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, 1999
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
- ------------------------------ ---------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway, Monroeville, Pennsylvania 15146
------------------------------------------------------------------
(Address of principal executive offices; zip code)
Registrant's telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
-----------------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The closing sales price of the Registrant's Common Stock on April 30, 1999
was $21.00 per share.
Number of shares of Common Stock outstanding as of April 30, 1999 was
6,198,493.
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
- -------------------------------------- -----
Consolidated Statements of Financial Condition as of
March 31, 1999 and June 30, 1998 3
Consolidated Statements of Operations for the Three
and Nine Months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Nine
Months ended March 31, 1999 and 1998 5-6
Consolidated Statements of Shareholders' Equity
as of March 31, 1999 6
Notes to Unaudited Interim Consolidated Financial
Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Part II - Other Information 15
Signatures 15
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
March 31, June 30,
ASSETS 1999 1998
--------- --------
(Unaudited)
Cash and noninterest-earning deposits $ 8,738 $ 9,628
Federal funds sold 94,400 124,900
Interest-earning deposits in other banks 454 475
Investment securities available for sale
(cost of $13,067 at March 31 and $8,060
at June 30) 20,260 14,793
Investment securities held to maturity
(fair value of $64,829 at March 31 and
$100,047 at June 30) 64,217 99,199
Loans, net of allowance of $13,219 at March 31
and $13,223 at June 30 983,328 832,758
Foreclosed real estate, net of allowance
of $15 at March 31 and at June 30 2,032 2,362
Office properties and equipment, net 2,649 2,377
Intangible assets and deferred charges 354 389
Prepaid expenses and other assets 9,532 8,492
--------- ----------
Total assets $1,185,964 $1,095,373
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $1,022,494 $949,452
Advances from Federal Home Loan Bank 60,662 40,671
Escrow for taxes and insurance 7,807 9,610
Other liabilities 7,251 7,160
Other debt 3,028 4,420
--------- -----------
Total liabilities $1,101,242 $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; March 6,734,894 shares issued,
June 5,388,084 shares issued) 6,735 5,388
Additional paid-in capital 4,776 6,652
Treasury stock at cost (499,156 shares in March
and 269,308* shares in June) (8,570) (3,051)
Employee stock ownership plan debt - (276)
Accumulated other comprehensive income 4,567 4,276
Retained earnings 77,214 71,071
--------- ----------
Total shareholders' equity 84,722 84,060
--------- ----------
Total liabilities and shareholders' equity $1,185,964 $1,095,373
========= ==========
* Reflect the effect of the 5-for-4 stock split on October 14, 1998.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except share data)
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
------- -------- ------- --------
Interest Income: (Unaudited) (Unaudited)
Loans $17,742 $14,734 $50,600 $43,445
Mortgage-backed securities 568 923 1,920 2,976
Investments 758 1,073 2,572 3,769
Federal funds sold 1,009 1,809 4,222 4,968
------- ------- -------- --------
Total interest income 20,077 18,539 59,314 55,158
Interest Expense:
Savings deposits 11,138 10,685 33,568 31,950
Borrowings 882 394 2,486 958
------ ------- ------- --------
Total interest expense 12,020 11,079 36,054 32,908
------ -------- -------- --------
Net interest income 8,057 7,460 23,260 22,250
Provision for loan losses 44 51 159 208
Net interest income after ----- ------ ------ -------
provision for losses 8,013 7,409 23,101 22,042
------- ------- ------- -------
Noninterest Income:
Service charges on deposit
