<PAGE> 1
Exhibit 13
Selected Consolidated Financial and Other Data
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BALANCE SHEET DATA AT JUNE 30: 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $1,250,986 $1,201,880 $1,095,373 $991,239 $919,242
Loans 1,034,369 995,671 832,758 710,868 625,452
Investment securities 121,607 115,131 113,992 149,580 204,886
Savings deposits 1,080,096 1,037,416 949,452 881,244 807,087
FHLB advances and other debt 73,467 64,708 45,091 20,196 26,911
Shareholders' equity 84,266 85,071 84,060 75,183 69,765
Book value per share 14.75 13.84 13.00 11.87 11.04
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA FOR THE YEAR ENDED JUNE 30: 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 84,670 $ 79,711 $ 74,020 $ 68,380 $ 66,117
Total interest expense 49,835 48,172 44,190 40,352 39,631
----------------------------------------------------------------------------------------------------
Net interest income 34,835 31,539 29,830 28,028 26,486
Provision for loan losses 236 196 255 399 686
----------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 34,599 31,343 29,575 27,629 25,800
Other income 3,563 3,659 4,709 2,174 3,058
Other expenses 17,368 15,788 16,781 18,808 14,240
----------------------------------------------------------------------------------------------------
Income before taxes 20,794 19,214 17,503 10,995 14,618
Income tax expense 7,576 7,116 6,385 4,021 5,000
----------------------------------------------------------------------------------------------------
Net income $ 13,218 $ 12,098 $ 11,118 $ 6,974 $ 9,618
----------------------------------------------------------------------------------------------------
Net income per diluted share $2.23 $1.88 $1.68 $1.07 $1.47
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OTHER SELECTED DATA (STATISTICAL PROFILE):
YEAR ENDED JUNE 30, 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average yield earned on all
interest-earning assets 7.16% 7.11% 7.37% 7.38% 7.45%
Average rate paid on interest-bearing
liabilities 4.46 4.57 4.72 4.67 4.79
Average interest rate spread 2.70 2.54 2.65 2.71 2.66
Net yield on average interest-earning
assets 2.95 2.81 2.97 3.03 2.98
Other expenses to average assets 1.42 1.36 1.63 1.98 1.57
Other expenses to average assets* 1.42 1.36 1.42 1.45 1.57
Efficiency ratio 45.23 44.85 48.59 62.27 48.20
Efficiency ratio* 45.23 44.85 45.17 45.60 49.83
Return on average assets 1.08 1.05 1.08 0.73 1.06
Dividend payout ratio 32.29 31.91 26.67 31.36 18.19
Return on average equity 16.53 14.98 14.59 10.15 15.13
Average equity to average total assets 6.56 6.98 7.38 7.23 7.01
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One year gap to total assets 2.76% -5.10% 0.07% -4.44% 0.24%
Intangibles to total equity 0.35 0.40 0.46 0.74 0.40
Shareholders' equity to assets ratio 6.74 7.08 7.67 7.58 7.59
Ratio of nonperforming assets to total
assets 0.30 0.27 0.43 0.27 0.14
Nonperforming assets $ 3,784 $ 3,266 $ 4,728 $ 2,654 $ 1,248
Allowance for loan losses as a % of
gross loans 1.27% 1.30% 1.55% 1.95% 2.17%
Number of full-service offices 31 30 29 29 28
</TABLE>
* Excludes the effect of litigation expense and gain on sale of assets in fiscal
1998, the one-time FDIC special assessment in fiscal 1997 and the gain on sale
of asset in fiscal 1996.
4
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 2
Management's Discussion and Analysis
The purpose of this discussion is to summarize the financial condition and
results of operations of Parkvale Financial Corporation ("Parkvale") and provide
other information which is not readily apparent from the consolidated financial
statements included in this annual report. Reference should be made to those
statements, the notes thereto and the selected financial data presented
elsewhere in this report for a complete understanding of the following
discussion and analysis.
FINANCIAL CONDITION
Parkvale's average interest-earning assets increased $60 million for the year
ended June 30, 2000 over fiscal year 1999. This increase was achieved through a
larger loan portfolio funded primarily by elevated savings deposit levels.
Average loan and average deposit balances rose $91 million and $62 million,
respectively, in fiscal year 2000.
Parkvale functions as a financial intermediary, and as such, its financial
condition should be examined in terms of its ability to manage its interest rate
risk, and diversify its credit risk.
ASSET AND LIABILITY MANAGEMENT
Parkvale's asset and liability management ("ALM") is driven by the ability to
manage interest rate risk ("IRR"). IRR is the exposure of current and future
earnings and capital to fluctuating interest rates. This exposure occurs because
the present value of future cash flows, and in many cases the cash flows
themselves, change when interest rates change. One of Parkvale's ALM goals is to
minimize this exposure.
IRR is measured and analyzed using static interest rate sensitivity gap
indicators, net interest income simulation and net present value sensitivity
measures. These combined methods enable Parkvale's management to regularly
monitor both the direction and magnitude of potential changes in the
relationship between interest-earning assets and interest-bearing liabilities.
Interest rate sensitivity gap analysis provides one indicator of potential
interest rate risk by comparing interest-earning assets and interest-bearing
liabilities maturing or repricing at similar intervals. The gap ratio is defined
as rate-sensitive assets minus rate-sensitive liabilities for a given time
period divided by total assets. Parkvale continually monitors gap ratios, and
within the IRR framework and in conjunction with the net interest income
simulations, implements actions to reduce exposure to fluctuating interest
rates. Such actions have included maintaining high liquidity, deploying excess
liquidity, increasing the repricing frequency of the loan portfolio and
lengthening the overall maturities of interest-bearing liabilities. Management
believes these ongoing actions minimize Parkvale's vulnerability to fluctuations
in interest rates. The one-year gap ratio has shifted from -5.10% as of June 30,
1999 to 2.76% as of June 30, 2000, and the five-year gap ratio has shifted from
8.44% as of June 30, 1999 to 2.96% as of June 30, 2000. This shift is due to
management's decision to reduce the investment in Federal funds sold and deploy
the liquidity by purchasing Adjustable Rate Mortgage ("ARM") loans with rates
fixed for approximately three years. This strategy results in higher levels of
current and projected income for one to three years without taking on an
excessive amount of long term IRR.
Gap indicators of IRR are not necessarily consistent with IRR simulation
estimates. Parkvale utilizes net interest income simulation estimates under
various assumed interest rate environments to more fully capture the details of
IRR. Assumptions included in the simulation process include measurement over a
probable range of potential interest rate changes, prepayment speeds on
amortizing financial instruments, other imbedded options, loan and deposit
volumes and rates, nonmaturity deposit assumptions and management's capital
requirements. The estimated impact on projected net interest income in fiscal
2001 assuming an immediate shift in current interest rates would result in the
following percentage changes over fiscal 2000 net interest income: +100 bp,
3.6%; +200 bp, 0.1%; -100 bp, +9.8%; -200 bp, 3.3%. This compares to projected
net interest income for fiscal 2000 made at June 30, 1999 over fiscal 1999
actual net interest income of: +100 bp, +12.5%; +200 bp, +6.2%; -100 bp, +18.1%;
-200 bp, +11.2%. The fluctuation in projected net interest income between fiscal
2000 and 1999 is reflective of the change in asset mix during fiscal 2000 as
discussed in the Financial Condition section.
5
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 3
Asset Management. A primary goal of Parkvale's asset management is to maintain
a high level of liquid assets. Parkvale defines the following as liquid assets:
cash, federal funds sold, certain corporate debt maturing in less than one year,
U.S. Government and agency obligations maturing in less than one year and
short-term bank deposit accounts. The average daily liquidity was 13.5% for the
quarter ended June 30, 2000. During fiscal 2000, Parkvale's investment strategy
was to deploy excess liquidity by purchasing single-family ARM loans to enhance
yields and reduce the risk associated with rate volatility. Such investments
reduce the inherent risk of the volatility of overnight interest rates. If
interest rates were to fall substantially, net interest income may decrease if
the yield on liquid assets, such as Federal funds sold, were to fall faster than
liabilities would reprice.
Parkvale's lending strategy has been designed to shorten the average maturity of
its assets and increase the rate sensitivity
ONE YEAR GAP TO TOTAL ASSETS
[GRAPH]
of its loan portfolio. In fiscal 2000, 1999 and 1998, 78.7%, 83.7% and 84.9%,
respectively, of mortgage loans originated or purchased were adjustable-rate
loans. Parkvale has continually emphasized the origination and purchase of ARM
loans. ARMs totaled $609.8 million or 69.3% of total mortgage loans at June 30,
2000 versus $600.4 million or 69.7% of total mortgage loans at June 30, 1999. To
supplement local mortgage originations, Parkvale purchased loans aggregating
$85.5 million, $243.1 million and $183.0 million in fiscal 2000, 1999 and 1998,
respectively, from mortgage bankers and other financial institutions. The loan
packages purchased were predominately 3/1 and 7/1 ARMs. Substantially, all of
the 2000 purchases were ARMs. The practice of purchasing loans in the secondary
market is expected to continue in fiscal 2001 when liquidity exceeds targeted
levels. At June 30, 2000, Parkvale had commitments to originate mortgage loans
totaling $7.1 million and commercial loans of $13.6 million. Construction loans
in process at June 30, 2000 were $10.2 million. Such commitments were funded
from current liquidity.
Parkvale continues to increase its consumer loan portfolio through new
originations. Home equity lines of credit are granted at up to 120% of
collateral value at competitive rates. In general, these loans have shorter
maturities and greater interest rate sensitivity and margins than residential
real estate loans. At June 30, 2000 and 1999, consumer loans were $131.5 and
$129.5 million which represented a 1.6% and a 21.8% increase over the balances
at June 30, 1999 and 1998, respectively. The largest component of consumer loans
are fixed-rate second mortgage loans with outstanding balances at June 30, 2000,
1999 and 1998, respectively, of $81.2 million, $72.9 million and $47.7 million.
The fiscal 2000 and 1999 consumer portfolio growth is primarily related to
consumer demand for fixed-rate shorter term second mortgage loans with average
maturities of five years.
