[PARKVALE FINANCIAL CORPORATION LETTERHEAD]
October 4, 1999
Dear Fellow Stockholder:
Parkvale Financial Corporation has received a stockholder proposal for
consideration at the Annual Meeting of Stockholders to be held on October 28,
1999. This proposal is from Rena M. Rothschild, the sister of the presenter of a
similar proposal at the 1998 Annual Meeting. After careful review and
consideration, your Board of Directors firmly believes that this proposal is not
in the best interest of Parkvale or its stockholders and unanimously recommends
that you vote against the proposal.
In Ms. Rothschild's letter, she questions the performance of our stock and our
management. She prematurely attempts to compare us to commercial banks. She
challenges our commitment to strategic planning and our ability to compete in
the era of Internet banking. I am writing to you today to provide you with
information you will need in order to make a well-informed decision as you cast
your vote on this matter.
The stock market has not recently rewarded Parkvale's outstanding operating
performance, despite the fact that Parkvale was recently ranked as the
fourteenth best performing thrift of the top 100 publicly traded thrifts in the
United States. Our stock price, along with those of other publicly traded
community financial institutions, has been adversely affected by developments
largely out of our control. Interest rate fears, Y2K concerns and global
financial issues have temporarily put financial institution stocks out of favor
with investors. In fact, most small cap stocks, regardless of industry, have
suffered price declines this past year. In our opinion, attempts to sell
Parkvale at this time would not maximize stockholder value.
Many of you have been long-term, loyal stockholders of Parkvale, and our stock
has performed well for you. In the past ten years, Parkvale stock has
appreciated 773.6% so that an investment of $10,000 in 1989 would now be worth
$77,360. While Ms. Rothschild's assertion that this is greatly reduced from last
year's cumulative return is correct, the following graph (obtained from Yahoo.
finance.com) illustrates that our stock has still significantly outperformed the
S&P 500 since March 1990. Our market makers have a consensus "BUY" rating for
Parkvale stock, which indicates they believe the stock is undervalued. In fact,
Janney Montgomery Scott issued a "BUY" recommendation and report dated as
recently as September 29, 1999.
<PAGE>
[GRAPHIC-GRAPH]
In regard to our operating performance, the enclosed copy of Parkvale's response
to Ms. Rothschild's proposal, as it appears in the proxy statement, will attest
to our performance. Friedman, Billings, Ramsey & Co., an institutional brokerage
research firm located in Arlington, Virginia, recently released financial data
as of June 30, 1999. The data listed shows that while Parkvale's return on
average assets (ROAA) percentages are slightly lower than commercial banks, they
are far better than other thrift institutions. Parkvale has been diligently
making the transition from a thrift organization to a commercial bank,
implementing the strategic plan adopted by its management and Board of
Directors. When comparing return on average equity (ROAE), the true indication
of return to investors, Parkvale exceeds all averages including those for
commercial banks.
LAST 12 MONTHS
-------------------------
ROAA % ROAE %
------ ------
PARKVALE 1.05 14.98
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COMMERCIAL BANKS
Pennsylvania average 1.22 12.43
National average 1.10 12.28
THRIFTS
Pennsylvania average 0.79 8.57
National average 0.84 7.50
Regarding the Internet and high-tech banking, Parkvale has been evaluating and
adopting those technologies that will allow us to remain competitive, serve our
customers and attract new ones. As mentioned in our Annual Report message to
you, we have made significant technology upgrades to our data processing
systems. These upgrades will soon allow customers to access their accounts via
touch tone telephone, use bill payment services and complete PC banking
transactions. We believe that prudent adaptation of new technologies, based on
sound cost/benefit and customer analysis, is the best way to increase
shareholder value. We see the Internet as another channel to serve our
customers, not the replacement of traditional banking methods. We believe there
will continue to
<PAGE>
be a need for customer-focused, community banking and that, despite the
proponent's unfounded fears, we will be able to compete. People seeking
information about Parkvale may view our website at www.parkvale.com.
Ms. Rothschild is misinformed about our approach to strategic planning. We
diligently assess and revise our strategic plan annually. We constantly evaluate
business and growth opportunities in light of our strategic vision. We have
built a quality asset base with controlled growth and will continue to evaluate
profitable and prudent opportunities for future growth.
In summary, despite the current sluggish performance of small cap stocks, and in
particular those of financial institutions, we are very optimistic about the
potential that lies ahead. We believe in the underlying strength and value of
our company and the opportunities in the market niche that Parkvale fills in
western Pennsylvania.
We sincerely hope that you vote against the stockholder proposal and, by doing
so, send a message of confidence in the ability of Parkvale's management and
Board of Directors, who are significant stockholders themselves, to continue to
provide you with an outstanding long-term return on your investment.
Sincerely,
/S/Robert J. McCarthy, Jr.
- --------------------------
Robert J. McCarthy, Jr.