accounts 454 339 1,280 1,049
Other fees and service
charges 184 198 618 513
Gain on sale of assets - 2,001 610 2,001
Miscellaneous 113 109 306 299
----- ------ ------ ------
Total other income 751 2,647 2,814 3,862
----- ------ ------ ------
Noninterest Expenses:
Compensation and benefits 2,224 1,969 6,408 5,746
Office occupancy 579 538 1,722 1,633
Marketing 88 75 287 314
FDIC insurance 147 140 425 415
Office supplies, telephone,
and postage 253 249 782 701
Miscellaneous 703 2,692 2,035 4,091
------ ------- -------- -------
Total other expense 3,994 5,663 11,659 12,900
------ ------- -------- -------
Income before income taxes 4,770 4,393 14,256 13,004
Income tax expense 1,766 1,582 5,276 4,765
------ ------- -------- -------
Net income $3,004 $2,811 $8,980 $8,239
======= ======= ======== ========
Basic earnings per share $0.47 $0.44 $1.41 $1.29
Diluted earnings per share $0.47 $0.43 $1.38 $1.25
Dividends per share $0.15 $0.12 $0.45 $0.328
All share amounts reflect the effect of the 5-for-4 stock split on
October 14, 1998.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months Ended March 31, 1999 and 1998
Increase (Decrease) in Cash and Cash Equivalents
(Dollar amounts in thousands)
1999 1998
----------- ----------
Cash flows from operating activities: (Unaudited)
Interest received $59,085 $55,431
Loan fees received 273 231
Other fees and commissions received 2,086 1,698
Interest paid (35,997) (32,877)
Cash paid to suppliers and others (13,928) (12,675)
Income taxes paid (3,549) (3,480)
--------- ----------
Net cash provided by operating activities 7,970 8,328
Cash flows from investing activities:
Proceeds from sale of investment securities
available for sale 633 2,043
Proceeds from maturities of investments 102,725 87,595
Purchase of investment securities available
for sale (5,000) --
Purchase of investment securities held to
maturity (78,970) (41,804)
Purchase (reduction) of deposits in other
banks 21 (120)
Purchase of loans (206,863) (118,646)
Proceeds from sales of loans 1,290 2,095
Principal collected on loans 248,921 166,753
Loans made to customers, net of loans in
process (182,109) (130,534)
Other (534) (476)
---------- ----------
Net cash used in investing activities (119,886) (33,094)
Cash flows from financing activities:
Net increase in checking and savings accounts 20,773 9,386
Net increase in certificates of deposit 52,269 30,698
Proceeds from FHLB advances 20,000 20,000
Repayment of FHLB advances (8) (5,009)
Net decrease in other borrowings (1,392) (53)
Decrease in borrowers' advances for tax
and insurance (1,803) (1,940)
Cash dividends paid (2,681) (1,855)
Allocation of treasury stock to retirement
plans (133) 588
Acquisition of treasury stock (6,499) --
---------- ----------
Net cash provided by financing activities 80,526 51,815
---------- ----------
Net increase (decrease) in cash and cash
equivalents (31,390) 27,049
Cash and equivalents at beginning of period 134,528 119,936
---------- ---------
Cash and equivalents at end of period $103,138 $146,985
========== =========
Reconciliation of net income to net cash provided
by operating activities:
1999 1998
---------- ----------
Net income $8,980 $8,239
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 296 395
Accretion and amortization of loan fees and
discounts (716) (462)
Loan fees collected and deferred 273 231
Provision for loan losses 159 207
Gain on sale of assets (610) (2,001)
Decrease (increase) in accrued interest
receivable (77) 351
Increase in other assets (800) (2,068)
Decrease in accrued interest payable 58 32
Increase in other liabilities 408 3,404
----------- ----------
Total adjustments (1,009) 89
----------- ----------
Net cash provided by operating activities $7,971 $8,328
=========== ==========
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 $815,500 and $519,000
in the nine months ended March 31, 1999 and 1998, respectively.