Investments in mortgage backed securities and other securities, such as U.S.
Government and agency obligations and corporate debt, are purchased to enhance
Parkvale's overall net interest margin and to reduce credit risk concentration.
Parkvale's investment policy focuses on long-term trends, rather than short-term
swings in the financial markets. Accordingly, all debt securities are classified
as held to maturity, and are not available for sale nor held for trading.
6
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 4
Interest-Sensitivity Analysis. The following table reflects the maturity and
repricing characteristics of Parkvale's assets and liabilities at June 30, 2000:
<TABLE>
<CAPTION>
<3 MONTHS 4-12 MONTHS 1-5 YEARS 5+ YEARS TOTAL
--------- ----------- --------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-sensitive assets:
ARM and other variable rate loans $ 81,705 $175,117 $307,332 $ 68,110 $ 632,264
Other fixed rate loans, net (1) 46,766 21,039 124,196 223,893 415,894
Variable rate mortgage-backed securities 11,268 951 -- -- 12,219
Fixed rate mortgage-backed securities (1) 1,605 457 1,884 3,594 7,540
Investments and Federal funds sold 66,661 29,542 36,611 11,780 144,594
Equities, primarily FHLB and FHLMC -- 4,951 9,362 5,732 20,045
-------- -------- -------- -------- ----------
Total interest-sensitive assets $208,005 $232,057 $479,385 $313,109 $1,232,556
======== ======== ======== ======== ==========
Ratio of interest-sensitive assets to
total assets 16.6% 18.5% 38.3% 25.2% 98.5%
==== ==== ==== ==== ====
Interest-sensitive liabilities:
Passbook deposits and club accounts (2) $ 4,696 $ 21,413 $ 24,060 $ 96,229 $ 146,398
Checking accounts (3) 4,634 4,634 18,536 99,329 127,133
Money market deposit accounts -- 18,216 18,216 -- 36,432
Certificates of deposit 145,827 198,529 361,056 56,078 761,490
FHLB advances and other borrowings 7,634 -- 55,000 10,833 73,467
-------- -------- -------- -------- ----------
Total interest-sensitive liabilities $162,791 $242,792 $476,868 $262,469 $1,144,920
======== ======== ======== ======== ==========
Ratio of interest-sensitive liabilities to
total liabilities and equity 13.0% 19.4% 38.1% 21.0% 91.5%
==== ==== ==== ==== ====
Ratio of interest-sensitive assets to
interest-sensitive liabilities 127.8% 95.6% 100.5% 119.3% 107.7%
===== ==== ===== ===== =====
Periodic Gap to total assets 3.61% (0.86%) (0.20%) 4.05% 7.01%
==== ===== ===== ==== ====
Cumulative Gap to total assets 3.61% 2.76% 2.96% 7.01%
==== ==== ==== ====
</TABLE>
(1) Includes total repayments and prepayments at an assumed rate of 10% per
annum, compared with 15% per annum for fiscal 1999, for fixed-rate mortgage
loans and mortgage-backed securities, with the amounts for other loans based
on the estimated remaining loan maturity by loan type.
(2) Assumes passbook deposits are withdrawn at the rate of 17.8% per annum,
compared with 19.9% for fiscal 1999.
(3) Includes money market subaccounts and assumes checking accounts are
withdrawn at 7.3% in the first year and 4.1% per annum thereafter, compared
with 7.6% and 3.8%, respectively, for fiscal 1999.
Liability Management. Parkvale's favorable liquidity allows investment
decisions to be made with the funding source as a secondary issue. Deposits are
priced according to management's asset/liability objectives, alternate funding
sources and competition. A concentrated effort is made to extend the maturities
of deposits by offering highly competitive rates for longer term certificates.
Certificates of deposit maturing after one year as a percent of total deposits
are 38.6% at June 30, 2000 and 32.5% at June 30, 1999. The increase in longer
term certificates is attributable to rate specials accepted by consumers
throughout fiscal 2000.
Parkvale has also made a concentrated effort to increase low cost deposits by
attracting new checking customers to our community branch offices. Checking
accounts at June 30, 2000 and 1999 have increased by 14.8% and 23.1%,
respectively, showing growing acceptance of Parkvale as a full service bank.
Parkvale's primary sources of funds are deposits received through its branch
network, loan and mortgage-backed security repayments and advances from the
Federal Home Loan Bank ("FHLB"). FHLB advances can be used on a short-term basis
for liquidity purposes or on a long-term basis to support lending activities.
CONCENTRATION OF CREDIT RISK
Financial institutions, such as Parkvale, generate income primarily through
lending and investing activities. The risk of loss from lending and investing
activities includes the possibility that losses may occur from the failure of
another party to perform according to the terms of the loan or investment
agreement. This possibility of loss is known as credit risk.
7
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 5
Credit risk is increased by lending and investing activities that concentrate a
financial institution's earning assets in a way that exposes the institution to
a material loss from any single occurrence or group of related occurrences.
Diversifying loans and investments to prevent concentrations of risks is one
manner a financial institution can reduce potential losses due to credit risk.
Examples of asset concentrations would include, but not be limited to,
geographic concentrations, loans or investments of a single type, multiple loans
to a single borrower, loans made to a single type of industry and loans of an
imprudent size relative to the total capitalization of the institution. For
loans purchased and originated, Parkvale has taken steps to reduce exposure to
credit risk by emphasizing low-risk, single-family mortgage loans, which
comprise 75.9% of the gross loan portfolio as of June 30, 2000. The next largest
component of the loan portfolio are consumer loans at 12.5%, which generally
consist of lower balance second mortgages and home equity loans originated in
the greater Pittsburgh area.
RESULTS OF OPERATIONS
Net income for the year ended June 30, 2000 was $13.2 million or $2.23 per
diluted share representing a 9.3% increase from net income of $12.1 million or
$1.88 per diluted share for the year ended June 30, 1999.
The key component of the favorable operating results is the $3.3 million or
10.5% increase in net interest income over fiscal year 1999. Net interest income
is the difference between interest earned on loans and investments and interest
paid for deposits and borrowings. A positive interest rate spread is achieved
with interest-earning assets in excess of interest-bearing liabilities which
results in increased net interest income.
YIELDS EARNED AND RATES PAID
The following table sets forth the average yields earned on Parkvale's
interest-earning assets and the average rates paid on its interest-bearing
liabilities, the resulting average interest rate spreads, the net yield on
interest-earning assets and the weighted average yields and rates at June 30,
2000.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------- AT JUNE 30,
2000 1999 1998 2000
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Average yields on (1):
Loans 7.33% 7.44% 7.85% 7.56%
Investments (2) 6.33 5.96 6.33 6.65
Federal funds sold 5.73 5.15 5.57 6.45
---- ---- ---- ----
All interest-earning assets 7.16 7.11 7.37 7.42
---- ---- ---- ----
Average rates paid on (1):
Savings deposits 4.39 4.50 4.70 4.72
Borrowings 5.67 5.77 5.54 5.50
---- ---- ---- ----
All interest-bearing liabilities 4.46 4.57 4.72 4.78
---- ---- ---- ----
Average interest rate spread 2.70% 2.54% 2.65% 2.64%
==== ==== ==== ====
Net yield on interest-earning assets(3) 2.95% 2.81% 2.97%
==== ==== ====
</TABLE>
(1) Average yields and rates are calculated by dividing the interest income or
expense for the period by the average balance for the year. The weighted
averages at June 30, 2000 are based on the weighted average contractual
interest rates. Nonaccrual loans are excluded in the average yield and
balance calculations.
(2) Includes held-to-maturity and available-for-sale investments, including
mortgage backed securities and interest-bearing deposits.
(3) Net interest income on a tax equivalent basis divided by average
interest-earning assets.
8
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 6
The following table presents for the periods indicated the average balances of
each category of interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans $1,013,161 $ 921,941 $ 749,866
Investments 122,764 100,284 134,519
Federal funds sold 46,112 99,549 119,947
---------- ---------- ----------
Total interest-earning assets 1,182,037 1,121,774 1,004,332
---------- ---------- ----------
Noninterest-earning assets 36,979 35,209 28,006
---------- ---------- ----------
Total assets $1,219,016 $1,156,983 $1,032,338
========== ========== ==========
Interest-bearing liabilities:
Savings deposits 1,056,475 994,610 908,951
FHLB advances and other borrowings 60,446 58,629 27,130
---------- ---------- ----------
Total interest-bearing liabilities 1,116,921 1,053,239 936,081
---------- ---------- ----------
Noninterest-bearing liabilities 22,122 22,979 20,063
---------- ---------- ----------
Total liabilities 1,139,043 1,076,218 956,144
Shareholders' equity 79,973 80,765 76,194
---------- ---------- ----------
Total liabilities and equity $1,219,016 $1,156,983 $1,032,338
========== ========== ==========
Net interest-earning assets $ 65,116 $ 68,535 $ 68,251
========== ========== ==========
Interest-earning assets as a % of interest-bearing
liabilities 105.8% 106.5% 107.3%
</TABLE>
An excess of interest-earning assets over interest-bearing liabilities will
enhance a positive interest rate spread and result in greater net interest
income. Net interest income has been favorably impacted by high volumes of loan
originations and purchases from fiscal 1997 to the early part of fiscal 2000.
INTEREST INCOME
Interest income from loans increased by $5.6 million or 8.2% in fiscal 2000.
Average loans outstanding increased $91.2 million or 9.9%, primarily due to loan
package purchases amounting to $85.5 million during fiscal 2000. Interest income
increased despite a decrease in the average loan yield which was 7.44% in fiscal
1999 and fell to 7.33% in fiscal 2000. This is reflective of lower interest
rates sustained throughout the majority of fiscal 2000 and the large quantity of
ARM loans within the portfolio. Interest income on loans increased by $9.8
million or 16.6% from fiscal 1998 to 1999. The average yield on loans decreased
from 7.85% in fiscal 1998 to 7.44% in fiscal 1999, and the average outstanding
loan balance increased $172.1 million or 23.0% between fiscal 1998 and 1999.