President and Chief Executive Officer
<PAGE>
IMPORTANT
Your vote is important. Regardless of the number of shares of Parkvale
common stock you own, please vote as recommended by your Board of Directors by
taking these two simple steps:
1. PLEASE SIGN, DATE and PROMPTLY MAIL the enclosed proxy card in the
postage-paid envelope provided.
2. Please vote FOR the election of directors, FOR the ratification of the
independent auditors, and AGAINST the stockholder proposal.
IF YOU PREVIOUSLY VOTED OTHER THAN AS RECOMMENDED ABOVE, YOU HAVE EVERY
RIGHT TO CHANGE YOUR VOTE SIMPLY BY SIGNING, DATING AND MAILING THE ENCLOSED
PROXY CARD. THIS WILL CANCEL YOUR EARLIER VOTE SINCE ONLY YOUR LATEST DATED
PROXY CARD WILL COUNT AT THE ANNUAL MEETING.
You should return your proxy card at once to ensure that your vote is
counted. This will not prevent you from voting in person at the meeting if you
decide to attend.
Parkvale has retained Kissel-Blake, a division of Georgeson Shareholder
Communications, 17 State Street, New York, New York 10004, a professional proxy
solicitation firm, to assist in the solicitation of proxies and for related
services. Parkvale will pay Kissel-Blake a fee of $3,000 and has agreed to
reimburse it for its reasonable out-of-pocket expenses.
If you have any questions or need assistance in voting your shares,
please call either Kissel-Blake, which is assisting us, toll-free at
1-800-498-2628, or Parkvale's Investor Relations Dept. at (412) 373-7200.
<PAGE>
RESPONSE OF YOUR BOARD OF DIRECTORS
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THE
ABOVE STOCKHOLDER PROPOSAL FOR THE REASONS SET FORTH BELOW.
Your Board is Committed to Maximizing Shareholder Value
The Board of Directors is committed to maximizing shareholder value and
acting in accordance with its fiduciary duties to ALL shareholders. We simply
disagree with the proponent on the best way to achieve this objective. Based
upon our experience and track record, we urge you to support us in our ongoing
efforts to enhance shareholder value.
You should consider the following facts in deciding how to vote:
o We recently ranked as the 14th best performing thrift of the top 100
publicly traded thrifts in the country.
o Our returns on average equity exceeded 14.50% in each of the last
three years.
o Our net income continues to increase.
o Our shareholders have enjoyed significant total returns.
o Our assets and deposits continue to grow.
We believe that we are continuing to increase the franchise value of
the Corporation, and we continue to outperform our peer group. Your Board
believes that shareholders have been well served by the Board's leadership and
guidance over the past 10 years, and the Board believes that it is in a much
better position than the proponent to determine what is in the best interests of
ALL shareholders.
Your Board will carefully consider any appropriate action that would
serve the best interests of the shareholders, including any bona fide offer for
the purchase of the Corporation. In light of our increasing profitability and
future prospects, we believe that a forced sale "as promptly as possible" is not
in the best interests of ALL shareholders.
We are the 14th Best Performing Thrift of the Top 100 Publicly Traded
Thrifts in the United States for 1998 and the 7th Best Performing Thrift over
the last 3 Years.
In July 1999, SNL Securities, a nationally recognized authority on
financial institutions, published its performance ranking of the top 100 largest
publicly owned thrifts throughout the entire country. We ranked as the 14th best
performing thrift during 1998 and the 7th best performing over the last 3 years,
which is a tribute to
<PAGE>
our consistency. The performance ranking considered return on average equity,
return on average assets, efficiency ratio, three-year earnings per share growth
rate, nonperforming assets to total assets, and net charge-offs to average
loans. In most of these areas, our results for fiscal 1999 are even better than
they were for the three previous years.
Our Net Income Continues to Increase
Our profitability has increased in each of the last five years
(excluding the impact of the special SAIF assessment on September 30, 1996) as
shown in the following table: Return on Return on Fiscal Year Net Income Average
Assets Average Equity (in Thousands) 1995 $ 8,071 0.93% 13.89% 1996 9,618 0.98
13.99 1997 10,143 1.07 14.70 1998 11,118 1.08 14.59 1999 12,098 1.05 14.98
We have outperformed the median results for a group of 12 other
publicly owned savings institution holding companies ("Peer Group") over the 12
months ended June 30, 1999 and over the last 3 years, as set forth in the
following table:
<TABLE>
<CAPTION>
12 Months Ended June 30, 1999 Three-Year Average(3)
----------------------------------------- -----------------------------------
Return on Return on Return on Return on
Total Average Average Efficiency Average Average Efficiency
Assets Assets Equity Ratio(2) Assets Equity Ratio(2)
------ ------ ------ -------- ------ ------ --------
(in Millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Parkvale $ 1,202 1.05% 14.98% 44.9% 1.07% 14.76% 45.2%
Peer Group Median(1) 1,272 .95 8.75 53.0 .93 8.82 53.5
</TABLE>
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(1) The Peer Group consists of all savings institution holding companies with
total assets as of June 30, 1999 between $800 million and $2.0 billion
located in Pennsylvania, Delaware, New Jersey, New York, Ohio and West
Virginia and which were fully public prior to January 1, 1998. Information
regarding the Peer Group was provided by SNL Securities.