<TABLE>
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands, except 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, nine months ended
March 31, 1999 8,980 8,980
Dividends on common stock at
$.45 per share (2,837) (2,837)
Principal payments on employee
stock ownership plan debt 276 276
Transfer to reflect 5-4 split1,347 (1,347) 0
Treasury stock purchased (6,499) (6,499)
Other comprehensive income, net of tax
Unrealized gains on securities of $678
net of reclassification adjustment for
gains included in net income of $387 291 291
Exercise of stock options (529) 980 451
--------- ------ -------- ------ -------- --------- -------
Balance, March 31, 1999 $6,735 $4,776 ($8,570) $0 $4,567 $77,214 $84,722
========== ====== ======== ======= ======== ========= =======
</TABLE>
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Statements of Operations
- ----------------------------------
The statements of operations for the three and nine months ended March 31,
1999 and 1998 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, 1999 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 nine months ended March 31:
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
-------- -------- --------- --------
Numerator for basic and diluted
earnings per share:
Net income (in 000's) $3,004 $2,811 $8,980 $8,239
Denominator:
Weighted average shares
for basic earnings per
share 6,306,606 6,412,201 6,360,718 6,387,715
Effect of dilutive employee
stock options 116,148 229,105 141,589 223,778
--------- ---------- -------- ---------
Weighted average shares
for dilutive earnings
per share 6,422,754 6,641,306 6,502,307 6,611,493
=========== ========== ========= =========
Net income per share:
Basic $0.47 $0.44 $1.41 $1.29
Diluted $0.47 $0.43 $1.38 $1.25
4. Comprehensive Income
- ---------------------------------
As of July 1, 1998, the Corporation adopted FAS 130, Reporting Comprehensive
Income, which establishes standards for 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 nine months ended March 31,
1999 and 1998, total comprehensive income amounted to $9.3 and $8.7 million,
respectively.
5. Loans:
- -----------
Loans are summarized as follows: March 31, June 30,
1999 1998
------------ ---------
First mortgage loans: (Dollar amounts in thousands)
Residential:
1-4 Family $801,431 $683,504
Multifamily 16,024 13,024
Commercial 31,030 24,869
Other 12,205 12,085
------ ---------
860,690 733,482
Consumer loans 122,980 106,266
Commercial business loans 20,942 11,592
Loans on savings accounts 2,556 2,665
---------- ---------
1,007,168 854,005
Less: Loans in process 10,676 7,652
Allowance for loan losses 13,219 13,223
Unamortized discount (premium) and
deferred loan fees (55) 372
---------- ---------
Loans, net $ 983,328 $832,758
========== ==========
Nonaccrual loans $1,774 $2,366
as a percent of total assets 0.15% 0.22%
The following summary sets forth the activity in the allowance for loan losses
for the nine months ended March 31:
1999 1998
--------- ----------
Beginning balance $13,223 $14,266
Provision for losses - mortgage loans 105 78
Provision for losses - consumer loans 54 130
Loans recovered 67 69
Loans charged off (230) (218)
--------- ----------
Ending balance $13,219 $14,325
========== ==========
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. The amount of interest income on nonaccrual
loans that had not been recognized in interest income was $120 for the nine
months ended March 31, 1999 and $181 for the year ended 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 March 31, 1999. Impaired assets include $2,032 of
foreclosed real estate as of March 31, 1999 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 share data)
Balance Sheet Data: March 31,
1999 1998
--------- ---------
Total assets $1,185,964 $1,055,508
Loans, net 983,328 787,606
Interest-earning deposits and
federal funds sold 94,854 135,953
Total investments 84,477 107,821
Savings deposits 1,022,494 921,328
FHLB Advances 60,662 30,674
Other borrowings 3,028 4,461
Shareholders' equity 84,722 82,502
Book value per share $13.59 $12.82
Statistical Profile: Three Months Ended Nine Months Ended