Interest income on investments increased $1.8 million or 30.2% in fiscal 2000.
This is the result of a $22.5 million increase in the average balance. The
average yield on investments increased to 6.33% in fiscal 2000 from 5.96% in
fiscal 1999 due to the investment of higher yielding corporate debt securities.
Interest income on investments decreased by $2.5 million or 29.7% from fiscal
1998 to 1999. This was the result of a $34.2 million decrease in the average
balance.
Interest income from federal funds sold decreased $2.5 million from fiscal 1999
to 2000. The decrease was attributable to a decrease in the average federal
funds sold balance from $99.5 million in fiscal 1999 to $46.1 million in fiscal
2000. The decrease was caused by deploying the liquid federal funds position
into higher yielding loans and investments. Conversely, the average yield
increased from 5.15% in fiscal 1999 to 5.73% in fiscal 2000. The target federal
funds rate which increased 150 basis points in fiscal 2000 from 5.00% to 6.50%
at June 30, 2000, with four 25 basis point increases in August 1999, November
1999, February 2000 and March 2000 with a 50 basis point increase in May 2000.
The average balance of federal funds sold decreased $20.4 million between fiscal
1998 and 1999, and interest income decreased $1.6 million between the two years.
The average yield decreased from 5.57% in fiscal 1998 to 5.15% in fiscal 1999.
These average yields reflect the
9
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 7
changes in the target federal funds interest rate from 5.50% at the beginning of
fiscal 1998 to 5.00% at June 30, 1999.
INTEREST EXPENSE
Interest expense on deposits increased $1.6 million or 3.6% between fiscal 1999
and 2000. The average deposit balance also increased $61.9 million or 6.2% in
fiscal 2000, offset slightly by a decrease in the average cost from 4.50% in
fiscal 1999 to 4.39% in 2000. Interest expense on deposits increased by $2.1
million or 4.9% between fiscal 1998 and 1999. The average deposit balance also
increased by $85.7 million between the two fiscal years, mitigated somewhat by a
decrease in the average cost from 4.70% in fiscal 1998 to 4.50% in fiscal 1999.
Interest expense on borrowed money increased by $46,000 or 1.4% in fiscal 2000,
due to new borrowings with the FHLB totaling $10 million at a relatively low
average rate of 6.73% during the last quarter of fiscal 2000. The overall
average cost of borrowings decreased from 5.77% in fiscal 1999 to 5.67% in
fiscal 2000. In fiscal 1999, interest expense on borrowed money increased by
$1.9 million or 124.8% due new borrowings with the FHLB totaling $20 million at
the an average rate of 5.16%.
Net interest income increased $3.3 million or 10.5% from fiscal 1999 to 2000.
The average interest rate spread increased to 2.71% in fiscal 2000 from 2.54% in
fiscal 1999, while the average net interest earning assets decreased $3.4
million. In fiscal 1999, net interest income increased $1.7 million or 5.7%. The
average interest rate spread decreased from 2.65% in fiscal 1998 to 2.54% in
1999, while average net interest earning assets increased $284,000 between the
two years.
At June 30, 2000, the weighted average yield on loans and investments was 7.42%.
The average rate payable on liabilities was 4.72% for deposits, 5.50% for
borrowings and 4.78% for combined deposits and borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an amount added to the allowance against which
loan losses are charged. The provision for loan losses was $236,000 in 2000,
$196,000 in 1999 and $255,000 in 1998, respectively. The provision increased by
$40,000 or 20.4% in fiscal 2000 compared to fiscal year 1999. Aggregate
valuation allowances were 1.27% of gross loans as of June 30, 2000, compared to
1.30% as of June 30, 1999. The decrease in this ratio is primarily attributable
to a $91.2 million, or 9.9%, increase in gross average loans from 1999 to 2000.
Management believes the allowance for loan losses is adequate to cover the
amount of possible credit losses inherent in the loan portfolio as of June 30,
2000.
Nonperforming assets, which are defined as nonaccrual loans and real estate
owned, were $3.8 million, $3.3 million and $4.7 million at June 30, 2000, 1999
and 1998, respectively, representing 0.30%, 0.27% and 0.43% of total assets at
the end of each respective year. Of the nonperforming assets at June 30, 2000,
$1.4 million was real estate owned and $2.4 million represented nonaccrual
loans.
In addition, loans totaling $2.7 million were classified as substandard for
regulatory purposes at June 30, 2000. These loans, while current or less than 90
days past due, have exhibited characteristics which warrant special monitoring.
Examples of these concerns include irregular payment histories, questionable
collateral values, investment properties having cash flows insufficient to
service debt, and other financial inadequacies of the borrower. These loans are
constantly monitored with efforts being directed towards resolving the
underlying concerns while continuing with the performing status classification
of such loans.
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 8
OTHER INCOME
Other income decreased $96,000 or 2.3% in fiscal 2000 compared to fiscal 1999.
This decrease is primarily due to a decline in gains from the sale of assets to
$610,000 in fiscal 1999. Fiscal 1999 and 1998 included gains primarily from the
sale of FHLMC stock. Excluding the effects of these gains, other income would
have increased $514,000, or 16.9% in fiscal 2000 from fiscal 1999 and $488,000
or 19.1% between fiscal 1998 and 1999.
Service charges on deposit accounts increased by $466,000 or 26.4% in fiscal
2000, mainly due to increased services for all types of deposits and the
increase in average balances over fiscal 1999. Other service charges and fees
decreased by $43,000 or 5.2% in fiscal 2000. Service charges on deposit accounts
increased by $355,000 or 25.2% and other service charges and fees increased by
$89,000 or 12.1% between fiscal 1999 and 1998.
SERVICE CHARGES ON DEPOSIT ACCOUNTS
YEAR ENDED JUNE 30
[GRAPH]
Miscellaneous income increased $91,000 or 19.9% in fiscal 2000 due to a $111,000
increase in rental income from office space. Miscellaneous income increased
$44,000, or 10.6%, in fiscal 1999. Investment fee income was $240,000 in fiscal
2000, $262,000 in fiscal 1999 and $271,000 in fiscal 1998. Parkvale offers
nondeposit investment products directly to customers through an operating
division, Parkvale Financial Services.
OTHER EXPENSE
Compensation and employee benefits increased by $998,000 or 11.3% during fiscal
2000 and by $821,000 or 10.3% during fiscal 1999 over the respective prior
period. Compensation expense increased $1.0 million or 14.4% in fiscal 2000 and
increased $522,000 or 8.4% in fiscal 1999. These increases represent normal
merit pay increases and increased staffing related to new offices and products
including the addition of an internal data processing department in late fiscal
1999. ESOP contribution expense increased $29,000 in fiscal 2000 and increased
$155,000 in fiscal 1999 for estimated awards to be granted for service rendered
in the respective fiscal years. Payroll taxes increased $53,000 during fiscal
2000 as a direct result of increased compensation.
Office occupancy expense increased $479,000 or 20.5% in fiscal 2000 and $164,000
or 7.5% in fiscal 1999 over the respective prior period. The increase in fiscal
2000 was a result of the opening of an additional branch office and higher
depreciation expense related to new data processing systems.
Marketing expenses increased by $73,000 or 18.3% in fiscal 2000 and decreased by
$43,000 or 9.7% in fiscal 1999. The fiscal 2000 increase is due to various
savings deposit and home equity promotions. The decrease in fiscal 1999 is due
to fewer promotions targeting specific branch offices during the year.
Parkvale Savings Bank ("the Bank") is insured by the Federal Deposit Insurance
Corporation ("FDIC") through the Savings Association Insurance Fund ("SAIF").
FDIC insurance expense was $409,000, $570,000 and $555,000 amortizing to savings
deposit premiums averaging 3.98 basis points during fiscal 2000, 5.97 basis
points during fiscal 1999 and 6.29 basis points during fiscal 1998,
respectively. For fiscal 2001, the FDIC insurance premium was reduced to 2.06
basis points as of July 1, 2000.
Miscellaneous expenses increased by $46,000 or 1.8% in fiscal 2000 and decreased
by $2.0 million or 43.9% in fiscal 1999 after increasing $2.3 million in fiscal
1998 due to a nonrecurring charge for the settlement of litigation between 200
Meyran Associates (a limited partnership) and the Bank in fiscal 1998. The
settlement involved $1.9 million in cash payments and $250,000 of related legal
expenses.
11
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 9
INCOME TAXES
Federal and state income tax expense increased by $460,000 or 6.5% due to the
higher pretax income reported in fiscal 2000. As discussed in Note H, the
effective tax rate for fiscal 2000, 1999 and 1998 varied from the normal
statutory federal tax provisions primarily due to tax-exempt interest and the
Pennsylvania Mutual Thrift Institutions Tax.
CAPITAL RESOURCES
Shareholders' equity decreased $805,000 or 0.9% during the year ended June 30,
2000 compared to June 30, 1999. Comprehensive income was $11.7 million while
dividends declared were $4.2 million resulting in 31.7% of net income paid to
shareholders (equal to $0.72 per share) for fiscal year ended June 30, 2000.
Treasury stock purchased in fiscal 2000 was $9.4 million which was partially
deployed for funding stock options and benefit plans totaling $1.1 million.
During fiscal 2000, cash dividends declared per share increased 20.0%. The book
value of Parkvale's common stock increased 6.6% to $14.75 at June 30, 2000 from
$13.84 at June 30, 1999 as a result of these increases in shareholders' equity.
BOOK VALUE PER SHARE
AT JUNE 30
[GRAPH]
The Bank is a wholly owned subsidiary of Parkvale. The Bank's primary regulators
are the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania
Department of Banking. The Office of Thrift Supervision retains jurisdiction
over Parkvale Financial Corporation due to its status as a unitary savings and
loan holding company. Parkvale continues to maintain a "well capitalized"
status, sustaining a 6.7% capital level as of June 30, 2000. Strong
capitalization allows Parkvale to continue building shareholder value through
traditionally conservative operations and potentially profitable growth
opportunities. Management is not aware of any trends, events, uncertainties or
recommendations by any regulatory authority that will have, or that are
reasonably likely to have, material effects on Parkvale's liquidity, capital
resources or 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 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
The statements in this Annual Report which are not historical fact are forward
looking statements. Forward looking information should not be construed as
guarantees of future performance. Actual results may differ from expectations
contained in such forward looking information as a result of factors including
but not limited to the interest rate environment, economic policy or conditions,
federal and state banking and tax regulations and competitive factors in the
marketplace. Each of these factors could affect estimates, assumptions,
uncertainties and risks considered in the development of forward looking
information and could cause actual results to differ materially from
management's expectations regarding future performance.
