
ended December 31, 1998 increased to $7.6 million from $7.4 million for the
quarter ended December 31, 1997.
Interest Income:
Parkvale had interest income of $19.8 million for the three months ended
December 31, 1998 versus $18.4 million during the comparable period in 1997.
This increase of $1.4 million is the result of a $130 million or 13.1% increase
in the average balance of interest-earning assets, offset by a 36 basis point
decrease in the average yield from 7.42% in 1997 to 7.06% in 1998. Interest
income from loans increased $2.3 million or 15.8% resulting from an increase
in the average outstanding loan balances of $167.3 million or 22.8%, offset
by a 46 basis point decrease in the average yield from 7.91% in 1997 to 7.45%
in 1998. Interest income on mortgage-backed securities decreased $348,000 or
35.2% from the 1997 quarter due to a decrease of $21 million or 35.4% in the
average balance. Investment securities interest income decreased by $362,000
or 26.7% from the 1997 quarter due to a decrease of $14.3 million or 15.8% in
the average balance, along with a 78 basis point decrease in the average yield
from 5.98% in 1997 to 5.20% in 1998. Interest income earned on federal funds
sold decreased $191,000 or 12.2% from the 1997 quarter due to a decrease in the
average balance of $3 million or 2.8% compounded by a 55 basis point decrease
in the average yield from 5.64% in 1997 to 5.09% in 1998. At December 31,
1998, the weighted average yield on all interest-earning assets was 7.20%
compared to 7.51% at December 31, 1997.
Interest Expense:
Interest expense increased by $1.2 million or 10.9% from the 1997 quarter to
the 1998 quarter. The increase was due to an increase in the average deposits
and borrowings of $122 million or 13.2%, offset by a 10 basis point decrease
in the average rate paid on deposits and borrowings from 4.76% in 1997 to 4.66%
in 1998. At December 31, 1998, the average rate payable on liabilities was
4.54% for deposits, 5.57% for borrowings and 4.60% for combined deposits and
borrowings.
Provision for Loan Losses:
Parkvale's provision for loan losses decreased by $12,000 or 18.8% from the
1997 quarter to the 1998 quarter. Total reserves were 1.35% and 1.55% of gross
loans at December 31, 1998 and June 30, 1998, respectively. Total loan loss
reserves at December 31, 1998 were $13.2 million.
Nonperforming loans and real estate owned were $3.9 million, $4.7 million and
$3.6 million at December 31, 1998, June 30, 1998 and December 31, 1997,
representing 0.34%, 0.43% and 0.36% of total assets at the respective balance
sheet dates. Foreclosed real estate at December 31, 1998 consists of
$1.5 million in commercial office buildings and $696,000 in single family real
estate. The company is currently evaluating the merits of remodeling the
commercial office buildings prior to sale to maximize value upon sale.
Alternatively, a loss on sale could occur if the properties were sold in an
"as is" condition prior to any improvements.
Other Income:
Total other income increased by $403,000 or 63.5% from the 1997 quarter to the
1998 quarter due to the $300,000 gain from the sale of equity securities,
specifically Freddie Mac stock. Absent this gain, other income increased
$103,000 or 16.2%, primarily due to ATM surcharges assessed to non-Parkvale
customers and increased service charges on all types of deposit and loan
products.
Other Expense:
Total other expenses increased by $218,000 or 6.0% from quarter ended
December 1997 to the quarter ended December 1998. The main component of
other expense, compensation and employee benefits, increased by $162,000, or
8.6% due to normal merit raises combined with an increase in the number of
full-time and part-time employees to better serve Parkvale customers and all
types of deposit and loan products.
Results of Operations-Comparison of Six Months Ended December 31, 1998 & 1997
For the six months ended December 31, 1998, Parkvale had net income of $6.0
million or $0.91 per diluted share versus $5.4 million or $0.82 per diluted
share for the comparable period in 1997. The $548,000 increase in net income
for the six months ended December 31, 1998 reflects increased net interest
income of $413,000 and increased fee income of $238,000, these items were
partially offset by increased operating expenses of $428,000. Gains from
security sales of $610,000 ($384,000 net of tax) are included in the 1998
results. Net interest income for the six months ended December 31, 1998
increased to $15.2 million from $14.8 million for the quarter ended December
31, 1997.
Interest Income:
Parkvale had interest income of $39.2 million during the six months ended
December 31, 1998 versus $36.6 million during the comparable period in 1997.