March 31, (1) March 31, (1)
1999 1998 1999 1998
Average yield earned on all ------- ------ ------ ------
interest-earning assets 7.08% 7.28% 7.13% 7.40%
Average rate paid on all
interest-bearing liabilities 4.51% 4.68% 4.63% 4.74%
Average interest rate spread 2.57% 2.60% 2.50% 2.66%
Net yield on average
interest-earning assets 2.84% 2.93% 2.80% 2.99%
Other expenses to average assets 1.37% 2.17% 1.36% 1.69%
Other expenses to average assets
without unusual items 1.44% 1.44%
Efficiency ratio 45.35% 56.03% 44.72% 49.40%
Taxes to pre-tax income 37.02% 36.01% 37.01% 36.64%
Return on average assets 1.03% 1.08% 1.05% 1.08%
Return on average equity 14.78% 14.54% 14.81% 14.63%
Average equity to average
total assets 6.96% 7.42% 7.07% 7.36%
At March 31,
1999 1998
-------- -------
One year gap to total assets -0.94% -0.98%
Intangibles to total equity 0.42% 0.48%
Capital to assets ratio 7.14% 7.82%
Ratio of nonperforming assets to total assets 0.32% 0.52%
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 March 31, 1999
and 1998
For the three months ended March 31, 1999, Parkvale reported net income of
$3.0 million or $0.47 per diluted share up 6.9% (or 10.5% on a per share
basis) from net income of $2.8 million or $0.43 per diluted share for the
quarter ended March 31, 1998. The $193,000 increase in net income for the
March 1999 quarter primarily reflects an 8.0% increase in net interest
income of $597,000. For the quarter ended March 31, 1999, net interest
income increased to $8.1 million from $7.5 million for the quarter ended
March 31, 1998. The fiscal 1999 quarterly results do not include any unusual
items or gains from the sale of assets, which occurred in fiscal 1998.
Interest Income:
Parkvale had interest income of $20.1 million during the three months ended
March 31, 1999 versus $18.5 million during the comparable period in 1998.
This increase of $1.5 million is the direct result of a $115.7 million or
11.4% increase in the average balance of interest-earning assets, offset by a
20 basis point decrease in the average yield from 7.28% in 1998 to 7.08% in
1999. Interest income from loans increased $3.0 million or 20.4% resulting
from the $207.0 million or 27.5% increase in the average outstanding loan
balances, mitigated by a 43 basis point decrease in the average yield from
7.83% in 1998 to 7.40% in 1999. Consistent with Parkvale s ongoing practice
of supplementing our loan originations, when necessary, with purchases of
adjustable rate mortgage loans (after subjecting such credits to our normal
underwriting standards), the average loan increase includes loan purchases
of $52.6 million during the quarter and fiscal year to date purchases of
$208.0 million.
Conversely, interest income on mortgage-backed securities for the 1999
quarter decreased $355,000 or 38.5% from the 1998 quarter due to a decrease
of $20.8 million or 38.7% in the average balance, offset only slightly by a
three basis point increase in the average yield from 6.85% in 1998 to 6.88%
in 1999. Investment securities interest income decreased by $315,000 or 29.4%
from the 1998 quarter due to a decrease of $23.5 million or 29.4% in the
average balance with only a one basis point increase in the average yield
from 5.37% in 1998 to 5.38% in 1999. Interest income earned on federal funds
sold decreased $800,000 or 44.2% from the 1998 quarter due to a decrease in
the average balance of $46.9 million or 35.6%, compounded by a 73 basis point
decrease in the average yield from 5.49% in 1998 to 4.76% in 1999. At March
31, 1999, the weighted average yield on all interest earning assets was 7.12%
compared to 7.20% at December 31, 1998 and 7.43% at March 31, 1998.
Interest Expense:
Interest expense increased by $941,000 or 8.5% from the 1998 to the 1999
quarter. The increase was due to an overall rise in the average deposits
and borrowings of $119 million or 12.6% offset by a 17 basis point decrease
in the average rate paid on deposits and borrowings from 4.68% in 1998 to
4.51% in 1999. At March 31, 1999, the average rate payable on liabilities
was 4.39% for deposits, 5.56% for borrowings and 4.46% for combined deposits
and borrowings.