(2) The efficiency ratio is defined as (a) total non-interest expense less
amortization expense, divided by (b) net interest income plus non-interest
income. Institutions with a lower percentage are deemed to be more
efficient in controlling expenses.
(3) Excludes charges associated with the one-time special SAIF assessment on
September 30, 1996.
Your Board of Directors believes that the Corporation's financial
performance has been and continues to be strong. Proponent's opinion that we are
not keeping up with our competition is simply not true. Proponent compares us
with 10 Pennsylvania banks and fails to include any Pennsylvania savings
institutions, which is what we are. While we aspire to operate more like a
commercial bank than a savings institution, it will take several more years to
prudently integrate commercial banking activities into our operations. We have
made strides in changing our asset and liability mix to more closely resemble
that of a commercial bank as witnessed by the 23% increase in checking accounts
for fiscal year 1999 and 16% increase for 1998. In addition, consumer and
commercial loans increased 36% for fiscal year 1999 and 22% for 1998. During
this transition, our net income has increased in each of the last
<PAGE>
five years, excluding the impact of the one-time special SAIF assessment on
September 30, 1996.
Our Shareholders Have Enjoyed Significant Total Returns
We believe proponent's opinion that our stock has declined in the face of a
remarkably strong stock market is misleading. While Parkvale's stock declined
12.4% as pointed out by the proponent from September 29, 1998 ($23.127) to
August 4, 1999 ($20.25) and 15.7% as noted elsewhere in this document from June
30, 1998 ($25.80) to June 30, 1999 ($21.75), financial institution stocks in
general were subject to pricing pressures as a result of perceived inflationary
pressures and the Federal Reserve's willingness to increase rates quickly if
these inflationary fears become reality.
While our stock price declined 15.7% from June 30, 1998 to June 30, 1999, the
median price decline for the 12 member Peer Group was 19.4% and the median
decline for the 4 members of the Peer Group that are headquartered in
Pennsylvania was 23.1% for the same period. In addition, the recent median Price
to Book Value for the Peer Group was 128.2% vs. 148.1% for Parkvale. We believe
the investment community has given our stock a higher book value premium and our
stock price has held its value better than the Peer Group because of our
superior financial performance.
In spite of our reduced stock price in the past year, our shareholders have
enjoyed significant total returns over the last three, five and ten years as
shown in the following table:
Total Cumulative
Return(1)
Last Three Years 79.4%
Last Five Years 137.1%
Last Ten Years 773.0%
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(1) Based on the closing price of $21.75 per share as of June 30, 1999, giving
effect to cash dividends and stock splits during the periods shown.
Our Assets and Deposits Continue to Grow
Our total assets increased by $106 million or 9.7% in fiscal 1999 and
by $104 million or 10.5% in fiscal 1998 over the respective prior years. Your
Board of Directors believes that prudent, sustainable growth is in the best
interests of the shareholders.
Our total deposits increased by $88 million or 9.3% in fiscal 1999 and
by $68 million or 7.7% in fiscal 1998 over the respective prior years. Our
fiscal 1999 growth in deposits was second in the Peer Group, with the first
having made an acquisition during the same period.
<PAGE>
Our Directors and Officers Have a Significant Ownership Interest
Your Board of Directors believes that it is important for the directors
and executive officers to own a significant number of shares of Common Stock so
that their interests are aligned with all shareholders. The 17 current directors
and executive officers as a group are deemed to beneficially own an aggregate of
880,655 shares of Common Stock, representing 14.46% of the outstanding Common
Stock. See "Voting Securities and Beneficial Ownership Thereof."
Adoption of the Proposal Would Be Detrimental to the Board's Efforts
Your Board believes that adoption of this shareholder proposal would
create an uncertain public atmosphere which, in its judgment, would disadvantage
any efforts to merge or sell the Corporation. Adoption of the proposal could
result in the Board having diminished bargaining power and being pressured into
accepting a price for the Common Stock that does not reflect the true long-term
value of the Corporation. In addition, the uncertain atmosphere that could be
created by adoption of this proposal could result in us losing valuable customer
relationships and employees, which would impair the value of our franchise.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS BELIEVES THAT
THE STOCKHOLDER PROPOSAL IS NOT IN THE BEST INTERESTS OF THE CORPORATION AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE AGAINST THE STOCKHOLDER PROPOSAL.
The affirmative vote of the holders of a majority of the total votes
cast is required to approve the stockholder proposal. Because abstentions are
deemed to be present at the meeting but not a cast vote, abstentions will have
no effect on the outcome of the stockholder proposal. Under rules of the New
York Stock Exchange, the stockholder proposal is considered a
"non-discretionary" item upon which brokerage firms may not vote on behalf of
their clients unless such clients have furnished voting instructions. These
"broker non-votes" will have no effect on the outcome of the stockholder
proposal.