12
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 10
Consolidated Statements of Financial Condition
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
ASSETS 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Cash and noninterest-earning deposits $ 14,955 $ 10,372
Federal funds sold 55,600 64,042
Interest-earning deposits in other banks 5,360 576
Investment securities available for sale (cost of $15,203 in
2000 and $15,024 in 1999) (Note B) 20,044 22,313
Investment securities held to maturity (fair value of
$99,534 in 2000 and $92,522 in 1999) (Note B) 101,563 92,818
Loans, net of allowance of $13,368 in 2000 and $13,253 in
1999 (Note C) 1,034,369 995,671
Foreclosed real estate, net of allowance of $8 in 2000 and
$0 in 1999 (Note D) 1,442 1,106
Office properties and equipment, net (Note D) 6,450 5,102
Intangible assets and deferred charges 296 343
Prepaid expenses and other assets (Note L) 10,907 9,537
--------------------------------------------------------------------------------------
Total assets $1,250,986 $1,201,880
--------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
--------------------------------------------------------------------------------------
Savings deposits (Note E) $1,080,096 $1,037,416
Advances from Federal Home Loan Bank and other debt (Note F) 73,467 64,708
Advance payments from borrowers for taxes and insurance 8,855 9,277
Other liabilities (Note L) 4,302 5,408
--------------------------------------------------------------------------------------
Total liabilities 1,166,720 1,116,809
--------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTES G AND I)
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;
6,734,894 shares issued) 6,735 6,735
Additional paid-in capital 4,495 4,843
Treasury stock at cost--1,022,957 shares in 2000 and 589,181
shares in 1999 (18,471) (10,545)
Accumulated other comprehensive income 3,075 4,628
Retained earnings 88,432 79,410
--------------------------------------------------------------------------------------
Total shareholders' equity 84,266 85,071
--------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,250,986 $1,201,880
--------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
13
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 11
Consolidated Statements of Operations
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $74,253 $68,609 $58,844
Investments 7,774 5,973 8,497
Federal funds sold 2,643 5,129 6,679
-------------------------------------------------------------------------------------------
Total interest income 84,670 79,711 74,020
-------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposits (Note E) 46,408 44,791 42,686
Borrowings 3,427 3,381 1,504
-------------------------------------------------------------------------------------------
Total interest expense 49,835 48,172 44,190
-------------------------------------------------------------------------------------------
Net interest income 34,835 31,539 29,830
Provision for loan losses (Note C) 236 196 255
-------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 34,599 31,343 29,575
-------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 2,230 1,764 1,409
Other service charges and fees 784 827 738
Gain on sale of assets (Note J) -- 610 2,148
Miscellaneous 549 458 414
-------------------------------------------------------------------------------------------
Total other income 3,563 3,659 4,709
-------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Compensation and employee benefits 9,810 8,812 7,991
Office occupancy 2,820 2,341 2,177
Marketing 472 399 442
FDIC insurance 409 570 555
Office supplies, telephone, and postage 1,192 1,047 952
Miscellaneous 2,665 2,619 4,664
-------------------------------------------------------------------------------------------
Total other expenses 17,368 15,788 16,781
-------------------------------------------------------------------------------------------
Income before income taxes 20,794 19,214 17,503
Income tax expense (Note H) 7,576 7,116 6,385
-------------------------------------------------------------------------------------------
NET INCOME $13,218 $12,098 $11,118
-------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
Basic $ 2.25 $ 1.92 $ 1.74
Diluted $ 2.23 $ 1.88 $ 1.68
-------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
14
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 12
Consolidated Statement of Cash Flows
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 84,739 $ 79,049 $ 73,776
Loan fees received 378 768 294
Other fees and commissions received 3,438 2,899 2,366
Interest paid (49,831) (48,088) (44,079)
Cash paid to suppliers and employees (17,010) (18,015) (13,819)
Income taxes paid (8,851) (6,954) (6,912)
------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,863 9,659 11,626
Cash flows from investing activities:
Proceeds from sales of investment securities available for
sale -- 633 2,193
Proceeds from maturities of investments 4,684 105,725 71,967
Purchase of investment securities available for sale (179) (6,957) (882)
Purchase of investment securities held to maturity (21,816) (116,012) (61,506)
Maturity of deposits in other banks (4,784) (101) (256)
Purchase of loans (85,541) (243,121) (182,973)
Proceeds from sales of loans 1,422 1,399 2,653
Principal collected on loans and mortgage-backed
securities 186,955 344,344 275,844
Loans made to customers, net of loans in process (133,665) (247,823) (193,192)
Capital expenditures (1,964) (3,093) (576)
------------------------------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (54,888) (165,006) (86,728)
Cash flows from financing activities:
Net increase in checking and savings accounts 7,610 23,812 10,264
Net increase in certificates of deposit 35,070 64,153 57,944
Proceeds from FHLB advances 10,000 20,000 30,000
Repayment of FHLB advances (5,012) (12) (5,011)
Net increase (decrease) in other borrowings 3,771 (370) (94)
Net (decrease) in borrowers advances for tax and insurance (422) (333) (494)
Dividends paid (4,006) (3,615) (2,636)
Allocation of treasury stock to retirement plans 530 191 395
Payment for treasury stock (9,378) (8,590) (674)
------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,163 95,236 89,694
------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,862) (60,111) 14,592
Cash and cash equivalents at beginning of year 74,417 134,528 119,936
------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 70,555 $ 74,417 $ 134,528
------------------------------------------------------------------------------------------------
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 13,218 $ 12,098 $ 11,118
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 662 414 491
Accretion and amortization of fees and discounts (84) (783) (593)
Loan fees collected and deferred 378 768 294
Provision for loan losses 236 196 255
Gain on sale of assets -- (610) (2,148)
Decrease (increase) in accrued interest receivable (300) (645) (222)
Decrease (increase) in other assets 539 (33) (571)
Increase (decrease) in accrued interest payable 3 84 111
(Increase) in deferred income tax asset 716 567 (67)
(Decrease) increase in other liabilities (2,505) (2,397) 2,958
------------------------------------------------------------------------------------------------
Total adjustments (355) (2,439) 508
------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 12,863 $ 9,659 $ 11,626
------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
15
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 13
Consolidated Statements of Shareholders' Equity
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN TREASURY ESOP COMPREHENSIVE RETAINED SHAREHOLDERS'
STOCK CAPITAL STOCK DEBT INCOME EARNINGS EQUITY
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $4,311 $ 8,034 $ (3,676) $(330) $4,015 $62,829 $75,183
--------------------------------------------------------------------------------------------------------------------
1998 net income 11,118 11,118
Other Comprehensive income, net
of tax
Unrealized gains on securities
of $1,625, net of
reclassification adjustment
for gains included in net
income of $1,364 261 261
-------
Comprehensive income 11,379
Principal payments on ESOP debt 276 276
Transfer to reflect 5-for-4 split 1,077 (1,077) 0
Treasury stock purchased (674) (674)
Treasury stock contributed to
benefit plan 37 27 64
Additional borrowings by ESOP (222) (222)
Exercise of stock options (342) 1,272 930
Cash dividends declared on common
stock at $.448 per share (2,876) (2,876)
--------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 5,388 6,652 (3,051) (276) 4,276 71,071 84,060
--------------------------------------------------------------------------------------------------------------------
1999 net income 12,098 12,098
Other Comprehensive income, net
of tax
Unrealized gains on securities
of $739, net of
reclassification adjustment
for gains included in net
income of $387 352 352
-------
Comprehensive income 12,450
Principal payments on ESOP debt 276 276
Transfer to reflect 5-for-4 split 1,347 (1,347) 0
Treasury stock purchased (8,590) (8,590)
Treasury stock contributed to
benefit plan 11 191 202
Exercise of stock options (473) 905 432
Cash dividends declared on common
stock at $.60 per share (3,759) (3,759)
--------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 6,735 4,843 (10,545) 0 4,628 79,410 85,071
--------------------------------------------------------------------------------------------------------------------
2000 NET INCOME 13,218 13,218
UNREALIZED SECURITY GAINS
(LOSSES) ON AVAILABLE-FOR-SALE
SECURITIES (1,553) (1,553)
-------
COMPREHENSIVE INCOME 11,665
TREASURY STOCK PURCHASED (9,378) (9,378)
TREASURY STOCK CONTRIBUTED TO
BENEFIT PLAN 530 530
EXERCISE OF STOCK OPTIONS (348) 922 574
CASH DIVIDENDS DECLARED ON COMMON
STOCK AT $.72 PER SHARE (4,196) (4,196)
--------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 $6,735 $ 4,495 $(18,471) $ 0 $3,075 $88,432 $84,266
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
16
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 14
Notes to Consolidated Financial Statements
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Parkvale Financial Corporation ("Parkvale" or "PFC"), its wholly owned
subsidiary, Parkvale Savings Bank (the "Bank") and its wholly owned
subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation. In July 1998, the Bank adopted the use of the name Parkvale Bank
for advertising and signage purposes.
Business
The primary business of Parkvale consists of attracting deposits from the
general public in the communities that it serves and investing such deposits,
together with other funds, in residential real estate loans, consumer loans,
commercial loans and investment securities. Parkvale focuses on providing a wide
range of consumer and commercial services to individuals, partnerships and
corporations in the greater Pittsburgh metropolitan area, which comprises its
primary market area. Parkvale is subject to the regulations of certain federal
and state agencies and undergoes periodic examinations by certain regulatory
authorities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expense during the reported period. Actual
results could differ from those estimates.