This increase of $2.6 million is attributable to an increase in the average
interest-earning asset portfolio of $115.4 million or 11.8%, offset by a 31
basis point decrease in the average yield from 7.47% in 1997 to 7.16% in 1998.
Interest income from loans increased $4.1 million or 14.4% due to an increase
in the average loan balance of $149.0 million or 20.6%, offset by a 40 basis
point decrease in the average yield from 7.94% in 1997 to 7.54% in 1998.
Interest income on mortgage-backed securities declined by $701,000 or 34.2%
from the first six months of the previous fiscal year. This was due to a
decrease in the average portfolio of $21.0 million or 35.2%, offset by an
11 basis point increase in the average yield from 6.89% to 7.00%. Income
from investments decreased by $882,000 or 32.7% from 1997 due to a decrease
in the average investment balance of $19.3 million or 22.5% and by an 83 basis
point decrease in the average yield from 6.28% in 1997 to 5.45% in 1998.
Interest income earned on federal funds sold increased $54,000 or 1.7% from
the prior six months ended December 1997. This was due to an increase of the
average federal fund balance of $6.7 million or 6.0%, offset by a 22 basis
point decrease in the average yield from 5.62% in 1997 to 5.40% in 1998.
Interest Expense:
Interest expense increased by $2.2 million or 10.1% from the 1997 six month
period to the 1998 six month period. The increase was due to a rise in average
deposits and borrowings of $109.6 million offset only slightly by an 8 basis
point decrease in the average rate paid from 4.77% in 1997 to 4.69% in 1998.
Provision for Loan Losses:
Parkvale's provision for loan losses decreased by $42,000 or 26.8% from the
1997 to the 1998 six month period. Loan loss reserves were 1.14%, 1.21% and
1.41% of total assets at December 31, 1998, June 30, 1998 and December 31,
1997, respectively. Such reserves are decreasing as a percentage of total
assets due to the growth of the loan portfolio, principally in low risk single
family mortgage loans.
Other Income:
Other income increased by $848,000 or 69.8% for the six months ended
December 31, 1998 from the six months ended December 31, 1997. This was
mainly due to a $610,000 gain from the sale of equity securities, primarily
Freddie Mac stock. Absent this gain, other income increased $238,000 or 19.6%,
due to ATM surcharges assessed to non-Parkvale customers and increased service
charges on all types of deposit and loan products.
Other Expense:
Other expenses increased by $428,000 for the six month period ended December
31, 1998 from same period in 1997. The main component of other expense,
compensation and employee benefits, increased by $407,000, or 10.8% due to
normal merit increases combined with an increase in the number of full-time
and part-time employees to better serve Parkvale customers and all types of
deposit and loan products.
Liquidity and Capital Resources:
Federal funds sold decreased $71.2 million or 57.0% from June 30, 1998 to
December 31, 1998 as a result of increased loan balances of $119.9 million
mitigated somewhat by increased deposit balances of $49.0 million. Investment
securities held to maturity increased $14.3 million or 14.4% from June 30, 1998
to December 31, 1998. Escrow for taxes and insurance decreased by $1.7 million
or 18.1% as a result of the remittance of property taxes to the various taxing
districts during the first quarter.
Shareholders' equity was $85.8 million or 7.4% of total assets at
December 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 December 31, 1998, Parkvale was in compliance with all applicable
regulatory requirements, with Tier I and Tier II ratios of 6.88% and 12.87%,
respectively.
TierI TierI Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
------- ------- -------
Equity Capital (1) $85,427 $85,427 $85,427
Less non-allowable
intangible assets (366) (366) (366)
Less unrealized securities
gains (4,668) (4,668) (4,668)
Plus general valuation
allowances (2) -- -- 8,703
------- ------- -------
Total regulatory capital 80,393 80,393 89,096
Minimum required capital 46,716 27,681 55,362
------- ------- -------
Excess regulatory capital $33,677 $52,712 $33,734
Adjusted total assets $1,167,894 $692,024 $692,024
Regulatory capital as a
percentage 6.88% 11.62% 12.87%
Minimum capital required as a
percentage 4.00% 4.00% 8.00%
Excess regulatory capital as a
percentage 2.88% 7.62% 4.87%
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, 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 adverse effects on Parkvale's
liquidity, capital resources or operations.
Impact of Year 2000:
The year 2000 ("Y2K") issue primarily results from computer programs
recognizing a two-digit date field rather than four digits to define the
year. Computer software or hardware that is date sensitive may recognize
"00" as the year 1900 instead of the year 2000 which may cause system failure,
miscalculations and other temporary disruptions of operations.