Provision for Loan Losses:
Parkvale's provision for loan losses decreased by $7,000 or 13.7% from the
1998 quarter to the 1999 quarter. Total reserves were 1.31% and 1.55% of
gross loans at March 31, 1999 and June 30, 1998, respectively. Non-performing
loans and foreclosed real estate were $3.8 million, $4.7 million and $5.5
million at March 31, 1999, June 30, 1998 and March 31, 1998, representing
0.32%, 0.43% and 0.52% of total assets at the respective balance sheet dates.
Total loan loss reserves at March 31, 1999 were $13.2 million, and nonaccrual
loans were $1.8 million, which represents 0.15% of total assets at that date.
Other Income:
Total other income decreased by $1.9 million in 1999 due to the prior year
gain of $2.0 million on the sale Freddie Mac common stock from the investment
securities available for sale portfolio. Absent this gain, other income
increased $105,000 or 16.25%, 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 decreased by $1.7 million from 1998 due to the prior year
charge of $2.0 million to settle a contractual dispute regarding Parkvale's
former headquarters. Excluding the unusual charge, other expenses would have
increased $332,000 or 9.1% due mainly to the $255,000 or 13.0% increase in
compensation and employee benefits. This increase is the result of normal
merit pay increases combined with additional full-time and part- time employees
to better serve Parkvale customers.
Results of Operations - Comparison of Nine Months Ended March 31, 1999 and 1998
Net income for the nine months ended March 31, 1999 was $9.0 million or $1.38
per diluted share compared to $8.2 million or $1.25 per diluted share for the
nine months ended March 31, 1998. The $741,000 (or 9.0%) growth in net income
was derived from normal operations and reflects an increase of $1.0 million
in net interest income due mainly to an overall rise in loan volumes and lower
deposit costs throughout the period. Net interest income was $23.3 million for
the nine months ended March 31, 1999, up from $22.2 million for the nine months
ended March 31, 1998.
Interest Income:
Parkvale had interest income of $59.3 million during the nine months ended
March 31, 1999 and $55.2 million during the comparable period in 1998. This
$4.2 million or 7.5% increase is attributable to an increase in the average
interest-earning asset portfolio of $115.5 million or 11.6% offset by a 27
basis point decrease in the average yield from 7.40% in 1998 to 7.13% in 1999.
Interest income from loans increased $7.2 million or 16.5% due to an increase
in the average loan balance of $168.3 million or 23.0%, offset somewhat by a
41 basis point decrease in the average yield from 7.90% in 1998 to 7.49% in
1999. Consistent with Parkvale's ongoing practice of supplementing our loan
originations, when necessary, with purchases of adjustable rate mortgage loans
(after subjecting such credits to our normal underwriting standards), the
average loan increase includes loan purchases of $208.0 million during the
fiscal year to date.
Interest income on mortgage-backed securities declined by $1.1 million or 35.5%
due to a decrease in the average portfolio of $20.9 million or 36.3%. Income
from investments decreased by $1.2 million or 31.8% from 1998 due to a $20.7
million or 24.7% decrease in the average balance, compounded by a 56 basis
point decrease in the average yield from 5.99% in 1998 to 5.43% in 1999.
Federal funds sold income decreased by $746,000 or 15.0%. The average federal
funds sold balance decreased by $11.2 million or 9.4% along with a 34 basis
point decrease in the average yield from 5.57% in 1998 to 5.23% in 1999.
Interest Expense:
Interest expense increased by $3.1 million from the 1998 nine month period to
the 1999 nine month period due to a $112.8 million or 12.2% increase in the
balance of average deposits and borrowings. This increase was mitigated
somewhat by an 11 basis point decrease in the average rate paid on deposits
and borrowings from 4.74% in 1998 to 4.63% in 1999.
Provision for Loan Losses:
Parkvale's provision for loan losses decreased by $49,000 or 23.6% from the
1998 to the 1999 period. Loan loss reserves were 1.11%, 1.21% and 1.36% of
total assets at March 31, 1999, June 30, 1998 and March 31, 1998, respectively.