Cash and Noninterest-Earning Deposits
The Bank is required to maintain cash and reserve balances with the Federal
Reserve Bank. The reserve calculation is 0% of the first $5.0 million of
checking deposits, 3% of the next $39.3 million of checking deposits and 10% of
total checking deposits over $44.3 million. These required reserves, net of
allowable credits, amounted to $1.2 million at June 30, 2000.
Investment Securities Available for Sale
Investment securities available for sale consist solely of equity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of shareholders'
equity until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method. Declines in
the fair value of individual available-for-sale securities below their cost that
are other than temporary will result in write-downs of the individual securities
to their fair value. Any related write-downs will be included in earnings as
realized losses. The FHLB of Pittsburgh stock is a restricted equity security
that does not have a readily determinable fair value. The FHLB requires member
institutions to maintain a minimum level of stock ownership based on a
percentage of residential mortgages, subject to periodic redemption at par if
the stock owned is over the minimum requirement. As such, FHLB stock is recorded
at cost with no unrealized gains or losses as an investment available for sale.
No securities have been classified as trading.
Investment Securities Held to Maturity
Securities for which the Bank has the positive intent and ability to hold to
maturity are reported at cost adjusted for premiums and discounts that are
recognized in interest income using the interest method over the period to
maturity. Declines in the fair value of individual held-to-maturity securities
below their amortized cost that are other than temporary will result in
write-downs of the individual securities to their fair value. Any related write-
downs will be included in earnings as realized losses.
17
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans. Loan origination and commitment fees and certain direct
origination costs have been deferred and recognized as an adjustment of the
yield of the related loan, adjusted for anticipated loan prepayments. Discounts
and premiums on purchased residential real estate loans are amortized to income
using the interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments.
Loans are placed on nonaccrual status when in the judgment of management, the
probability of collection of principal and interest is deemed to be insufficient
to warrant further accrual. All loans which are 90 or more days delinquent are
treated as nonaccrual loans. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest ultimately collected is credited to
income in the period of recovery.
Allowance for Loan Losses
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). The Bank's periodic evaluation of the adequacy
of the allowance is based on known and inherent risks in the portfolio, past
loan loss experience, current economic conditions, trends within Parkvale's
market area and other relevant factors.
The first step in determining the allowance for loan losses is recognizing a
specific allowance on individual impaired loans. Nonaccrual, substandard and
doubtful commercial and other real estate loans are considered impaired.
Impaired loans are generally evaluated based on the present value of the
expected future cash flows discounted at the loan's effective interest rate, at
the loan's observable market price or at the fair value of the collateral if the
loan is collateral dependent. Based on this evaluation, specific loss reserves
are established on impaired loans when necessary.
An allowance is recognized for loan losses in the remainder of the loan
portfolio based on known and inherent risk characteristics in the portfolio,
past loss experience and prevailing market conditions. Because evaluating
potential losses involves a high degree of management judgement, a margin is
included for the imprecision inherent in making these estimates. While
management believes that the allowance is adequate to absorb estimated credit
losses in its existing loan portfolio, future adjustments may be necessary in
circumstances that differ substantially from the assumptions used in evaluating
the adequacy of the allowance for loan losses.
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share for the three years ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income (in 000's) $13,218 $12,098 $11,118
Denominator:
Weighted average shares for basic earnings per
share 5,875,308 6,315,792 6,402,005
Effect of dilutive employee stock options 60,945 130,944 215,450
--------- --------- ---------
Weighted average shares for dilutive earnings per
share 5,936,253 6,446,736 6,617,455
========= ========= =========
Net income per share:
Basic $2.25 $1.92 $1.74
Diluted $2.23 $1.88 $1.68
</TABLE>
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and recorded at the lower of the carrying amount or fair value of the
property less cost to sell. After foreclosure, valuations are periodically
18
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
performed by management and a valuation allowance is established for any
declines in the fair value less cost to sell below the property's carrying
amount. Revenues, expenses and changes in the valuation allowance are included
in the statement of operations. Gains and losses upon disposition are reflected
in earnings as realized. Loans transferred to foreclosed real estate during
fiscal 2000, 1999 and 1998 were $1.1 million, $997,000 and $3.2 million,
respectively. The foreclosures in 2000 & 1999 were primarily due to loans on
single family dwellings foreclosed throughout the year. The 1998 foreclosures
were mainly due to a deed in lieu of the foreclosure on office buildings
previously owned by 200 Meyran Associates.
Office Property and Equipment
Office property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the useful lives of
the various classes of assets. Amortization of leasehold improvements is
computed using the straight-line method over the useful lives of the leasehold
improvements.
Stock Based Compensation
Stock options and shares issued under Stock Option Plans are accounted for under
Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock
Issued to Employees. Stock options are granted at exercise prices not less than
fair value of the common stock at the date of grant. Under APB 25, no
compensation expense is recognized related to these plans. The pro forma impact
to net income and earnings per share that would occur if compensation expense
was recognized based on the estimated fair value of the options and purchase
rights on the date of grant is disclosed in the Notes to Consolidated Financial
Statements.
Statement of Cash Flows
For the purposes of reporting cash flows, cash and cash equivalents include cash
and noninterest-earning deposits and federal funds sold. Additionally,
allocation of treasury stock to retirement plans includes exercise of stock
options and allocation to the employee stock ownership plan.
Treasury Stock
The purchase of PFC common stock is recorded at cost. At the date of subsequent
reissue, the treasury stock account is reduced by the cost of such stock on the
average cost basis, with any excess proceeds being credited to Additional
Paid-in Capital.
The repurchase program that began in April 1999 was completed on October 21,
1999 with purchases of 310,000 shares at an average price of $19.90 per share. A
new repurchase program commenced on October 21, 1999 permitting up to 5% of
outstanding stock, or 297,000 shares, to be repurchased periodically through
October 2000 at prevailing market prices in open-market transactions. At June
30, 2000, this program had repurchases of 279,490 shares at an average price of
$16.90 per share, and they represent 4.7% of the outstanding stock at the
inception of the program. A new repurchase program was approved on June 15, 2000
permitting the purchase of 5% of outstanding stock, or 284,000 shares, to be
repurchased periodically through fiscal 2001 at prevailing market prices in
open-market transactions. At June 30, 2000 no shares had been purchased under
this program.
Reclassification
Certain prior year amounts have been reclassified for comparative purposes.
Effect of New Accounting Standards
The FASB has issued FAS 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. As amended by FAS 137, the standard is
effective for fiscal years beginning after June 2000, and will be adopted by
Parkvale for the quarter ended September 30, 2000. The impact of adoption is not
expected to materially affect Parkvale's financial position or results of
operations.
19
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollar Amounts in Thousands, Except Share Data)
--------------------------------------------------------------------------------
NOTE B--INVESTMENT SECURITIES
The amortized cost, gross unrecorded gains and losses and fair values for
investment securities classified as available for sale or held to maturity at
June 30 are as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------- ----------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---- ----- ------ ----- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
FHLMC common stock (112,496
shares in 2000; 112,496
shares in 1999) $ 110 $4,446 $ -- $ 4,556 $ 110 $6,415 $ -- $ 6,525
FHLB of Pittsburgh stock 9,363 -- -- 9,363 9,184 -- -- 9,184
Equity securities--other 5,730 445 50 6,125 5,730 889 15 6,604
-------- ------ ------ -------- -------- ------ ---- --------
Total equity
investments
available for sale $ 15,203 $4,891 $ 50 $ 20,044 $ 15,024 $7,304 $ 15 $ 22,313
-------- ------ ------ -------- -------- ------ ---- --------
Held to maturity:
U.S. Government and agency
obligations due:
Within 1 year $ 3,000 $ -- $ 28 $ 2,972 $ -- $ -- $ -- $ --
Within 5 years 11,000 -- 261 10,739 14,000 -- 145 13,855
Within 10 years 4,610 -- 301 4,309 4,610 -- 160 4,450
-------- ------ ------ -------- -------- ------ ---- --------
Total U.S. Government
and agency
obligations 18,610 -- 590 18,020 18,610 0 305 18,305
Municipal obligations:
Within 1 year 700 -- 1 699 670 4 -- 674
Within 5 years 3,110 -- 27 3,083 2,985 9 -- 2,994
Within 10 years 1,575 -- 22 1,553 2,400 -- 4 2,396
-------- ------ ------ -------- -------- ------ ---- --------
Total municipal
obligations 5,385 0 50 5,335 6,055 13 4 6,064
Corporate debt:
Within 1 year 27,601 -- 433 27,168 4,049 -- 22 4,027
Within 5 years 22,554 -- 461 22,093 34,386 -- 409 33,977
After 10 years 7,563 -- 547 7,016 3,311 10 53 3,268
-------- ------ ------ -------- -------- ------ ---- --------
Total corporate debt 57,718 0 1,441 56,277 41,746 10 484 41,272
-------- ------ ------ -------- -------- ------ ---- --------
Total U.S. Government and
agency obligations, municipal
obligations and corporate
debt 81,713 0 2,081 79,632 66,411 23 793 65,641
-------- ------ ------ -------- -------- ------ ---- --------
Mortgage-backed securities at
June 30:
FHLMC 6,173 67 5 6,235 12,602 387 3 12,986
FNMA 1,529 33 7 1,555 2,540 27 -- 2,567
GNMA 2,090 10 39 2,061 505 24 -- 529
Collateralized mortgage
obligations ("CMOs") 9,267 115 122 9,260 9,775 129 90 9,814
Other participation
certificates 791 -- -- 791 985 -- -- 985
-------- ------ ------ -------- -------- ------ ---- --------
Total mortgage-backed
securities 19,850 225 173 19,902 26,407 567 93 26,881
-------- ------ ------ -------- -------- ------ ---- --------
Total investments classified as
held to maturity $101,563 $ 225 $2,254 $ 99,534 $ 92,818 $ 590 $886 $ 92,522
-------- ------ ------ -------- -------- ------ ---- --------
Total investment
portfolio $116,766 $5,116 $2,304 $119,578 $107,842 $7,894 $901 $114,835
======== ====== ====== ======== ======== ====== ==== ========
</TABLE>
Mortgage-backed securities are not due at a single maturity date; periodic
payments are received on the securities based on the payment patterns of the
underlying collateral. Approximately $1,453 of the total mortgage-backed
portfolio consists of balloon securities which have stated maturities within one
year. The CMOs at June 30, 2000 are all adjustable rate securities and are not
deemed to be "high risk" securities as defined by the Federal Financial
Institutions Examination Council.