The Data Processing Committee has been assigned the task of managing Y2K
compliance. This committee, which includes the Senior Vice President-
Audit/Compliance, is chaired by the Vice President of Data Processing,
who reports directly to the President and Chief Executive Officer. This
committee's main focus is to resolve any problems associated with the Y2K
issue in five phases: awareness, assessment, renovation, testing and
implementation. The plan developed by the Data Processing Committee is based
upon recommended guidelines provided by the Bank's primary regulator. The
assessment stage entailed assessing the magnitude of the issues and
identification of hardware, software, networks, automated teller machines,
processing platforms and vendor dependencies along with budget allocations.
The awareness and assessment stages have been completed.
During the renovation and testing phases, the Bank's primary data processing
provider, DataOne Financial Systems, announced plans in July 1998 to
discontinue business in mid 1999. Such service provider had represented to
Parkvale that all appropriate programming changes would be completed and
testing would be performed before the end of 1998. However, given the pending
change of providers, the Bank did not participate in tests with the current
primary service provider. At the time of DataOne's announcement and as part
of the original contingency plan, Parkvale was in the process of evaluating
data processing alternatives, including proposals from major software vendors
and service bureau providers. Accordingly, During the December 1998 quarter,
the Bank decided to bring the data processing function in house and has chosen
a software vendor to provide necessary application software. This vendor is
a leading full-service provider of integrated data processing and information
management systems, and the systems chosen are fully Y2K compliant. The
initial capitalized costs associated with the conversion are expected to
approximate $1.7 million, which are expected to be amortized or depreciated
over a five to ten year period. Operating expenses over the initial five
year contract do not materially deviate from the current data processing
annual expenses. Employee training and conversion planning sessions are
currently underway, and the conversion process is expected to be completed
during the first half of calendar 1999.
An ongoing assessment of business risk includes an assessment of other third
party vendors' readiness for Y2K processing. Management has identified all
third party vendors and communicated with vendors regarding the status of
their Y2K compliance. Management is coordinating with third party vendors to
perform testing where appropriate. If outside vendors are not Y2K compliant,
alternative vendors will be contracted. Additionally, this assessment includes
review of the Federal Reserve Fedline System. This system's hardware and
software was tested during October through December 1998. Additional testing
on minor systems is planned for the March 1999 quarter.
The Bank is monitoring loan and deposit customers for Y2K compliance.
Commercial loan customers that are not Y2K compliant may represent a repayment
risk. The lending department has distributed information regarding Y2K
compliance to commercial loan borrowers. The Bank's initial assessment of
commercial loan customers indicates an immaterial impact on Parkvale's
statement of operations. Continued evaluation of this portfolio's growth will
be performed by the Bank's management.
Parkvale's plan to complete Y2K compliance are based upon management's best
estimates. There can be no guarantee that these estimates will be achieved
and actual results could differ materially from these plans due to unforeseen
circumstances. In a worst case scenario, if difficulties are encountered
during the system conversion process, employee compensation in the form of
overtime pay and/or temporary employees may be necessary to address and
resolve system related processing problems. Such costs are not expected to
exceed $100,000. Considering that the complete conversion to Y2K compliant
software is expected to occur more than six months in advance of January 1,
2000, the Bank will focus on contingency planning during the conversion process
and throughout 1999 to ensure uninterrupted customer service.
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.
Forward Looking Statements:
This quarterly report on Form 10-Q includes statements that may constitute
forward looking statements, usually containing the words "believe," "estimate,"
"project," "expect," "intend" or similar expressions. These statements are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-Looking statements inherently involve
risks and uncertainties that could cause actual results to differ materially
from those reflected in the forward-looking statements. Factors that could
cause future results to vary from current expectations include, but are not
limited to, the following: changes in economic conditions (both generally and
more specifically in the markets in which Parkvale operates); changes in
interest rates, deposit flows, loan demand, real estate values and competition;
changes in accounting principles, government legislation and regulation; and
other risks detailed in this quarterly report on Form 10-Q and in other
Securities and Exchange Commission filings. readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. Parkvale undertakes no
obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds None
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
27. Financial Data Schedule
(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 16, 1999 By: /s/ Robert J. McCarthy, Jr.
----------------- ---------------------------
Robert J. McCarthy, Jr.
President and Chief Executive Officer
DATE: February 16, 1999 By: /s/ Timothy G. Rubritz
----------------- -----------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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