Other Income:
Other income decreased $1.1 million primarily due the prior year gain of
$2.0 million on the sale of Freddie Mac common stock from the investment
securities available for sale portfolio. Absent this gain, other income
increased $953,000 or 51.21%, primarily 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 decreased by $1.2 million for the nine month period ending
March 31, 1999 compared to the same period in 1998 due to the prior year
charge of $2.0 million to settle a contractual dispute regarding Parkvale's
former headquarters. Excluding the unusual charge, other expenses would have
increased by $759,000 or 7.0% due mainly to the $662,000 or 11.5% increase in
compensation and employee benefits. This increase is the result of normal
merit pay increases combined with additional full-time and part-time employees
to better serve Parkvale customers.
Liquidity and Capital Resources:
Federal funds sold decreased $30.5 million or 24.4% from June 30, 1998 to
March 31, 1999 as a result of increased loan balances of $150.6 million
slightly offset by increased deposit balances of $73.0 million. Investment
securities held to maturity decreased by $35.0 million or 35.3% from June 30,
1998 to March 31, 1999. Escrow for taxes and insurance decreased by $1.8
million or 18.8% as a result of the remittance of property taxes to the
various taxing districts during the fiscal year.
Shareholders' equity was $84.7 million or 7.1% of total assets at March 31,
1999. 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, 1999, Parkvale was in compliance with all applicable
regulatory requirements, with Tier I and Tier II ratios of 6.74% and 12.99%,
respectively.
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
---------- --------- ---------
Equity Capital (1) $84,907 $84,907 $84,907
Less non-allowable intangible assets (354) (354) (354)
Less unrealized securities gains (4,144) (4,144) (4,144)
Plus general valuation allowances (2) -- -- 8,616
-------- -------- --------
Total regulatory capital 80,409 80,409 89,025
Minimum required capital 47,728 27,572 54,809
-------- -------- --------
Excess regulatory capital $32,681 $52,837 $34,216
Adjusted total assets $1,192,961 $689,292 $685,110
Regulatory capital as a percentage 6.74% 11.67% 12.99%
Minimum capital required as a percentage 4.00% 4.00% 8.00%
------- ------- -------
Excess regulatory capital as a
percentage 2.74% 7.67% 4.99%
======= ======= =======
Well capitalized requirement 5.00% 6.00% 10.00%
- -----------------------------------------------
(1) Represents equity capital of the consolidated Bank as reported to
the Pennsylvania Department of Banking and FDIC on Form 032 for the
quarter ended March 31, 1999.
(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:
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,
miscalculation and other temporary disruptions of operation.
Parkvale has assigned a Data Processing Committee 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 allocation. The awareness and assessment
stages have been completed. During the renovation and testing phases, the
Bank's primary data processing provider announced plans to discontinue
business by mid-1999. 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. The Bank
ultimately decided to bring the data processing function in house and selected
a full-service provider of integrated data processing and information manage-
ment systems to provide the necessary application software, which is fully Y2K
compliant. Employee training and conversion planning sessions are currently
underway, and the conversion process is expected to be completed by the end of
July 1999.
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.
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 the
Y2K compliance. Management is coordinating with third party vendors to perform
testing where appropriate. If outside vendors are not Y2K compliant, alter-
native vendors will be contracted. Additionally, this assessment includes
review of the Federal Reserve Fedline System. This system's hardware and
software were tested during the second quarter of fiscal 1999. Additional
Fedline testing and testing on minor systems is currently taking place.
The Bank is also 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 and continues to distribute this
information to new 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 plans 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 approximately five 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. 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
(b) 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: May 3, 1999 By: /s/ Robert J. McCarthy,Jr.
------------------- ----------------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: May 3, 1999 By: /s/ Timothy G. Rubritz
------------------- ----------------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1999
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<COMMON> 6,735
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<EPS-PRIMARY> 1.41
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<LOANS-NON> 3,806
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