20
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
NOTE C--LOANS
Loans at June 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
1-4 Family $ 796,344 $784,259 $683,340 $584,966 $515,150
Multifamily 19,482 16,920 13,024 16,825 17,375
Commercial 54,459 43,862 23,508 17,720 19,495
Other 10,387 8,591 6,005 4,787 395
---------- -------- -------- -------- --------
880,672 853,632 725,877 624,298 552,415
Consumer loans 131,500 129,452 106,266 90,305 76,224
Commercial business loans 34,288 23,572 11,592 8,332 8,925
Loans on savings accounts 2,325 2,749 2,665 3,076 3,285
---------- -------- -------- -------- --------
Gross loans 1,048,785 1,009,405 846,400 726,011 640,849
Less:
Loans in process 15 230 47 78 441
Allowance for loan losses 13,368 13,253 13,223 14,266 13,990
Unamortized discount and deferred loan
fees 1,033 251 372 799 966
---------- -------- -------- -------- --------
$1,034,369 $995,671 $832,758 $710,868 $625,452
========== ======== ======== ======== ========
</TABLE>
The following summary sets forth the activity in the allowance for loan losses
for the years ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning balance $13,253 $13,223 $14,266 $13,990 $13,136
Provision for losses--mortgage loans 81 155 150 29 440
Provision for losses--consumer loans 155 41 105 370 246
Loans recovered 136 19 108 116 329
Loans charged off (257) (285) (1,406) (239) (161)
------- ------- ------- ------- -------
Ending balance $13,368 $13,253 $13,223 $14,266 $13,990
======= ======= ======= ======= =======
</TABLE>
Loans charged off and recovered are as follows:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans recovered:
Commercial $ -- $ -- $ -- $ -- $ --
Consumer 31 119 55 56 70
Mortgage 105 -- 53 60 259
------- ------- ------- ------- -------
Total recoveries 136 119 108 116 329
------- ------- ------- ------- -------
Loans charged off:
Commercial $ (13) $ -- $ -- $ -- $ --
Consumer (239) (285) (391) (227) (125)
Mortgage (5) -- (1,015) (12) (36)
------- ------- ------- ------- -------
Total charge-offs (257) (285) (1,406) (239) (161)
------- ------- ------- ------- -------
Net recoveries (charge-offs) $ (121) $ (166) $(1,298) $ (123) $ 168
======= ======= ======= ======= =======
</TABLE>
The allowance for loan losses at June 30 consisted of:
<TABLE>
<S> <C> <C> <C> <C> <C>
Mortgage loans $11,927 $11,815 $11,660 $12,645 $12,579
Consumer loans 1,222 1,222 1,347 1,405 1,194
Commercial business loans 218 216 216 216 217
</TABLE>
21
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
At June 30, 2000, Parkvale was committed under various agreements to originate
fixed and adjustable rate mortgage loans aggregating $1,363 and $5,489,
respectively, at rates ranging from 8.01% to 8.18% for fixed rate and 6.60% to
8.38% for adjustable rate loans, and had $79,554 of unused consumer lines of
credit and $8,298 in unused commercial lines of credit. In addition, Parkvale
was committed to originate mortgage loans aggregating $285 at 6.50% under a bond
program secured by the Allegheny County. Parkvale was also committed to
originate commercial loans totaling $13,603 at June 30, 2000. Available but
unused consumer and commercial credit card lines amounted to $11,134 and $299,
respectively, at June 30, 2000.
At June 30, Parkvale serviced loans for the benefit of others as follows:
2000--$3,439, 1999--$3,917 and 1998--$5,817.
At June 30, 2000, Parkvale's loan portfolio consisted primarily of residential
real estate loans collateralized by single and multifamily residences,
nonresidential real estate loans secured by industrial and retail properties and
consumer loans including lines of credit. Parkvale has geographically
diversified its mortgage loan portfolio, having loans outstanding in 49 states
and the District of Columbia. Parkvale's highest concentrations are in the
following states/area along with their respective share of the outstanding
mortgage loan balance: Pennsylvania--36.2%; Ohio--11.3%; and greater Washington,
D.C. area--7.3%. The ability of debtors to honor these contracts depends largely
on economic conditions affecting the Pittsburgh, Columbus and greater Washington
D.C. metropolitan areas, with repayment risk dependent on the cash flow of the
individual debtors. Substantially all mortgage loans are secured by real
property with a loan amount of generally no more than 80% of the appraised value
at the time of origination. Mortgage loans in excess of 80% of appraised value
generally require private mortgage insurance.
At June 30, the amount of interest income of nonaccrual loans that had not been
recognized in interest income was $150 for 2000, and $102 for 1999. There were
no loans considered impaired at June 30, 2000 and at June 30, 1999.
Additionally, these loans have been included in management's assessment of the
adequacy of general valuation allowances. The average recorded investment in
impaired loans was $93 during fiscal 2000 and $196 during fiscal 1999.
--------------------------------------------------------------------------------
NOTE D--OFFICE PROPERTIES AND EQUIPMENT AND FORECLOSED REAL ESTATE
Office properties and equipment at June 30 are summarized by major
classification as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Land $ 1,154 $ 518 $ 318
Office buildings and leasehold improvements 5,661 5,077 3,969
Furniture, fixtures and equipment 6,058 5,434 3,649
------- ------- ------
12,873 11,029 7,936
Less accumulated depreciation and amortization 6,423 5,927 5,559
------- ------- ------
Office properties and equipment, net $ 6,450 $ 5,102 $2,377
======= ======= ======
Depreciation expense $ 616 $ 368 $ 326
======= ======= ======
</TABLE>
The balance of foreclosed real estate consists primarily of commercial property.
A summary of foreclosed real estate at June 30 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Real estate acquired through foreclosure: $1,450 $1,106 $2,377
Allowance for losses (8) -- (15)
------ ------ ------
$1,442 $1,106 $2,362
====== ====== ======
</TABLE>
22
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
Changes in the allowance for losses on foreclosed real estate for the years
ended June 30 were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 0 $ 15 $ 0
Provision for losses 33 -- 15
Less charges to allowance (25) (15) --
---- ---- ----
$ 8 $ 0 $ 15
==== ==== ====
</TABLE>
--------------------------------------------------------------------------------
NOTE E--SAVINGS DEPOSITS
The following schedule sets forth interest expense for the years ended June 30
by type of deposit:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Checking and money market accounts $ 1,845 $ 1,980 $ 2,197
Passbook accounts 2,905 3,038 3,432
Certificates 41,658 39,773 37,057
------- -------- -------
$46,408 $ 44,791 $42,686
======= ======== =======
</TABLE>
A summary of savings deposits at June 30 is as follows:
<TABLE>
<CAPTION>
2000 1999
------------------- -------------------
AMOUNT % AMOUNT %
------ - ------ -
<S> <C> <C> <C> <C>
Transaction accounts:
Checking and money market accounts $ 129,121 12.0 $ 131,707 12.7
Checking accounts--noninterest-bearing 41,464 3.8 26,713 2.6
Passbook accounts 137,579 12.7 141,381 13.6
---------- ----- ---------- -----
308,164 28.5 299,801 28.9
Certificates of deposit 761,490 70.5 727,800 70.2
---------- ----- ---------- -----
1,069,654 99.0 1,027,601 99.1
Accrued Interest 10,442 1.0 9,815 0.9
---------- ----- ---------- -----
$1,080,096 100.0 $1,037,416 100.0
========== ===== ========== =====
</TABLE>
The aggregate amount of time deposits over $100 was $75,022 and $63,661 at June
30, 2000 and 1999, respectively.
At June 30, the scheduled maturities of certificate accounts were as follows:
<TABLE>
<CAPTION>
MATURITY PERIOD 2000 1999
--------------- ---- ----
<S> <C> <C>
1-12 months $344,357 $390,220
13-24 months 182,628 177,811
25-36 months 125,717 69,257
37-48 months 28,825 11,083
49-60 months 23,885 8,390
Thereafter 56,078 71,039
-------- --------
$761,490 $727,800
======== ========
</TABLE>
23
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
NOTE F--ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER DEBT
The advances from the FHLB at June 30 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
-------------------- ---------------------
INTEREST INTEREST
BALANCE RATE % BALANCE RATE %
------- ------ ------- ------
<S> <C> <C> <C> <C>
Due within one year $ -- -- $ 5,000 6.24
Due within five years 15,000 5.82-6.82 15,000 5.82-6.82
Due within ten years 40,000 4.86-5.76 40,000 4.86-5.76
Due within twenty years 10,647 3.00-6.75 659 3.00-6.27
------- --------
$65,647 $ 60,659
======= ========
Weighted average interest rate at end of period 5.80% 5.68%
========= =========
</TABLE>
The FHLB advances are secured by Parkvale's FHLB stock and investment securities
and are subject to substantial prepayment penalties
Other debt consists of recourse loans and commercial investment agreements with
certain commercial checking account customers. These daily borrowings had
balances of $7,820 and $4,049 at June 30, 2000 and 1999, respectively.
--------------------------------------------------------------------------------
NOTE G--REGULATORY CAPITAL
Parkvale is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on
Parkvale's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Parkvale must meet specific
capital guidelines that involve quantitative measures of Parkvale's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. Parkvale's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Parkvale to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets and of Tier I capital to average assets.
Management believes, as of June 30, 2000, that Parkvale meets all capital
adequacy requirements to which it is subject.
As of June 30, 2000, the most recent notification from the Federal Deposit
Insurance Corporation categorized Parkvale Savings Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the institution's category.
Parkvale's actual regulatory capital amounts and ratios compared to minimum
levels are as follows:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
---------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 2000:
TOTAL CAPITAL TO RISK WEIGHTED ASSETS $92,794 11.71% $63,374 8.00% $79,218 10.00%
TIER I CAPITAL TO RISK WEIGHTED ASSETS 80,803 10.20% 31,687 4.00% 47,531 6.00%
TIER I CAPITAL TO AVERAGE ASSETS 80,803 6.65% 48,558 4.00% 60,698 5.00%
As of June 30, 1999:
Total Capital to Risk Weighted Assets $88,792 12.05% $58,944 8.00% $73,680 10.00%
Tier I Capital to Risk Weighted Assets 79,538 10.80% 29,472 4.00% 44,208 6.00%
Tier I Capital to Average Assets 79,538 6.87% 46,279 4.00% 57,849 5.00%
</TABLE>
24
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
NOTE H--INCOME TAXES
Income tax expense (credits) for the years ended June 30 are comprised of:
<TABLE>
<CAPTION>
2000 1999 1998
------ ---- ----
<S> <C> <C> <C>
Federal:
Current $7,541 $6,548 $5,269
Deferred (716) (567) 67
State 751 1,135 1,049
------ ------ ------
$7,576 $7,116 $6,385
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Parkvale's deferred tax assets and liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Book bad debt reserves $4,579 $4,370
Deferred loan fees 361 289
Purchase accounting adjustments 70 76
Fixed assets 362 85
Deferred compensation 188 181
Other, net 28 89
------ ------
Total deferred tax assets 5,588 5,090
------ ------
Deferred tax liabilities:
Tax bad debt reserves 603 820
Unrealized gains on securities available for sale 1,767 2,660
------ ------
Total deferred tax liabilities 2,370 3,480
------ ------
Net deferred tax assets $3,218 $1,610
====== ======
</TABLE>
No valuation allowance was required at June 30, 2000 or 1999.
Parkvale's effective tax rate differs from the expected federal income tax rate
for the years ended June 30 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Expected federal statutory income tax
provision/rate $7,278 35.0% $6,533 34.0% $5,951 34.0%
Tax-exempt interest (152) -0.7% (137) -0.7% (67) -0.4%
State income taxes, net of federal benefit 488 2.3% 749 3.9% 692 4.0%
Other (38) -0.2% (29) -0.2% (191) -1.1%
------ ---- ------ ---- ------ ----
Effective total income tax provision $7,576 36.4% $7,116 37.0% $6,385 36.5%
====== ==== ====== ==== ====== ====
</TABLE>
Prior to 1996, savings institutions that met certain definitional tests and
operating requirements prescribed by the Internal Revenue Code were allowed a
special bad debt deduction which was based on either experience formulas or a
percentage of taxable income before such deduction. For tax years from 1987 to
1995, the percentage of taxable income bad debt deduction was 8% of adjusted
taxable income. The Small Business Job Protection Act of 1996 passed in August
1996 eliminated the special bad debt deduction granted solely to thrifts. This
results in the payment of taxes on $690 annually over a six-year period from
1997 to 2002, which are disclosed as "tax bad debt reserves" as a deferred tax
liability.
The Bank is subject to the Pennsylvania Mutual Thrift Institutions Tax which is
calculated at 11.5% of Pennsylvania earnings based on generally accepted
accounting principles with certain adjustments.
25
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
NOTE I--EMPLOYEE COMPENSATION PLANS
Retirement Plan
Parkvale provides eligible employees participation in a 401(k) defined
contribution plan. Benefit expense was $252, $203 and $181 in fiscal years 2000,
1999 and 1998, respectively, which represented a 50% company match on deferred
compensation and a profit sharing contribution equal to 2% of eligible
compensation.
Employee Stock Ownership Plan
Parkvale also provides an Employee Stock Ownership Plan ("ESOP") to all
employees who have met minimum service and age requirements. Parkvale recognized
expense of $538 in fiscal 2000, $509 in fiscal 1999 and $373 in fiscal 1998 for
ESOP contributions, which were used to make debt service payments and for the
purchase of additional shares of Parkvale's Common Stock in open-market
transactions. At June 30, 2000, the ESOP owned 540,127 shares of Parkvale Common
Stock.
Stock Option Plans
Parkvale has Stock Option Plans for the benefit of directors, officers and other
selected key employees of Parkvale who are deemed to be responsible for the
future growth of Parkvale. All of the original shares under the 1987 Plan have
been awarded. In October 1993, the 1993 Directors' Stock Option Plan was
adopted. An aggregate of 190,734 shares of authorized but unissued Common Stock
of Parkvale was reserved for future issuance. As of June 30, 2000, 137,350
option shares have been granted under this plan. Additionally, the 1993 Key
Employee Stock Compensation Program was adopted in October 1993. An aggregate of
461,578 shares of authorized but unissued Common Stock of Parkvale was reserved
for future issuance. As of June 30, 2000, 311,603 option shares have been
granted under this plan. The 1993 Directors' Stock Option Plan shares were
exercisable on the date of the grant. The 1993 Key Employee Stock Compensation
Program option shares are 50% exercisable upon six months of continuous service
after the grant date and the remaining 50% is exercisable after a year of
continuous service from the grant date. At June 30, 2000, all option shares are
exercisable, except for 5,000 which become exercisable on December 16, 2000. The
following table presents option share data related to the Stock Option Plans for
the years indicated.
<TABLE>
EXERCISE PRICE PER SHARE $2.097 $2.851 $14.47* $10.322 $16.32 $19.625# $21.50 Total
------- ------- ------- ------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Share balances at June
30, 1997 49,131 153,753 76,292 111,390 129,687 520,253
Granted 19,069 19,069
Exercised (49,131) (98,448) (6,103) (14,172) (167,854)
Forfeitures (4,298) (4,298)
------- ------- ------- ------- ------- ------ ------- --------
June 30, 1998 0 55,305 95,361 105,287 111,217 367,170
Granted 10,000 110,000 120,000
Exercised (40,776) (21,070) (9,455) (4,905) (76,206)
------- ------- ------- ------- ------- ------ ------- --------
June 30, 1999 0 14,529 74,291 95,832 106,312 10,000 110,000 410,964
Granted 20,000 20,000
Exercised (14,529) (13,256) (15,212) (9,375) (52,372)
Forfeitures (7,642) (792) (10,000) (18,434)
------- ------- ------- ------- ------- ------ ------- --------
June 30, 2000 0 0 53,393 80,620 96,145 30,000 100,000 360,158
</TABLE>
---------------
* This price represents the average exercise of Director awards made annually in
October 1993 to 1997.
# This price represents the average exercise of awards made in fiscal 1999 and
fiscal 2000.
Pro forma information regarding net income and earnings per share as required by
FAS 123, has been determined as if PFC had accounted for its stock options using
that method. The fair value for these options was estimated at the date of the
grants using a Black-Scholes option pricing model with assumptions as follows.
The risk-free interest rate for the fiscal 2000 grants was 6.17% with a dividend
yield of 4.12%. The volatility factor of the expected market price of PFC's
common stock is 0.147 and the expected life of the options is nine years.
26
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
In management's opinion, existing stock option valuation models do not provide a
reliable single measure of the fair value of employee stock options that have
vesting provisions and are not transferable. In addition, option valuation
models require input of highly subjective assumptions including the expected
stock price volatility. Because PFC's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Parkvale's pro forma
information follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income before stock options $13,218 $12,098 $11,118
Compensation expense from stock options:
Fiscal year ended June 30, 1998 grant -- -- 83
Fiscal year ended June 30, 1999 grants -- 392 --
Fiscal year ended June 30, 2000 grants 61 -- --
------- ------- -------
Pro forma net income $13,157 $11,706 $11,035
======= ======= =======
Pro forma income per share:
Basic $ 2.24 $ 1.85 $ 1.72
Diluted $ 2.22 $ 1.82 $ 1.66
</TABLE>
--------------------------------------------------------------------------------
NOTE J--GAIN ON SALE OF ASSETS
There no gains from the sale of assets during fiscal 2000.
The $610 gain recognized in fiscal 1999 is related to the sale of equity
securities, primarily Federal Home Loan Mortgage Corporation ("FHLMC") stock, in
the September 1998 and December 1998 quarters.
The $2,148 gain recognized in fiscal 1998 is related to the sale of 46,200
shares of FHLMC stock in the March 1998 and June 1998 quarterly reporting
periods.
--------------------------------------------------------------------------------
NOTE K--LEASES
Parkvale's rent expense for leased real properties amounted to approximately
$1,238 in 2000, $1,120 in 1999 and $1,079 in 1998. At June 30, 2000, Parkvale
was obligated under 22 noncancellable operating leases, which expire through
2014. The minimum rental commitments for the fiscal years subsequent to June 30,
2000 are as follows: 2001 -- $1,274, 2002 -- $1,129, 2003 -- $696, 2004 -- $576,
2005 -- $483 and later years -- $2,290.
--------------------------------------------------------------------------------
NOTE L--SELECTED BALANCE SHEET INFORMATION
Selected balance sheet data at June 30 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------- ------
<S> <C> <C>
Prepaid expenses and other
assets:
Accrued interest on loans $ 6,021 $5,967
Reserve for uncollected
interest (150) (102)
Accrued interest on
investments 1,190 895
Other prepaids 628 1,167
Net deferred tax asset 3,218 1,610
------- ------
$10,907 $9,537
======= ======
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Other liabilities:
Accounts payable and accrued
expenses $2,571 $2,494
Negative goodwill 296 421
Other liabilities 766 1,317
Federal and state income
taxes payable 669 1,176
------ ------
$4,302 $5,408
====== ======
</TABLE>
27
--------------------------------------------------------------------------------
2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
NOTE M--QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR
-------------------------------------------- ENDED
SEP. 99 DEC. 99 MAR. 00 JUNE 00 JUNE 00
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total interest income $20,487 $20,866 $21,426 $21,891 $84,670
Total interest expense 12,096 12,265 12,535 12,939 49,835
------- ------- ------- ------- -------
Net interest income 8,391 8,601 8,891 8,952 34,835
Provision for loan losses 33 55 59 89 236
------- ------- ------- ------- -------
Net interest income after provision for losses 8,358 8,546 8,832 8,863 34,599
Other income 907 871 875 910 3,563
Other expense 4,179 4,294 4,400 4,495 17,368
------- ------- ------- ------- -------
Income before income taxes 5,086 5,123 5,307 5,278 20,794
Income tax expense 1,889 1,883 1,920 1,884 7,576
------- ------- ------- ------- -------
Net income $ 3,197 $ 3,240 $ 3,387 $ 3,394 $13,218
======= ======= ======= ======= =======
Net income per share:
Basic $ 0.52 $ 0.55 $ 0.59 $ 0.59 $ 2.25
Diluted $ 0.52 $ 0.54 $ 0.58 $ 0.59 $ 2.23
-----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR
-------------------------------------------- ENDED
SEP. 98 DEC. 98 MAR. 99 JUNE 99 JUNE 99
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total interest income $19,448 $19,789 $20,077 $20,397 $79,711
Total interest expense 11,848 12,186 12,020 12,118 48,172
------- ------- ------- ------- -------
Net interest income 7,600 7,603 8,057 8,279 31,539
Provision for loan losses 63 52 44 37 196
------- ------- ------- ------- -------
Net interest income after provision for losses 7,537 7,551 8,013 8,242 31,343
Other income 1,026 1,037 751 845 3,659
Total other expense 3,799 3,866 3,994 4,129 15,788
------- ------- ------- ------- -------
Income before income taxes 4,764 4,722 4,770 4,958 19,214
Income tax expense 1,763 1,747 1,766 1,840 7,116
------- ------- ------- ------- -------
Net income $ 3,001 $ 2,975 $ 3,004 $ 3,118 $12,098
======= ======= ======= ======= =======
Net income per share:
Basic $ 0.47 $ 0.47 $ 0.47 $ 0.51 $ 1.92
Diluted $ 0.45 $ 0.46 $ 0.47 $ 0.50 $ 1.88
</TABLE>
28
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
Note N -- Parent Company Condensed Financial Statements
The condensed balance sheets and statements of income and cash flows for
Parkvale Financial Corporation as of June 30, 2000 and 1999 and the years then
ended are presented below. PFC's sole subsidiary is Parkvale Savings Bank
("PSB").
PARKVALE FINANCIAL CORPORATION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
BALANCE SHEETS
2000 1999
------- -------
<S> <C> <C>
Assets:
Investment in PSB $83,991 $84,072
Cash 416 909
Other equity investments 1,010 1,411
Other assets 53 --
------- -------
Total assets $85,470 $86,392
======= =======
Liabilities and Shareholders'
Equity:
Accounts payable $ 71 $ 148
Deferred taxes 105 251
Dividends payable 1,029 922
Shareholders' equity 84,265 85,071
------- -------
Total liabilities and
shareholders' equity $85,470 $86,392
======= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Dividends from PSB $12,000 $11,000 $ 3,000
Gain on sale of assets -- 20 --
Other income 98 101 120
Operating expenses (98) (121) (120)
Income before equity in
undistributed earnings
of subsidiary 12,000 11,000 3,000
Equity in undistributed
income of PSB 1,218 1,098 8,118
------- ------- -------
Net income $13,218 $12,098 $11,118
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Management fee income received $ 98 $ 101 $ 120
Dividends received 12,000 11,000 3,000
Taxes received from PSB 33 336 453
Cash paid to suppliers (174) (94) (79)
Net cash provided by operating activities 711,957 11,343 3,494
-------- -------- -------
Cash flows from investing activities:
Equity investments purchased -- (31) --
Proceeds from sales of equity investments -- 33 --
-------- -------- -------
Net cash provided by investing activities 0 2 --
-------- -------- -------
Cash flows from financing activities:
Payment for treasury stock (8,890) (8,524) (674)
Allocation of treasury stock to retirement plans 530 428 395
Dividends paid to stockholders (4,090) (3,618) (2,636)
Loan to PFC ESOP -- -- (222)
Principal collected on ESOP loan -- 276 275
-------- -------- -------
Net cash used in financing activities (12,450) (11,438) (2,862)
-------- -------- -------
Net increase(decrease) in cash and cash equivalents (493) (93) 632
Cash and cash equivalents at beginning of year 909 1,002 370
-------- -------- -------
Cash and cash equivalents at end of year $ 416 $ 909 $ 1,002
======== ======== =======
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 13,218 $ 12,098 $11,118
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed income of PSB (1,218) (1,098) (8,118)
Gain on sale of assets 0 (20)
Taxes received from PSB 33 336 453
Increase in accrued expenses (76) 27 41
-------- -------- -------
Net cash provided by operating activities $ 11,957 $ 11,343 $ 3,494
======== ======== =======
</TABLE>
29
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
NOTE O--FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS 107, Disclosure About Fair Value of Financial Instruments, requires the
determination of fair value for certain of the Bank's assets, liabilities and
contingent liabilities. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
CASH AND NONINTEREST BEARING DEPOSITS: The carrying amount of cash which
includes noninterest-bearing demand deposits approximates fair value.
FEDERAL FUNDS SOLD: The carrying amount of overnight federal funds approximates
fair value.
INTEREST-EARNING DEPOSITS IN OTHER BANKS: The carrying amount of other
overnight interest-bearing balances approximates fair value.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES: The fair values of investment
securities are obtained from the Wall Street Journal, the Interactive Data
Corporation pricing service and various investment brokers for securities not
available from public sources.
LOANS RECEIVABLE: Fair values were estimated by discounting contractual cash
flows using interest rates currently being offered for loans with similar credit
quality adjusted for standard prepayment assumptions.
DEPOSIT LIABILITIES: For checking, savings and money market accounts, fair
value is the amount payable on demand at June 30. The fair values of
fixed-maturity certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on time
deposits of similar remaining maturities.
ADVANCES FROM FEDERAL HOME LOAN BANK: Fair value is determined by discounting
the advances using current rates of advances with comparable maturities as of
the reporting date.
COMMERCIAL INVESTMENT AGREEMENTS: The carrying amount of these overnight
borrowings approximates fair value.
OFF-BALANCE-SHEET INSTRUMENTS: Fair value for off-balance-sheet instruments
(primarily loan commitments) are estimated using internal valuation models and
are limited to fees charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties' credit
standing. Unused consumer and commercial lines of credit are assumed equal to
the outstanding commitment amount due to the variable interest rate attached to
these lines of credit.
<TABLE>
<CAPTION>
2000 1999
--------------------------- ---------------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE VALUE FAIR VALUE VALUE
FINANCIAL ASSETS: ---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Cash and noninterest-earning deposits $ 14,955 $ 14,955 $ 10,372 $ 10,372
Federal funds sold 55,600 55,600 64,042 64,042
Interest-earning deposits in other
banks 5,360 5,360 576 576
Investment securities 99,676 101,757 87,924 88,724
Mortgage-backed securities 19,902 19,850 26,881 26,407
Loans receivable 1,043,572 1,047,737 1,008,728 995,671
---------- ---------- ---------- ----------
$1,239,065 $1,245,259 $1,198,523 $1,185,792
========== ========== ========== ==========
FINANCIAL LIABILITIES:
Checking, savings and money market
accounts $ 308,164 $ 308,164 $ 299,801 $ 299,801
Savings certificates 749,913 761,490 729,229 727,800
Advances from Federal Home Loan Bank 62,381 65,647 59,026 60,659
Commercial investment agreements 7,228 7,820 4,049 4,049
---------- ---------- ---------- ----------
$1,127,686 $1,143,121 $1,092,105 $1,092,309
========== ========== ========== ==========
Off-Balance Sheet Instruments $ (30) -- $ (412) --
</TABLE>
30
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
ERNST & YOUNG LLP [LOGO]
--------------------------------------------------------------------------------
The Board of Directors
Parkvale Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Parkvale Financial Corporation ("Parkvale") as of June 30, 2000 and 1999, and
the related consolidated statements of operations, cash flows and shareholders'
equity for each of the three years in the period ended June 30, 2000. These
financial statements are the responsibility of Parkvale's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial condition of Parkvale
Financial Corporation at June 30, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2000 in conformity with accounting principles generally accepted
in the United States.
Pittsburgh, Pennsylvania /s/ Ernst & Young LLP
July 18, 2000
31
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
<PAGE> 29
Capital Stock Information
<TABLE>
<S> <C>
o ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 10:00 a.m., Thursday,
October 26, 2000, at the Pittsburgh Athletic Association, 4215 Fifth Avenue,
Pittsburgh, Pennsylvania.
o STOCK LISTING AND DIVIDENDS
Parkvale's Common Stock is traded in the over-the-counter market and quoted on
the NASDAQ National Market System under the symbol "PVSA." Prices shown below
are based on the prices reported by the NASDAQ system, with appropriate
adjustments for the 5-for-4 stock split in October 1998.
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED HIGH LOW DIVIDENDS
--------------------- ---- --- ---------
<S> <C> <C> <C>
June 00 $18.75 $15.50 $0.18
March 00 16.94 15.00 0.18
December 99 19.75 15.75 0.18
September 99 22.25 17.63 0.18
June 99 $26.00 $18.81 $0.15
March 99 23.00 19.25 0.15
December 98 24.00 19.60 0.15
September 98 28.00 23.20 0.15
</TABLE>
<TABLE>
<S> <C>
There were 5,695,237 shares of Common Stock outstanding as of August 28, 2000,
the Voting Record Date, which shares were held as of such date by approximately
500 holders of record.
o TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Toll free phone: 1 (800) 368-5948
Fax: (908) 497-2312
o INFORMATION REQUESTS
A copy of the 2000 Annual Report of Parkvale Financial Corporation on Form 10-K
filed with the Securities and Exchange Commission, and a list of exhibits
thereto, will be furnished to shareholders without charge upon their written
request to the Treasurer of the Corporation at its Headquarters Office, 4220
William Penn Highway, Monroeville, PA 15146. The telephone number is (412)
373-7200.
Parkvale's web site is http://www.parkvale.com
</TABLE>
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2000 PARKVALE FINANCIAL CORPORATION ANNUAL REPORT
